GoDaddy Inc. (GDDY) Earnings Call Transcript & Summary

Thanks, everyone, for joining us for our next session on day 3 of the 49th Annual TMC Conference here at JPMorgan. My name is Sterling Auty, I'm one of the software analysts. Very happy to have with us the team from GoDaddy. We're going to focus on Aman Bhutani, who is CEO. Aman, thanks for joining us. We appreciate it.

Thanks, Sterling. Great to be here.

So listen, it's being now, what, you're in your second year as CEO at GoDaddy. How's the business really evolved over that time frame? And what are the changes that you're most proud of?

Yes, it's been a great, great ride. I'm still having a fantastic time. GoDaddy is a great company and doing better every day, and the culture and people are just fantastic. I think if I look back at the last 1.5 years, the things I'm most excited about are around sort of the increase in velocity of execution at the company. I think 1.5 years ago, a lot of these calls with me were about me talking about innovation and experimentation and more on the product side. And the question was almost always, "Well, how will we know that's going to happen?" And today, I don't get that question so much. I often get a preamble that says, "Okay, we see the product. Now tell me more about when we can see the numbers." And -- or even better numbers, I should say. So I think that's the real key, stronger muscle of operations in the company. The company was positioned well as I came in, investing in a balanced manner, and then just making it better and better all the time.

Makes sense. Listen, COVID and pandemic has had a big influence on all of us. But how would you characterize kind of the impact that it had on GoDaddy, both positive and the negative?

Yes. We had a bit of both, as you know, Sterling. In the positive side, we saw increased demand. Obviously, people are forming businesses wanting to buy domain names, build websites. We had come forward with the strategy to enter the adjacency of commerce. That took off right away, and we had to accelerate plans there very quickly, and obviously doing much more with the promise of GoDaddy Payments coming pretty soon here in an omnicommerce solution by the end of the year. So just a lot on the positive side. On the negative side, businesses like GoDaddy Social really, really suffered. I think you know the story, but for folks that may not be aware. GoDaddy Social is a business that we have where we take care of the social presence for everyday entrepreneurs. And that business was an outbound calling motion and a higher-priced product that was growing fast for us. So it became from a tailwind to a headwind with COVID because nobody wanted to receive those calls or those services anymore. We did a restructure and let go of the outbound calling motion because it just didn't make sense to continue that. We're actually still holding on to the product, the IP and the people that do the work and are super excited about reinventing that, bringing it in a more digital format to our customers. But it has been a headwind for a year for us.

Well, it's interesting. I think -- I'm sure you've probably said that before, but it's the first time we've really kind of heard you talk about maybe hitting the reboot on that business. I think there were some, also, changes. You made some geographic changes -- or workers for, I think, the do it with me portion of the business as well. How much would you encapsulate all of it? How much revenue are we talking about that was impacted? And I would imagine that is probably going to annualize soon, so we don't have to worry about the headwinds any longer.

Yes. You'll start to see it decrease at the tail end of Q2, and going into Q3 is when we'll comp it, Sterling. The biggest impacts were on the Hosting and Presence line, as you know, right? The hosting business is a low single-digit grower. Within that, Hosting and Presence line is a fast-growing businesses of Websites + Marketing and Managed WordPress, but then it has the big headwind of GoDaddy Social. And that business had been growing fast when we bought it and only accelerated from there. And we've given some broad sort of guidelines on what the headwind was there, but I think Ray guided folks pretty well on our earnings call 3 weeks ago, saying, "Look, we expect to see that disappear and the Hosting and Presence line to grow in the high single digits and sort of stay there for the rest of the year." So you'll see the comp come back, and that gives you a clear idea of sort of the size of the impact we're talking about.

Yes. No, that's great. No, I think that's a good framework. So over the last several months, there's been also some management change announcements that you've made. Is that the bulk of it? Maybe highlight for people what did change and why. And is there anything else that we should expect coming forward here in the near term?

Yes. The couple of changes that have happened recently are Ray, who is our CFO; and Nima, our Chief Legal Officer, chose to retire. They came to me at the same time, but it was not planned for them to be together, right? But Nima has been with the business 19 years now. In her words, I think what she would say is that the business is a better place and she's comfortable leaving it at this point, so he's going to retire. And well-deserved for her, absolutely. Ray has been a CFO for a long time, public company CFO is a tough job, as you know. He's leaving personally. I hold it against Ray just a tiny bit because I would hope that he'd given me another year or 2 here, but I like giving him a hard time. And Ray has done so much for this business over the last few years. This community knows more about that than anyone else. And I think he's super deserving and he deserves to drive around the U.S. in this Airstream and drink wine, which is what he's going to be doing. Outside of that, we did have Andrew, who was our COO, leave the business in November. And on that change, I made the choice to have his directs just report up to me, and most of his directs were business unit leaders. And the idea of that was to just, if you will, remove one layer in the company. I have a strong operational background myself. There were a set of things that we were pressing on in terms of velocity of change at the company, experimentation. I felt being closer to the leaders rather than inserting a layer in the middle was the right thing, at least for the short to medium term. Over time, we may again sort of have not -- for me, not have as many directs. But right now, it feels great to be a little bit closer to the leaders in the company. Maybe I'll just quickly mention, Sterling, that we have announced Ray and Nima's replacements, Mark McCaffrey joining us from PwC very shortly here. He'll be joining us just within a few days. And then Michele, in July, will be joining us as Chief Legal Officer.

No, that's great. And I noticed that with your incoming CFO, they got a big lot of confidence or Mark there from the Board. And many of the investors are very familiar with Mark's work from his long tenure at Adobe. So I think that certainly helps.

Yes, super excited about them both. They're amazing. You'll get to see Mark in detail soon, and he really is fantastic.

All right. Good. Just thinking about the SMB environment. I think it's hard to overstate the impact that COVID-19 had on small businesses as a whole. You touched upon it a little bit, but what are you seeing today in terms of health of that segment?

I think people are more hopeful now than they have been in 15 months, Sterling. I think this is a strong moment for SMBs with -- especially in the U.S., I know it's super hard. You and I were talking just a little bit about India or some of the other markets where things are really tough. Of course, I'm not talking about those markets. But if you talk about the U.S., if you talk about the vaccine getting out there, restrictions being removed, folks are going to have people wanting to go into their stores and do things physically. And while that demand comes back to them in the brick-and-mortar, they now have a new channel that's been growing for them for the last 15 months that isn't going away. Because whatever part of their business they're doing online, it may come down a little bit or something, and I don't know where it lands, but it is going to remain a thriving channel. Whereas maybe before, it was just something that they did on the side. So this is -- I think these businesses now have 2 big channels. They'll have customers walking into the store and they'll have the online channel. And that's really, really good for them. And in terms of where I think that's going over the long term, I think we are going -- it's so much easier to start a business online. I think we're going to see businesses just start online and then go to brick-and-mortar once they have an established business model, once they have established that thing works. And we're seeing a few of our customers do it, and it's actually pretty exciting to see the -- see online customers now transitioning to brick-and-mortar.

That is an interesting thing. And I think people have looked at new business applications would spike in the fall of last year, but a couple of additional elements. I look at the VeriSign domain data of late and some other government data that just basically suggests that business closures have started to fade. So not only new creation, but I think stabilization in closures makes that net increase even more impactful. Have you seen that in the business?

So what -- as you know, Sterling, our churn rate for customers is really low because customers don't want to give up domain names, right? And the offering we have, the value we provide versus the price, like it's a great trade-off for them. But overall, I think the macro data clearly shows us that more businesses are being created, whether it's out of necessity or opportunity. The secular tailwind of entrepreneurship is big and the secular tailwind of technology making that easier online is a huge deal as well. So absolutely, I think we're going to see fewer businesses close as the pandemic sort of recedes a bit, and we'll continue to see sort of the online activity. Maybe not growing as aggressively as it did in 2020, but I would think at higher rates than what we saw previously.

All right. That's great. Let's shift over and talk a little bit about commerce and payments. Over the last 12 months, you've seen impressive acceleration on the commerce side. From a product standpoint, what are the commerce capabilities that you currently offer within Websites + Marketing?

So today, the capabilities we offer are around online store, we partner with others on payments, and we offer the capability from within that online store to sell on the platforms like Amazon and eBay and Etsy and Facebook and others, right? But where we're going, and you saw a little hint of that this last quarter as well, where we took -- we've integrated content creation functionality with Over. So now you can create a piece of content right within Websites + Marketing. You can turn it into a Facebook post right in Websites + Marketing. You can boost that post right within Websites + Marketing. You're not having to learn anything new. And then you can take that piece of content that -- or the Facebook post that you created and then turn it into an e-mail campaign with a couple of clicks as well, right? So bringing these marketing capabilities together in a seamless way is where Websites + Marketing is really going, along with commerce, payments and so on. So you will see a number of improvements within Websites + Marketing and Managed WordPress all through the year, but the 2 big milestones for this year for us, one is to add GoDaddy Payments, which is just around the corner coming soon. You'll probably see it in the wild because we'll be testing it before you even hear it from us directly. But you'll see GoDaddy Payments being available as sort of the default option within Websites + Marketing and in Managed WordPress. And then second is the omnicommerce solution at the end of the year, which truly brings together your in-store point-of-sale, with your online store, with your -- with how you sell as an entrepreneur across the major platform, all driven from one log-in, all driven from one inventory system and one consistent set of interfaces that work well together, keep your friction level really low and removing a lot of manual work to move things between those channels for the everyday entrepreneur.

So it feels to me like -- just when to talk to investors, they recognize the power of GoDaddy's domains. But when it comes to commerce and even Hosting and Presence, that they look at the Shopifys, they look at the Wixs, other peers that have recently come public, et cetera. And I always feel like GoDaddy is viewed as an afterthought in these businesses. Maybe for investors, can you give us a sense of how material these things are? And do you feel like you can show some acceleration where they'll sit up and take notice and say, "You know what, you are a real contender in these segments."

Yes. We've shared some data points around Managed WordPress and Websites + Marketing, including Over and Sellbrite. We shared the $350 million ARR number growing at 40% a couple of quarters ago. The intent of that disclosure was to give folks an idea of the size of that business. We also appreciate that investors want to see a level of disclosure on an ongoing basis because these faster-growing businesses. And Sterling, they might be -- this business or these products might be smaller than some of our competitors, but they are growing faster and doing very, very well, right? If you look across, very often, Websites + Marketing is being rated as a product and an offering that is just as strong as our competitors, if not better, and priced better as well, right? So there's a ton of opportunity for us there. But we're looking at ways to make it easier for investors to understand the growth there. Because we understand that today, it's in our Hosting and Presence line item where the hosting business growing low single digits is sort of -- doesn't allow for that clarity for people to look at it. So there is work for us to be done there. But absolutely, we feel we have great products in this space. We see customers coming to us. But remember, it's a new muscle for us, too. 3 years ago, there wasn't a Websites + Marketing, right? Customers, even if they thought about websites, they weren't thinking about GoDaddy, or at least, they weren't thinking about GoDaddy as a website builder, where it was such a simple interface and it just allowed them to get online in 40 minutes or an hour. And -- but that awareness is growing. Obviously, we're spending marketing dollars to grow that awareness, but it's also freemium. The more customers that come in that just try the product, see how easy it is, see how full-featured it is, is going to give us tailwinds over the next few years because I don't think the online tailwind is not reducing any time soon.

Yes. I agree with that. And when we think about that space, there's always been, all right, you've got your prebuilt template, I choose a template, a couple of quick configurations, and go. Then you've got Wix that -- Wix ADI trying to drive more of the -- they would say, AI-driven, I would say, kind of navigational method of creating. What have you tried to do to differentiate the technology?

I think for us, the core focus has been simplicity. Like we are not trying to optimize Websites + Marketing for it to just look good or to look like a designer built it. It's truly about how do you keep it simple and how do you keep it performing? So that the site that gets created by Websites + Marketing is recognized by Google bots, anyone in the world, as a high-performing site. That's been our core focus. From the first day, our goal has been, does the outcome perform? Versus does it look good? Or does it use XYZ technology? And we're focused on measuring that. For us, one of the great data points was we were looking at how to do more for our e-commerce customers. And what became the biggest winner, I think it was in Q3 of last year, was a one-page e-commerce template. A simpler template actually worked better for our customers because our customers are small. Our customers are -- they're not technically sophisticated. They want to just get started. They don't want a lot of friction and have to make 100 decisions before they get there. But when they do build it, they want it to have performing capabilities. They want it to be secure, they want it to be available, they want bots to be able to find it, and we focus on those things. And we've created a product that delivers those things. Now we think there's tremendous opportunity globally for us to market that differentiation. We think there's tons of opportunity for us to grow in the consideration set for customers, and we're focused on doing that.

Excellent. A question that came in from an investor. And just as a quick reminder to investors that are watching. There's an ask-a-question button that you can click. Type in your question, it will be delivered to me. And the question from the investor says, "What are you seeing in terms of the early signs of renewals in relation to the COVID cohorts from Q2 and Q3 of last year?"

Yes. I think we've gotten this question consistently during COVID and now post-COVID. Renewals continue to be strong. They're very strong. We've always had good renewals with our cohorts. Those cohorts have been stronger. And we've improved how we handle renewals for our customers. So there continues to be a level of innovation and making it simpler for customers to be able to renew with us. So we have seen sort of that renewal strength continue. Our customer churn is low, right? We talk about the sub-15%. And I think in one of the calls, I mentioned, and it's still true, that those rates, even at those low numbers, found ways to improve. And we've seen some slight improvement year-over-year there as well.

I mean, that's really impressive. When we think about serving the SMB, I think the benchmark has always been Intuit because they've been around for so long, and they talk about 75% renewal rates or 25% churn. So if you're sitting there at sub-15%, that's pretty remarkable in that space.

Sterling, it's the business we're in, right? There are very few capabilities that an everyday entrepreneur would say are critical to their business, right, or a partner that's critical because they feel they have choices in many, many areas. But very often, the relationship with GoDaddy, the relationship with the domain, with the website, with care, the service that they get, is one that they're not willing to trade off. So I think that leads to just these super-low churn rates for us.

So one of the questions I ask each of the companies in this space to help investors frame in their minds the positioning is: When you look at the profile of the incremental customer that comes to GoDaddy in a given quarter, what does that profile predominantly look like today?

That profile has not shifted in a very significant way over the last year, Sterling. It is still similar to how it was. When we say everyday entrepreneur, we mean sort of the small businessmen or small business venture. And the way we define it is 20 employees or less, 10 employees or less, 5 and less and just 1, right? And the 1 is just the solopreneur, and almost 1/3 of our customers are solepreneurs. When they want to call their webmaster, they call us. When they want to call their CMO, they call us, right? Or their -- just whatever need they had, they end up calling GoDaddy. So they ask us for a lot of different things. And actually, that's a continuous stream of research for us, to be able to see what our customer's asking for, and how do we provide that -- those in digital ways back to our customers.

Got it. Another question that came in, and it's around payments. You talked about the timing that you'll see testing soon and probably see testing before the official announcement. But they're also wondering specifically around the unit economics. When you say testing, are you at a point where you've kind of hammered down what the unit economics look like in the format that you're going to roll out payments? Or is that part of the testing that you're looking to do?

We will test the unit economics as well. We will be testing that because we think there's an opportunity for us to be aggressive with that. We're not reliant on that revenue at this point, so we'd love to be able to trade off sort of subscription versus the payments take rate and see what works best for customers.

And this is a space where bundling is so important, right? So how do you put your -- and I shouldn't say bundle. It's the packages, correct, that you want to put together.

Yes. So you can expect a new SKU for GoDaddy, right, where you -- especially with omnicommerce, where you're able to have all the Websites + Marketing capabilities, plus a point of sale, a piece of hardware if you want it, and payments capability all bundled into pricing mechanism that allows us to try a few different things so that we create value for the shareholders, but we are able to be aggressive with acquiring new customers as well. And the low-hanging fruit here is about new customers, and we know others in the industry have talked about that. But we do also feel that we have a special relationship with care with a lot of our customers. So we are going to do some experimentation on bringing existing customers on board with these new capabilities as well because we think we can do it in a way that's different from what others might be able to do.

Yes. I often share with investors my own personal customer care experience with GoDaddy. And I really feel like customer support is a lost art in a lot of businesses and industries. And along those lines, I think you used to talk about as much as 1/3 of annual bookings would come through care. Is it still to that level of significance? Because I think that points out how many touch points you have with your customers that give you the opportunity to upsell something like omnichannel and payments.

Yes. Pre-COVID, Sterling, care as a percentage of revenue was in the high teens or getting into sort of the 16-ish percent. But in 2020, overall, it was 12% of revenue. And some of that, definitely a function of us doing much better online, and you've seen us push in marketing and be able to get customers there. But a small piece of it also, likely a function of just sending everyone home and the challenges of onboarding new salespeople. When they're not in our high-energy environment, we believe it's got to impact their ability to onboard quickly and be able to sort of get into the GoDaddy way of serving and selling to customers that we've done well for the last 20 years. So it's absolutely an advantage, and one of the things I talk about all the time. Is that when a customer calls care, their NPS goes through roof. We have unbelievably good NPS in care, not just for voice now, but also for messaging, which I don't think a lot of companies can say that they have that interaction with customers and customers leave them high NPS scores.

Yes. No, I agree. Next question for investors is: How do you view the international opportunity outside of Europe?

Yes. Out -- so today, our big markets are U.S., Canada, U.K., Australia and India, right? So there's definitely an advantage for us in the English speaking. We have made pushes into Latin America, more recently in MENA as well. And we're seeing some sort of good returns there as well. But if we look at big markets outside of, let's say, North America and Europe, right, leave Canada out, too, Sterling, then the one market that we're super excited about is India. India is a massive market coming online quickly. E-commerce rates are pretty low. Of course, there's whole ecosystems developing there that we'd love to be part of. We have 1 million customers in India, so it's not small at all. We're -- we've invested more internationally. So overall, I think from our 21 million customers, over 9 million customers are now outside the U.S., right, 1 million of those being in India. And all of this is super early, super, super early, right? I think we are -- I don't even know whether to call it the start line. I feel some of those Asian markets are so early. So we are interested in growing with those markets. We are making both organic and sort of looking at M&A opportunities internationally for us to be able to take a bigger share of that -- those markets over time.

Brand awareness, I think, specifically in India, is pretty good from a starting point relative to other markets. But one of the questions I typically get is, how is pricing in that market vis-a-vis your other international opportunities?

Yes. In some of the markets, given where they are in terms of how GDP is growing or what the situation is there, the pricing has to be very competitive because you've got local players and they are competing very, very aggressively. From my point of view, competitive pricing is fantastic because GoDaddy can -- given our scale and size, we can be competitively priced in those markets. And it makes it harder for other players to play. And we have deeper pockets and more capability that we're bringing globally than most local players. So just like in India, we've taken a large share of the domains market. Over time, we'd love to bring many, many more products into India and other markets and price them competitively.

Next question that came in is: Can you talk about which upsell metrics you focused on since you started? And where you're pleased with them? And what's your long-term goal?

Yes. The area that we're really focused on now is this idea that we sell the customer one suite. Whether it's Websites + Marketing suite or Managed WordPress suite, we, over time, think less and less about selling individual products to the same customer. We get them into a suite, we focus on the customer using more and more applications within that suite of products, then we introduce more capability into that suite. For example, if somebody want Websites + Marketing with us 1 year, 1.5 years ago, today, they have amazing content creation capabilities with Over or connectivity with Facebook or Google or Amazon that they didn't have when they started. And it's available for them for free. What we're trying -- what we're building is that, through that engagement, we will introduce sort of friction points or paywalls where the customers, as they grow and use more, are able to upgrade themselves to higher tiers of the offering. And we think that, that thinking around upsell and in-product selling is a much more powerful model than us trying to continue to sell multiple products to the same customer. In terms of where we are in that mindset, it's super early. You're starting to see us sell more of the bundled products. You're starting to see more of our energy, our marketing, our advertising, all go towards it. But it still super, super early for us because we're a 20-year-old company and we sold a la carte for a long time, and a lot of our existing customers are used to it. But a lot of new customers are just starting with a bundle

Yes. How does your payments GMV target for 2023 compare to what you're seeing in your early tests where having your own payments capability as the default option?

Yes. We're super early on that, so it's hard to say what we see versus the target. Of course, we put the $150 million target sort of a line in the sand based on some internal modeling. But we'll be able to talk to you about it over the next few quarters in terms of what we see in the real world once we have GoDaddy Payments out there at a significant percentage.

All right. Great. Office 365 has been a fantastic driver for the Biz Apps revenue line. How do you view your offerings and growth trajectory outside of Office 365?

Office 365 has been fantastic. OX has been pretty good in certain markets internationally as well, so we've been happy with the growth there, too. The story in Biz Apps has mostly been about e-mail. There are some other things that we are exploring in that space, but more and more, we're looking at how do we take those new products and make them part of the suites, the Websites + Marketing or Managed WordPress suites? And how do we create better tiering in terms of customers being able to upsell themselves when they want that functionality? Versus looking at a net new thing that we might sell separately. If you're watching us carefully or outside carefully, you've probably seen us test some bundles within Websites + Marketing that have been different from what we did in the past. And it's all part of just understanding, can we get customers to start with a bigger bundle, even if we have to price it competitively? And then over time, as they use it more, be able to upsell them into higher tiers.

Listen, because you do so much A/B testing and you have so many offers in the market and the way you have your data-driven model, I not only go to your website from my computer -- when I'm on with a relative or a friend, I'm like, "Hey, do me a favor. Can you go to GoDaddy.com? I just want to see what they're offering you at the moment."

Well, that's probably a good idea, Sterling.

The follow-up is, when you think about upsell are you getting -- I think the heart of the question is, all right, if you come in and you sell domains, how many customers would come in, buy the domain, but then go to Wix or some other site to do the building? Are you getting better at capturing and owning a bigger percentage of the entire wallet of a customer rather than just domains?

Yes. I think fundamentally, the growth of Websites + Marketing demonstrates that we're getting a bigger share, right? If you look historically, of course, people are buying the domain with GoDaddy because that's what we were known for. And yes, we had a hosting business, but that's very different. That business was focused on WordPress hosting versus captive solutions allowing folks to build websites very, very quickly. More and more customers are coming to GoDaddy to build the actual site versus just buy a domain name. The freemium offering is a great step forward there, too, because now there is no friction, and you just -- if your intent is just to build the website well before you think about anything else, then we have that landing page, we have that product capability, you can just go through it. And then when you're ready to buy a domain, you buy the domain and you become from a free to a paid customer.

Listen, I can't let you go without at least commenting on domains aftermarket, which has been a great opportunity and elevated the growth rate within domains. And also, your endeavors on the registry side. You choose which one you want to talk to first.

Well, I'll talk about aftermarket because we are -- we've done some great work there, and I'll talk about registry in the future because I'm excited about a lot more we can do in that space in the future. In the aftermarket, we literally just looked at every piece, from the park pages to the algos that drive the auction to the algos that drive search. And we said, "This is a 2-sided marketplace." How do 2-sided marketplaces work? Well, they're about traffic, they're about people who buy and they're about the inventory which comes from the sellers. How do we increase all of those things? And we went around and touched each part of the technology or the interfaces that had been there, improved them. And what it led to is more names in the aftermarket being sold to more people. Everyday entrepreneurs, independents, just coming in and selling on the aftermarket without ever looking at an auction, without ever looking at a complex page. And that's led to sort of a step-function improvement and acceleration. Now it will be hard to comp it, but we're trying to build a company where the muscle is that we innovate every year. So that innovation drives growth. But right now, we're excited about what we've been able to do over the last couple of quarters. And we're working on a couple of other things that we'll talk more about, assuming that they become as successful as what we've seen in the last 6 months.

All right. Fantastic. With that, I think we're up against it. Aman, always a pleasure. I really enjoy our conversations. Thanks for joining us. Stay safe, stay healthy, and my best thoughts and prayers for everyone in India as well.

Thank you, Sterling. Appreciate the time, and always a pleasure talking to you.

Thanks.