GoDaddy Inc. (GDDY) Earnings Call Transcript & Summary

Welcome back to Day 2. Hope everyone had a good Day 1. We're going to kick off with Mark at GoDaddy. He's been the CFO since 2021, and really appreciate you making the journey.

I guess my first question is, if they're not Goggins, they shouldn't be on your noggin. How did you land him?

This is a great place to start, especially 8 a.m. in the morning, and I haven't [indiscernible]

I was watching the full YouTube video of the whole thing. It was a great clip.

I would like to take full credit for identifying him early in the process. But when the marketing team came to me and said, "Hey, we want to sign on Walton Goggins." My first reaction was, who?

Just watch White Lotus and you will understand who this is. He has done a commercial for...

So like any good researcher, I went to my daughter, who is 29 years old, and she explained to me exactly who he is, and the journey started. I have to admit the marketing team really, really nailed this one. And some of it we didn't know going in, to be honest with you. We didn't know he was going to be the main character in White Lotus. We had no idea that we would be ringing the bell for our 10th year anniversary on the season -- the week of the season finale. And Walton Goggins was with us on the New York Stock Exchange. And [ Cramer ] and everybody around just was going crazy that he was there. And none of that was anticipated by us. So kudos to the marketing team for really finding somebody who connected with the audience is engaging, and really, at the end of the day, represents GoDaddy very well. He is a small business owner in and of itself. He came to us with the idea of the goggles and said, I want to sell goggles, I want to sell goggles.

So that's actually...

It's true. It's a true story.

Do you have a pair to give to our clients today?

You can buy them online.

Walton Goggins goggles?

And so yes, we're connecting with the new audience out there, and it's fantastic.

Well, how has been the uplift in business from it?

I would say we are on a journey, and we are in a journey to rebrand ourselves as that one-stop shop for entrepreneurs. We've been known as a domain company and people come to us to get their domains, but we're reaching out to a new audience, and that's a long-term journey. We didn't become a domain company overnight. It took several cycles of going at it, and we feel we're in a good spot with our technology, our innovation, our ability to really serve this market to go out there and make sure everybody knows exactly what we can do for them. And the Super Bowl and Walton Goggins was the launch of that, and we're looking forward to the continued journey around it.

I would assume he probably wants to do more with you.

More to come. How about that? More to come.

Okay. Chapter 2 of Goggins. Congrats on the momentum in Q1. Maybe if you can just share what you're seeing from your client base at a high level. There's been, I think, this tariff and macro uncertainly fear, and it maybe got a little too pronounced and everyone's expectation for kind of a reset got too negative. It seems like a lot of companies are putting up good numbers. I'm not seeing it yet. What are you seeing in your overall business today?

Our customers, the customers we serve and for those new to the story and those who have been with us for a while, just a reminder, we do entrepreneurs and micro businesses, mom-and-pop shops, sole entrepreneurs that sometimes have 2 or 3 gigs going on at the same time. And we've been around for 28 years. We've seen cycles. And the one thing that stands out to us all the time is this is a resilient, optimistic group. They want to do more. They want to live their dream. They want to be an entrepreneur. They're in there for a reason. And when things change around them, they have a tendency to double down or try another venture. And we always say, don't ever equate business failure to our customers because sometimes they have multiple businesses going on at the same time, and they keep them going. And we present them a value, especially in times where they're trying to reach more customers themselves, do more with less. We give them the tools that allow them to do that more than ever. And so we're seeing the resilience of that group. We've talked about it coming out of the year. Our average order size at initiation is going up. They're using -- they're going to that second product faster than they ever did. They're engaging in getting value. Our ARPU is $225. And for the value they get from that, they continue to engage within our products. Airo just makes that even easier for them and makes it even better and makes it more intuitive. So we've -- the one thing that we always say is this group is optimistic about what they can do, and that remains.

On the fastest time to a second product, maybe help explain that. You get the domain. What are the next pit stops that you're seeing clients go to?

Yes. Some of the path in the journey has been the same for us. You see a domain, then people want a website, and we allow them to launch a website immediately upon getting the domain name. We offer them 8 versions of a website they can launch. It's created for them through the Airo experience. And the e-mail still remains a popular feature. People want a professional e-mail. They don't -- think about it. When you go out there and you start to engage with a micro business, the first thing you want to do is make sure that they are a legit business. That e-mail gives that...

[indiscernible] @gmail.com, yes, I am not going...

Yes, exactly, right? So we see the journey through the same steps we always have, they're just doing it faster. They get a domain name, they launch the website, they get the e-mail. We see logos becoming very, very popular. Premium logos is a new launch of Airo Plus that we just put into place. And our commerce offering continues to be very attractive for new customers coming in as well as customers who are in our base that are converting over. So it's -- I would say the best thing about it is our customers are going from discovery to engagement and for us then monetization faster than they've ever done it, and it's because they're getting value. And we're getting to that customer that comes in wanting to do something with that domain, wanting to do something with that website.

Just to push the elephant out of the room, this whole macro tariff uncertainty piece, it seems like are you not seeing any concern or any signals in any of the data? Or is there some static and maybe that's embedded in the guide? How do you think about?

Yes. We see -- and we talked about it in Q1, we see the same healthy front of funnel that we've seen all through 2024. And a matter of fact, we are -- we -- again, we called it out in our Q1 earnings, our retention rates for the customers that are coming in now that have been there for a year and are on the core GoDaddy technology stack are improving better than our 85% retention rate. So again, we continue to monitor a lot of signals. We continue to see -- make sure we're checking in, we're monitoring all we can. But we're seeing a consistent, steady, healthy pace.

Good to hear. Thanks for pushing the elephant out. So now the elephant's out. AI.

Yes, Airo.

Walton Goggins is using Airo.

Yes.

If he is using it, everyone should use it, right?

Isn't it funny? Here's a guy who just launched his entire business in minutes with us and was selling goggles online. And I have to laugh. I bought them all for my kids at Christmas. They had no idea why I was buying them goggles, but...

I thought it was a joke, by the way. I didn't think it was real.

My kids thought I was insane. And the idea was, here's a guy who could do anything he want, but he just wants to have a side gig, and he just wants to have that hustle. It's the epitome of our customers now, okay, he's a little more famous than most of our customers, I have to admit. But when you talk about that passion, that eagerness of, hey, I just want to do something I love, and I want to get it out there, that's the resilience, that's the customer we go after.

That's great. On the retention, you've been consistently above 85%. Maybe you can characterize what cohorts are demonstrating more resiliency? What are you seeing?

Yes, it's a great model for us. When we see customers go from a 1 product to 2 products with us, our retention goes up. And remember, our average retention is 85%, which is impressive. When we see a second product with a customer, it goes up significantly from the 85%. When we see a third product, it pretty much becomes a customer for life. And what we're seeing with -- and this is why we go after the high-intent customers. When customers come in and they have an intent they wanted to do something, they get through to that second product very fast and more often than not, will go through and start to look and engage on third products. Those cohorts are becoming more resilient for us. Those cohorts are showing because we're going a year through Airo now, and we're getting to that first renewal cycle, we're seeing those renewals come in as we modeled it out. And that is the customer we're going after. And I'll say it, we went from 1.5 million customers in 2023 that spent more than $500 with us to 1.8 million in 2024 that spent more than $500 with us. That's a 20% increase in customers spending more than $500 when we have an ARPU of $225. That 20% jump is that cohort that we are going after with intent to make sure they're getting value from our product. The more value they get, it creates more opportunities for us to continue to give them tools to get through the jobs they need to do. And we feel really good about where we're going with this.

Just back to Airo, maybe explain for those that don't understand what it is, where the usage is, what's the next direction?

So Airo is an AI-generated software platform that we offer to entrepreneurs now. And if you come in looking more often than not for a domain, but you could be looking for anything, a logo, a website, an e-mail coming in directly, you're put into a -- what we call, the Airo experience. And the Airo experience is taking machine learning and basically presenting you with options. In the past, for example, you would have to come up with your own idea for a website. Airo presents you 8 different options based on the domain you bought of a potential website that you can launch immediately. It automatically starts to present you e-mails. It gives you ideas on other domains you may want to secure as part of your business because you want the traffic around it. It offers you the ability to look at transactions. And then once you engage with Airo, it allows them to get more from their tools through, we call them C2, their customers. They can engage with their customers faster and better because the tools actually do it. For example, how many mom-and-pop shops want to do social media responses at 11:00 at night after they close down? Airo does it for them. It actually goes out to all the social media platforms, takes all the inbound, writes the responses in their languages, puts it to the owners and says, do you want to send? You hit a button, you say send, and it responds automatically across. I was with a customer, I call them the pizza guys, Larry and Leroy. And they do a mobile pizza oven. And they're out every day with their mobile pizza oven doing events. And it only takes 90 seconds to make a pizza. I don't know why, being from New York, I never knew that, but it takes 90 seconds to make a pizza. So as they're flipping the pizzas into the oven, in that 90 seconds, one of them is responding using our tools on social media to their inbound. Why is this important to them? When you're looking for someone to serve a venue like a pizza truck, and they don't respond, they go to the taco truck, right? They don't wait around for a couple of hours. They need to secure that pipeline and that calendar for weeks out. And our tools allow them to do that without having to hire a third person to stand there to do that back in the office. They can do it in the 90 seconds the pizza is being made. That's the epitome of how our tools work with our customers.

And when you think about what Airo is doing, I know you've always had tools to help this creation. But when you think about what that's doing for you now versus past tools, is there -- how would you compare and contrast what's...

Seamless experience. We have truly become the one-stop shop, all right? It is getting to the second product faster, the third product faster. And then it's getting to them -- we call it value achieved. It's getting to our customers to value achieved faster. And listen, this is a great model for us. When we have healthy customers that are doing well, and I say healthy as in they're engaging, not medically healthy. When we have good customers that are out there, that are engaging, that are using our products, that are making money, it creates that environment that we continue to be able to sell into that customer base. We have over 20 million customers. And not only do we have new customers coming in, we have the ability to enter into our customer base and continue to sell them their tools as they come up for renewals, continue to give them opportunities to do things better, continue to convert them over to a platform as a one-stop shop. And let's not forget about our care organization. Our care organization still is, I'll call it the best in the world. Our care organization is there because this is a group of micro businesses that needs to have help at times to make sure everything is working seamlessly, and they're getting everything out of our tools. So again, it's a great model.

Maybe let's talk about financial True Norths, revenue, bottom line, how you think about the framework. And I know you went through maybe a little of a difficult phase with investors asking for maybe slower growth, higher margin. I think you've delivered that. Stock had an incredible reaction. Curious just kind of your thoughts on...

So I'll start. How many companies out there today are growing between 6% and 8%, have expanded their normalized EBITDA margins by 900 basis points in 5 years, have bought back over 25% of their fully diluted shares in the last, I'll say, less than 4 years, but let's just say, 4 years, and then is keeping up on a cash flow per share CAGR of 20%. Now cash flow per share is our North Star, and everything we do is geared towards continuing to improve that cash flow per share. But our model is durable. It's resilient. It's based on some great customers. And our ability to not only return value to our shareholders through stock buybacks, we can also invest in innovation, and we can also invest in making sure we're staying close to our customers, getting them the products they need. That balance, that's the LTV this model creates. And when -- and it's working well, as you've seen. It allows us to deliver, and it allows us to do it over the long term. We generate a lot of free cash flow. Balancing shareholder return and innovation is very important to us, and we have the ability to do that because we have a strong balance sheet. So we feel really good about where we are. Obviously, we put out a thesis, investment thesis last year for 3 years. 2026 will be the last of those 3 years. But we feel really good about the markers we put out there, the ability to achieve it and the ability to keep this going and keep this journey going because this is a long-term value play.

Is there a killer app for small businesses in your suite, meaning is there something new that's going to really help them? Or is this maybe just existing categories, it's just easier and more seamless and there's a consolidation? My wife owns a small business. And I'm like, why do you need 8 SaaS apps for 8 female employees [indiscernible]? Like this is crazy to me.

She should come to Airo, and she can do it on one app. I think that's the beauty of our customer base is, they don't want to manage 8 apps. And God forbid, one of them is not working, all right? How many have called the customer care and never gotten a response, all right? When you have 8 apps and you have to deal with 8 potential things not working together, that's a problem for a micro business. And...

Is there a killer app though that brings people over the top and says, okay, I do need to consolidate? Are you seeing like 1 or 2 different areas that are...

I wouldn't say that's 1 or 2 different areas. I would say we continue to see -- when micro businesses come to us and our ability to fix their problems or address their problems, it creates the ability for us to convert them over to what we do best. That's why our care organization is great. Not only does it provide great service to them, it is a money generator for us. And they record revenue for us. And that's because of their ability to reach into that base, address their problems and get them to come over and use not only products that they may be using with other providers, but also products that they just need to be better. And that's been the secret sauce of our care organization.

Is there one solution that you're excited about that maybe is underadopted and you think could show better uptake?

I think the one that gets me excited right now is Conversations. And Conversations is the tool I talked about where it takes all the inbound social media, allows it to -- for a small business being on multiple different platforms is important. But being able to respond to those multiple different platforms is a problem, but it's a job to be done. And this tool, Conversations allows them to take all that inbound and creates the responses for them. And it creates it based on their voice. So it goes back and looks at how they responded before, comes up with what they think their appropriate response is going to be and then allows them to pretty much send it out there. What we're finding and seeing in the data is our customers are getting better responses from the AI-generated responses that Airo is creating than they were getting from their own created responses, which means the AI engine is really being effective for them and coming in. And I laughed why this one excites me is the amount of customers I talk to that worry about the social media element of what they need to do is amazing. And this happens to me all the time. It's a husband or wife or a mom-and-pop shop. And right now, they depend on their teenage daughter or son to do their social media responses. And all of a sudden, they come and go, "Oh my god, they're going to college. What are we going to do? Like how are we going to do all this?" And I love walking them through the Conversations tool and going, yes, say goodbye, you're going to miss them. But don't miss them for this, right? Our tool can do it for you. You don't have to go out and hire somebody.

Just on capital allocation. You did a $4 billion buyback. You renewed a $3 billion plan through '27. Many ask, okay, buyback is great, but do you need to do some tuck-in deals to continue to fuel the product the product engine?

We feel really good, and it comes back to the balance of our capital allocation program, but our ability to innovate. And our CEO is fantastic. We've created an environment of experimentation. Our ability to innovate in the last 3 years has been great. You've seen it. Airo is a product of that. More to come as we get out through the year. But we feel good about meeting our customer needs. And I always say this, in technology industry, there are 2 important things. You have to be able to innovate and you have to be able to understand your customer needs. If you don't own that customer relationship, it's hard to understand what people need. We have them both. We own the relationship, and we have the ability to innovate. Now M&A for us, we have always applied 3 criteria. It has to be strategic, it has to work financially and it has to be something we can integrate into the core GoDaddy technology stack. When you're doing well internally, organically, like we're doing right now, the bar around those 3 gets even higher. It doesn't mean there might not be something out there, but we will evaluate it using the same disciplined approach. We feel we're in a great spot. There is nothing that we're sitting here saying, "Oh, my God, we need to go do this." We feel we're good. We have the ability to innovate, and we have the ability to do everything internally. Having said that, if something meets those criteria and works and makes sense, we have the ability to do it as well.

Margins at 31%, why not 40%?

Oh, come on. We continue the journey, and we really like -- how many companies have -- I always say, public companies improve normalized EBITDA by 900 basis points in 5 years. We've done that. And the journey will continue. We've set up an efficient operating model, and I pointed out in Q1 earnings, we're growing revenue at greater than 2x we're growing our operating expenses right now. That's because we've created an efficient model that allows us to not have to grow our operating footprint in order to meet our customer needs and grow our revenue and ultimately grow the company. So 33%, we feel really good about for next year, and we know the journey continues.

Yes. I guess my point would be, I mean, you know Adobe and many of these others well. They're producing faster growth and higher margin. So it just seems like there's still a lot of leverage. It would seem in the bottom line. I understand that you can only move the top line as fast, but it just seems like there's big room. What would inherently not give you the ability, I'm not saying short term, but long term, to hit some of the other peers that are in your industry?

Yes. So every company is different. And we are very happy with our model, how our model works. We are a domain company. We have a Core Platform, which has been around for a long time. That creates a different fundamental structure than a lot of other companies have out there. And while it generates a lot of cash for us, we have costs associated with being a domain company that are different than most companies. We've expanded into Applications & Commerce, which is our second segment, which includes both third-party software products as well as our own software products. It is at a higher profit margin, and it is growing faster than our Core Platform, and it does give us the momentum. As that becomes a bigger part of our business, it will become a bigger part of our profitability. We exited last year around -- I think it was around 30% of our business. This year, we're expecting at around 40%. But as Applications & Commerce continues to grow, that really creates a tailwind for our profitability. Now remember, Applications & Commerce, think about us traditionally, if -- a lot of people come in to us as a domain that goes into our Core Platform. When they're attaching that second and third product, that usually, not always, but usually comes in through our Applications & Commerce segment. So the cost of acquisition is more profitable in that segment as well, which gives us a lot of tailwind. And that creates that momentum that we're able to use our brand around domains. We get 60% direct traffic to our site based on our brand as a domain company and allows us to continue that attach, which gets into the model that I talked about of the second product, the third product and the higher retention rates.

I apologize, we didn't have the goggles. Next year when you come back, we'll have them for everyone. So if you come back, get ready, but Mark, thanks so much for...

Thank you. It's great having coffee and a fireside chat. Thank you.

Thanks.