GoDaddy Inc. (GDDY) Earnings Call Transcript & Summary

Great. Well, let's get started.

All right. We're on the clock.

Yes. Good morning. Thanks, everyone, for joining. It's my pleasure to host the CFO of GoDaddy, Mark McCaffrey; and Christie, Head of IR. Thanks so much for joining us.

Yes, and thanks for having us.

So Mark, GoDaddy is one of those rare Internet brands that almost everyone knows. At the same time, the business today is much broader than Internet domains. Before we dive into the details, how would you frame where GoDaddy is today? And what are the top priorities, especially in an increasingly agentic Internet?

Yes. So a couple of things, right? I think everybody knows us, GoDaddy, who is the domain company -- or I should say, is a domain company. We created it many years ago and over a number of years, we've evolved. Where we are today, when you hear us talk about GoDaddy, you're going to hear us talk about becoming the operating system for the entrepreneur, the micro business. So we want to give them the tools that allow them to create value in whatever endeavor they're going to do, whether that's transacting on the Internet, whether it's just sharing content on the Internet, whether it's sharing their love of life or hobby on the Internet in and of itself, we want to become the tool that they go to in order to make sure that happens. We call it the entrepreneurs wheel, where we have all the technology that fits the jobs they need to do, and we continue to do that now. I would also point out, we have a very unique customer base, right? We are not looking for the enterprise or the developer. We focus on the entrepreneur and the micro business, the mom-and-pop shop. If you have two employees, that's probably within our sweet spot. Some may go as high as five. Some have two people working on it. And then they have their kids working on the endeavor when they come home from school at the end of the day. So think about it. It's a very unique customer base. It's something we've done very well. It's a customer base we have a right to win with, and we have been winning with this customer base for a number of years. And as we enter the agentic world, which I'm sure we're going to talk a lot about, we've created tools, Airo. And just for clarification, A-I-R-O, it's how it is spelled, is the new tool we put into play to help that our customer base have that agentic-native experience to do whatever they need to do, create whatever they need to create.

So definitely got plenty of questions on AI. But before we do that, we'd love to talk a little more about the core customer base. So you have industry-leading growth retention, you've talked about the stickiness of the GoDaddy platform. What does drive that loyalty with small businesses?

Yes. There's a number of factors, right, where the technology -- and I always say you have to innovate around your customers' needs and the jobs they need to do, and you need to have that relationship with the customer. We have that relationship with the customer. We have a care organization that is built for a number of years, but focuses specifically on making sure not only if they have questions, they're getting the best value they can out of the tools in and of itself. And our care organization helps them create that full picture of everything they can do. Whether it's starting with the domain name that meets their business need, whether it's creating -- helping them create the website, whether it's getting them attached to a professional e-mail, getting them transacted. Our care organization has allowed us to really understand those customers, those customer needs and make sure that we stay at the forefront of that customer base.

You mentioned Airo earlier, your AI layer. So that has now become a much bigger part of the GoDaddy story. Could you briefly explain exactly what it is? And what have you learned so far from customers using this product? How does it help drive customer engagement?

Yes. So I challenge everybody to go and try our Airo app builder. We launched it at the end of -- we couldn't be more happy. And quite frankly, I get more and more excited every time I use the Airo app builder myself to figure out how to get some function done whether within GoDaddy or outside of GoDaddy in my personal life. Airo, when we came into the year, we were moving into an agentic world. We had multiple products on the road map. We were going to do a website developer. We were going to do an app builder. When we started to talk to our customers and started to engage with our customer base, they came back very, very distinctly and said, we want all the functionality you're talking about, but we want it in one space. And that's where the idea of Airo in and of itself was created to just put all the functionality and capabilities within that one spot they can interact with. And again, the customer relationship was we tried everything with them, and they kept coming back to, we just want to interact with one platform that can get everything done. So Airo was, I would say, evolved from where we were 2 years ago. It was reborn and now has become an agentic AI experience and our customers love it. Now I say that, we haven't even launched Airo in our domain purchase path yet. What we are seeing is our existing customers are switching to the Airo platform. So when they're coming up for renewals on their products, they are basically saying, "Hey, we just want to use this. Like this was good, but this is great, we can recreate everything that was over here, and then we can do more within that platform in and of itself. So we're going to switch over to this." And that's what you've seen happen in Q2. And that's when we call it the transformation of our customer base, we are meeting their needs and helping them convert over. Now it does come with a little bit of -- and I acknowledge it, cannibalization, because people are renewing the new Airo SKU versus renewing some of the old stuff. But that trade-off on an LTV is well worth it for us because our customers are getting so much more value. And when you think about the opportunities it creates for us not only from a verticalization path down the road but also adding on products into one platform versus supporting products on multiple platforms. That's where the idea of becoming the full operating system for the entrepreneur starts to go.

So on that point, and you kind of touched on this, are you already seeing customers -- existing customers adopt product two and three more quickly through Airo?

Yes, we are. So one of the things that we've spent quite a bit of time talking about is Mark talked about the evolution of Airo in its inception, it was about being that vehicle that drives discovery and engagement into the rest of the product suite and then that turns into monetization through attach, that continues with the new version of Airo that is the agentic operating system for micro small businesses. And part of the reason that we've been able to find success in there is because what we are driving in that experience for our customers is surfacing for them the things that give them value and showing them, here are all the jobs that we think that you need to do as a micro small business. And here are tools that are designed to help you execute one of those tasks. And that drives more and more attach. And what we've seen is that getting customers to that second product attached 30% faster than we were before Airo. And when we look at the -- just the second product attach overall for the entire business, more than half of our customers have a second product, but customers on Airo, 70% of them have a second product attach. So this is building a better cohort of stronger, higher LTV customers for us.

Yes. And just to add, the underlying model of how we create LTV hasn't changed. When we see a customer go from one product to two products, we have 85% retention rates, which is fantastic in and of itself on average. But when we get to the second product, our retention rate is up. When we get to a third product, we pretty much have a customer for life. And that drives the LTV. Airo kind of puts jet fuel on our ability to do that because it gets to that second, third product. You asked about the stickiness. That's the stickiness that we create when we start to fulfill the jobs to be done for our customers. It creates that flywheel of, yes, we get a product attach. That's great. But we also start to see the improvement in the retention. Our strategy is around those customers and those high-intent customers and those are the ones we continue to go after.

Applications & Commerce has become a bigger mix of the business. And I'm not sure investors fully appreciate what's part of that product group. How would you describe the value that you're delivering there? And why has that segment been able to grow faster than the overall business?

Yes. So it's the creation of the entrepreneur's wheel. And actually, it's the evolution of GoDaddy in and of itself. When you think about us in our Core Platform or segment, that is the domain. That's generally the entry point where a lot of our customers come to us. They're looking for a domain. 60% of our traffic comes organically directly to godaddy.com because people know we are the brand around where to get a domain. That is our Core Platform. Now Applications & Commerce is the creation of the rest of the entrepreneurs wheel, where our product attach traditionally, have been websites that have been e-mail and in e-commerce. Now it's coming within the Airo platform in and of itself. But that second product, that third product attached generally is our A&C segment. So in the past, we only operated in one segment. Our acquisition cost around the Core Platform in and of itself are very efficient because of our reputation in domain. Applications & Commerce became once you come to us and enter into our funnel, you don't have to go anywhere else to create that online presence, get an online e-mail. And then more recently, in the last couple of years, we've created commerce, where you can transact, we support the transaction we're a PayFac and will support this across one dashboard. Again, it's the one-stop shop, where an entrepreneur, doesn't have to deal with multiple applications and make sure they're all interacting and has to deal with different vendors around it. They can just look at one dashboard, whether it's online, even off-line sales, if you have a brick-and-mortar, are all tied into one system.

Great. Let's talk about AI.

All right.

Our favorite topic. One of the big questions for GoDaddy's whether AI reinforces the domain funnel or changes the way small businesses get started. So as more activity moves into AI-driven workflows, how do you think about GoDaddy's role?

Yes. So AI is undeniably something that is lowering the barrier to entry into the space, which is fantastic, right? There is -- when you look at the history of time and even just the makeup of the economy at large, it's powered by small businesses, right? And usually, the thing that keeps people away from starting their business, it feels like it's hard to do that. It feels like it's hard to get an online presence, build an audience. And when our tools and capabilities help, in addition to AI itself, lower that barrier to entry and get more ideas to market, these are the customers, the customers that are coming in as micro-small businesses. Those are who our customers are that we serve that we've been talking about today. So our tools and services not only help them name their business, but build out their business. And in the day 0 things that need to happen for getting the domain and building the website, but also the day 1 through day Infinity of running your business day to day in that agentic operating system, so AI is definitely changing the landscape, and we find it as an opportunity for us to continue to engage with more ideas to market and help more small businesses thrive.

So if AI makes it easier to start a business or start a new project where you might need a website, are you seeing any of that show up in demand today? How do you separate that from the normal demand trend line?

Yes. I think that's true. I mean the more ideas manifests itself across many different points that I think a lot of people here observe, you see more domains are being registered. You see even small business starts continues to go up. So these are all the types of customers that we serve. And these micro business, like Mark talked about, these are our bread and butter. We know and understand these types of customers, and we cater to getting them started and being there in the support capability in the vector of care, right? And that matters to micro small businesses who usually aren't technically savvy, but they need assistance along the way. So this is where GoDaddy service shines. So all of these external factors are showing us that more ideas are coming to market. And then these are the customers that we typically serve and this is benefiting the tailwind for GoDaddy and the opportunity for us to continue to have that durable and sustainable growth well into the future.

You've talked about Agent Name Service, ANS, there's DNS and then there's ANS as part of this infrastructure for agentic internet. So for investors who are less familiar with ANS, what is the problem this is trying to solve? And why is GoDaddy well positioned to compete here?

I'll start. We're trying to prevent the Wild West of agents. We'll give a little background for those of you who may not have been around our story for a long time. But DNS is basically the infrastructure that the Internet operates on. It's been around. It's established its well-known protocols. Think about it from the idea that when you go to a website, you want to know that you're going to the website you want to go to, whether it's your bank, whether it's a vendor you're working with. It's all there because the DNS infrastructure has put in place the protocols that allow you to trust that where you're going and specifically where you're going, where you're transacting as a human is specifically where you want to transact.

And it's that registry part of that.

It's that registry part of the business. Now you think about that world and where we're entering today where agents are going to be doing things on behalf of us, right? And you think about the infrastructure needed now to take the volume of what had been human interaction now will be agentic interaction. And you think about the ability to trust the agents you're dealing with in the authentication, are they the real agents that you want to be dealing with. If your agents talking to a bank's agent, how do you know that banking agent has been authorized to speak on behalf of the bank or transact on behalf of the bank? That is an infrastructure today that theoretically does not exist. ANS is the extension of that infrastructure. What ANS does is expand the DNS infrastructure into the agentic world. ANS is based on the premise that the Internet will remain open to everybody. Small businesses can operate. They can have their own agents. They can be trusted in their own agents because the protocols are in place in order to make that happen. Now ANS is not a, I would say, GoDaddy monopoly. We're not here to try to make sure that everybody comes to our infrastructure and we're owning ANS. ANS is open to everybody. And ANS will allow us to move into the agentic world faster because if you're talking about building an infrastructure today that is different and not built on DNS, that is going to take a long time to figure out. Like DNS didn't just wake up overnight and get created in and of itself. It took the agreement years ago that the Internet was going to be open and everybody would support that open environment. As we talk about ANS today, it's the extension of this. It's basically saying, let's use the existing infrastructure and build it out into the agentic world so that when agents are now working on behalf of us, we can have those agents registered and they can be trusted. And if someone tries to duplicate or shift an agent for whatever evil purposes they may have out there, there is protocols within the system that will allow you to identify it. That may not be the agent that you thought it was or you have an agent visiting your website that is trying to do something that you don't plan on it doing. So that's the idea of ANS. What we are out there doing is talking about this. We are talking to other technology companies. We're starting to get agreement from other technology companies that this is the path to go down, and we will continue to talk about that. From -- obviously, we're in a good space because obviously, we supported DNS for a number of years. But having said that, the most important thing for us is that everybody understand the protocols that need to be in place around the agentic world, everybody support it and the Internet remain open to everybody to transact, do whatever they need to do on.

So this has been contributed to the Linux Foundation being codeveloped with companies like Cisco, Salesforce. Is there an opportunity for GoDaddy to capture economic value as part of this identity layer?