Erickson at Covered Internet here at RBC. Always a pleasure to be joined by the team here from GoDaddy, straight from Tempe, Arizona. Mark McCaffrey, CFO, thanks for being here. Nice to see you.
Thanks for having us, as always.
Always a great event. Unseasonably tan too, when you come out.
It's the Arizona.
Right.
Arizona and California.
That's right.
Can't help it.
That's right. That's right. I was out there a few weeks ago, man. You guys are lucky. Portland, it's a different deal. So anyways, cool. So maybe just start off with a minute on the quarter. Obviously, you guys just printed relatively recently. Give people kind of one of the one or two or three things you've been addressing since the quarter, and we'll go from there.
Yeah, absolutely. Again, strong results. We saw the continued momentum in A&C being perpetuated by what we talked about at the beginning of the year, pricing and bundling. We had progress on our margins. We continued to grow. We saw some favorable product mix and talked about some shift in marketing dollars. I'm guessing I may get a question or two around that. But then continued on our path for our next story. We laid out our plan at our investor day earlier in the year, and we continue that trajectory of that growth. Now, the one part I will always highlight is that A&C Airo continues to be an engagement and an opportunity for us.
We're really excited about some of the momentum we're seeing around the engagement of that platform, which is, as we get out to 2025 and 2026, we look forward to continuing to let people see some of the data around it.
Yeah. So let's start with the Apps and Commerce. That's obviously where a huge piece of the growth is coming from. You talk about this pricing and bundling that you do, and I think oftentimes it comes from kind of your productivity suite. What does that mean? I think help people, and sorry to cut you off, understand sort of what's the customer journey, where do they start product-wise, and then where do they go as they bundle?
The bundling initiative, and we call it pricing and bundling because it creates an opportunity for us, is pre-Airo. And it was the output of having a seamless experience of consolidated technology stack. And think about it in its simplest term. Productivity was an easy place for us to start. We have an established customer base around productivity, and we have the ability to approach new customers in that funnel as well as renewal customers. So for us, it was an easy place to start our journey on bundling. But think about it from email. And one of the more popular bundles we have out there is adding security to email. So now you're a micro business, an entrepreneur, you have a professional email address. For a little bit more, you can get security attached to your email that helps you with phishing.
And then there is an option for advanced security. So now you have three choices, and they're priced differently. In the past, we only had email. And you would have a price and a renewal price on your email. Now you have the option to bundle that. What we're finding and what we experimented with is when you make the bundle simple and have value to those customers, they will engage on the higher level. And we've seen that in this case. Now, the great part about it is it's on both the renewal and the new customers. Customers coming in, they're opting into it. But every time they renew, we have renewals throughout the year, they're having the same choice. So that seamless experience has helped us. Now, you can't overbundle the customer.
So this is a journey for us, but we will continue to introduce those type of bundles into our customers under the premise that we're going to give more value in the bundle. And when we really understand what our customers value, we can price into that and get a little bit more incremental pricing around it. So that journey began actually last year, and you saw the momentum really start to take into Q1, Q2, obviously Q3, we continued.
Yeah. And yeah, I mean, you've seen the bookings, right, in that segment, obviously accelerating to the, keep me honest, high teens.
Yeah. So the bookings is doing very well. It was for the quarter; we were right around 20 for ANC. We are facing tougher comps. So I always want to put that out there. We had a great first half of the year, but now we're starting to comp when we launched this pricing and bundling initiative. I'm not saying we're not excited about the momentum. I just want to make sure everybody understood where we were going with the bookings on that, and we have incremental opportunity, and one of the things Aman talked about in the earnings call is this is just not an ANC factor for us. We think there's opportunities within our core platform to offer bundling initiatives as well, and think about it from a simple perspective: we have a hosting business. Hosting is not a growing business for us.
It's a very profitable business, very loyal business, but not a growing business. Now we believe we have opportunities to bundle other items within hosting that may be of value when they come up for renewals. Again, it just gives us a lot more ways to create that engagement with our customers. And we couldn't do this until we consolidated our entire technology stack into one platform. You can't bundle effectively when you have to go off to different tech platforms and changes the customer experience. Now that it's all consolidated in the one Airo platform, we have that ability.
Okay. Yeah, that's what I was going to ask. And maybe along the lines of the hosting bundles, let's go there. What are some of those one or two or three killer?
More to come. Right, more to come. We haven't officially announced anything yet, but we wanted to make sure everybody understood that this is just not an ANC uniqueness in and of itself. It happens to be where it's hitting right now, but we have the ability to do it with domains. We have the ability to do it with hosting. We have the ability to take it across multiple product groups. We have the ability to now do value-based pricing. All this now comes into play into our strategy, and this is Airo's just a potential accelerator to all this because it just makes it more of an intuitive experience as well, but the bundling capabilities are well established within our platform.
Yeah, got it. Yeah, these guys, for those that aren't aware, they host a dinner every year kind of right after Thanksgiving, basically.
That's right. Coming up.
That's right. We'll be there. So obviously, as they came to this conference, I try and front-run that as much as possible. So otherwise, I'm not doing my job. They love that, by the way.
In our new Tempe office.
Ooh, nice.
We'll experience this in our new headquarters. For those of you, I've talked about Infrastructure Simplification. We are no longer in our big campuses. We are now in downtown Tempe. We're in a great one-floor area. It's beautiful. It's right by the university, and we're looking forward to hosting everybody there.
Got it. And then one more, just kind of on this whole attach rate idea of bundling products. You mentioned the tech stack coming together, and I think that obviously that really fits with the narrative from starting last year into this year where you had been in this kind of major product cycle investment for a long time, call it 5+ years almost. Should we think about this as kind of like a product cycle and that it rolls through the base over a few years, or is this something that's like we've got 21 million customers? Is it something that just kind of is a tailwind multi-year type of thing? How to think about that?
Multi-year, and you hit on an important point. 21 million customers. Every time we look at these type of attach opportunities, we have an ability to not only grow it over time within the front end of the funnel, we have the ability to start to approach our customer base to convert them over. Perfect example, we did it years ago with email. We were able to offer into domain holders in email, and we saw the success of that with the relationship with Microsoft. More recently, we've done it with commerce, and now, as commerce, we're seeing great activity in front of the funnel, but we're seeing the growth coming from converting our existing customer base over to our commerce platform, and again, it's a journey.
It doesn't happen all in one quarter or one cycle as the customers start to engage them, whether it's through care, whether it's through their renewal cycle, whether it's identifying them through the data and saying, "Hey, there's an opportunity here." You have the ability to continue to hit them. And again, it's all based on knowing that customer, knowing their needs, being able to consolidate, make their life a little bit easier, and create a wealth of opportunity. And I'll always come back to our customer base is our customer base. This is what we focus on. We don't try to go into other customer bases. We're not trying to be something we're not. We focus on entrepreneurs, ideation, small businesses. And when we say small businesses, we're talking mom-and-pop shops down the corner. We're talking two people, five people. This is what we do.
This is what we are really, really good at. There was a recent interview of our CEO, if you haven't seen it, but all it did was talk about our care organization. In fact, oh my God, you can still call our care organization and get a person. And it seems weird, but when you're a two-person corner store and something's not working and you just need it fixed, yeah, you can do something electronically. You use a box somewhere to do some stuff. Sometimes you just need to talk to a person to say, "What is going on?" And that's a uniqueness about this customer base. They need that. They want that ability to get to that person, and we've been able to do that effectively for years.
Do you have any, would you say, I don't want to use the word holes in your product portfolio, but do you have any areas that you guys think about maybe expanding into? And I don't know, just philosophically, is that a build from within? Are there occasional bolt-on opportunities that look intriguing out there? How do you think about that?
When you have engineers that love to innovate, there's never a lack of great ideas out there. We use a term, and we've used it in some of our presentations, called ruthless prioritization. We spend a lot of time experimenting. We spend a lot of time focusing on the customer and the jobs they need to do and making sure that we can innovate to meet those needs. But when you have a lot of people who are just smart and excited, you do have to prioritize the ability to do that. And whether it's, we're coming off a heavy investment cycle where we created Airo, you have to have the ability to, number one, understand the customer, and number two, understand how they're going to react and get to experiment in. And you have to do that in a way you prioritize their needs.
And we've become really good at that. We've, as an organization, become very good at innovation and focusing on making sure whatever we are doing is focused on the customer's job to do and what they need to do every day and how to make that better. And that's something when we talk about how we've shifted as GoDaddy over a period of time, what we were, what we are today. We are a technology company. We are a company that innovates, and we are a company that owns our customer relationship and cherishes it. And that's what we will continue to do forever.
Yeah. So let's talk about Airo, which is obviously your AI platform, kind of more or less formally launched a little over a year ago now.
That's right.
What's year one, what's changed in the product already, would you say, where you're seeing sort of impact or benefit or early signals that are constructive?
Yeah. It's so much fun watching Airo and the discovery and the engagement of our customers and now going into some of the monetization points that we've talked about. And it's a really simple idea of what is their journey and what are they looking for. One of the data points we gave out in the quarter, we've seen an uptick in paths for Websites + Marketing. But now we can say, "Okay, where are these customers going to go to Websites + Marketing anyway?" And if we put maybe a logo card before the websites, now do we get to three versus a quick two? There are so many different aspects of the customer journey we're able to view right now with the data. And then when we see what they're liking, it gives us even more opportunity. Number one, if they're getting value from something, we have an opportunity too.
If even something like logo generators, you think about that from just the AI engine now getting smarter and giving more options and better options to the customers that makes their life easier. It's just exciting to watch that across an entire technology stack. And remember, we're the only ones who can see the entire technology stack all the way from the domain all the way to the transaction today. So having that and having that level of data that we can flip now back to customer experience gives us a tremendous advantage. And seeing that data is actually fun because now you're really experiencing what customers do when they come in. How many of us get frustrated when we're trying to do something online? You click a button and it doesn't work, right?
But knowing that there's somebody behind watching that right now and saying, "Okay, yeah, that didn't work. We're going to fix that in two seconds." That really, to us, makes the experience just so worthwhile, focusing on that customer.
Feel your passion. Data is fun. That's the takeaway.
Data is fun. Yeah, I'll leave it at that.
You're good. You're good. So you mentioned the uptake. Obviously, I think it was 40% of paid subs coming from Airo was the specific metric you shared. How deal with this with other companies where they give a metric and then we wonder how representative it is of the early progress? Can you maybe put that into some context if you could?
I don't want anybody walking away thinking we are not early stages with Airo, right? We are really just in the beginning. Even in those metrics, it's to give indications we're seeing positive engagement from our customers. We are still well on our journey to monetization around this. And I've said this year, nothing has been built into our model related to Airo. We are looking at this from a pure discovery engagement and how do we get to monetization. Our model works over the long term. When we talk about product attach, renewal rates, and adding on products, over a period of time, we get to 83x in LTV on a customer that attaches to second, third products. That doesn't happen overnight, and that value, this is a long game, right?
Get them into the funnel, get them attaching, then you get them to a renewal cycle, and then you just keep growing on that incrementally. It just keeps building on it. You look at our subscription base right now and the amount of revenue that comes from our 21 million customers, and you just keep incrementally building on that. Airo just helps us get that LTV formula more worthy, alive, and start to build over time. So when we sit here and look at our model today, we're doing great. Hopefully, everybody agrees with that. We're doing great. But we haven't built anything in for Airo and the potential acceleration that it could cause within our base because we're in here for the long game.
Yeah. Yeah. No, it makes sense. Imagine being in a VC meeting and saying the LTV attack is 83 times. That'd be funny. Anyways, let's talk about on Airo. You mentioned it's early, and I think that message is very clear here. How should we think about the pace at which you can put Airo in front of your customer base? It's among the 20, whatever, 21 million, and then you've got, what is it, like 83 million on the domain side. How long does it take to productively put that in front of people? Is that a two-year thing, a five-year thing, a ten-year thing? What would you say with Airo specifically?
Airo is predominantly available to anybody coming to GoDaddy today. That is our platform. We've expanded it out globally now. We're very much, this is the experience that we want all our customers to have. And from a renewal cycle, from coming in initially, Airo is where we're sending them now. The journey for our customers will always be different. New customers have a journey, but existing customers are going to have a different journey. And the one thing we've always learned and always focused on when we were talking about converting an existing customer base, you have to meet them where they are versus just them coming into the funnel and you taking advantage of that. That muscle around meeting them where they are, that's something that has to be developed and has to be refined as time goes on. It could be a renewal cycle.
It could be a reach out. They could be calling up and they haven't touched or updated their hosting website for 10 years. That creates an opportunity to introduce them to Airo and to convert them over to Managed WordPress or Websites + Marketing. So there are different paths you can go down, but you really have to pick and choose them within that. Airo is available to do that all, right? We even have a Site Optimizer now that will take any site you've built on any platform and review it down to the code level and say, "Okay, this is broken here, this is broken here, and this is broken here." It will give you an option to say, "Hey, we can just do this all on Airo for you. You don't even have to worry about it," or, "Here's the information.
You can go fix it yourself." That creates an opportunity for us to say, "Okay, now we can switch over websites." And so that's why we get excited about it. It is a multi-year journey, though. It's going to be time, and it's going to continue to grow on itself, and it's going to continue to go to the next iteration of it and the next iteration of it. But now that we have the technology stack all aligned, we feel we're in good shape.
Okay. And then on the paywalls and all the testing you guys are doing there, just especially with you talk about value-based pricing, right? In some cases in the space, some of the companies have just said, "Look, we're taking a 10% up or 15% across the board." You guys are looking at it, I think, much more like, "Hey, when you clearly are adding some value, right, there's the propensity to raise price." What are you seeing on the paywall front, early signals-wise? Any products or features you're really seeing nice attach or strong sort of elasticity to?
Yeah. Well, we talked about Websites + Marketing, and we've seen strong attach in the experience today. That's why we gave out that data point. We're still very much on looking at the different paths to make sure we're optimizing now for monetization. Value-based pricing is clearly on the horizon for us where we see a customer getting more value. The two extremes I always say, "I'm sure somebody in here has a domain name with GoDaddy." Odds are you do. Thank you. You may have not used it in 10 years. Maybe you're holding on to it till your kids someday create a business. That's what I'm doing. I have my kids' names for their future law firm that they're going to do. But maybe that's not the customer you want to approach with a price increase at any given time because they're not really using it right now.
And therefore, if you start to give them increases, it may question whether they want to consider it. Versus I'm an enterprise that does $4 billion worth of revenue and needs that website up every day. Well, they may be more inclined to pay a few extra dollars for that domain name being okay, right? So I use that as extremes that there are different levels of value customers may get from our technology stack and our ability to observe that and see where value is being achieved now is very clear to us and creates that opportunity. It's not here fundamentally yet. Pricing and bundling is an example of a step towards that, but we now have the technology that allows us to really see the behaviors of the customers and where they're going to add value. So more to come on that, but it is on the horizon.
Got it. And then just quickly on the domains and hosting, you pointed to kind of a little bit of growth in your long-term plan, but nothing crazy, obviously. What is the price versus units formula there as you think about growth in the core?
Yes, right. Both contribute. I haven't gotten into ever splitting them apart.
You feel strongly both ways.
But everybody tries though. I gave her.
Hey.
Listen, we use obviously two things that are going on within our funnel right now that we've talked very openly about. We're not just trying to get units for the sake of getting units. We have people coming in that have an intent to do something with the domain name. And that means we're looking at an increase in average initial order size. We're looking at faster attached to that second product. Our goal in life is not to just bring in as many customers or domain holders using the cheapest price possible. I could artificially do that whenever I wanted. What we're seeing today is those customers coming in with a higher intent. We're seeing that average deal on our side go up. We obviously talk about our pool a lot. Our pool is going up.
Those are the metrics and the health that we see that, hey, we are getting to the right customers we want, and we're not having to do anything crazy in order to attract those customers into our funnel. Why? They're coming in with, "Hey, I want to start a business," or, "I want to publish what I'm going to." And those are exactly the customers we want. So I won't say there aren't pricing levers that we use, especially with domains, but we'll always make those choices based on what we think is the right answer in front of us. Our goal is to get that customer in and get that customer to that attach and then get that customer to value as fast as possible. And that flips into our LTV model.
Yeah. Got it. Okay. Let's talk model a little bit. Maybe start with the bookings and the revenue. We'll talk margins in a sec. You guys are, especially on ANC, you're clearly running kind of ahead of the long-term plan, certainly from a bookings perspective.
Those are your words ahead. Okay. I did not use those words with the revenue.
Clearly, you're running ahead. The question we get on you guys is how to sort of flow that into the model, right? As we think about the bookings, close to 20% flowing in next year from a revenue growth perspective. What's your recommendation for our spreadsheets?
That sounds like a 2025 question. Listen, I'll confirm a couple of data points, and I do it half joking.
Your words, not mine.
Bookings does become revenue. Okay. I will.
That's useful.
I will help you with your model on that one. All right. There's multiple different factors, and obviously, we'll talk about 2025 when we get to the fourth quarter, or sorry, we'll talk about the fourth quarter, but we're doing very well. We're very happy. Bookings does transfer to revenue, but depending on whether it's transactional, whether it's a monthly term, an annual term, could be multiple years. The timing of when that becomes revenue is spread out, and that's why, not to get too cagey, yes, it will become revenue, but depending on the product mix, will determine when that revenue ultimately hits. Haven't gotten into talking about how that rolls out into 2025, but I couldn't be more happy with the progress we're making, and that's why I've given color around.
We will exit the year with bookings a couple of points ahead of revenue, and that's the momentum we'll build within this year's execution. Obviously, I'm excited to talk about 2025 in that time.
Any contract length delta you can talk about just even qualitatively between ANC versus hosting or what have you?
I would say when you talk about the hosting core platform, you have two elements of it, which are more annual geared for some of the business, obviously domains, and then transactional for aftermarket. So you have two different clear aspects there. ANC, you have more broad. You have transactions, you have monthly, you have annual, you can go multiple years. So there's more, I would say, variability within ANC than there is within the core platform where you have the two.
Got it. Okay, and then kind of same question on EBITDA, right? You took the number up for this year, so we'll give you credit for that.
Thank you.
You're running ahead of plan, therefore. Obviously, you're not going to update today, but I guess my broader question is, you're on a fairly steady cadence now of giving investors kind of this three-year look. We're running ahead this year. How should we think about potential updates to that, or you're kind of still on the plan? What's the go-forward there?
We feel really good about our plan, and we had a good Q3 when it comes to normalized EBITDA margins. I will always point out there will be some variability quarter to quarter within our normalized EBITDA journey. It will expand over time, and we've taken everybody along that journey, and we've expanded tremendously over the past year, and we feel really good about the target we put out there for 33% in 2026. Now, any given quarter product mix can impact our gross margin. I've given a 64%± a point there. Depending on the product mix, could impact our flow right down to our operating margins at any given time. I called out some marketing shifts this quarter to next quarter, so there'll always be a little bit of shifts here and there.
The basic principles that we discussed at Investor Day, that the three buckets that are contributing to our journey are the growth in ANC, higher segment margin. Our access to the global talent pools now is allowing us to be more efficient in our hiring, and our Infrastructure Simplification continues to be something that we have top of mind when these three buckets are how we get there. I will say we were really happy with some of the front-end loadedness of the Infrastructure Simplification and the global talent that we've done, and we're starting to see that come through very, very much within our margins. But I wouldn't look at it as this is a proportional journey. We feel good about our ability to get to 33. I'll update, obviously. We're doing well. But this is.
Yeah. But on infrastructure, like you're saying, it's going as it was embedded in the original.
Yeah. As I always say, in 2023, we took a lot of action. Those actions over time start to materialize and have a quicker, greater impact in a shorter period of time. We've seen the benefit of that in the front-end of this in 2024.
Got it. Okay, and then I think, I mean, you guys gave an awesome stat on the call, the whole 16 million minutes saved or whatever, which is like 150 FTEs or rough math. Talk about not so much from a cost savings perspective, but just philosophically, what can you do with that time? What are you doing with that time you've gotten back?
I'll give the typical CFO answer. I look at those minutes, and I call that leverage, right? We have the ability to leverage our care organization to keep it very efficient, maintain the same quality, but reallocate those minutes to helping our customers without having to grow the care organization incrementally to handle our increased volume. So these are the areas of efficiency and simplification and benefits that we were able to achieve. And we're really happy about the progress towards it.
But I'm sure if you asked the care organization, they would have, "Oh my God, this is allowing us to do this and this and that." I always come back to, "Oh my God, it's creating great leverage." I can now free up minutes that can be redeployed to helping customers in other ways, keeping the same quality up, but I don't have to now start to hire more care guides and do a bigger organization because I'm growing.
Yeah. Yeah. So along those lines, and this isn't. Don't take this as like a judgment of infrastructure spend or whatever. What's the way to say it? Take off your CFO hat for a sec.
Take off my CFO.
Yeah. So when you think about AI spend, right, and particularly around generative AI and the large language models and stuff that you guys have been spending on for a while now, you're getting points of leverage like this. Does that just, it would seem logical, but does that just overtly justify the case to invest more dollar-wise going forward? Or how do you think about that? And then secondarily, within that, do you think of that general spend as coming from the existing bucket of IT spend? Or again, do you find these sort of slivers of efficiency and it warrants allocating more dollars towards the AI piece?
So we've done a lot of work around Airo, which is the AI benefit that we have is all that data within that technology stack is our first source of how we approach the AI engine for the machine learning underneath that, which creates a, I would say, when you talk about the LLM structures underneath, which we use, but they're done in a limited fashion because we draw from our own technology. We've been around a long time. We have 21 million customers, 14 million interactions, 1.2 billion signals. That creates a lot of data that we look at as being efficient. It also helps us with our innovation. And we're allowed to take that data, look at the jobs that are being done by customers, create more efficiencies for them.
So we believe that within our infrastructure today continues our ability to invest in new technologies to improve that AI engine that makes us more efficient. And we're not having to go anywhere else, right? This is already we created this already. So we feel really good that we continue to perpetuate this model and that we're looking at just expanding it out and getting even better at it.
Yeah. Yeah. Got it. I think we're out of time. What's the Super Bowl ad going to be?
I win $10 on that, right?
It's a hard job.
I will leave that to the marketers. I will focus on the financial model. How about that?
All right. Mark McCaffrey, GoDaddy. Thank you.