To kick off our second day here at our conference with Mark McCaffrey, CFO at GoDaddy. I think this is like the fourth or fifth year that you've been there.
That's right.
Actually, I think going back, when I joined GoDaddy, this was one of the first conferences I did. So it brings back a lot of good feelings of where we were and now where we are today.
Thanks for joining us again, and really appreciate it. To start, let's hit on your newest announcement on Airo Plus. I was able to attend your investor dinner about a week ago, but for a lot of folks here in the room, they didn't have that privilege. So just walk us through, what is Airo Plus? How is it a refinement on the existing Airo product, monetization, all that good stuff?
So our journey continues around Airo. And for any of you who are new to our story, last year around this time, we introduced Airo, which is an AI-powered experience within our platform that takes all the data. I always come back to, we have a lot of data. We've been around a long time, 20 years as a company. We have 21 million customers. We have 14 million interactions with our customers every year, and we get 1.2 billion signals from our customers. We consolidate our technology stack, and it creates a seamless experience all the way from domain to transaction today. Airo is built on top of that to take advantage of that data and get our customers from discovery to engage and monetization as fast as possible.
What Airo Plus is, which we launched this year, one year in, is giving a premium service around that Airo platform. A great example is right now, when you experience Airo, you can get options around base logos. Logos have become very popular, not only as an on-ramp, but as a product attach. If you want to have a premium logo, you can, for $5 a month, subscribe to Airo Plus, and that is one of the services you will get in it. There'll be approximately five initial, I'd say, technologies that you can get within the subscription. For $5 a month, we feel this is going to be a huge attraction to our customers to continue to get value out of the Airo Plus. Again, it's not our customers creating the logos.
It goes based on the information you've already input today and gives you options for premium logos. It gives you options for content you can use on your website. It gives you options where it can go out now and look at if you have content on maybe Yelp. It'll take that content off of Yelp and automatically upload it and create a website for you. So it gives you these premium features that allow you to take advantage of having a broader business. And again, for $5 a month initial subscription, you're able to take advantage of that.
So a lot of features all for that $5 a month.
Yeah, and looking at our data around how customers are engaging, one of the areas we have found is, yes, there's the normal you go from domain to website to email. Logo is a huge attraction for our customers right now. And being able to get to that premium logo in that subscription, we think, was the initial way to launch that because that'll attract a lot of people into that attach element very quickly.
You mentioned logo a couple of times, so I want to dig in on that. Why is that an attractive top of funnel? Because it is different from historically GoDaddy's funnel, which was domains.
That's right. Domains are still a hugely popular top of funnel item. What we found, not only in our own data, but in the data we see externally and other sites, is a lot of people start with the idea of they just want a logo. And that becomes the top of the funnel. So it is probably the fastest growing top of funnel item. It has not replaced domains by any means. Domains is still the bread and butter of the top of the funnel. But we want to engage our customers wherever they're coming in. And we've created the Airo platform. So whether you come in first looking for a logo, whether you come in wanting to do a website, whether you come in just wanting an email, any of those are possible.
We want to be able to make sure we capture that and bring them into the Airo experience so that they are attaching to that second product quickly and getting value out of the entire platform.
Okay. That's helpful. Last one on Airo. We're now more than a year into it. This is the newest iteration. It focuses on the monetization. You've obviously had some great learnings here. What would be kind of the one or two biggest improvements in Airo or biggest surprise to you over this last year? And similarly, what do you hope we'll be saying about Airo this time next year?
So we recently announced 4 million people have discovered Airo at this juncture, and around 50% have engaged with Airo in and of itself. Some that sounds like a big number. For us, that's just the beginning. The amount of traffic we can get into the Airo experience right now is extraordinary. We think it's a game changer. And when you think about our size and our capability and our reach and our distribution channel, probably the best thing that we've seen this year is people are actually engaging, getting value. We've seen it in the statistics. Customers are attaching 25% faster than they ever have before. We're seeing the initial order size when customers are coming in are bigger than it's ever been. So we're seeing that it is attracting the customers that we want.
And this was a strategy we've talked about since the initiation of Airo. Customers are very important, but getting the right customers in is the most important. You want customers coming in with intent, and you want customers who want to do something. And what we've seen in the year through our experimentation process is we're getting to those customers. And that has been what we wanted. I don't want to call it a surprise because we all believed in it. But boy, are we really happy that it has been built. They are discovering it. They are engaging. And now they are turning to monetization.
Great. You kind of hit on one of my other questions, so I'm going to go there to the types of customers that you're getting. What sort of differentiation are you seeing in the types of customers coming to GoDaddy today versus a few years ago? Are customers coming with that higher intent, such as to maybe add a website, whereas in the past it was maybe just take a domain or a domain and an email?
Yeah, that's right. We were definitely seeing customers who come in. This is a passionate group of customers. And again, for those of you who may be new to the story, we focus on entrepreneurs and microbusinesses. We're not going upscale. We're the mom and pop shop. We're the underdog. We're trying to service customers that maybe have five employees because those are the customers that really benefit from a single platform, a single application, and our Care o rganization, which we're well known for. And when we engage those customers that are coming in at that level, which is our goal, those are the customers we absolutely want. I never want to say a customer who comes in for a domain isn't something. But it's not going to drive the LTV equation that we have. Our LTV equation is very simple. Our average retention rate is 85% for our customers.
When we get to a second product with our customers and they're getting value out of that second product, that 85% goes much higher. When we get to that third product, it even goes higher than that. We almost have a customer for life. That equation, that value that they're getting out of that drives that LTV. The statistic we always use is if you assume a domain is 1x LTV, by the time we get a customer email to website to commerce, that LTV goes to 83x. That is the accumulation of our free cash flow because those customers come in on a more profitable basis, and they drive that free cash flow CAGR that we always talk about over a number of years. This is a long-term play for us.
Yeah. Makes a lot of sense. Can you talk about what you're seeing from a macro perspective and top of funnel trends? Your customer trends have been flattish year on year and down a tad sequentially on some well-understood headwinds from the hosting business. So I'm sure you're not going to.
Thank you for throwing that in there.
But can you speak to what you're seeing in terms of gross adds and how that may be informing your commitment to returning to customer growth in 2025?
Yeah. So again, we've taken actions that have created a headwind to our customers because we've disposed of certain businesses. We've migrated out of certain technology. And we went in eyes wide open related to that. We've also done certain actions at the top of our funnel. We got out of heavy discounting in domains because, again, that was attracting a certain type of customer versus the customer we wanted. And we've seen, despite all that action at the top of the funnel, a very stable, consistent top of funnel gross adds. And we continue to see that as we've gone through last year and into this year. So what that tells us is there's a stability in the macro, which is always something we monitor. But also, we're attracting the right customers that we want.
But also, the things that are impacting our top of the funnel are being determined by actions we're taking. And that's a very important part of how we analyze the funnel is what is based on things we've done. Okay, we know that taking away virals and discounting is going to have a certain change in behaviors. We anticipate that, and we build that into our model. But we also know that there are other macro type of events that could always impact how the funnel. We've seen that in the past years, no doubt about it. Everything we're seeing today is based on the actions we're taking. And that's what we love, is we feel a stability of that top of the funnel. We feel people are still coming to us because we have the brand and the domain name.
They come directly to us, not through any other sources. That projects us into now being able to keep them in the funnel, attach those second products, have that higher intent, and as you all know, we do certain things to increase that. I've talked about. We've announced it openly. We're going back to the Big Game, and those are things, again, when we feel comfortable that we know we can take action and drive, then we're in a good spot.
Right. And it's all within your control. That's the key.
It's all within our control.
That's key.
I can't underplay the amount of data we just analyze throughout the entire technology stack to make those decisions and determine when to do this versus when to do that, and then evaluate, making sure we're getting to the right place.
Got it. Okay. Last one on macro. I mean, 2025 is just a few short weeks away, which is wild to think about. How do you see the environment for SMBs in the U.S. potentially changing from here? New administrations coming in, Fed is lowering rates. Do you think it's a more attractive setup for SMBs as we head into 2025?
Yeah. And I always have to distinguish when people talk about SMBs openly in the macro environment, that is a very broad group. We really focus on the data around the microbusiness and the entrepreneurs. What we believe and the data has shown us coming into this year, and we believe will persist going into 2025, is this a very passionate, encouraging, durable group that believes that their possibilities around success exist there. And it's not tied to any, I would say, political direction one way or another. They believe that they have the opportunity and they will be successful. They also believe they can do this despite any macro pressures one way or another. We always see it in the statistics. The pessimism around the macro, the optimism around their ability to be successful within that macro is very high.
So that, to me, absent stuff outside of everybody's control, I think everybody's very optimistic going into 2025 that this environment will persist, this environment will continue, and this environment will really see people trying to launch businesses. Entrepreneurialism is still very thriving out there. And I always say this is such a durable group. Even if they do fail at the first one, they go right to the second one. They're not giving up. They're going. I was using a story this morning already. A lot of times when I go meet customers, they're like, "Okay, which one of our ventures do you want to talk about?" We have three up and running right now. Do you want to go through all three? Do you want to talk about this one? Do you want to talk? But that's their attitude out there, and it's just fantastic.
Yeah. So to summarize, customers are resilient irrespective of macro. You're able to determine your own fate on revenue growth and getting the right customers, higher attached customers, higher LTV, all within your control. So it doesn't really matter what happens in macro. Certainly would help if you had a nice tailwind there, but.
Yeah. And I want to say just a caution there. We've been around for a while. We've survived multiple different macro cycles. We feel our model is durable. It's predictable. I never want to say it's not going to be impacted, but our ability to get through it, we've shown that many, many times, whether it was 2008 with the financial crisis, whether it was the last few years. We've shown our ability to grow in every environment and continue to compound free cash flow in those environments. And I will say that comes with a lot of discipline and a lot of understanding the business and understanding the customers and making sure you're staying ahead and viewing. So I just wanted to double-click on something you said. It's not necessarily that the macro won't impact us.
We believe we have the ability to continue to navigate through any macro and continue this journey regardless.
Okay. Real quick on international, I think it's about a 30-year business, but it's close to half of your customer base. How is top of funnel demand in Europe, for example? How are those customers engaging with GoDaddy and product flows such as Airo? Is there any distinction between the two groups?
Yeah. No distinguishment between the customers and the high-intent customers that we're attracting within each of the markets. There's always a little bit of we're not fully, for example, commerce is launched in certain geographies. It isn't everywhere, so there's a little differential there that comes into play. But the type of customers continue to be strong. The type of customers continue to come in with intent. There is no, I would say, differential to how we approach it. There's only the maturity of the market in and of itself as it relates to things like e-commerce and other aspects.
Okay. Shifting gears, I want to hit on something that you mentioned before about all the data that you have. I mean, you have nearly 21 million customers, more than 80 million domains under management, all sorts of data on how micro and SMBs use their domains, how many email addresses they have, how many employees, all of that good stuff. Can you speak to the data advantage that you have and whether you've fully tapped into that, or do you think you still have an opportunity there to use that further?
Yeah. And coming back to the basic principle here, we are the only company in the world that has a platform that goes from the domain all the way to the transaction. And that amount of data that you get within that platform is significant. And I don't know, it's always fully understood the amount of data that comes with the domain in and of itself because regardless of whether you have a domain and doing a business or you do it all with us, everything settles back to the domain ultimately. We believe we're at the early stage of Airo and the machine learning and our ability now that we have the consolidated tech stack and we have that data in one place that we're just starting with the ability to what are the insights around our customers? Where are they getting value?
Where do we think that value gives us value-based pricing power? Where do we think our customers are going to go? What are their needs? We believe that our ability to use those insights, not only for our own purposes, but also provide those insights back to our customers so they can be more successful, is really early stage, and when you talk about the technology stack in and of itself, we only dig into LLMs. I always say when we need to fill in certain blanks, that's not our source of how our AI works because we have so much data sitting in our layer. That is our primary source of what we do, whether it's the Airo experience, whether it's Gabby and Care where we're solving problems for customers. It comes primarily from that top layer.
If there is external information that's needed, we have the ability to pick and choose what LLM we go in and use to fill that blank, but that's not the primary way with how our engine works. We have that advantage. And that is the seamless experience Aman, myself, always talk about is we're able to use that across every single product, across every single experience, and just make sure that our customers are getting the ability to do what they love better, faster, and getting to monetization on their end, which obviously creates an advantage for us.
So since we're early in the Airo product experience, we're early in tapping into all that data that you mentioned. How have your expectations regarding AI and investments in product dev changed since these early successes are starting to kick in? And similarly, since you mentioned it, like internal tools like Gabby on the customer care side, how does what you've learned so far in the last couple of years influence how you think about areas of investment versus areas for additional productivity gains and cost savings?
Yeah, so again, we love our model and our leverage model. We've shown our ability to expand our profitability on our Normalized EBITDA margins over a number of years. I think 800 basis points over the last few years. Obviously, we've put numbers out there. We're continuing on this journey. Despite that, the two principles that we, and specifically I always talk about is in technology, you need to have two things to survive in the long term and win. You have to own the customer relationship, and you have to continue to innovate. We will not stop innovating. We have shown our ability to innovate and launch and get products to market and improve profitability. And we've improved. It's not an or w e can do it within our model and continue to have success. And that we know. That basic principle of how we apply that remains.
We will innovate. We will look at customers' needs. We look at their jobs to do, and we will continue to find ways to innovate around making sure that we're helping them with those jobs so they can go to market. We will continue to when we're getting the right return, we'll continue to market. We came out of Q3. Obviously, I left a few breadcrumbs in Q3, and then we announced shortly afterwards that we were going to be returning the game, and that's all within the parameters of the financial model that we've put out there. Why? Because of the disciplined approach of how we look at returns, how we look at the data, how we see those returns coming in, and even in certain cases, if we don't see what we expect, we adjust. I always use the story.
There was one time we saw something happen on our platform. Myself and the COO were sitting probably like this a little bit talking about something. We realized something wasn't working, and we shut it down. Our ability to react because we can see everything across that consolidated platform right now is extraordinary. And when we see customers behaving a certain way that might not make sense, our ability to react and get into faster decision-making is extraordinary. The term we use, ruthless prioritization. We prioritize everything we do, so we're making sure that we're heading in the same direction, we're getting the returns, and this model continues to work.
Makes a lot of sense. I want to hit on pricing and bundling. That's been an initiative here in 2024 within productivity apps in your A& C segment. We get a lot of questions from investors on, "Hey, is this one and done? Is this a durable initiative? Is it multi-year?", and in the most recent call, you alluded to maybe taking some actions on the Core Platform side, and we're getting questions around what could that possibly look like, so dig in on how durable is pricing and bundling and what it could look like within Core Platform.
Yeah. So the price part of that, sorry, early. Still getting the words out of my mouth. Pricing and bundling is a long-term initiative for us that we saw start to take hold this year. In its fundamental essence, and the one we've used out there and talked about openly, is we've come up with a bundle around email. And now that we have a consolidated technology stack, our ability to do this is more efficient, more quick, and our ability to see how it's working, we can react to. In this case, we took a product we've been selling for a number of years. We created a bundle with security, which helped our customers prevent phishing. We gave them the three options. We gave the, "You can come in and just get the base email. You can get that's the tile on the left.
You have the middle pricing and bundling, sorry, the middle email with security, and on the right, you have premium, which includes all the Office 365 tools with it." Based on the data we showed at that time, pricing and bundling around pricing and bundling, we knew the value of where we were putting that middle bundle would be wildly attractive to our customers, so what we saw was exactly what the behavior we thought we were going to see, which is people clicked on the middle one. Whether it was a new customer coming in or a renewal option, they went to the middle.
They went to the middle. Yeah.
So let's just take this in isolation. As we get through a cycle now, you have the ability to take that middle pile, move it to the left, come up with another bundle, and now you have the ability to use data to show, "Okay, do you have pricing power around a now another bundle within that in and of itself?" That could be replicated across our platform to every option that we have. And we are excited about our ability to do that and do that seamlessly and experiment into that. And we are so excited about it. We also wanted everybody to recognize we can bundle things with domains. We can say, "Hey, you want a base domain? Here you are. You wanted a base domain plus this?
Our ability, because of our strength in domains and the ability now to apply that to the core platform, is extraordinary. And you even take areas that are not growing for us. We have hosting. It's not a big grower, wildly profitable and loyal customer group that has been there for years, generates a lot of cash flow. But you have the ability now to experiment with maybe there are bundles on their renewals that we can start to take advantage of. So the pricing and bundling, and I say it is a pragmatic, purposeful way to increase the value getting to your customers, and then obviously it increases our ability to charge into that value. And we're just at the beginning of this.
When you think about it, we had to get to the consolidated technology stack, which allowed us to put those bundles up there and make it a seamless choice and now allows us to continue that journey down. What we also know we can't do is we can't overbundle. We can't present so many options to our customers that they get confused. So we have to make sure that we're doing it in a way that our customers are seeing the value. We know they're going to be attracted to a certain pricing element, and we know they're going to go in. And that, again, it's a journey. It's going to be a continuing journey for us.
Yeah. So multi-year opportunity on that.
Yeah. We believe, well, we are seeing it as a multi-year opportunity. There's nothing to suggest that this can't continue.
Good to hear. Shifting gears just to the cost profile. Tech and dev has seen some nice leverage this year, benefiting from some prior cost actions as well as consolidating some of your tech stacks. You've highlighted that you'd plan on driving continued leverage there. How far along are we in terms of exhausting the opportunities here, both on the infrastructure side as well as on the innovation and labor component? Because obviously, you don't want to cut too far. Innovation's at your core, right?
Yeah. So we started this journey in 2023, and there are different elements to it, and we put them into three buckets for everybody. Number one bucket, A& C, our segment, which is our proprietary software among a few other things, is highly profitable for us. So in and of itself, as it continues to grow, it's just going to create a tailwind for us. That will continue well into the future. We also took a lot of actions in 2023 that are now annualized in 2024. I call them more of the front-end loaded actions. We got out of data centers. We got into AWS. We put a lot of our workloads into the cloud. We took significant actions around, I would say, things like our Care organization.
I mean that in a way when you have to maintain a Care organization for multiple tech platforms, that is a much different structure than maintaining a Care organization for one platform. Our ability to do that for one platform now creates a significant efficiency for us. And then the use of technology around things like Gabby. All those are in play right now. A lot of that was front-end loaded into what I call the journey towards 2026 and the 33% we put out there. That part was front-end loaded. The tailwind in and of itself will continue as we continue to grow this. What it creates is that efficiency that we can grow, put products into market, we can test things more efficiently without having to grow all the way down the P&L line to match that.
And that's why we feel really good about our ability to market, our ability to innovate, and still do it in a manner that we're increasing our profitability. And I always say this, our Normalized EBITDA and our free cash flow are generally about a one-to-one ratio. We know that. That's something by design.
So to put a fine point on the EBITDA margin, I heard you mention some pull forward on some of the savings. Obviously, some of the pricing and bundling in A& C, which is a higher margin segment, has helped this year. But in the meantime, you still have that 33% goal out there for 2026, which would kind of intuit that EBITDA margin progression maybe doesn't continue at the same cadence, but still should continue. Is that the right way to think about it?
That's the right way to think about it. And think about 2023 going into 2024, we had about a 300 basis point improvement. That was annualization of a lot of the things done in 2023 taking hold in 2024. That will continue, but there was a front-end loaded element of that, which means that we saw a lot of that benefit in the first year.
Got it. Okay. But still margin expansion going forward.
Margin expansion going forward.
Okay. Last one before we open it up to the audience. Capital allocation. You're now at the low end of your leverage range. Cash on hand is growing. You're back up to levels we haven't seen in quite some time. Any updated thoughts on how you balance M&A versus buyback, particularly given the great run in the stock over the last year? And also any thoughts around dividend? It's not something that comes up with your name historically, but is that something that's within the realm of possibility for GoDaddy?
That's an interesting one. Let me start with, there's been no change in our philosophical view around our capital allocation strategy and the discipline approach we have to that. We still believe one of the best levers to return value to our shareholders is the buyback, and we've been very successful with that program. And we continue, we're fortunate, and I'll always say it's great to have a strong balance sheet. And a strong balance sheet means you can look at opportunities, you can look at how we maybe add to this great model that we have of cumulative free cash flow compounding year over year. But we also have to be disciplined in the approach, and none of that's changed. We look at it under three criteria.
Anything we were to do, how to be strategic or has to be strategic, has to work within this financial model we've put out there, and we have to be able to integrate within the tech stack that we've created. If there is something there, nothing to call out right now, we will always take a look at it. We also feel really good about where we are today. If you look at the model, you look at Airo, our ability to innovate, our ability to get products in the market, our ability to grow but do it profitably, our ability to improve our free cash flow, all that we feel really good that we are in a good spot. Yeah, maybe there's something that can add to that, but we don't feel compelled that we have to do that.
You don't have to do it. Yeah. Makes a lot of sense. We're almost up on time, so I do want to offer it up to the audience here if there are any questions.
I know it's early.
I know.
Well, you did such a good job making the pitch here, so.
Thank you. And again, thank you. This is always a great place to return to because it brings me back to when I started with GoDaddy, where we were then and where we are today and how much we've changed as a company. It's always good to realize the journey in the past as you're looking forward as well.
A lot of great progress.
Thanks, Mark.
Appreciate it as always.
Thanks. Good seeing you.