Hello, everyone. My name is Alexei Goglev, head of the Vertical SaaS and End-to-End Infrastructure team here at JPMorgan Chase. I'm delighted today to welcome Mark McCaffrey, CFO of GoDaddy. Welcome, Mark. It's good to see you.
Thank you for having me.
Yeah, no, absolutely. And still rather early West Coast time, so I hope you had a few.
It is. I've had a few cups of coffee.
Good.
Hopefully, they're a little kicking here.
Great. As you get fired up, maybe we can start discussing some of the macro trends you're seeing. Part of the consumer audience that you have is very resilient, it seems. Maybe you can talk about some of the trends that you've seen, discuss the survey that you published recently.
Yeah. We came out with a survey from our Venture Forward. We do these surveys every so often to get the pulse of what's going on out there with small businesses, micro businesses. If there's one thing I would like everybody to walk away from hearing, it is these small businesses, these micro businesses remain extremely optimistic about their ability to do what they love doing, whatever it is, a pizza oven or a downtown store. They remain optimistic. Now, we've seen that resiliency time and time again for years. This is a customer group that is putting food on their table. They want to do better. The value they get from the GoDaddy products far exceeds the value they're getting. Even at times like we're seeing now, they become more mission-critical for them. Our relationship with this customer group is fantastic.
We have so many different touch points with them, from customer visits to our care organization to surveys. We keep getting the same message back from them. We feel really good about what we're doing. Yeah, there's some uncertainty out there, and that'll happen from time to time. It does not change how we feel, how we are going to be successful doing what we love to do. That is why we always check their temperature.
Obviously, many investors, after the most recent earnings, have been focusing on the headline number of customers, while your priority seems to be focusing more on high-intent customers. Could you maybe highlight some of the metrics we should look at when judging your success with high-intent customers? How should we think about the growth algorithm, ads versus?
Absolutely. I'll take it in two parts. Let's take it up a level. Our strategy is working. We're getting to a higher-intent customer. When we look at our overall business, we're growing 6-8%. We've expanded our normalized EBITDA margins by 900 basis points in five years. We've, at the same time, improved our free cash flow, our free cash flow per share. And we bought back 25% of our fully diluted shares outstanding in the last four years. Not many companies can say they've done that. At a high level, our model, our algorithm is showing the resilience. Our strategy is going after higher-intent customers. We've taken people through the customer count. We've done some divestitures. At the end of the day, and this is in our 10-K, so I'll point to it. It's not a new number.
If you look at the amount of customers that are spending more than $500 with us, it went to 1.8 million from 1.5 million in 2023. Those are the customers we are going after, the customers who are going to attach products, who are going to get value out of our technology stack, who are going to have higher retention over the long term. Why? Because our LTV compounds on itself. It compounds. It starts in the year a customer signs up. It gets bigger when they go to a second product. That retention rate improves on every single renewal cycle. That is our strategy. That is our intent. Those are the customers we are going after. I will trade what I call lower-calorie customers or customers who are not doing anything with our products for customers who are getting value out of our products any other day.
That is that resilient customer group that we keep talking about.
Any comments about the e-commerce trends that you're seeing? How does typically an entrepreneur start their journey on GoDaddy?
Yeah. So we see many different avenues. Traditionally, the domain was the beginning of ideation. I have an idea. I have to come up with a domain name. That starts your journey because from there, you realize you need a website. Oh, and it would be nice to have a professional email. Then ultimately, you can get into transacting. That was the normal journey. I would say today, we are seeing customers come in from multiple different avenues. Sometimes they're coming in wanting a logo first. Sometimes they're going right to wanting a website. I do not want to say domains is not still a very popular on-ramp for us. It is still our largest on-ramp. Having said that, the ideation phase starts in many different directions now. We see that top of the funnel coming from different avenues.
For example, we have Airo Plus now as a separate SKU. It's our AI-driven platform for those of you who are new to the story, Airo. The main intent of Airo Plus SKU is to tap into premium logos, which are a very popular on-ramp and getting better and stronger every day. Part of our having the one-stop shop is to make sure that we're capturing the customer where they are in the ideation and getting to them at the top of the funnel and then allowing them to expand that business in a seamless, easy way. I always say if you go and buy a domain now and you go through our Airo experience, you can be up and running with a website, email, logo, everything you need to do business within minutes. That is part of the advantage we offer in our technology stack.
Maybe we could still go back a little bit and talk about the domains business. Your market share has been very sustainable and strong for more than 20%. How do you think about retention rates for the domains business? What is the mix between pricing and volume growth in that business?
Yeah. So we're the largest domains player out there. I think the statistic is you could put the next 10 together, and it's still not as large as us. Domains is where we started. We're obviously very good at it. We have over 500 TLDs today. Not only dot com, dot AI. You can go to almost any TLD out there. We can provide that to a customer. The domain space in and of itself provides that on-ramp for us. Again, we see strength in the second attach. Often that comes with a domain first, then getting to the second product. We use it to get to that high-intent customer that we always talk about. In and of itself, the domain space is a very constant grower for us. It's a combination of volume plus price. I will say every TLD out there has a different price point.
Some are more profitable than others. Dot com is very popular. We all know about how dot com comes to GoDaddy. I will not dig into that too much. Remember, we offer so many different ones today that our customers can come in and get almost any TLD they want to start their business and then move into whether it is Websites + Marketing, Managed WordPress, whether it is email, professional email, whether it is transacting through our commerce engine, all that is available to them. When we report our business out, we have a core platform, which is what I would say our traditional business. It includes the domain space. It also includes the aftermarket. We do believe that having a secondary market for a domain space is something we are the largest player. We should have the largest secondary market as well. It is a very good business for us.
That's the core platform. Applications and commerce in and of itself is usually that second product attached, third product attached. It's proprietary software that we create. It's also third-party software that we sell out there. That comes at a highly profitable point for us, which is why as that gets larger, it drives our expansion of our normalized EBITDA.
Perfect. Thank you, Mark. And you've touched upon Airo. Can you maybe talk a bit more about how you've been investing into this technology and what benefits do you think AI could bring to the website building space?
Yeah. Let's start with the technology basis itself. We are the only company out there that has the technology stack from the domain all the way to the transaction. That is a lot of data consolidated. That fuels Airo for us. It is the first place Airo goes to get that data. You think about how much data exists. We have 14 million interactions through our care organization every year. We get 1.2 billion signals from our technology stack every day. All right? We have over 20 million customers. We have been around 28 years. We have that in a consolidated technology stack that allows us to understand our customers, know what our customers like, know what they need, know when they are having problems. We can respond to them through our care organization.
When we talk about Airo, the primary driver and the work we did over the past few years is to access that data in a manner that we can flip it back to our customers and say, "Hey, here's a great website. We think you want to do a bike shop in Arizona. Here's some websites for a bike shop in Arizona. Oh, this is a perfect email that goes along with that. We think this logo you might like based on the history we've seen in our databases." That provides us the ability to have more unique responses back to our customer group. Not that we do not use LLMs at some level, but we control that because it fills in the blanks to our own technology and just provides value. We have one choke point that we also can control the volume that is going there.
That is why it does not impact our cost basis as much as some others talk about out there. All that works very well within our technology stack. We are seeing our customers discover Airo. We are seeing them engage with Airo. Obviously, we have now entered into the monetization stage, a little ahead of schedule. We are very happy about that. This was the investment we made because we knew that for the micro business, these tools, their ability to use AI themselves to do business better, we were going to be able to provide them that ability.
Amazing. Can you maybe give us a bit more of an update on the Airo rollout?
Today, as we stand, Airo for all new customers will be thrown into the Airo platform. Airo provides that easy experience, whether they're coming in, like I said before, via domain, logo, or they're coming in directly from a website. All new customers come in through the Airo experience. On our existing customer base, many of them have been exposed to Airo through the renewal cycle. We continue to make sure they're getting exposed as they get into their dashboard. We have an opportunity to upsell. We have an opportunity to look at what products might be useful for them. In certain cases, we have the ability to convert them over from an existing competitor, like in payments, to our platform because it's easier to use. We're, I would say, in a good spot on that journey.
With 20 million plus customers, we have a lot of space to continue to move and continue to get them exposed to Airo in and of itself.
Can you maybe provide a few use cases on how Conversations tool is driving engagement?
Of course. I have to talk about Larry 's, the pizza guys, right? Conversations is becoming very popular. It's part of Websites + Marketing. I laugh. I love going out and visiting with customers. Sometimes I bring customers to us. In this case, it was a mobile pizza oven. He's got it on the back of a trailer. They bought their own pizza oven. They go from place to place. A tool like Conversations has become key to them. It takes 90 seconds to make a pizza. I had to learn this. I never knew it took 90 seconds to make a pizza. In those 90 seconds that the pizza is being made, one of them is making the next pizza. The other one is responding on Conversations to all the inbound that are coming in through the website.
Why was that important to these guys? If you're looking for someone to help you at an event or a party with food, the first call you make, if the person doesn't respond, they go from the pizza oven to the taco truck, right? They don't wait around for you to return that call. Their ability to set up their next gigs in the coming weeks through our Conversations tool, which is AI-driven, they can automatically respond. Wrong door. They can automatically respond, allows them to make sure that they're staying current with their business, that they have gigs for the next couple of weeks out there.
To me, that was the perfect example of when you're a mom-and-pop shop, an underdog, and you have all these inbounds coming in, you can't wait till 11:00 P.M. to sit down at your computer and start to filter through all the social media platforms to figure out who's reaching out. You need someone to actively engage while you're doing what you do. This is what our tools allow them to do. It prompts the response that they can make immediately to their customers to set this up. It writes it for them. It uses their voice because it goes back to what they've done before. You can tweak it a little bit, or you can just let it fly instantaneously. Now they have the response. It goes right into scheduling for them on our tool.
They have it all lined up. They do not have to come home at night and figure all this out. It is done automatically through Airo, through our AI tools. For a micro business who is just trying to compete with bigger players out there, this is an amazing resource for them. It is a resource. It is a tool that actually keeps them from having to incur cost or hire people to do this for them. They can do this themselves. I still laugh. He was on his mobile device, sitting there responding as we are talking. I am asking him, "What are you doing?" He is like, "Oh, I have to get back. I am using your Conversations right now in between each of these pizzas." By the way, great pizza. Great pizza. I say that as a New Yorker who moved to the West Coast.
This was great West Coast pizza.
Mark, how did you decide on the current price point of Airo Plus? In general, what is the thought process for these AI features as they evolve?
Yeah. So Airo Plus is the first separate charged SKU that we have in our portfolio. It's really early stage. We just launched it. We basically get certain functionality in a premium SKU that you can use. And we are charging $5 a month for it. Now, we experiment. If you've heard our CEO, Aman, talk at all, he will talk about we are an experimentation culture. We look at what the different price points are. We look at what we think is going to be attractive. We came up with the $5 a month, $60 a year, based on what we thought would be the surplus of the value that the customer is getting based on what we were giving them. We've been around doing this for a while. So we also know that if you come in too high, you will lose customers right off the bat.
People will not engage with it based on the price point you set. You have to set it in the initial stages based on a point that seems economical to the person coming in, that it just makes sense for them to come in and then obviously renew. Our initial price is $5 a month. It does not mean that it will stay that way necessarily. We will continue to look at what the overall impact of it is. Everything we do is based on initial experimentation, how our customers are reacting, how they are renewing, what we are seeing in that renewal basis. Are they getting the value out of it? Are they using the functionality we are giving them? Everything is designed.
Hey, if the five areas that are in there now today do not seem like they are landing, or there is a sixth area we can put in, or we can flip out functionality based on behavior, we will do it. We are very agile that way. It was part of the process of getting a consolidated technology stack that we have the ability to use our products to interact to get to the best value proposition for each of our customers.
I think it's also worth discussing kind of the broader pricing and bundling initiatives. Can you talk about how you moved from the so-called product lens to customer lens of that pricing and bundling?
Yes. Last year, when we launched pricing and bundling, we were very much on a product-based focus. That was the natural evolution of launching bundling in and of itself. We focused on launching. We have talked about it. The major one was email plus security last year as a bundle to all of our customers based on a product lens. It was very successful. As we have come into 2025, sorry, I always have to think about what year we are in, 2025, we have gone to what we call cohort specific, which means we are looking at specific customers and the attributes they have of the products they are using today and creating bundles around those attributes. We have multiple bundles based on these cohorts in play today.
We are going into the cycle now of testing what I call the cohort specific bundles for 2026 as we go into the back half of the year. We have a cycle set up now that basically says we launch at the beginning of the year. We test into new bundles by the end of the year. We launch those based on the testing that we see out there. How this works, when the bundle is introduced, you get two flavors of it. You get new customers coming in that are choosing those attributes. We'll get offered a bundle, right? You have customers who are renewing now have the ability to go to a bundle. How does that work? It helps us with our uplift around new coming into the year.
The most important part of it is, as we go to the next year renewal, we see the strength in the renewal rate because now they're moving from one product to two product to three product. As I've always said, our retention rate is great at 85%. Once they get to the second product, it goes up from there, gets to a third product, it's a product for a customer for life. Our ability now to move that within the customer view allows us to really focus on that second and third product attach and get to those retention rates. That's what we saw in Q1. We talked about we've seen improvement coming into the year around the retention rates of our customers. A lot of that's driven by the bundling that happened last year. We continue to test into that cycle.
It continues to compound on itself. It continues to drive the long-term model that I talked about at the beginning of our conversation of how we can grow, how we can be more profitable. Obviously, we have capital allocation. We are growing our free cash flow per share at a 20% CAGR.
How individualized do you think those pricing points could become? What role do third-party products play in those bundling?
We have the ability to do across our products that are on the consolidated stack. Most of our products are on the consolidated stack as we sit here today. We have the ability to do it with third-party products. We have the ability to do it with our own proprietary software. We can combine the attributes based on any element that we think our customer is getting value out of it. One of the important things we do, absent a partnership that we may have on our site, is we own the customer relationship no matter what. Our ability to own that customer view becomes very important to us and a key advantage to us in launching these type of cohort specific bundles. It is all in play. It is all our strategy is what I keep coming back. Strategy is working.
Perfect. This is probably a good time to talk about your payments business. Can you maybe remind us what is your strategy in the payments arena and the implications of your recent rollout of phased transaction fee increases?
Yeah. We launched into the commerce, I should say the payments business, several years ago. We continue to see steady growth in our GPV related to, I would say, signing on new customers into our payment platform, but also converting existing customers over to our payment platform. Right now, our biggest growth in GPV is being driven by the conversion. When you think about it, most of our customers in the ideation stage that are going to do transaction, it takes a while for the volume for them to build up. When we convert an existing customer who is already transacting, we get all that GPV onto our platform immediately. That has been driving our GPV growth. Perfect example of the pricing and the transaction fee we have talked about is our ability to be agile. We are the lowest transaction fee out there.
For our customers, that's a big deal. It means a big difference to the money that goes into their pocket. Even in that circumstance, we saw the ability that we could move up pricing, still remain the lowest, and still get the conversion rates because our, I would say, our ease of use was really attractive to our existing customer base and keeping them at a lower point. Again, we continue to look at the surplus they're getting out of the value of our technology. I'll never say we won't use pricing occasionally. We will. This was a case that we did raise our transaction fees. Having said that, we're still well below the market of what other people are charging on transaction fees, which allowed us to do that and allowed us to make that evaluation.
Are these point of sale type of transactions?
Yes, they are point of sale.
These would be like Square and some things that these customers are using and you give them a lower price so that they can complete it?
That's right.
As we speak about commerce and application segment, how much of the ANC division is driven by price versus cross-sell and new customer additions?
It all comes into play. Keep in mind, when you're talking bundling, it's a combination of volume and getting price value. It's hard to say, hey, pricing is this much versus product is this much because it's all combined into the strategy in and of itself. The idea is to drive more value to our customers and therefore be able to take a little bit of that customer surplus back to us. When our customers are successful, we are successful. We continue to look at it from that angle. I would say you look across ANC and you look across the different product groups there, all are growing at a healthy state. Double-digit bookings, I think, is what we've set out there publicly. We continue to see the strength in our bookings coming out of 2024, coming into 2025.
Obviously, we have tougher compares this year in bookings. We had a very good year last year. The comparables for this year get a little harder for us. Q2 is probably the hardest comparable quarter we have going for this year. The momentum in and of itself around how we're engaging customers, how they're getting value, how they're converting over to two-plus product, how the average order sizes are going up, that has continued through Q1.
Obviously, you've recently come out with this multi-year target of 6-8% for revenue growth. A lot of it is driven by this revenue mix towards ANC, as we discussed. Do you see a long-term path to double-digit growth at some stage? What would be the sources of that growth?
I'll come back to where I started. Our model works. Our strategy is working. 6-8% revenue growth, improving our normalized EBITDA margins the way we've done it, buying back over 25% of our fully diluted shares outstanding and getting to our CAGR. This all works, right? We feel really good about executing our strategy and this model continuing to compound on itself. I always say our North Star is free cash flow. Everything else is a lever to get to the highest free cash flow we can because that strengthens our balance sheet. It allows us to return value to our shareholders. It allows us to continue to invest in the business. It allows us to look at different areas based on the ROI.
There is no strategy that says we have to do A, we have to do B, or we have to do C. The idea is this model continues to compound on itself. Our North Star continues to be the free cash flow. We continue to expand our profitability, our operating leverage. We're growing revenue over two times the rate that we're growing our operating expenses. This model continues to compound on itself. It continues to grow. It's a great model. We're getting to the customers we need to get to. We're getting to the higher intent customers. We're getting to the higher retention rates we talked about coming out of Q1 earnings. It works.
Perfect. Maybe we can take a few questions from the audience.
Do you have any targets on the free cash flow?
We've put out there at our investor day a few years ago our free cash flow per share target of a 20% CAGR over the three years.
Is that going forward or do you have already changed that?
That's through 2026.
You talked about multiple product lines within ANC growing in double digits. What are the key ones? Is it Outlook, Microsoft, security? I guess, do you see new products being layered in over time? You're going to start selling Copilot to your base or something else?
Yeah. The major product groups within our ANC are website builders. That includes Managed WordPress and Websites + Marketing. Email, which part of that is Microsoft email. We have some other options as well. Commerce. I think that's about it. All those are the major product groups. It does not mean we will not have other product groups. It does not mean we do not have complementary add-ons within each of those categories in and of itself. We are a one-stop shop for our customers. We have great relationships with our customers. If there is something they need, we will know about it. Obviously, we will consider that within our ANC or core platform depending on where it fits. Right now, we feel really good about the entrepreneur's wheel where we stand today, our ability to innovate for our customers, our relationship.
I always say there's two things you need in technology. You have to be able to innovate and you have to understand your customer needs. We're doing both. Right now, we feel really good about where we are. We are always challenging ourselves based on what we're hearing from our customers about what they might need and our ability to provide that.
As far back as I can remember, is it on? GoDaddy has favored share buybacks over dividends. Are you monitoring this new tax bill? I've seen that there may be taxes on share buybacks. At what point would you rethink that?
We look at everything based on what I call a very rigorous framework on ROI. We apply that to how we return value to shareholders as well. Right now, very attractive to do share buybacks. No immediate change to that equation. We are always looking at what the best ROI is for our capital using what I would say a very consistent framework.
Could you talk a bit about competition? As you continue to evolve the product, how that shift, any share shifts or how you see that going forward?
When we think about competition, we take a few different angles here. We are the only company in the world that owns the technology stack from the domain all the way to the transaction and everything in between. Within each of those, I would say, product groups or point products, we have different competition. There are some people who do domains, some people who do websites. Obviously, we talked about payment processing. There are some people who do that. We look very much, we want that customer that is going to use all our products. This is why our bread and butter is the micro business and that we remain focused on that because they really value the one-stop shop, only using one application. We do monitor competition within each of those groups. We also know that when it comes to entrepreneurs and micro business, this is our sweet spot.
This is where we do the best. Not many people can compete with us in this market. No one can compete with us across the whole technology stack because we're the only ones who offer it.
I think there is another question over there.
Quickly, just curious about how you're thinking about equity compensation as you continue to retain and attract talent. Is it more or less or just the same as important as it's been in the past?
Yeah. So we've had, I would say, a very consistent application of stock-based compensation or equity grants to our employees. We continue to make sure we're attracting the right talent. I would say one of the great things about GoDaddy is we have a culture around innovation and experimentation, which attracts a lot of talented people in and of itself. When we talk about equity grants, we've kept the consistent process. I think we're up 2-3%. We've kept it very consistent to our metrics within a percentage of revenue. We did have an uptick one year. We did move vesting from four years to three years to make sure we were staying within industry guidelines or standards or competition. There's no major change to that or we're not contemplating anything different than what we've done in the past. We love our model.
We have a great culture. We have a great employee base. We can continue to think they want to be here, if that makes sense.
Mark, maybe I'll close the conversation with a final question about free cash flow.
Please.
To ask it differently, Q1 was a very strong quarter for free cash flow. You have a rather broad guidance of $1.5 billion+ as your target for this year.
Plus.
How much can this plus be? How confident do you feel five months into the year?
Yeah. Listen, we are reaffirmed guidance out there. Thank you for pointing out it's $1.5 billion+ . We feel very good about our ability to meet all the, I would say, the guidelines that we put out there not only for the remainder of this year. We put some markers out there for 2026 in our investor day. That's what I keep coming back to. Our strategy is working. We're executing. Everything's going according to plan. We have a resilient model. We continue to compound on our success every single year. We're doing it in a manner that we're honoring our North Star of free cash flow.
Considering how strong your free cash flow generation is right now, does it make sense to look elsewhere for M&A opportunities either in the U.S. or abroad?
Yeah. We will always have a seat at the table around anything that comes up. There is nothing to call out. We feel really good about where we are today. That does not mean there might not be something down the road that may be of interest. I never want to rule things out. We always said it has to meet three criteria. Those criteria have not changed. It has to be strategic. It has to work within our financial model. We have to be able to integrate it within our core technology stack. Our success has raised the bar on the need for anything that we would look at to be better than what we are doing ourselves today. We feel really good about where we are. Our balance sheet keeps getting stronger. We have talked about our leverage ratios.
have talked about our free cash flow generation. Right now, we feel really good about the execution and the strategy we have in place, our ability to really serve the micro business, our focus on the entrepreneur and the ideation, and our ability to make this model compound. We will see what the future holds.
Perfect. Thank you very much, Mark. Appreciate your help.