All right. Thanks, everyone, for being here. Got Mark McCaffrey, CFO of GoDaddy , up next. Really looking forward to this conversation. Mark, thanks so much for being with us.
As am I.
Great. We'll have some mics if anyone has any questions towards the end. Or if you really want to jump in, just raise your hand. Oh, you're talking about, okay. Yeah, I've got plenty for you, Mark. Okay, so I would say broadly, the biggest theme in the space over the past couple of months, probably a little bit longer than that, has just been the impact of GenAI, the vibe coding in particular, and how this is going to change the world of website building. It came up at Earnings, we talked about it a little bit, but I want to kind of expand on that and, you know, what are you guys seeing today with GenAI? We'll talk about your products, obviously, but you know, this theme of, hey, you can just kind of talk a website into creation, what that opportunity is for you.
Is it a risk around your business model? What are you seeing today? Just start with that at a high level, given the importance we're seeing.
Yeah, absolutely. I'll start with, you know, this is exciting. AI is really changing the game. The velocity at which it's moving and creating value is extraordinary. We feel we are in a fantastic position to not only take advantage of things like website building, things like running a business, even the domain space in and of itself, as people gather more of their presence on the internet, is extraordinary. Now, we introduced Airo out two years ago, almost two years ago to the day when we started talking about it. I think it may have even been hinted here with you back then.
I remember.
Look at the impact it's had on us. Look at our ability to attract high-intent customers. Look at our ability to get to higher average order sales. Look at the success our customers are having now using one application, being able to drive their business and their growth. Remember, GoDaddy focuses on the microbusiness, the mom-and-pop shop, the sole entrepreneur, maybe up to nine, 10 employees, but that's even a large customer for us. Their ability to do more with tools that are helping them be better at what they do is just evolving at a rapid pace. Airo introduced their ability to now do things seamlessly, to do things that they couldn't do before without having to hire employees. Now they could do on their own.
When you start thinking about the next version of this, Ask Airo, which we've talked about, we'll introduce at our next investor dinner coming up. Now you're getting to helping them with predictability, with solving solutions, with insights that how do they go to market, versus helping them go to market where they want to. It suggests where they might be able to grow their business. The evolution of this in our market is extraordinary. You take our scale, our brand, our technology, our customer care. You take what I've always said, you have to own the customer relationship and you have to be able to innovate. You put that all into where AI is taking this. You look at the technology we have and the data we have around turning this into useful insights for our customer group. We think it's amazing.
We think this is a huge opportunity for us going forward. I can't wait for people to see Ask Airo.
Okay. Anything you could expand on on Ask Airo and how it works and the flow for customers?
It becomes more conversational. It becomes more versus, you know, we went from, you know, discovery to engagement to monetization. The engagement by the customer, you know, there were things offered up to them based on what they were doing. Now it expands that out even further as to, hey, have you thought about doing this? Have you thought about doing this price? What about this market? You know, here's maybe a channel you can consider to grow. It gets more into this predictability based on the data it's seeing versus, I would say, just, you know, addressing the immediate need right in front of you. I don't want to take too much away.
Yeah.
It should be exciting.
It's not rolled out yet.
It's not rolled out. It's in testing. We're getting very, very positive feedback on it. By Investor Dinner, I think you're going to really appreciate the demo.
Okay, just to tie up this LLM vibe coding conversation before we move on. There has been, or at least reported, a kind of fast-growing ARR from some of these new entrants and smaller platforms. It sounds like you're not seeing any impact to your business or your customer at all from that. It's a kind of a different swim lane. Is that fair?
Yeah, it's a fair statement. Now remember, we're a broader business than just websites. Websites are a part of our business, but we have domains, we have emails, we have commerce. You take that all in its entirety, and we haven't seen any shift or variation in our ability to attract traffic into the front of our funnel, the attach we're seeing, average order size, all that momentum continues. There's no doubt that there is an LLM and a vibe coding going on. I think at the enterprise level, it's helping things like engineers be more efficient in how they're working. I don't want to take away, but that seems to be a different business model than ours. Ours is more focused on that entrepreneur who wants to get up and running, not necessarily the engineer who wants to be coding faster.
The velocity of which the products are going to be produced, no doubt, is going to change significantly as there's more efficiencies related to all this technology. Ultimately, it has to give value to the customer and the customer group in order to support that valuation going back. That's why we think we're in a great spot.
Got it. Okay. Airo has been talking about driving conversion, retention, and product attach. Maybe if we could take kind of Airo and Airo Plus concurrently, right? On the attach and then monetization, right? Conversion, attach, monetization.
Yeah.
there any KPIs or color you can share on what you're seeing in retention on product attach, and any updates on the Airo Plus monetization side?
Yeah. The stat we gave out at Q2 was we're seeing the customers who spend more than $500 with us increased in 2024 from 2023, close to 20%. We're seeing that continued momentum. What's driving that momentum is the attach at the front of the funnel, the average order size going up, all that is driving that $500 customer growing now. I think it's close to 9% for us, but continuing to grow. That's a significant contributor to bookings for us, right? That drives a lot of growth in and of itself. Now that customer, what's unique about that customer is the retention rate on that customer is near perfect. I think the lawyers would not let me say 100%, but near perfect was as close a language I could get to that that appeased them.
When you think about that in the early stage that we just had Airo into market in 2024 and now into 2025, we're seeing the strength of that cohort and that ability to retain them. Our average retention is around 85% for our customers. When you think about the ability to move that number up over time, that's a significant driver of value. We have a great model. Our North Star is always free cash flow, but the ability to compound year- after- year and just grow that base and grow that ability to retain that customer, get more cash out of them, get more dollars. If you estimate an average entrepreneur, maybe spends $2,000- a- year on their website presence in its entirety. We started with domain registration getting $20 of that $2,000.
Now we're slowly getting that ARPU up to around $200 and $200 + and it continues to grow. There is still room to grow on the overall spend for that entrepreneur in that market that can drive our growth going forward. So again, Airo has allowed us to accelerate that process. The ease of use around getting to those second and even third products has significantly improved into 2024. We continue that momentum into 2025.
Okay. On the landing page that Airo creates when you buy a domain, are you starting to see more of those landing pages convert into full operational websites?
Yeah. We're seeing them go at a good rate, right? You're talking about the coming soon page. We saw a significant uptick when people came in off the coming soon page. Now we're seeing as they are renewing in that cycle, they're more likely to convert to a website. It doesn't get counted as a second product for us until it converts to a fully functional website because that landing page is offered free as part of that process. For us, the second product has to be a paid product. That's how we always define it. When we talk about getting to that second product attach, we're seeing websites are going up. Sometimes it's emails, sometimes it's websites. I don't want to say it's one specific path, but that conversion to that second product is definitely happening no matter which direction they go at a faster pace. Sometimes it's logos.
Logos have become very popular.
Okay. On Airo Plus, I know it's early, but any kind of early signals that you're seeing there?
Good momentum. I would classify it still in the test phase, and we'll talk about it more as we get into 2026. We're testing through the bundles. You know, the key to what we put into market at the beginning of the year was the logo. It was part of the Airo Plus bundle. The logo was a new on-ramp for us. We wanted to use something that would drag people into Airo Plus, and logo seemed like the place to do it. Now, once you buy the logo in Airo Plus, you get it. It's not a subscription. You get that logo in and of itself. We don't take it back if you don't renew.
Right.
The trick was to bundle products with the logo that they would renew the subscription. That's where we're still in the experimental phase of making sure that the customers are using and engaging the additional technology in Airo Plus so that they do convert into that retention. It takes a little while to get to the retention, and we got to make sure that we're seeing the right signals. It's positive, but we haven't added anything into our current model to incrementally account for Airo Plus contributing at this point.
Got it. Okay. In terms of your guidance, Airo also, there's nothing built in.
There's nothing built in. We are seeing some great signs coming into 2025, like I said, of the average order size. We're a big company, and these kind of manifest themselves slowly over time.
Right.
At the end of the day, I always say when you see our free cash flow growth, you know the strength of the momentum in and of itself because our ability to generate free cash flow is premised on all these things moving in this direction. As long as we see that momentum, we see health in our free cash flow. That's why we felt good coming out of Q2 raising our guidance on the free cash flow because that momentum is manifesting itself.
Okay. Tying free cash flow and AI together for a second, just on that internal efficiency side, I think you've talked about it from the Care organization with GaBBY and then producer product development being able to develop things faster. What are you seeing? Has GenAI created an incremental potential benefit to margins over time?
Yeah. I think conceptually you have to say it's going to contribute to margin improvement over time. There is no doubt the productivity aspects of using the AI tools are going to come into play. I would say, and this is, I think, a general comment, not a GoDaddy comment. People are starting to see it, but don't know where the ending point of that productivity gains are going to be. It's hard to say, oh my God, by 2028, this is going to add, you know, three points of margin for me. There's no doubt it's going to show upside to margin improvements. We already are very efficient in and of itself. When you look to the out years, you have to start thinking about the fact that this will improve productivity. It will improve things like research and development around technology.
We've already talked about it in our Care organization. We've already talked about the adoption of it in our marketing spend and how we look at it and how we use, you know, first it was machine learning and now it's AI to look at the returns where we spend our marketing dollars. You start to look at the efficiencies around G&A. You start to look at the efficiencies around some of the simple things like, you know, are you getting the right insurance rate? Your ability to do analysis becomes better. Your ability to find efficiencies using the tools there. This is a step function. We've only seen this a few times in the technology industry, and this is going to be one of them. It is going to change the game and create a lot more ability to analyze, be faster.
The velocity is going to pick up, and the productivity is going to pick up as well.
Okay. Great. I have a few more AI questions, but I think let's maybe move on for a little bit. If we have time, we can come back to that.
You control this.
All right. You hit on customer growth. I think other than how GenAI impacts your business, this has been probably the biggest topic from investors, the biggest focal point. I think part of what people are trying to understand is, you know, you guys are talking about getting back to customer growth still this year. That's what you've been talking about. Last earnings, you talked about excluding some of the divestitures and I think it was like the migration impacts when you collaborate on that. Excluding those, you've seen customer growth the past few months. At the same time, you talked about it right now, you're really focused on that higher-end, higher-converting, multi-product customer more than the kind of like the broader funnel. I think maybe I'm not characterizing correctly. Can you just talk about your strategy, what you're seeing from customer growth, where you're really focused?
Can you get investors to finally feel comfortable about where you are with your customer?
Yeah, it's interesting times. I'll start with the basic premise. Our strategy is working. We put forth a strategy that said we're going after high-intent customers and just not customer growth. With that, a couple of years ago, we started to even take actions to not focus on customer growth and get ourselves out of what we called low-calorie customers that really weren't doing anything with a domain name or something they had bought through an acquisition years ago. That was a conscious decision by us. There was a conscious decision by us to also turn off discounting at the front of our funnel because that attracted customers who were just going to come in for the price. Once you tried to get them to the regular price, they were going to churn out of the back end. We cut off discounting at the front of our funnel.
The discounting was, sorry, just on the domain side or ?
All right. It was primarily on the domain side. I'm sure there were a few others in there, but it was primarily on the domain side. With that, our strategy started to work. We saw customers coming in, our average order size going up, attaching to a second product because they were coming in with intent. Again, Airo was facilitating that, which was part of our strategy. That's where we started to see the growth in the customers with $500. That $500- mark was something that goes back to our IPO and has always been the measure of the high-intent customer for us. We know the strategy is working. Look at the movement in that number in and of itself.
Now, with that and those decisions, obviously, our total customer number has been all over the place, and it's hard to, but if I wanted to just grow customers, I could do that. I could turn on the discounting at the top of the funnel. I could do all these behaviors that would drive up my customer number, but would not be consistent with our strategy and ultimately doesn't generate the free cash flow over time that we talk about. We feel really good about where we are today. What I always come back to is everybody wants to focus on this number. Can you just look at the totality of the number of customers we have, period? It is over 20 million. That is a phenomenal statement in and of itself that we have over 20 million customers.
The fact that we can make decisions that drive us towards our North Star and not have to worry about that 20 million+ number puts us in a huge, huge advantage. Where others have to go grow customers and bring them in, we're choosing which customers we want to bring in because we want to serve that entrepreneur that is coming in to do a business that has some purpose, that wants to be with us and is going to grow that retention rate over time.
Got it. Any change to the getting back to customer growth?
No, there's no change in what I'm saying. My point here being our strategy isn't to drive that number. It will naturally drive itself because eventually all the stuff we did will.
Right. I mean, if you're growing those $500- a- year customers 20%, you'll eventually.
Eventually, after you get beyond the dispositions, the migrations, and everything else we did, it returns to growth.
Right.
We are not doing anything in particular to make sure we are driving that. We are going for that $500+ customer.
Okay. Got it. Let's shift to pricing and bundling, which has been a big part of, I think, so Airo was one, and then pricing, the pricing and bundling strategy on get.inc, growing that $500- a- year, the high-end multi-product customer. You kind of shifted to this, to the approach around customer cohorts versus product. Where are you with that? How much more room is there with the pricing and bundling opportunity? Where exactly are you focused right now? Just spend a little bit of time on that.
Yeah, you know, this is a cycle now for us. We saw it launch at the end of 2023, and you saw the impact of the first cycle in 2024 around pricing and bundling. It drove the momentum in our A&C segment, which was fantastic. Now what you're seeing is the growth in the retention and the renewal rates into 2025 as that cohort starts to renew at a better rate than the previous cohorts before we did pricing and bundling. What we do now is at the end of 2024, we experimented with several more bundles out there, and we launched them in. Not all of them are A&C. You're starting to see the benefits, some of it in core platform in and of itself because we created bundles around the domain.
We saw the momentum start to take place in the second quarter around some of those bundles that were launched at the beginning of the year. What will happen is that will compound on itself next year. You will have two cohorts. At the end of this year, we will start to experiment with next year's bundles, and we will start to look at what we are going to put into market. We will experiment around four or five bundles in and of itself. Based on what we see working, we will put those into market on January 1. This is a multi-cycle. Where it gets really fun, interesting is, as you start to be cohort versus product specific on bundling, you almost branch off into multiple different layers because every time someone elects into a bundle, you have created a new cohort.
Next year, you can target that cohort with another bundle, and you can go after the predecessor cohorts that did not bundle and use the same bundle with them and see if that bundle sticks. It is this compelling, compounding process that we have. Now that we have a technology stack that is consolidated and everything sticks together, the ability to bundle based on the value we can give the customers is unlimited. It is just driven by what we think the customers are going to pay for based on the value they are getting. We can continue to look at, do we do this with this? Do we do this? Do we add on that? Do we put this there? That is the experiment phase, right? Everything we do, we experiment with, we see what the reaction is.
If the reaction is Stat sig, I think is what we call it. Sorry, still getting coffee. Stat sig, then we know we have the ability to launch that into market, and we will see the incremental benefit of that going.
If I'm a customer in a cohort, and then I'm getting multiple bundles, like I'm renewing for one, and then the next year you might add a separate bundle, do you kind of view it as one single bundle?
Separate bundles. Think about it, you know, you'll come in and we bundle, I think we've talked about it, security with email last year. I'll use that as an example.
Yeah.
You get offered three packages when you come in, either new or renewal. It says, do you want the base email, do you want email plus security, and do you want email essentials? The preponderance of people go towards the middle. You think about our customer base. What do they value? They're worried about phishing, and therefore, the security on the email was something they valued and they went right for it. Now you have, we have a cohort that has email with security. Next year, you move that email with security to the left, you come up with another bundle in the middle, and then you have essentials to the right again. If you place that right value within that middle bundle again, they'll take it from what they bought last year and then go to the middle bundle again.
The cohort that went to the left last year and just stayed with the email, they may see the same offering again and hopefully will go for the middle of security because maybe now they're more worried about security than they were a year ago. Or maybe that now that price point makes better sense than they were a year ago.
Got it.
The ability to offer that up to a cohort, and I really want to emphasize this, to offer different options to different cohorts on a technology stack is what Airo does and is the significance of pricing and bundling for us, because the technology allows us to carve out what you see based on your behavior.
It is being offered on an individual basis.
Yeah.
Okay. You'll get that email and security bundle, and at the same time, I'm up for a renewal on my domains, and you're kind of doing the same thing on the domain side.
Yeah, that's right. We can do the same thing on the domain side, and then next year offer them another bundle. There are so many different elements to this, but again, it comes back to having the technology to manage through it, experiment through it, and then offer it up based on a point that the microbusiness will see value in it, and then they elect to do it.
Got it. Okay. Let's kind of break it down to the segments a little bit more. In Applications & Commerce, I guess another big talking point has been some deceleration in the bookings growth on what's been increasingly more difficult comps as the pricing and bundling go through. We're cycling that, and comps will start to get easier in the second half and into next year. You know, we've talked about Airo and pricing and bundling, and that drives across the board on everything. What else should we be thinking about in terms of what are the drivers in A&C? You've talked about commerce, you've talked about the seamless experience. What are the elements that drive that reacceleration? You haven't specifically got into it, but that drive that other than the easier comps.
Yeah. Q2 was our hardest comp. We grew 24% in A&C last year, which was our highest growth rate for the year, for the quarter. We were comping back to this. As you pointed out, the comps get easier in the back half of the year. It doesn't change how we feel about the momentum of A&C in and of itself. We are seeing strength in new, we're seeing strength in renewals, all of which are the indicators that I've given you. That gives us a lot of confidence about our ability to continue this moving forward. We see commerce growing, we see websites growing, we see email continuing to grow. All the underlying elements have that growth. As you look at it, there are things we've talked about in our Investor Day that were out there that we hadn't put numbers around.
For example, partnerships, that's an opportunity for us that we haven't built into the model today, but could help us as we go forward. The underlying elements of what's driving the growth, though, I always look at it as two different things. Now that you have all this in play, if you want to look at volume, we look at volume and we talk about attach and renewal rates and the new products and new customers buying new, coming in. The volume part of the business is contributing about 50% of our growth in and of itself. Then you talk about the pricing part of the business, which is the pricing and bundling and the value. I try to get this to the Px Q equation of how we look at it. The pricing and the value, that's the other 50% of the contribution.
this is A&C specifically?
This is A&C and across the business in its entirety. Right. As it relates to renewals and attach and our ability to bundle, a lot of that falls within A&C in and of itself. When you take core platform, it's domains. Hosting isn't growing. Right. Aftermarket transactions. When you really talk about the business in and of itself, it's domains and A&C and our ability to put that all together. [Crosstalk] Those are the two drivers. This is probably the first time coming out of Q2 that I have said, you know, 50% of our business is being driven by the volume part of the equation and 50% of our business is now being driven by pricing and bundling. They were equal contributors, and that momentum in and of itself helps us drive that growth in A&C going forward.
The underlying elements of what's driving it is just the combination of everything we are doing today.
Okay. Got it. On core platform and domains, you don't disclose it specifically, but if you look at the disclosures, you back into it. The domains, we do the work. The domains have been driven by pricing. It's been up like 10% the past few quarters.
It's been driven by both volume and pricing.
On the domain?
On the domain side.
On the domain side, because your domains under management has been down, I guess that's what that is.
It's similar to the customer conversation.
Right.
Right.
That number in and of that total domains is still growing.
Yeah, we're still the largest player by far.
I think in domains, pricing has been a bigger contributor. Is that pricing and bundling driving that? Is it less of the discounting? What's the sustainability in that, maybe on domain specifically on the P x Q?
On the P times Q, we did offer bundles within the core platform that helped drive the pricing element. To be specific, this wasn't us passing along the verified pricing. We did not do that this year. We instead offered a bundle with our domain that added protection that allowed us to drive that price point up slightly.
You did not pass through that at all?
We did not pass through verified.
When I say it's pricing and it's volume, it's the combination of the two again, you know, and some of that's being driven by the attach of the bundling, which in and of itself is a portion of that. It's equal contributions, and the domain registration business is, you know, it's been healthy and it's been steady for us.
Okay. I've got about five minutes. Any questions from the audience at this point? Okay. I'll keep going. I know. Just raise your hand. The market's almost opening, but all right, maybe let's talk margins and investment levels and maybe particularly around, like, you know, what we're seeing around GenAI and yes, there's an opportunity on the efficiency side, but is there an incremental investment level needed to kind of ramp up? You know, how do you see, and you talk about your North Star and free cash flow per share, how should we think about the points it takes in that?
Yeah. Our model remains stable, and the framework in which we do everything is consistent. We believe, number one, I'll start with we're a unique company in that our ability to balance investment and innovation and also, you know, return value to our shareholders at a significant amount, we think is a unique benefit of the GoDaddy model. I think we retired over 25% of our outstanding shares over the last three years. At the same time, we've invested in things like Airo. We've been able to launch, and our innovation muscle is very, very strong internally. That equation continues to be in play for us. Our ability to innovate and our muscle around innovation and looking at what we think is going to work into the market and then test into it and then be able to have assurances we're going to get the return is extraordinary.
We experiment with everything. We innovate, we prioritize, we experiment, and then we launch. That muscle has really worked and allows us to meet our customer needs. That's the second half of the equation, right? You have to be able to innovate, but you have to understand your customers. If you can understand your customer's needs, which we do through our Care organization, then you really have both ends of it and the ability to do that. We feel really good about the framework that allows us to operate and to continue to innovate organically and to continue to innovate in a manner that provides value to our customers and just drives the LTV equation within our model. In a long way, what I'm saying is we feel really good. Our model supports our ability to stay ahead of innovation, especially in this AI game.
Got it. What about in M&A? You made a comment, Ernest, about the strength of the balance sheet, being able to leverage that. You're talking about it here on the investment and buyback side. Has anything changed in your M&A approach? GoDaddy used to be a lot more inquisitive and you've kind of shifted to building or internally a lot more.
Yeah. Thank you for pointing that out. You know, when you look back, we made a decision years ago that the valuations on companies to go acquire innovation had gotten extraordinarily out of balance and that our ability to innovate internally was the way to go with things like launching of Airo. As we look back at, you know, what we could have done versus what we did internally, we were very happy that we focused on building the muscle around innovation in and of itself. Nothing has changed on our focus around that. How we look at any potential M&A still fits into the category. Strategic has to be financially, you know, work within our framework. We have to be able to integrate because everything works on this core technology stack. If there's something that comes along, we have the strength and the balance sheet to do that.
We've done so well internally, the bar around, you know, meeting those three criteria has continued to go up. Having said that, our leverage ratio remains, you know, pretty low. Our cash, you know, we generate a lot of free cash flow and our balance sheet remains relatively clean. We get a lot of inbound, but we do evaluate it based on a very strict criteria. If something came along, I never want to say never, but it has to be something that is accretive to what we're doing today that will drive the LTV equation.
Okay. With the stock where it is in the valuation, more willing, interested in doing buybacks, what about levering up to do either M&A or just how do you view leverage, I guess, on M&A and buybacks given where you are?
Yeah.
You also used to have a higher net leverage ratio.
Yeah, we used to have a higher net leverage ratio. We are becoming a bigger business, so we're trying to balance between the two. We have options and we'll evaluate those. We know we have options and that optionality allows us to evaluate what the right path forward is. We know we have all these levers to pull on if and when something were to come along that made sense for us to do.
Got it. One other question we get on the free cash flow per share over the coming years is the transition to cash taxes. Just to remind everyone where you are with that and your plans on managing that.
Obviously, we built up significant NOLs that we are still utilizing. We do not pay cash taxes in the U.S. as of today. We don't expect to be a full cash tax payer in the U.S. till 2030. Maybe with the new change in the tax law, that may even get pushed out. We're still evaluating the R&D credits, capitalization versus expensing immediately, and which one will benefit us in the long term. It is 2030 before we really start to see the impact of us paying taxes within the U.S. in and of itself.
Okay, all right. 15 seconds left. I think we could leave it there.
All right.
Thanks, Mark.
Always a pleasure.
Thanks, everyone. Sounds good.