Okay. Hello everyone, and welcome to JPMorgan Boston TMC Conference. Today we are delighted to host the GoDaddy management team. We've got Mark McCaffrey, CFO. We've got Christie in the audience as well from the Head of IR team. Mark, welcome, and if I may begin with some high-level microbusiness health questions. What customer behaviors most reliably signal improving microbusiness health, and where do you typically see some early changes?
First, thanks, Alexei, for having me up here. It's always good to talk to you. You know, the microbusinesses, and when we talk about you know, small businesses, we really refer to microbusinesses and entrepreneurs. To put a little distinction, you know, some people classify small business as 100 people. Generally, our customer base and who we deal with is, you know, a couple people, mom-and-pop shop, an entrepreneur that maybe has multiple different endeavors going at once. It really gets to what I would say that true, you know, rigor, somebody who has a lot of passion about what they're doing, 'cause, you know, they have choices of what they can do and can't do, and they choose to do whatever endeavor they're on. That's what we continue to see.
This group, despite the fact, there are a lot of concerns about the macro environment and a lot of inflationary pressures being put on them, especially in the microbusiness area, they feel really good about their prospects to launch a business, create a business. When we surveyed them, you know, more of them, most of them believe they're gonna make more money this year than they did last year at their endeavor, and that's despite the fact that they have to pay out or may be being impacted by the inflationary pressure that exists today. We're, we're definitely seeing what I would call a healthy, passionate, very durable group out there. We're seeing the behaviors within our own funnel that are very similar to that. We're seeing a lot more ideation.
We're seeing a lot more demand for the domain in and of itself. We're seeing a lot more people wanting to be online and get to more markets. We're seeing a lot more attach of products. The one-stop shop is definitely well received within our customer group. The simplicity of being able to get online and get to a transaction faster than you ever could. Even the availability of markets that in the past were not available to them. These are the positive signs that this group is really feeling good about their prospect going forward, knowing that there's a very volatile environment they're dealing with in and of itself.
Great. No, that's good to hear. We understand that discovery is now shifting in AI first world. From that perspective, as more customer journeys begin inside AI interfaces, what changes, if any, are you seeing in terms of traffic patterns and conversion paths?
We're blessed in that our brand has been so strong for so many years that when it comes to the domain, you know, being the place where you start to ideate, that people come to GoDaddy just naturally. A lot of our traffic is based on just our brand in and of itself. Now, there is search elements to this, there's no doubt you're seeing a switch from the traditional search metrics to the LLM search metrics. You know, I think everybody's adapting, just like we did to the search when it came out the first time. We're adapting to what terms seem to get picked up. What is the simplicity of the offers you have out there? How do you gear that traffic in?
It's just becoming a natural part, I would say, the cycle in and of itself. It's not something a lot of companies haven't faced before and are used to optimizing for. I think what you're seeing today is the optimization around the new, you know, search LLMs that are coming into the funnel.
When it comes to high-intent customer definition, can you maybe help us define and measure this high-intent customer? Specifically, what are early cohort signals most influence how you tune acquisition channels and various offers?
When we talk about high-intent customers, we're talking about a customer who's coming in with an idea that they want to create or launch or do something online with their online presence. Could also be in store, but they have an idea. And that's different from what we call, maybe partnerships, or in and of itself, you know, investors, which we refer to in the domain space as well. Those are different cohorts of customers. We're going after the high-intent customer who not only wants a domain name but wants a website, wants an email, professional-looking email, wants to transact or share content. And that high intent is what we gear our one-stop shop around, and take the discovery and engagement, make it easy for them, so to say.
It's also a very profitable cohort because they're adding more products. They have a tendency, they have a higher renewal rate than other customers. They have higher retention rates in and of itself. Our ability to get to that LTV equation exists within that customer cohort in and of itself. We use $500 as a benchmark. I think we've been using that since our IPO, so it's not something that has been discovered recently. Generally, we look at that $500 population, customer who spends $500 with us annually, that to get there, you generally have to be purchasing multiple products from us. That is a good indication of us that you're getting value from our products, and that is the cohort that, when they get there, has a near perfect retention rate for us.
In that respect, when you run promotions, what markers do you watch to ensure that you're not trading long-term value for short-term volume?
We always look, we start with the traffic that we're getting into the website, who's going to the offer. We look at the conversion rates, we look at the attach rates immediately. We take, you know, in the initial order size, are they attaching products immediately? Subsequent to the order size, we look at activation. Activation to us is a clear an indicator that a customer will renew when it comes to the renewal cycle. Why? They're using the product in and of itself.
That's, you know, having that data and being able to observe that gave us confidence with our recent offer that we put forth in Q4 that that one-year cohort would renew at an effective, you know, retention rate that we've seen in the past from our other cohort, one-year cohorts, because we could see the signals around the activation once they came in and accepted that offer. Those are the things we continue to monitor, and it'll also make sure that we stay focused on that high-intent customer. The $4.99 offer, just to be clear, was only for new customers buying their first domain.
Once we get them into the funnel and they start to maybe get more domains, maybe look at other endeavors, like I said, a lot of our entrepreneurs do multiple endeavors at a time, our ability to keep them within the funnel and attach and keep them within our platform increases.
From that perspective, what requirements and changes have improved the balance between customer adds and bookings?
Customer adds and bookings. Again, we've seen the ease of use within the Airo platform, and now the Airo platform sits on godaddy.com. It allows customers when they're going through the purchase path to attach those products, to launch a website immediately, to get to those second and third products we often talk about, that allows us to increase the bookings. Again, you know, customers in and of itself, as long as they're the right customers, will drive that LTV equation we have talked about for years, that when you go from, you know, one product, assuming the one product's a domain, you add an email, you add a website, and then you add transactions, goes to 83x over time. That is what drives our bookings number over time.
You know, we feel really good that LTV equation continues to strengthen.
Mm-hmm. In terms of your decisions around your portfolio, what are the biggest considerations when you're looking at potentially retiring or simply taking out some lower value products? When you're managing near- term customer count impacts versus improving cohorts quality, like how do you address that?
Our focus is on the high-intent customer and our customer remains the center of our focus. No matter what we do, we're looking at the jobs to be done for our customers and our ability to provide those services. That sometimes requires decisions on our part. You know, we talked a little bit about an end of life of product that in the first quarter. We'll continue to make those decisions. In that case, it was a product that would require cost for us to service, but we weren't seeing growth in the product in and of itself. Quite frankly, we weren't seeing that it really was fitting a customer need today, and it might have fit a customer need in previous years.
We decided to reallocate those resources to make sure that we were putting them towards development of products that are actually meeting the customer's needs today. Remember, we've been around for a long time. Microbusinesses have been around for a long time, their ability to compete online changes over time as the dynamics change. We're well positioned to make sure we are meeting those needs of that microbusiness and allowing them to stay competitive, that focus on the customer drives our decisions.
You've been talking about modernizing websites and marketing components with some of the AI native capabilities. Can you talk about some of the success metrics that you need to see before you scale distribution more broadly?
Again, we look at the customer behavior. I am blessed. I have a CEO that is well engaged in our product development right now. Matter of fact, he is talking to customers as we're introducing these new website developer applications. And we talked about Airo AI Builder. And he literally is going back and forth with customers to find out how they were working with our other products, what they're getting value out of, some cases what's not working. It's real-time feedback and that continues to be, you know, the driver of how we will launch these products out into the market as we go forward. We talked about Airo AI Builder, which sits on Airo.ai today.
We're gonna put some marketing around it because we've seen our customers really coming in, the demand coming in naturally on its own, our customers engaging with our products. They're building applications. They're using those applications. They're not only using the tokens that we're giving them in the initial pricing packages, they're coming back for more tokens afterwards. We're seeing the exact engagement we need. Now, we haven't put Airo App Builder on godaddy.com in the purchase path yet, but we will continue to evaluate the traffic that's coming directly to Airo.ai for the Application Builder, and seeing how our customers continue to engage. Now, we will, at the same time, we've talked about we're upgrading, Websites + Marketing and making sure that that has, agentic, AI native, components to it.
We're going through that process today. We're seeing how that's integrating within the purchase path within godaddy.com. We feel really good about that progress and we'll continue to now look at that upgrade as we get through throughout the rest of the year.
Which, next best actions, you're sort of consistently introducing in order to increase the durable multi-product adoption, after the initial entry product?
Yeah. Again, ease of use within the Airo platform has been the key to our success in our LTV equation over the past few years, and we continue to look at it as the primary driver of customers coming in with the ideation of a business that they want to launch and offering them using our 30 years of history, our data set. You know, we have a great care organization. We get 1.4 billion signals from our technology stack every day. These technologies and this data allows us to turn that into customer insights.
It allows our customers to, you know, anticipate what their needs are gonna be, what their next steps are gonna be, where they're gonna get value, where they can do better, where they, where they can maybe, you know, stray away from if it's not being as profitable as they need to be. That continues to be the primary driver of how we engage with our customers and how we get them through discovery to engagement and ultimately to monetization.
Okay. Perfect. Tying this all together, over time, what do y ou view as the biggest growth algorithm for A&C growth? Would it be new customer attach or maybe some install-based expansions, pricing and bundling, some AI native products? How do you expect this mix to evolve?
Yes, it all evolves. The primary model of A&C being the second and third product attach stays intact, right? Domains continues to be a great funnel for us and a great bringing in of new customers. That sits within our core platform. Our core platform, you know, once they start to attach, that becomes a second and third product. It's at a more efficient base for us because, you know, we're basically already have that customer in the GoDaddy platform in and of itself. We evolved that several years ago. We consolidated the technology stack to make that all happen very seamlessly. That puts us in a very efficient place going forward to continue to add products. We can add partnerships into that process.
As we've talked about on some of our calls, we can launch new products, and we can also, in certain cases, end-of-life products if they're not working for our customers. We can do it all effectively and efficiently. Again, our model is designed to be as efficient as possible, and we continue to see the benefits of that. A&C continues to be the, you know, the growth driver, although I will say we've been very happy that domain remains a healthy part of the top of the funnel. We're seeing a lot more micro-businesses and entrepreneurs come in with the idea of going online a lot faster, which allows us an opportunity to attach to the second and third product.
As we launch things like Airo AI Builder, that will sit within the A&C segment to the extent of the technology in and of itself. A lot of times when people are building applications through our Airo AI Builder, the first thing they're doing is securing their domain name. That remains a part of the core platform in and of itself. You are seeing a little bit of a reverse attach here. Again, early stage, we're in beta, we're excited. We're gonna start to put some marketing dollars around driving traffic right to Airo.ai, but the engagement by the customers as of today has continued, and the momentum continues to be there for us.
Mark, you talked a lot about Airo, where it drives a lot of durable value today. Maybe talk about where you think the biggest untapped opportunity as functionality expands. Is it conversion or some attach activation?
Yeah. We, we look at the markets, very broadly, and we look at our opportunity as the jobs that need to be done by our customers increases in the market today, as AI becomes more of a commonplace technology that everybody's engaging with, not only, the technology companies. We see there is gonna be a great opportunity to add more and more tool sets that allow our customers to be successful in the agentic world, where even things like ANS and registering their agents, we think is a great opportunity to build trust and security, something that exists in the domain space today and broadening that to the agentic space. We also see great opportunities.
We like to talk about AI a lot, within the mature markets, but there also is a lot of global markets that are coming online or maturing online. We think there is a great opportunity to expand the maturity and the product base that we have today into maturing markets internationally. We see a lot of opportunity out there. Everybody likes to focus on the mature markets and how AI is working and within the mature markets, but there are a lot of markets out there that are coming online, are starting to transact, and we think is gonna create a great base for us going forward because we are set up to be a very efficient global company.
Mark, obviously still very early days for Airo and AI monetization, but, maybe directionally, how are you thinking about it longer- term, about the model for agentic experiences? Do you think it's going to be more subscription tiers, or is it going to be credits or consumption based?
Yes. Listen, we're not locked into anything specific, but if you were asking me today, you're gonna see a combination of subscription and usage-based tokens. We've started with that. We're seeing not only our customers come into Airo.ai and sign up for the subscriptions, they're using the tokens they're giving within the pricing plan. They're coming in and buying more tokens today. That is a great indicator that they're getting value for the price that we're charging, and we'll continue to look at that as a pricing tier. Like I said, we haven't moved it into the purchase path within godaddy.com yet. That'll be the next evolution, and we'll see what makes sense from a pricing standpoint once we put it into the regular purchase path.
I would envision you'll see a combination of multi waves to do this. Again, we will focus on our customer base, what works for them. Remember, our customer base not only gets the benefit of using these tools, but they also have to pay for them, 'cause they're the entrepreneur, so they cut the check at the end of the month to make sure they're getting the value of the technology, and we'll make sure that we are sitting within what is reasonable for the value they're getting from what they're getting by using our tools. That has always been our model. Our ARPU is $240 plus and growing, but that because we focus on the entrepreneur and their wallet share and their ability to do what they need to do and their ability to get value from our tools.
Perfect. Mark, an important topic you talked a lot about at the end of last year was your A&C strategy. I would love to speak to you about the right to win. How do you articulate GoDaddy's right to win in that space, and what needs to happen to reach that critical mass? Like, are you thinking about some standard alignments or partnerships or developer adoption?
Listen, we're very excited about ANS, and right now our focus on ANS is adoption. You know, we now operate in an open internet that sits on the DNS infrastructure. As this becomes more agentic, or agents operating on the internet, it has to operate within a secure infrastructure that is reliable and trusted. That's what was created around DNS, and that is what is going to evolve around ANS. We are at that maturing infrastructure phase right now where people are starting to think about this and starting to think about the concept of an open internet remaining. You're seeing people, you know, make announcements with us that are saying, yes, they believe ANS will be the infrastructure for the agentic internet going forward. Right now, that is our sole focus.
Now, as the largest domain player out there worldwide, we acknowledge our infrastructure is very much geared on the DNS infrastructure, and therefore, ANS maturing over the DNS infrastructure does create an advantage for someone like us. Having said that, it is open to everybody. To us, the most important thing is to get adoption around the ANS infrastructure because we believe for micro-businesses to be successful, the internet needs to remain open, and everybody needs to have access to the internet and be able to transact where they want to transact, whether using agents or the human element going forward.
In terms of monetization, as adoption hopefully grows, what principles will guide that sort of packaging and pricing so you can seed the ecosystem while also capturing that long-term value?
Yeah. We've seen the economics around the domain space. I'm not saying this will replicate it exactly, but, you know, the idea sits in ANS as well. If you Like today, you have to register a domain name. You own that domain name, you renew it's yours, it's your real estate spot on the internet. With agents, it would be a similar functionality. You have to register your agent so people know it's authenticated, so people can trust it. You know, if you have multiple agents, you know, you would have to register multiple agents. You could do that under domain names, you can do it under subdomain names. There's a lot of things that have to be worked out and agreed to on the infrastructure in and of itself.
Once it is, the economics around it will be apparent. But it, you know, if we used DNS as kind of the blueprint of how ANS is gonna work, you can kinda get to the sizing of what the value that can be received by just having trusted, secure agents out there today.
Perfect. Well, I think this is a good time to see if there are any questions in the room. If you have a question, please raise your hand, you'll get a mic. Anyone? Perfect. I wanted to, Mark, ask about your care, 'cause obviously it's both a cost and also a growth engine for you.
That is right.
How do you decide which care workflows are here to automate versus keep human-led? What metrics matter most as you scale your AI-powered support function?
We look first of all, care is an important element of what we do, especially within our customer base, and I can't emphasize it enough. We're about helping our customers succeed and having, giving them access to whether human or agentic responses within our care organization remains a key part of our business going forward. Today, we are using AI more and more within our care organization. It's creating efficiencies. We look at statistics around resolution time to problems. We look at statistics around call time. We look at care guide productivity. We are now looking at agent productivity within our care organization and our ability to respond.
What we believe is AI will help our agents even more get to right resolutions of problems and even, you know, more effectively get to solutioning attach to our customers that help them be successful. We're in early stages of rolling this out. We've talked about a little bit coming out of our Q1 earnings. It'll take some time to roll out globally, we definitely see the efficiencies within the organization that we will be able to obtain without giving up our ability for that to be a pipeline to selling to our customers because our customers still come in with a need. Through this all, we will always have a human element.
There is always the use case that says someone needs to talk to somebody to get some help and that is something we will always make sure our customers have available to them. More and more people are getting comfortable using agents to solve certain problems, there's always an element that you want to call and talk to somebody. I was laughing, you know, I tried to move back my dinner reservation 15 minutes the other night, it took me 20 minutes just to get to somebody to, you know, move that back. We have to make sure we're not frustrating our customers. You know, again, our customer base is unique. When something's not working on their website or they're not able to transact, it impacts them immediately and our care organization is there to help.
Perfect. Also wanted to talk to you a bit more about your capital allocation strategy.
Yes
this has-
We have a strategy.
This has been a pretty significant area of focus for a lot of people. Would just like to hear, like how do you prioritize between buybacks versus some incremental AI and product investments as well as the M&A opportunity? What do you need to change for that priority to shift?
I think the important thing here is how we look at it and prioritize, and the structure we've used around capital allocation has not changed. We still look at it, using the same structure. We still look at buybacks as a key way to return value to our shareholders. We've used 95% of our free cash flow over the past years and put that back into buybacks, and at the same time we still invest in innovation. We feel we are in a great spot. We have a strong balance sheet. We still generate a lot of free cash flow. We reiterated our target of $1.8 billion for the year. We continue to look at, you know, what are we gonna get for the return of deploying that free cash flow and where we wanna deploy it.
We, we no doubt get a lot of calls on a lot of M&A, but our efficiency of innovation to do it organically has become so high that the bar for M&A has become even larger for us. For something to be accretive to our model, it really has to hit that bar of being strategic, financially accretive, and something we can integrate within the core technology stack. Although those principles have remained the same, as time has gone on, the bar around those principles gets higher and higher because of what we've been able to do and achieve internally. We feel, you know, number one, our capital allocation is not an or, it's an and. We've been doing this with investing in our AI products.
We're starting to see some of the, you know, metrics that we've put out in Q1 around the results of that innovation. We feel good. We have a very strong balance sheet and an ability to deploy if we see an opportunity out there if something makes sense. We have the ability to continue to return value to our shareholders right now in the form of doing share buybacks. We will continue to apply those consistently going forward. I always say I don't wanna give away the future, but if you look at our past history, that'll give you an indication of how we go and do all of this and how we've been effective at doing all of it.
In terms of, how you decide to simplify some legacy non-core hosting assets versus continuing to operate them as cash-generating businesses, like how do you think about that?
Yeah, we always evaluate. We, you know, I think every period of time we were looking at not only our customers' needs, what makes sense from an infrastructure standpoint for us. We talked about some of the things we did in 2023 that benefited our profitability in 2024 and 2025 and onward. Those were a lot of disposing of assets, you know, in some cases end-of-lifing products that didn't make sense for our customers going forward. We'll continue to look at that from an evaluation. There's nothing to call out today that we're gonna do differently. The assets we have, even outside of the core godaddy.com platform, some other brands are very profitable. They generate a lot of free cash flow. Our customers are very strong there.
They may not be the growth engine of the business in and of itself, but we still see value in those assets. If that changes, we believe there is another pivot we need to make around that or any of the dynamics would were to shift, we know we have the ability to execute very fast and effectively to make sure that we stay on track for growing the business, we stay on track for our North Star. We continue to generate our free cash flow very profitable. I'd be remiss that if I didn't say we were very happy that we grew our free cash flow per share 27% in the first quarter. That continues to be our North Star of what we try to make sure we're on track to deliver.
Mark, it's been 30 minutes and I haven't asked you about AI competition. What do you see as the most credible competitive threats at the moment? Maybe some specialists versus some platforms. Where is GoDaddy structurally much more advantaged given your integrated platform
Yeah. You know, my answer to this will always come back to the customer. You know, while other companies out there are entering the space, they're looking at enterprises. As I've always said, some of the bigger players are designed to sell 1,000 seats to one customer. We're designed to sell one seat to 1,000 customers. That is our competitive advantage. We know the market we're in. We know our customers. We know their needs. We will continue to focus on our customer needs at the price points that work within their wallet share. This is a market we've been in for 30 years. This is a customer base we know better than anybody.
This is where I always laugh that our CEO Aman is sitting out there right now texting with customers on what's working, what's not working, and they're texting him back. Our ability to stay in tune with that customer base is where our technology stack is geared towards and will continue to gear towards, and why we feel really good about our future.
How about AI cost governance? That definitely is something I'm sure you're focused a lot on. How do you govern those AI costs? Do you do model routing or some vendor strategy, internal models? Like what unit economics determine whether AI features, they get shipped more broadly?
Yeah. We've set it up very disciplined from the beginning, as we even launched into this, you know, several periods ago. You know, we have a consolidated technology stack, so our ability to use LLMs is regulated within our technology stack in and of itself. Think of, we have one pipe that we can turn on and off, but it can go and be directed to any LLM out there depending on the value, the cost, and what we need. We regulate it. Again, everybody understands that, you know, you can't run crazy and just start using this inconsistently. We stay focused on our priorities, what we're trying to develop. We know what the cost build-out is around that. We know what the product need is around that.
We stay focused within that strategy, in making sure we're not getting to the point where we're just building for the sake of building. It has to fit within our strategic alignment as a company. As a leadership team, we feel very strongly about that. We monitor that very closely. Obviously as a CFO, I pay very good attention to it. We feel we've set up the, I would say, the framework and the structure internally to make sure we're going places with purpose and not ending up somewhere where we hadn't anticipated. We feel good about, you know, hey, I put out there that we're on track for our 33% normalized EBITDA margin for the year. That's something we put out several years ago.
Even though the dynamics around a lot of costs have changed, we feel very confident that we can maintain that profitability and still stick within that structure that we had set to investors several years ago.
Perfect. Finally, Mark, payment strategy. How do you think about payments as a product that can drive monetization over time? Like, do you look at retention rates, data, attach, or some ecosystem lock-in? What differentiates your approach versus your peers in payments?
Yeah, payments has been great for us. We launched it several years ago as I would say, the next evolution of what we could offer for our customers for the one-stop shop. In many regards, it's bucked a trend of us being able to convert our existing customer base over to a new product. I say that, you know, many times it's very hard to convert existing customers once they're using another product over to your product. In payments, we've seen great success in converting, you know, payment transactions from our customers using an existing vendor over to customers using our. We've seen that in the growth of our GPV. We continue to be very competitive. The attraction to our customer base is the one-stop shop, right?
Where you're transacting on your website. You can be transacting on online, offline. You can be transacting in multiple different locations on multiple different surfaces, but it all operates within one platform for our customers. If there is analysis that needs to be done, if there is data they need to see, if the transaction for any reason didn't go through, they have the ability to work within one care organization versus multiple care organizations, and our customers actually see that as a huge benefit for them. It continues to grow. It continues to grow at a good size. We continue to be on track.
We think our biggest opportunity in front of us remains our existing customer base because that is customers who are already transacting at a certain level and converting that GPV over to our system is a lot of what's driving the growth within the payments processing for us. As new customers come in, you know, they're starting fresh, so their transaction level is usually a little bit lower, but they continue to grow over time and be able to transact. That becomes, you know, the future base of the growth of our payment. We feel really good that that is all interoperating, and we feel really good about the decisions to add payments, and that the growth in the GPV continues to be on track, what we have talked about for several periods now.
Mark, thank you very much for joining. Appreciate your time.
All right. Thank you.