Joining us is Mark McCaffrey, Chief Financial Officer, and Christie Masoner, Head of Investor Relations. Thank you both for being here today.
Oh, thank you for having us.
All right. Let's dive right in if we can.
Absolutely.
Starting with Airo. Mark, Airo launched just months ago, and in that short window you've already folded in GoDaddy Payments, customer communications, commerce, and other capabilities. As you keep expanding what Airo can do, how do you decide what gets built into it? How do you expect these Airo integrations to evolve the GoDaddy platform over time?
Yeah. We couldn't be more excited about Airo. Just a reminder, Airo. We launched it a couple of years ago, as a platform, and now we're revamping it as a product, and we're going to market with it. Couldn't be more happy with the success. Q1, we launched.
We disclosed the run rate then, and now we've seen it gone up to $50 million as we came out of Q2. The premise here is meeting our customer where they want to be using technology today. Remember, our customers are a unique group. They're the sole entrepreneur, the micro business, the mom and pop shop. They're not always technology savvy.
When they decide they want to engage with technology in a certain way, and we see our ability to meet that job to be done how they want to do things, it's on us to start to give them that. That's what Airo represented. The native exchange with Airo is exactly what they need. We introduced it into our existing customer base.
We saw some of our customers who had been customers of Websites + Marketing now shifting over to use Airo as their primary operating system in running their business because the capabilities are so much more now.
When we look at capabilities versus product roadmap, we look at value. What is the value our customers are going to get out of it? What are the product attach motions that will come out of it?
We haven't changed the basic attach of a domain, attach of an email, attach of commerce, like you mentioned. While commerce is a great example of a capability being folded in, the attach around the transaction revenue continues to be something that will act as an LTV driver for us in the future.
For us, it's looking at where the customer's going to get the value, what are the core competencies that we will put into Airo over time, and what are the product attaches, the jobs to be done, the presence that they want to have in the different areas that we can put into Airo and create that LTV. Remember, our product motion hasn't changed how our model works. When we get to that first product, it's 1x.
When we get to a second product, our retention rates go up significantly from the great 85% we have overall. When we get to a third product, we generally have a customer for life, and so those touch points within Airo and the ability to attach is what drives the LTV equation, will continue to drive our LTV equation going into the future.
Great. I want to unpack that just a little bit more. Scaled largely organically to date.
Yes.
Can you help us understand both the drivers so far in terms of new versus existing? I know you touched on that, but also potentially marketing as a lever in the future.
Yeah. Primarily now, and this is a little different for us. Usually, we launch things first into our new customer channel, and then we go into existing customer base. But we found that our existing customers were really attracted to the ease of use of Airo to manage their business, so we launched it within our care organization.
We saw customers converting over, the existing customers. That's primarily what you're seeing today. We do see some natural traffic coming directly to airo.ai. But that's more people that are organically coming on their own. We have not put Airo into our domain purchase path. That is coming. It's imminent. We're testing into market right now. That'll be the new customer, right?
That'll be the new customer that is coming in with that high intent that we now will have Airo as a primary attach motion within that purchase path. That's a big deal for us. The domain funnel continues to be our largest top-of-funnel, and putting something in there that attaches will be a big driver.
As far as marketing is concerned, we talked about coming out of the call that we are pushing marketing into the second half. We're doing that because we feel that we need the domain purchase path set up and ready to go to get the appropriate ROI on those marketing dollars as we put that into the market. Remember, when we're dealing with our renewal base, that's not necessarily a marketing push in and of itself.
That is driven a lot by the care organization and the renewal cycle, so they're existing customers. Marketing for us will primarily go in the second half into that new customer attach as we launch this in the domain purchase path.
Hopeful. It makes a lot of sense. I wanted to talk a little bit more about the domain purchase path. What are you seeing in these early tests, whether in conversion, LTV attach or otherwise, to give you conviction in potentially embedding Airo into the domain purchase path? How would you compare the experience to call it the existing Websites + Marketing?
Yeah. First, what we saw in Q2 gives us a lot of confidence that we're meeting our customers where they want to be using technology today. Remember, when we came out of Q1, we were focusing on developing two products, and putting them into market by this year. One was the website development tool, AI driven, and the other was the app builder, right?
Both AI driven. When we put both in front of our customers early on, it was pretty clear they wanted to use the app builder. The few differences between the two, they wanted into one product, and that's what Airo is today, that one product. The amount of engagement we're seeing in our existing customer base really tells us it is meeting their needs.
That gives us confidence that once we launch this into the main domain purchase path, that we will be able to see them engaging, activating, signing on, buying new products, utilizing those capabilities to create value within what they're doing. Now, the experiments are ongoing.
More to come as we get through the quarter, obviously. But right now, we're moving fast. We've seen the market. We know our customer. Remember, I keep coming back to our customer is the mom-and-pop shop.
We're not creating Airo for the developer community or the enterprise, right? We are creating Airo to meet our customer needs and create value for them at the price points that they can basically absorb. It's working.
Helpful. Shifting gears a little bit, could we talk about Airo unit economics? You've said Airo has been gross margin positive since day one by routing different tasks to different models based on cost and complexity. As leading foundation model inference costs grow and as you also expand capabilities, how do you maintain margin discipline?
Yeah. You used the exact word, discipline, right? We do everything with purpose. We look at everything. We make sure that we maintain optionality. There is no doubt we are taking advantage of our technology stack and the data that we've talked about for years that creates a competitive advantage for us.
Naturally, we have the ability to achieve some of the outcomes for our customers using our own technology. Now, to the extent LLMs come into play, because we use one choke point around our technology stack, we have the ability to direct how those LLMs are used and how they're delivering the outcome to the customers and at what rate they're delivering the outcome to those customers.
In essence, we've provided for flexibility on both ends for us that we can control the outcome and the cost end of it, depending on where we want to send it. That ability is designed so that we can evaluate as we go on how those costs are evolving.
We all know the LLM costs are going to evolve over time. There is a school of thought out there that they will go down, but we never know. But we have the ability to control both ends of it, therefore to remain in our gross margin profile that we will need to continue to drive our normalized EBITDA expansion into the future.
Helpful. Any insight into the mix of frontier models versus conventional open weight models?
Yeah. No mix. We haven't really gotten into that. But all I can come back to say is we've intentionally designed how we're going to market with Airo and the token usage so that we can maintain flexibility and handle the dynamics and make the decisions based on what works for our customers and for us going forward.
Great. Let's shift gears to the developer platform. That was pretty big news this quarter. It lets developers and AI agents search by configured domains entirely through APIs without visiting godaddy.com potentially. How do you maintain your ownership of the customer relationship and drive attach rates when the customer funnel moves towards LLMs?
Yeah. We talked about this and we did the press release for that the week before earnings. Essentially what it does is it expands the surface area at which we can reach and expand our services to customers so that, to your point, they don't have to come to godaddy.com to buy our things.
When we talked about it at that time, it was this is the first place that we're starting. We're starting with that domain relationship, and it is still a customer of ours. We still maintain that relationship, even if they purchase through that API in that interface.
We'll continue to expand the products and services that we offer onto those types of APIs. But they will still be on our platform and their sign-in will still be with GoDaddy, even if they do that initial purchase through those APIs.
We expect that that customer relationship stays the same and their purchase path will continue to evolve, and the things that they can purchase through API will expand over time too. But ultimately, the point there is adding another surface area to reach customers and to get new and different traffic into the GoDaddy platform.
Great. I wanted to talk a little bit about this transition for Airo, broadening, absorbing capabilities that today live in separately priced products, like the traditional DIFY services, template-based website builders, kind of a shift to monetize through a mix of subscriptions and token usage potentially as Airo scales.
What trends are you seeing in engagement and free-to-paid conversion that maybe give you confidence that the combined offering can drive higher LTV than the separate products that it replaces?
Yeah. So what we're seeing initially is customers are attaching in the Airo cohort at a faster rate than we've seen previously. We're also seeing that the overall, if you look at our customer base on a broad basis, I think it's over 50% have a second product. In the Airo cohort, it's over 70%.
We're seeing the behaviors around their ability to attach within their activity that really excites us, and again, it only propels that LTV model as we continue to go. It drives that retention rate up, obviously drives our LTV in effect higher over a period of time.
Now, it does change how some of the bookings translates into revenue. We are taking on somewhat of a new aspect with tokens, and that becomes a usage model. But this isn't something that's necessarily new for us.
We've gone from subscription, we have transaction around aftermarket, we have transaction around commerce. Now we're going to usage. Again, it creates a different dynamic, but something that we've done before with other products and we feel fully capable of being able to project out.
Now, the token usage is probably the most exciting part we've seen here because as customers have engaged with Airo, their use of tokens we can see going up. I have to tell you, it's pretty exciting, the Airo product.
I've used it on a couple of things myself and what you find is you maybe come in thinking about a website, but then you start to think about the other applications you can build within Airo and put them into play to create value from them. And when you start to do that, the token usage goes up.
The way the system's designed today is you basically get a certain amount of tokens per month. When you reach capacity within that month, you have the option to go up a tier and go to the next SKU level, or you can just purchase tokens outright.
The next month it starts over, so if you don't use them in the first month, the second month you start all over again and you're in the same dynamic. So that ability to create really drives that token usage.
And as customers continue to get value and they start to deploy this within their environments, we think that is going to continue to propel not only the subscription, but grow the token usage base going forward.
As we think about the financial implications of absorbing these capabilities, how do you think about the timeline for A&C booking growth to potentially re-accelerate or even surpass revenue growth and just what that maybe lag looks like?
Yeah. We are moving fast here, and quite frankly, we are moving aggressively. We have seen something in our customer base that we want to take advantage of, and we believe we are in a unique position to take advantage of that. With that is some of the things we talked about in the transformation that we announced coming out of Q2.
We are doing it from a position of strength, and that is the way we continue to look at it. I would also add that despite the fact that we are seeing this overlapping period, I never moved off my free cash flow promise of $1.8 billion. I say that because, again, we have seen something in how our customer wants to engage in technology and get value, and we are taking advantage of it. Now for the timeline.
We have talked about the second half of the year. Obviously, we will talk about 2027 as we get closer. We see Airo continuing to contribute to the overall bookings number. It was not an insignificant contribution in Q2. I did not say an exact number, but it was not something that was insignificant and continues to grow.
We have talked about that in the run rate. The one thing that we will see is when we launch it into the main purchase path, what that does to the timeline as to how long it will take to replace some of the other products we have built into it, like Websites + Marketing, like DIFY, which we have talked about, and what will that timeline look like.
What we feel really good about it is we have the ability to control all the levers as we go through this to maintain that, hey, we are doing great on our free cash flow per share. We are over-delivering what we promised a couple of years ago, and that during this period of time, we will continue to grow that Airo base, and that Airo base will continue to drive that LTV.
Not only will it give us more opportunities going forward, you talk about the ability to go into verticalization offerings within Airo itself. You have the jobs to be done and the adding of more products, whether they are through partnerships or our own product development. It really opens up the door to become that operating system for the entrepreneur, for the micro business, and we are excited at where that is going for us.
Speaking of opening the ecosystem, today's APIs are largely focused on domain lifecycle. You've said over time you see the opportunity to expand that same approach across more of the platform. Could you just talk a little bit about how you see those AI systems interacting with a broader set of GoDaddy capabilities over time? Both the access points, but also kind of broader usage.
Yeah, I think that when we're talking about the LLM visibility and sentiment, that's something that increasingly becomes more popular and more important over time. GoDaddy benefits from having the strongest brand awareness in the space.
We get a very large amount of our traffic, over 60%, that is sort of organic and direct navigation to GoDaddy. So in the period of time that LLMs have started to gain importance, that hasn't really had an impact on our traffic terribly much.
That being said, over time, that will become more and more important. We have work streams focused on essentially understanding that traffic and how that sort of comes to us and how we can drive better sentiment across that space. It was kind of reminiscent of the early days of SEO, right?
When Google first started, the SEO was a black box, and nobody knew how to figure it out. Once everyone figured it out, it changed. Then everyone refigures it out, right? I think that we're in a very similar situation with LLMs, where it is a new black box that we're all trying to sort of figure out.
I don't think that anyone has the silver bullet per se, but we're all working towards making sure that we are showing up, getting better traffic, and getting better sentiment and finding improvements over time. We've already started these efforts a while ago, and we've been measuring how we show up on both of those measurement factors, and we've been showing improvement over our efforts for the last several months.
This is very important. How you show up and why you show up is very important in this aspect. Our strategy is around high-intent customers. We want to be attracting, whether it's through organic to our website or through an LLM or any other search engine out there, we want the right customer. We're not a deep discounter.
We're not looking for the cheapest domain out there. We want the customer who's going to come in with the idea that they're going to create something with a domain or anything else they're looking for and really wants to move to the operating system that will provide them value.
That's what we're spending a lot of time on. LLMs, they're not going away. We all know that. They will become increasingly important, and how you show up and why you are showing up becomes increasingly important, and that is something we are laser-focused on.
That is something we have been getting quite a bit of questions about because of the different pricing models of competitors in this space. I think it is important to understand and acknowledge, like what Mark was just saying, it is the high-intent customer that is looking for how to build a micro small business and how to run their business on a day-to-day basis and have all of the end-to-end connected applications that they need to have, not just day zero success, but day 1 through day infinity of starting their business and growing their business and managing their business over time. Those are the areas that we are putting a lot of effort towards showing up better in LLMs.
As we think about where your customer acquisition channels evolve to, domains, as you pointed out, are still the biggest customer acquisition engine. We have seen an acceleration in registrations this year, in part supported by that $4.99 promotion. Beyond pricing, what do you see as the real levers in terms of attracting these new customers through the domain funnel?
Yeah. Listen, again, 60% of our traffic comes to us because of our brand. That is something we have built over years. It is a huge asset, huge advantage for us. Making sure we get to that high-intent customer becomes a very important aspect of that. So we are very particular in the type of traffic, where those things like the $4.99 offer show up, when they show up.
I think while we put the $4.99 offer there, a lot of people lost the fact that it is only for one domain for a new customer, because we do not want people coming in and doing multiple domains with it. Obviously, we want somebody who has that high intent.
So that continues to be a straightforward, very applicable strategy for us that has continued to work. Remember, 2 years ago, we stopped doing the discounting at the top of the funnel in a significant way.
Deep discounting.
Deep discounting. What we have today is we are seeing almost 2 years later, the stronger retention rates showing up into the cohorts that started to come into our funnel after we stopped doing that.
That becomes, to us, something that has worked time and time again and we will continue to focus whether the traffic changes from LLM to search or other channels, because there are other channels that are still very, very good out there. It will also work within our 60%, which come to us just because our brand and domains and our brand around businesses and entrepreneurs are so strong.
Well, on top of that too, there is obviously a change and a shift over the last several number of years that is about putting the marketing message out there that is for those high-intent customers that are looking to do more, that want to have that full stack of solutions. When we can market to those customers and in the onboarding path, drive better attach and conversion and activation of additional products, we are building a better base of customers.
When we already have 20 million customers that are a part of the GoDaddy space, which is massive, and now we have more than half of those customers that have at least two products with us and have a higher LTV and a higher retention profile, we continue to drive towards that because those are the profitable customers that drive long-term profitability, long-term cash flow generation. It starts with the marketing message. It starts with the brand. It starts with getting those high-intent customers and really looking to drive the growth of those types of customers.
And let's not forget about our care organization, which has been instrumental to us being able to have the right to win in this market.
Great. I want to take a few minutes to open for audience questions, if there are any. Otherwise, I can keep going here.
Yeah.
Cloudflare a couple of months ago was talking about-
We have a mic coming.
agents that persist, right? And that it would need DNSs. Can you just talk about that, how that would affect you? Is that real?
Yeah. Our belief, and we've talked about this under our ANS strategy, that ultimately the DNS infrastructure will be the driver for the agentic traffic that happens within this environment. Cloudflare said it. We have said it. I think multiple others have said it now. The idea being right now there's no governing authority on who gets to use what agent, what agent gets to perform what tasks.
Ultimately that will be required in order for us to get the trust and surety around interacting or having agents interact on our behalf. DNS is a proven, time and time again, infrastructure that already exists. It's already been out there for a number of years. Building the ANS infrastructure as an extension of the DNS infrastructure, we all believe is the natural evolution of how the agentic world will start to evolve.
I think multiple technology companies have now taken the position that that DNS infrastructure can act as a base. Now, you think about the alternatives, which I think is important to look. Well, if that's not it, how does this work? It would take years to create an infrastructure that could take or handle the agentic traffic that we are anticipating, and someone would have to build that from the scratch.
That's why I think we're all getting to that position that the DNS infrastructure is important. Now, as the largest player, yes, that is an advantage to us, no doubt. But it is almost like open source, right? It is an advantage to anyone who wants to play within the agentic naming game as we go forward.
And we just want to make sure that everybody has the assurance, the trust, the idea that the internet needs to remain open and needs to be free for everybody to use to transact on and do whatever endeavor they seek to do out there. The idea being, if you are a micro-business, as an entrepreneur, you have the right to be on there transacting.
You have the right to be able to do it in a manner that you can compete with other players out there, and that no one is controlling the volume, the value, what you are trying to do, what you are trying to create out there. I think many companies, including ourselves, are actively promoting that as we sit here today.
You also developed the Agentic Resource Discovery this past quarter, ARD. That paired with the ANS. To your point, domains becoming this trust and discovery layer for the agentic web. How do you think about GoDaddy's role here? Maybe the domain front, but also maybe on a monetization angle over time.
Yeah. We also talked too about giving the reference implementation to Linux, and that is sort of the instruction manual for everyone who wants to participate in this part of the infrastructure of the internet. You can think about it over time. We are still at the point in which we are getting to that tipping point of adoption for broad adoption across the space.
It is not there yet, but once it sort of does get there, and we have seen a number of companies, like Mark said, that are embracing this as the right open source solution for how to handle the billions of agentic traffic that is going to crawl around the internet. The monetization path, you can think of it somewhat similar to how domains exist right now, right?
There is going to be a set of registrars that will give out the, "Yes, this is the agent that it proclaims that it is," and you can understand the provenance of this agent. You can understand where this agent is connected to or who owns it, similar to how you can do that with domains now on DNS. The monetization would probably work pretty similar to domains, but more to come on that front.
Okay, fair enough.
Right now, the most important thing is the adoption
Yes
of this and everybody moving in the same direction, so there is not conflicting kind of thoughts or theories about how this should work.
Great. Let's move on to the financials.
Awesome.
Everybody's favorite, you're the CFO.
Yes.
Reaffirm guidance for the $1.8 billion free cash per share CAGR tracking above 25%. As Airo scales and the revenue mix shifts more towards maybe subscriptions and tokens, how should investors think about free cash flow margins longer term?
Yeah. Again, more to come as we start to look at 2027, but our North Star remains the same. We'll have an investor day, investor event on December 1st.
Night.
Investor night on December 1st. We'll go through what that means for the future and how this will all roll out on a long-term basis. There's a couple things that I think I've already said and I'll say again, is our North Star around free cash flow per share will remain our North Star, right?
That is what we strive, that's how we drive value, that's how we return value to our shareholders. Our capital allocation framework that we've put in place has worked extremely well.
We grew free cash flow per share at 28% for the quarter, and that was through a combination of not only hitting our free cash flow targets, but also being aggressive in our buybacks during the quarter. We love our ability to use those levers to drive that number up as well as return value back to our shareholders.
Makes sense. On the investor night, any kind of preview of what kinds of announcements we can expect?
Oh, if I said anything, then people wouldn't show up.
Make sure to get there, Michael.
We'll have some good dinner. We've done an investor dinner now annually during the same time period. This will be an expanded preview, not only of what we're looking at from the product standpoint and our strategy, but also what that means to our financials and what people should expect to see.
I will say that no doubt the world is going to change the geography of how things are showing up. But the underlying premise of combining growth and expansion of our normalized EBITDA margins to drive that free cash flow and ultimately execute our capital allocation strategy remains intact. Although some of the moving parts within each of those categories may change.
Great. Any other questions from the audience? Perfect. On the subject of profitability, Airo Care, improving resolution rates by about 50% in initial tests. Beyond AI improving the underlying economics of queries and consumption, how do you think about AI improving broader organizational profitability?
Yeah. So no doubt when I talked several years ago in our investor day, I laid out the framework of how we were going to expand our normalized EBITDA margins. I pointed at three things. We were simplifying our infrastructure.
We were creating one technology stack. We were expanding our global footprint for people, which was going to give us a tailwind. Also, as A&C, which is a higher profit point for us, was growing and becoming a bigger part of the pie.
Those three were adding to our ability as a company to expand our normalized EBITDA margin. So here we are today. We targeted 33% for 2026. We are still firm on delivering that for 2026. But now the world has changed.
When I put those levers out there, we were not anticipating the productivity gains we could see from the use of AI internally, and we are seeing those productivity gains. There is no doubt they are starting to show up in our P&L and giving us a little bit more flexibility as to where we want to invest versus where we want to expand our margins and continue that journey.
An example you brought up, care. No doubt care is getting better at resolving things faster. Care AI, we are using it in more places within our care organization. Technology, engineering, coding. Our engineers are getting better and faster at putting capabilities and products into market. Airo is a perfect example of that.
We moved very fast to get that into market, and we continue to iterate, but we are doing that at a more efficient basis because our engineers are just becoming faster. Then quite frankly, G&A. There are so many things out there that AI is helping. I am sure other organizations are seeing the benefit.
We definitely are. But whether it was reliance on third parties to do certain tasks, now we can bring in-house at a much better economic point than in the past. Whether it is just getting the integrations between systems and sometimes even we have built our own internal applications, and we have deployed them using our own Airo technology now that has allowed us to get better and reduce manual tasks that we would have in the past had to rely on a people within our organization or contractors.
All that was never anticipated when we were putting out the 33% target. When I look to the future, and again, we'll talk about it more as we get through the year, I become very excited about our ability to lever those productivity gains to make sure, number one, we're innovating for our customers to continue the LTV that we've been driving for almost 30 years now.
And return the value to our shareholders by that, I always say our normalized EBITDA, free cash flow conversion's pretty much at one to one, if not a little better. Those are by design, and those allow us a lot of flexibility as we move forward. And again, it's coming from multiple different areas within the organization.
Great. One or two, I think, final questions that we can fit in. Any other questions from the audience? Perfect. Quick obligatory question on the competitive landscape. I understand you have a very unique customer set. Any changes in competitive intensity overall?
No, listen, we continue to make sure we remain laser-focused on our customers. We have a right to win in this customer base. We are positioning ourselves as the operating system for the entrepreneur.
That allows us, and I've talked about a little bit, future capabilities around verticalization, products and adding products into that mix as well as their jobs to be done expand. But we've always felt like we know this customer, we own this relationship.
Now, competitors could be doing stuff. I'm not saying we're acting blindly, but we also know when it comes to building tools that create value for our customers, we're better than everybody else.
Great. One last one then on the long-term strategy. What gets you most excited about our product roadmap, your product roadmap at GoDaddy? If we were to sit back here in a year from now, what two to three things would you like to be most proud of?
Yeah. I am not an engineer or a product developer myself, but what I've been able to do on the Airo app builder, our Airo product today, is blowing me away. I have created even internal things that I've launched in my household. My wife is very happy I'm doing this, right?
Because it allows us to actually exchange data between us, so we can get to simple things and decision-making that we're making on a long-term basis. But the ability for Airo to change the landscape excites me, and when you're in there using the technology, your mind starts to really, "Well, what if I use it for this? What if I use it for this?
Can I create this?" As a non-engineer product developer, when I start creating applications and launching them, and then giving them to my wife and my kids and say, "Hey, use this as how we're going to do this in our household." It really starts to sit there and tell me, the sky's the limit. This is exciting.
This is a game changer. It's the operating system, not only for the entrepreneur, but the operating system for the household at the end of the day, because people can do multiple different things within this application.
Again, you asked me what excited me, I could keep going. I would start to describe all the applications I've actually built. I half joking, my wife's excited about half of them. There's probably half of them that she's not excited about because I'm having too much fun with it. I really think Airo is a game changer, and I can't wait to see people engage it and really realize that the technology is unbelievable.
Perfect. I think that's a good place to wrap, unless there are any final questions. Thank you so much.
Thank you.
Mark and Christie for being here.
Thank you