GoDaddy Inc. — 2024 Q1

Welcome to GoDaddy's First Quarter 2024 Earnings Call. Thank you for joining us. I'm Christie Masoner, Vice President of Investor Relations -- and with me today are Aman Bhutani, Chief Executive Officer; and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. [Operator Instructions]

Good afternoon, and thank you for joining us today. At GoDaddy, our mission is to empower everyday entrepreneurs and make opportunity more inclusive for all. Our strategy relentlessly focuses on creating customer value and successfully transitions it to shareholder value. This is the driving force behind our profitable growth model, that maximizes free cash flow. I'm excited by the innovative experiences we are delivering for our customers, the dedication and velocity of execution of our teams and the trajectory those have created for our company.

Thanks, Aman. We are pleased to announce our strong Q1 results and continued track record of durable growth. We've demonstrated attractive progress toward our North Star, delivering strong free cash flow of $327 million, alongside continued execution of our capital allocation strategy, which reduced our fully diluted shares outstanding at the end of the quarter to 146 million.

1 ratio.

1 powers our substantial cash generation.

1 normalized EBITDA to free cash flow ratio, coupled with our disciplined capital allocation framework, creates significant value for our shareholders. While I am pleased with our progress towards our North Star, we are far from done, and I continue to have strong confidence in our strategy and execution.

Thanks, Mark. [Operator Instructions] Our first question comes from the line of Ygal Arounian from Citi.

Maybe I'm just going to start on the strong bookings growth. And I know you talked about pricing particularly in A&C. But 22% booking growth there, 1Q. Almost 10% overall coming off of the strong booking number in 4Q as well. Typically, we think of that type of acceleration as really meaningful in driving revenue growth acceleration in the back half, but we didn't see that in your guidance. So how should we be thinking about how that translates and what all that means as we kind of look through to the whole year here?

Ygal, thanks for the question. We couldn't be more excited about the bookings growth in A&C and the momentum we have coming out of Q1 and the impact on the rest of the year, no doubt about it. As we get into the bundling, just a reminder, revenue is recognized from the bookings and it can be on different periods of time. So that momentum will continue. But given the size of our business, obviously, it takes a while to show up into the revenue growth numbers as we go on, couldn't be more excited about it, though.

Okay. Great. Really helpful. And maybe on Airo, I know you gave some qualitative comments here, but any more you could share? You're rolling out internationally, where we've got a couple of months under our belt here. You mentioned you're seeing kind of domain customers move to Airo, when they're offered it. Anything you're seeing, incremental uplift in conversion, ARPU growth on the -- whether it's applications account collectively or just Website + Marketing, anything else investors can kind of hang their hats on how well Airo is doing? Or what is sort of going to drive the conversion you've been expecting?

Thanks, Ygal. Super excited about Airo. It's the best vehicle we have built to carry products to our customers. We know it's doing very well with new customers. And as I've shared, we've started to roll it out to our base as well. Airo just does a fantastic job of getting our customers engaged. And the metrics that we shared around it, they continue to be about discovery, which means our customers finding that GoDaddy has all these products about engagement, where they start using those products or you can say, attach them and then monetization where they start to pay for those products.

Next question comes from the line of Mark Zgutowicz from Benchmark.

Maybe just a follow-up on that impressive A&C bookings number. Curious how much you'd attribute to product attach versus pricing in terms of that acceleration? And on the pricing side, just curious how pervasive your AI or value-based pricing initiative is across your A&C base. Does it touch all A&C customers at this point? That's the first question.

Thanks, Mark. Our sort of value-based pricing, AI-based pricing and bundling initiatives have not gone across all A&C. It's starting to roll out across a lot. What you're seeing in the 22% application and then bookings growth is the combination of pricing and bundling, really touching our productivity and starting to hit our website business, too. So super excited about that. There is more to go there. So we're going to continue to invest in that area and go across not just AMC, but over time, go to every customers of GoDaddy and bringing them on to these new sort of pricing and bundling approach that we have.

Okay. Got it. And then I think you had mentioned that Airo is leading to some increasing website attach rate for your domain customers. I was just hoping you might be able to expand on that a bit, maybe just some KPIs that you're seeing, maybe conversion rate, but that seems to be maybe awakening a sleeping giant there for some time. Just kind of trying to get a sense of how significant that could be.

Yes, it's still early days, Mark, with our new customers. Obviously, that's a smaller stream of customers. With our new customers, we do see significant take rates for like a coming-soon website or actual website attach. We see that engagement -- sort of discovery and engagement and are doing really well. But the large, large opportunity, of course, is in our base. And we're literally not even 5, 6 weeks from putting Airo into our base. So it's going to take a little time, given the large customer base and our approach of going into it in a systematic manner.

Our next question comes from the line of Ken Wong from Oppenheimer.

Great. I wanted to maybe kind of pick your brain in terms of the rationale behind kind of changing payment pricing structure and then how you think about how that could impact the near-term dynamics and if you're sensing any kind of customer pushback there.

Yes. We're very methodical, Ken, on our approach to pricing. And like we've talked about, everything is tested. So we have tests out there, as we said, it's on a phased basis. And we're really trying to create multiple offerings for our customers. And while we maintain our position in the industry for being the best value for money. It allows us to have differentiated products within our portfolio and reach more customers.

Got it. And then maybe, Mark, just in terms of -- just remind us kind of what we should be thinking in terms of the lag between kind of revenue and bookings. And specifically, on A&C, where there's obviously a much larger delta from kind of the teens to the 20s, like how -- what -- just help us kind of think through what that convergence looks like.

Yes. And I'll take it up a level, too. When we think about the bookings to revenue, we have multiple different products, multiple different terms, the revenue can be -- come out in many different ways. The way we look at it is we think bookings is going to be 1 to 2 points ahead of revenue for 2024. And that'll give us a lot of momentum as we continue to see the results of the bundling and pricing initiative as well as the momentum we're seeing in things like aftermarket.

Just a quick add, Ken, that our general term in just around 12 months, a little over. So that can give you sort of the idea of how bookings will take about 12 months, get distributed about over 12 months for revenue.

Our next question comes from the line of Josh Beck from Raymond James.

Yes, I just wanted to ask about some of the success with the pay links. It sounds like it's driven an uplift on discovery and engagement maybe versus what you had in place prior. So are there certain channels, whether it's tech or social where it's doing a better job of driving engagement. Just, would like to understand a little bit, just some more context behind that comment, if possible.

Yes. The biggest sort of encouragement for our customers, the best vehicle we've put in place for pay link attach is being in Airo, right? And the way it happens is that when the customer buys the domain name, all these cards, all these capabilities get set up automatically.

Okay. That's super helpful. And maybe just kind of a follow-on to that last point. When you look at the existing base and you think about the conversion opportunities, should we be looking at, really, when these customers come up for renewal with their existing payment provider, that's an opportunity for you. Is there maybe a chance to kind of put some type of firmer pressure on them to really kind of incentivize them to move over? Just help us kind of understand how you're helping promote that conversion.

Yes. There are some customer events -- customer-side events, for example, like you said, a customer coming up on a renewal. That may create an opportunity. But what we really lead with is that we have a relationship with these customers, right? GoDaddy has 65-plus transactions in NPS and in Care. Our customers are used to having a great relationship with us. So when we engage them, number one, they're open to the idea of GoDaddy offering them GoDaddy Payments.

Our next question comes from the line of Vikram Kesavabhotla from Baird.

Hey, can you hear me?

Yes. Hey, Vik.

My first question is for Aman. I think you mentioned in your prepared remarks that GABI has now been rolled out to the entire care team. Just curious what the early data points have been there in terms of the impact that's having on efficiency. I know at the Investor Day, you talked about the potential for that to reduce time and interactions for the team. Just curious what you're seeing so far there and what the early reception has been from the care team.

Vikram, a quick word on GABI. I'm super excited for what Gabby offers us over the long term, right? Being able to bring the massive amount of data that only GoDaddy has, working with 21 million paying customers and many more over the years, using AI to bring it together and putting it on the fingertips of every guide in the company, that's a powerful combination, right? And where we are is the tool is rolled out. The guys are starting to use it. There is, of course, always a little bit of time for adoption and training for people learning how to use even a new tool that's GenAI powered.

And Vik, on the normalized EBITDA margin, I would say, quarter-to-quarter, you may see some fluctuations depending on the timing of spend. Overall, if you look at Q1, we've always said accelerated A&C will be a tailwind to our ability to expand our margins over time. And with the pacing you saw in Q1, we saw some of the benefit of that. For the year, we're on track for the 31% to exit, and we feel good about that, and we're on track for the 29% for the entire year. And obviously, we've talked about our ability to expand that going out. And all those -- all that framework remains in place, and we continue to see the benefit of the ANC tailwind related to that.

Our next question comes from the line of Aaron Kessler from Seaport.

Maybe just first on any update just on macro, just what trends are you seeing there? And I know customers are flat kind of year-over-year. I assume there was maybe some disposition impact on that? If you can just talk on that? And then also the -- if you may, to that point, trends in gross adds that you're seeing along with that?

Thanks, Aaron. On the macro, I think the word we internally feel represents it best is a steadiness to the macro. And I think that's been a positive for us, right? We had and we talked about it in 2023, strong gross adds and customers coming -- continuing to come in at the top of the funnel. And of course, some divestitures and integrations as an offset to that for the company, which I look at that as a short-term gain. But good strong gross adds coming in.

Our next question comes from the line of Jian Li from Evercore.

So I want to kind of go back to Airo. First, maybe just to -- it sounds like Airo's still in the early days of monetization. Are you baking in any kind of contribution to revenue and/or any contribution to bookings for this quarter for that matter? So if you can kind of talk about the contribution here. And also, I think in the Investor Day, you sort of alluded to Airo being applicable broadly across DIY and Pro users. So I'm just wondering if there is any product features for Airo that you're building specifically for the pros or agency community?

Yes. Thanks, Jian. And I'll start with the first part, and Aman will probably answer the second part there. The way we're looking at Airo right now, we are in the discovery and the engagement phase. We haven't hit the monetization phase. We're very early on. We're looking at all the statistics. We're looking at the level of engagement around it, but nothing has been built into our bookings or revenue for that matter in our model today.

Yes. And I think the way you might think about it, a lot of value is being created for customers with Airo because they're getting a bundling -- bundled experience that's seamless, that's connected. And some of that monetization opportunity we have talked about like Airo Premium and pay walls, but there's also a monetization opportunity that would happen at renewals, but that would be a year out from the time the customer bought the domain. So just, Jian, keep that in mind as well.

Great. Wonderful. And then just a quick follow-up on the GPV strengths that you're seeing. If you can parse it out a little bit, is that more customer attached growing? Is it more just the growing GPV per customer? And it's coming from WordPress marketing? Or more on the managed WordPress side? If you can just talk about also the growth of these 2 segments separately as well.

Thanks, Jian. The biggest piece of the driver for the GPV growth is actually converting our customers in the base. And a lot of that has to do with a broader solution than just the online solution, right? We have our hardware. We own the full stack from the hardware to the operating system on it to the applications on top of it. And what we're taking, really, is sort of this omnicommerce solution that we're trying to bundle in different ways and target to the customers that we have. So that's actually the biggest driver of the GPV. And it's a fantastic driver for GPV, right?

And like we've always said, the biggest opportunity in front of us for commerce is converting our existing customer base. That's where we're seeing the growth in the GPV today.

Our next question comes from the line of Elizabeth Porter from Morgan Stanley.

I wanted to ask again on Airo. We're clearly seeing the benefit with more attach and ARPU, but I wanted to better understand how Airo might be changing any sort of top-of-funnel demand. You noted some stronger gross customer adds. And then second, what is the potential implication on improving customer growth after some muted growth over the last couple of years?

Yes. On Airo changing the top of the funnel, we're excited about being able to market the GoDaddy brand as a provider of not just this expansive set of products and capabilities, but the provider that can bring you those capabilities in a seamless, intuitive almost magical manner. So Airo is not just an experience for our customers, not just a platform that GoDaddy has, it's something we're taking into our marketing and looking at ways to really dive into customer perception.

Yes. And we continue to be impacted by the divestitures and migrations that we've talked about. A lot of that's peaking in Q2 as some of these are starting to lap, but will abate over time. And as I always say in these scenarios, while we're attracting more of the customers with a higher intent that are attaching to that second product and they're engaging on the bundles and is very, very happy with, on the back end, we're losing what I call low-calorie customers that weren't really in there with any intent. So we're happy with the model. It should start to abate over time, and then we'll keep everybody posted on a quarterly basis.

Great. That makes a lot of sense. And then a follow-up on the margin side of the equation. There's the kind of mix shift to ANC, also leverage as revenue growth reaccelerates and you guys are taking also some specific kind of cost actions to manage expenses. So just wondering if there's any way to, like, stack rank some of these drivers as it relates to the margin expansion that you guys have in the outlook.

Yes. Elizabeth, I look at it in 3 buckets. We have the, what I would say, the tailwind related to AMC growing at a higher profit point, which continues to be, I would say, a big driver. The other big driver is our access to global talent pools now is our international base grows, our ability to move into markets that are more cost effective is helping us.

Our next question comes from the line of Trevor Young at Barclays.

On aftermarket, second consecutive quarter here of double-digit growth, but meanwhile, it looks like your full year expectations there are still kind of in low single-digit territory. What's driving that outsized growth right now? It looks like ATVs are up almost 20% on the year plus the benefit of easier compares. Just trying to understand if something has structurally changed in demand for that business. What's causing that resurgence? And relatedly, what would cause it to slow from here?

Thanks, Trevor. And we definitely have seen a pick up, what I would say, in the average transaction value. And in Q1, we saw the return of the larger transactions that have been missing in the prior periods. Again, we don't build that into the model because they come in on the short term, and they can create some volatility. But we were -- we did see the benefit of that and the 12% growth in aftermarket this quarter.

That makes sense. And just a quick follow-up on the Heart Internet sale. How much of a drag will that be on hosting revs? And was that previously contemplated in the '24 guide?

Yes. I think the best way to say that, we previously contemplated that when we were talking about our guide for this year. We hadn't closed it and announced it, but we're far enough along we built it into the model.

Okay. And anything on sizing the drag?

We look at it as overall. The divestitures are about 100 basis points for the year with that peaking in the second quarter and abating through the rest of the year.

Our next question comes from the line of John Byun from Jefferies.

John Byun for Brent Thill. You pushed through the price increases on productivity and now on payments. I'm just wondering how much pricing power is left, especially given it seems a lot of SMBs is still somewhat struggling. And then on that last point, I know there was a question earlier on macro, but anything you could share on the health of the SMBs? Anything different this Q1 versus last quarter? I don't know if there's any change, whether better or worse in terms of the SMB health and sentiment.

John, on the pricing and bundling, I just want to clarify a little bit. These are not push pricing changes. It really is an approach to create new and differentiated bundles, to have pricing that's value-based. It's differentiated. It's not sort of a simple price increase that one might see. All of the pricing and bundling capabilities are based on sort of large-scale data and machine learning. We see -- we have a very large customer base the more we apply this thinking. We do see some runway in front of us to do that. And so we think it's a great lever.

Our next question comes from the line of Chris Kuntarich from UBS.

Great. Maybe just first one would be around pay walls. Can you just unpack a little bit what you mean by that in the use of that around Airo? Second question would be just back to marketing. Aman, you were calling out, really, just kind of the strength of GoDaddy's brand overall at this point. We saw some really nice leverage in the first quarter. Just, how should we be thinking about kind of leverage for the remainder of the year? And what's kind of predicated in that guide from a marketing perspective? And maybe kind of how you think about using -- continuing to -- or needing to continue to push on Airo awareness versus maybe more lower funnel tactics?

Yes. Let me start by talking about the Airo pay wall. The type of thing we're talking about is you buy a domain name and suddenly, you've got a logo, you've got a coming soon website created. You've got 8 versions of websites created that you can choose one from. You've got an e-mail address that's been created for you. You've got a pay link that's ready to go. You can take payments on it, 60 seconds later, right? You've got a marketing campaigns that are set up for you already.

Yes, and this applies to marketing and all investments, really, at the end of the day. We like to use the data in order to understand what's going to get us the best return. And when we feel we understand that, we're willing to invest in. Marketing is the same thing for us, right? We want to get to the point where we understand the monetization formula and then we can start to optimize for that. So we feel good about our ability to make those decisions across the board and to leverage across all of our P&L. And obviously, our ability to continue to expand the margins, especially as we see the uptick in AMC and the tailwind that, that gives us go on to the future.

Our next question comes from the line of Naved Khan from B. Riley.

So just a quick question on the booking growth for AMC. It's pretty impressive. And in your commentary, you kind of attributed that to pricing and bundling. I just want to develop, like, on that. Is it more bundling versus pricing that's kind of driving this? How should we understand it from the outside looking in?

Yes, Naved, thanks for that question. So the approach we've taken with value-based pricing is that the pricing and bundling initiatives sort of works together on it, if you will. They go hand in hand. Because it's really looking at what the engagement is for that customer, what value that customer has, what bundles and services that we can create for them and then how should we price that.

No, that's what I wanted to kind of get a better handle on. It seems like you're leveraging both kind of ultimately get the sale done or renewal happen. Maybe just a quick follow-up on CapEx. It wasn't discussed. Should I just assume it stays where you guided to it at the beginning of the year? Or maybe has it changed?

Full year guide hasn't changed. It could fluctuate from quarter-to-quarter. Obviously, we're, overall, reducing our spend year-over-year.

Our next question comes from the line of Alexei Gogolev from JPMorgan.

Mark, I was wondering if you could give us some insight how we can grow ARR was doing this year? And what is your expectation for the rest of the year?

Yes. Without getting into the specifics of growth rate around ARR, Alexei, just remember, it is our lagging of our lagging indicators. So generally, we'll trail revenue, not only in the bookings to revenue formula, but it also trails the revenue to -- in the trailing 12 months that impacts it. So while we expect to see a healthy growth in ARPU, that we -- again, it's going to lag throughout the year, but it will continue to increase over time.

Okay. And then the second question was about WorldPay partnership. Could you provide an update on how it's faring and also, that significant improvement in total GPV or annualized GPV, has there been any tailwind coming from that WorldPay partnership?

Yes. The WorldPay partnership isn't driving the GPV growth necessarily. And we like the partnership with WorldPay. We're excited about with the new team there. It's doing -- obviously, they had a lot going on over the last few months, but we think they're in a great place. We're very excited about the product offering we have with them, and we're excited about them sort of selling more and more every month. So that's where we're at. But our GPV is mostly growing without selling into our own base.

And our last question comes from the line of Ygal Arounian from Citi again.

Last week, Verisign made some comments about how they're going to kind of ramp up marketing spend, in particular. How they're going to work a little bit more one-on-one with their distributor partners to try to open up the funnel for dotcom in particular. So -- and I'm getting a lot of questions, and there's been a lot of interest from investors on that point, so I thought I'd just ask it from your point of view and what that might mean for you.

Thanks, Ygal. I think you kind of answered the question. We have diversified portfolio of domains, right? You're familiar with it. We have the opportunity to sell over 400 different TLDs. The opportunity to have massive brand awareness globally. We are in more markets than any other domain registrar what have you, right? And then we have the opportunity to really create merchandising and offerings that are unique compared to other players. So we think we have a great diversified portfolio on domains. Obviously, we love all our partners. And if a large partner wants to do more, we're always happy to do more. We want to work with everyone.

We have now finished the Q&A. I'll turn it back over to Aman.

Thank you for joining us. We'll see you in a quarter. Bye-bye.