GoDaddy Inc. (GDDY) Q2 2025 Earnings Call Transcript

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Overview

The earnings call summary and Q&A indicate strong financial metrics, positive product developments, and optimistic guidance. Despite some uncertainties about customer growth timelines, management's confidence in strategic initiatives like AI integration and pricing bundling, along with sustained margin improvements, suggest a positive outlook. The reaffirmation of free cash flow guidance and positive initial feedback on new products further bolster this sentiment.

Key Financial Performance

A&C bookings Grew 12% year-over-year. This growth occurred against the toughest comparison for the year, reflecting the operating leverage in GoDaddy's model.

Normalized EBITDA margin Expanded nearly 200 basis points year-over-year. This reflects the operating leverage in GoDaddy's model.

Free cash flow Grew 21% year-over-year to $392 million. This growth reflects the strengthening of customer cohorts and the increasing conversion of normalized EBITDA to free cash flow.

Total revenue Grew 8% year-over-year to $1.2 billion. Growth was driven by both reported and constant currency basis.

Annual recurring revenue Grew 9% year-over-year to $4.2 billion. This growth reflects the ongoing adoption of subscription solutions.

International revenue Grew 11% year-over-year. This growth reflects the company's global expansion.

A&C revenue Grew 14% year-over-year to $464 million. This growth was driven by the ongoing adoption of subscription solutions.

Core Platform revenue Grew 5% year-over-year to $754 million. Growth was driven by primary domains (up 7% on both units and pricing and bundling initiatives) and aftermarket growth (also up 7%).

Segment EBITDA margin for A&C Expanded nearly 100 basis points year-over-year to 44%. This reflects operational discipline and leverage gains.

Segment EBITDA margin for Core Platform Expanded over 200 basis points year-over-year to 33%. This reflects operational discipline and leverage gains.

Normalized EBITDA Grew 15% year-over-year to $382 million. This growth reflects sustained operational discipline and leverage gains.

Total bookings Grew 7% year-over-year to $1.3 billion. This growth occurred against the toughest comparison of the year.

ARPU (Average Revenue Per User) Increased 10% year-over-year to $230. This growth reflects rising ARPU and exceptional retention among high-value customer cohorts.

Net debt Stood at $2.8 billion, representing a net leverage of 1.6x on a trailing 12-month basis. This reflects disciplined capital allocation.

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Operating Highlights

AI-powered Agentic AI: Introduced a new conversational experience called Ask Airo, which can complete complex multistep tasks for customers. This aims to provide a fully guided and proactive digital experience.

Rate Saver: Launched a credit card surcharging feature that reduces effective rates for merchants by over 50%, showing promising early momentum.

International Revenue Growth: International revenue grew by 11%, indicating strong market expansion outside the domestic market.

Commerce Initiative: Surpassed $3 billion in annualized gross payments volume, driven by strong conversion of existing customer base.

AI-driven Coding: Nearly 100% of code for a new partner product integration was generated by AI, reducing development time from months to weeks.

Seamless Experience Initiative: Enhanced customer journey from landing page to renewal, boosting conversion rates and improving financial outcomes.

High-Intent Customer Focus: Focused on attracting high-intent customers who adopt multiple products, leading to higher lifetime value and near-perfect retention.

Pricing and Bundling: Testing and scaling new offerings with promising early results, supported by AI-driven coding to accelerate development.

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Risk or Challenges

Regulatory Changes Impacting .co Domain: GoDaddy will no longer operate as the registry service provider for the .co top-level domain starting in Q4 2025. This change is expected to result in a 50 basis point headwind to bookings and revenue, primarily in Q4.

Customer Retention Challenges: Residual pressure from customer migrations and initial renewal cycles continues to impact customer count. Although these pressures are subsiding, they have created short-term headwinds to customer growth.

Economic Uncertainty: While not explicitly stated, the company acknowledges the resilience of its customers in navigating increased complexity, which may imply challenges related to broader economic conditions.

AI Integration Risks: The company is heavily investing in AI-driven initiatives, such as Agentic AI and AI-driven coding. While these efforts promise efficiency gains, they also carry risks related to implementation, scalability, and potential disruptions to existing workflows.

Competitive Pressures: The focus on high-value tools and AI-driven solutions suggests a competitive landscape where innovation is critical to maintaining market position.

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Guidance & Outlook

Free Cash Flow Guidance: GoDaddy raised its full-year 2025 free cash flow guidance to approximately $1.6 billion, representing growth of over 18%.

Revenue Outlook: The company raised its full-year 2025 revenue outlook to a range of $4.89 billion to $4.94 billion, representing 7% growth at the midpoint. For Q3 2025, total revenue is projected to be between $1.22 billion and $1.24 billion, also representing 7% growth at the midpoint.

Segment Revenue Growth: Applications and Commerce (A&C) revenue is expected to grow in the mid-teens, while Core Platform revenue is projected to grow in the low single digits for both Q3 and the full year 2025.

Normalized EBITDA Margin: The company reaffirmed its full-year 2025 margin expansion target of 100 basis points, with normalized EBITDA margins expected to exit 2025 at 33%. For Q3 2025, a normalized EBITDA margin of approximately 32% is projected.

Impact of .co Top-Level Domain Transition: Starting in Q4 2025, GoDaddy will no longer operate as the registry service provider for the .co top-level domain, resulting in an approximate 50 basis point headwind to bookings and revenue primarily in Q4.

Long-Term Financial Commitments: GoDaddy reaffirmed its 2025 and 2026 financial commitments, including $4.5 billion+ in cumulative free cash flow generation, 6%-8% annual revenue growth, and expansion of full-year normalized EBITDA margin to 33% by 2026.

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Shareholder Return Plan

Share Buyback Program: Year-to-date, through August 6, we have repurchased approximately $900 million of our outstanding shares. Our commitment to a disciplined capital allocation framework is unchanged, and share buybacks remain a key mechanism to return value to our shareholders. As of the end of the quarter, our fully diluted shares outstanding was 142 million.

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Key Q&A

Q:How should we think about the deceleration in A&C growth this quarter, and does it continue through 2025?

A:Management stated there is no trough and expressed optimism about A&C's momentum. A&C is at a $2 billion run rate for bookings and revenue, contributing 38% of the total business and expected to grow to 40%. They acknowledged tough year-over-year comparisons due to 24% growth last year but noted easier comps in the second half of the year.

Q:What are you seeing in the latest cohort of customers who experience Airo? Is this helping with multiproduct adoption?

A:Management reported higher conversion rates, increased average order size, and near-perfect retention rates for Airo cohorts. They emphasized that Airo is driving ARPU growth and multiproduct adoption, particularly among customers spending over $500.

Q:How do you think about the Agentic web and its impact on the website and app ecosystem?

A:Management is bullish on AI and Agentic AI, emphasizing its potential to simplify customer experiences and empower internal roles. They highlighted Ask Airo as an example of integrating AI into customer interactions and mentioned plans to showcase these capabilities at an investor dinner later this year.

Q:What is the status of pricing experiments for Airo All Access and Airo Plus?

A:Management stated that pricing experiments are ongoing, with some paths showing success and others requiring more education. Airo Plus, launched in Q1, is still in early stages but is contributing to higher average order sizes and engagement with multiple products.

Q:Is there a change in strategy regarding being a registry versus a registrar, particularly with the Dotco registry change?

A:Management clarified that there is no change in philosophy. The Dotco registry change was a one-off decision based on profitability metrics. They remain committed to their strategy of profitable growth.

Q:What explains the diminished margin improvement in the back half of the year compared to the first half?

A:Management attributed this to tougher year-over-year comparisons in the second half. They noted sequential margin expansion and reaffirmed their 33% exit target, with no significant new expenses or working capital changes.

Q:What is the timeline for bringing Ask Airo solutions to market, and what has been the initial feedback?

A:Ask Airo is already being tested on some pages, with positive initial feedback. Management plans to layer in more Agentic capabilities over the next quarter and emphasized the importance of testing to ensure a seamless customer experience.

Q:When do you expect customer count to return to growth?

A:Management expects customer count to return to growth later this year but did not specify whether this would occur in Q3 or Q4. They are focused on high-intent customers spending over $500, which are contributing meaningfully to growth.

Q:Are you seeing any changes in the top of the funnel or share shifts due to AI coding tools?

A:Management reported strong top-of-funnel performance, better year-over-year conversion rates, and higher attach rates. They view AI as an opportunity rather than a threat and emphasized their strong brand awareness and customer base.

Q:Does the strategic value of starting with a domain name increase going forward?

A:Management believes their position as the largest domain registrar is a significant advantage. They highlighted the ability to bundle domain names with other products, creating a 'business in a box' experience for customers.

Q:Are you seeing better conversion of Airo landing pages into real sites and more product attachments?

A:Yes, management reported that more customers are ending up with paid websites through Airo. They emphasized the role of AI in creating websites automatically, disrupting traditional website-building methods.

Q:How is the shift to a cohort lens for pricing and bundling going?

A:Management stated that the shift has been successful, allowing them to focus on the full customer relationship and improve renewal rates. They are testing bundles for Q4 and next year, with both pricing and bundling contributing equally to growth.

Q:What is the impact of security on pricing and bundling, and how does it influence future opportunities?

A:Management noted that security has been a significant driver for pricing and bundling. They are testing new bundles for future launches and emphasized the balance between volume and value in their growth strategy.

Q:What is the uptake of marketing suite or Airo Plus, and how does it contribute to ARPU?

A:Marketing suite and Airo Plus are still new and contribute a small part to ARPU. However, Airo overall is driving strong top-of-funnel performance, higher conversion rates, and better retention.

Q:What milestones should we expect for Agentic AI monetization over the next 12 months?

A:Management plans to enable GoDaddy fully for Agentic AI, integrating it into customer and partner experiences. They expect significant developments in the next 6-12 months.

Q:How sustainable is the 50% savings from the Rate Saver product, and how much of the top-of-funnel flow is exposed to Airo?

A:The 50% savings from Rate Saver is sustainable and not a promotional offer. Practically all new customers at the top of the funnel are now exposed to Airo, which is driving higher attach rates and average order sizes.

Q:How is GoDaddy managing its own SEO impact, and what opportunities exist to help customers with SEO?

A:GoDaddy has diversified its channels and improved efficiency to offset SEO changes. They are developing Agentic AI tools to help customers with SEO optimization, aiming to simplify the process through Ask Airo.

Q:What workflows are prioritized for Ask Airo, and are there surprising areas it could address?

A:Management is focused on the entrepreneur's wheel and integrating partner capabilities. They expect rapid evolution in this area, with new partners and use cases emerging in the next 6 months.

Q:Is the core platform's strength sustainable, and what is the impact of the Dotco registry change?

A:Management believes the core platform's strength is sustainable due to pricing and bundling initiatives. The Dotco registry change has a minimal impact and does not affect long-term milestones.

Q:Review of Unclear Management Responses

A:Management avoided providing a specific timeline for when customer count would return to growth, only stating it would happen later this year. They also refrained from detailing the specific bundles planned for 2026, citing the early stage of development and competitive reasons.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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