GoDaddy Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 20 speakers on the call.

Operator

Businesses. It's like having a second, 3rd, even employee in your corner. GoDaddy Aero creates and optimizes your business to help you save time and increase your customer base. Today, we'll show you how. GoDaddy Aero can help name the business, make logos, build a website, take payments, and much, much more instantly so customers move from idea to online in minutes.

Operator

And if the business owner wants changes, GoDaddy Aero does it easily so the business owner can focus on doing what they love. Aero sends you texts or emails with tips, like when it's time to start a new social media campaign. It creates the campaign for you, including social ads, social posts, and email marketing. Aero will even track sales. And just like that, your campaign is underway.

Operator

GoDaddy Aero helps small businesses reach their full potential. It uses real time data to assist with marketing and sales, give guidance, and complete tasks. Want to understand what's driving your revenue for the week? Ask Arrow. Just tell it what you want it to do and Arrow does it instantly.

Operator

More customers, more growth, more freedom for small business owners to focus on their passion. GoDaddy Arrow can do it all, and this is only the beginning.

Speaker 1

Welcome to GoDaddy's Q1 2024 earnings call. Thank you for joining us. I'm Christi Messner, 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.

Speaker 1

If you'd like to ask a question on today's call, please use the raise hand feature in the webinar to be added to the queue. On today's call, we'll be referencing both GAAP and non GAAP financial measures and other operating and business metrics. A discussion of why we use non GAAP financial measures and reconciliations of our non GAAP financial measures to their GAAP equivalents may be found in the presentation posted on our Investor Relations site at investors. Godaddy.net or in today's earnings release on our form 8 ks furnished with the SEC. Growth rates represent year over year comparisons unless otherwise noted.

Speaker 1

The matters we will be discussing today include forward looking statements such as those related to future financial results and our strategies or objectives with respect to future operations. These forward looking statements are subject to risks and uncertainties that are discussed in detail in our periodic SEC filings. Actual results may differ materially from those contained in forward looking statements. Any forward looking statements that we make on this call are based on assumptions as of today, May 2, 2024 and except to the extent required by law, we undertake no obligation to update these statements because of new information or future events. With that, I'm pleased to introduce Aman.

Speaker 2

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 am 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.

Speaker 2

At our Investor Day, we shared our updated 3 year strategic framework and financial targets. As our Q1 results showcase, we are off to a strong start in 2024. In service of our North Star, we continue to expand our free cash flow meaningfully, delivering 26% free cash flow growth year over year. The pillars behind our North Star are accelerating growth in our Applications and Commerce segment and disciplined margin expansion. In Q1, applications and commerce bookings accelerated to 22% and normalized EBITDA margin expanded 400 basis points.

Speaker 2

At our Investor Day, we also shared our progress on the GoDaddy Software platform. The GoDaddy Software platform helped create game changing customer experiences like GoDaddy Aero. It combines the power of our infrastructure, large scale data, AI and machine learning, experimentation and monetization to power our growth and margin drivers. Today, I wanted to provide an update on 4 of the key initiatives we shared previously. First, enhancing our pricing and bundling capabilities remains an important lever for GoDaddy.

Speaker 2

This quarter, we focused our pricing and bundling efforts on our productivity solutions, which was a key contributor to 22% bookings growth in application and commerce segment. Our software platform has a vast amount of data and we leverage that data in more and more pricing and bundling experimentations. This gives us powerful insights on how and where to push forward as we continue to roll these learnings into additional products and bundles over time. 2nd, creating seamless experiences for our customers continues to be a key priority. We are removing friction out of every piece of the entrepreneurs wheel, saving our customers time and money.

Speaker 2

We continuously work on simplification and performance improvements that deliver value for our customers. Examples from this quarter include simplifying the editor in websites plus marketing, making it easier for customers to discover new capabilities, reducing provisioning time for the online store to a few seconds and using AI to streamline managed WordPress website creation to just a few clicks. Simply smart, fast experiences come across as magical to our customers. And customer delight creates customer value and willingness to pay. 3rd, on commerce, I am pleased to share that annualized GPV continued to grow at a fast pace, surpassing the $2,000,000,000 milestone.

Speaker 2

The primary driver continues to be conversion within our existing base of customers. In addition, this quarter, we launched GoDaddy Smart Terminal Flex, a handheld device that allows our customers to accept payments anywhere on the fly. Our commerce offering is growing and sets us up well for our 2024 focus on driving higher margin subscription revenue through the sale of tailored omni commerce solutions to our customers. The significant value we are driving with our commerce offerings also introduces an opportunity for us to evolve our pricing structure within payments. Last week, we began rolling out phased transaction fee increases across our customer population, while still maintaining our status as the best value in payments.

Speaker 2

4th, we continue to be tremendously excited about the range of possibilities with GoDaddy Aero. As planned, we started rolling out GoDaddy Aero to our base in late March. GoDaddy Aero opens the door to many opportunities across discovery, engagement and monetization and represents an incremental opportunity as a powerful growth driver over the next couple of years. We have continued to rapidly iterate this experience and I wanted to share a couple of examples. More customers are discovering GoDaddy Aero and we have more for them.

Speaker 2

We launched a new PayLink card to test engagement with payments. A card is a visual representation of a product that is automatically set up and configured by GoDaddy Aero on just a domain purchase. We see early indication that GoDaddy Aero does a better job of discovery and engagement with pay links than our normal methods. Another significant change in monetization is that we introduced a paywall for websites built by GoDaddy Aero. We are actively testing different points at which this paywall can be triggered and this is a new flow that we are excited to optimize.

Speaker 2

While all this data is early, we are also excited to see that websites built by GoDaddy Aero are performing well. More domain customers are opting in for a website when we offer them GoDaddy Aero and key product metrics are either ahead or within our expectations. These metrics give us confidence that we are achieving our goal of a seamless, intuitive, magical experience for our customers. I also wanted to quickly share that GoDaddy Aero domain search is now on the homepage for all desktop users globally and we are starting to test opportunities to optimize the traditional search experience using these new capabilities. Last but not least, Gavi, our guide assist bot is now rolled out across our entire care footprint and is handling escalations and questions from our guides.

Speaker 2

Gabby also helps with providing call summaries and case notes, helping our guides be more efficient. Every month that goes by, Gabi becomes smarter and over time, we can add use cases and drive further adoption. In closing, we continue to deliver on our key initiatives and unlock new avenues of growth and value creation for the long term. The GoDaddy team is a driven group and shares an unwavering determination to fearlessly push boundaries and prioritize, continuously experiment, meticulously track results and strive for improvement each day. I am thrilled with the speed of execution as we continue to strive to exceed customer expectations, propel profitable growth and create enduring shareholder value.

Speaker 2

With that, here's Mark.

Speaker 3

Thanks, Aman. We are pleased to announce our strong Q1 results and continued track record of durable growth. We demonstrated attractive progress toward our North Star, delivering strong free cash flow of $327,000,000 alongside continued execution of our capital allocation strategy, which reduced our fully diluted shares outstanding at the end of the quarter to 146,000,000. The key pillars underlying our North Star are the double digit growth in our application and commerce segment revenue of 13% coupled with disciplined normalized EBITDA margin expansion to 28%, which converts to free cash flow and an impressive one to 1 ratio. Through our seamless technology and comprehensive one stop shop approach, we are building improved customer value.

Speaker 3

Our strategic focus is delivering results that drive better attach and conversion, while maintaining impressive retention rates. Together, these efforts are building a foundation for enduring shareholder value. Moving to our financial results for the quarter. Total revenue grew to $1,100,000,000 up 7% on a reported and constant currency basis and exceeding the high end of our guided range on the strength of the pricing and bundling initiative as well as strong demand in our aftermarket. ARPU grew 5% to $206 on a trailing 12 month basis and our customer count remains stable despite the headwinds from our divestiture and migration efforts, also impacting revenue by approximately 100 basis points.

Speaker 3

Additionally, customers with 2 or more products remained above 50% and our customer retention rate remained at 85%. Double clicking into the segments, our higher applications and commerce segment delivered $383,000,000 in revenue growing 30% in line with our guided range. The drivers of this performance included strength in our bundling and pricing initiative across all major product offering, including productivity solutions, website building products and commerce. Additionally, annualized GPV for GoDaddy Payments grew to $2,000,000,000 for the first time. Segment EBITDA margin was 42%, up over 300 basis points.

Speaker 3

Lastly, ARR for applications and commerce grew 13% to $1,500,000,000 Core platform revenue totaled $725,000,000 from 4%, which exceeded our guide on strength in domains up 7% and aftermarket up 12%. Our growth was driven by strong demand for domains in the primary and secondary market, increased pricing in the primary market and a higher average transaction value in the secondary market. This was partially offset by a decrease in hosting on our divestitures. Segment EBITDA margin for core platform grew to 30%, up nearly 300 basis points. Lastly, ARR for our core platform segment was $2,300,000,000 up 3%.

Speaker 3

Consolidated normalized EBITDA grew 25 percent to $313,000,000 while delivering expanded margin of 28%, up 400 basis points exceeding our guide. Margin expansion was driven by continued leverage gains within all expense line items on the P and L. Moving on to Booking. In Q1, we achieved 9% growth on our reported and constant currency basis, reaching $1,300,000,000 As a reminder, bookings primarily represent the cash collected during the period. Applications in commerce bookings grew 22% from improvements in pricing and bundling for productivity solutions, website building products and commerce.

Speaker 3

Core platform bookings increased 3% on the performance of domains and aftermarket on strong demand for domains in the primary and secondary market offset by headwinds and hosting. Subscription bookings grew 2 points ahead of subscription revenue. The impressive momentum in our bookings coupled with our commitment to profitable growth and ability to convert normalized EBITDA to free cash flow at a ratio of 1:one powers our substantial cash generation. Unlevered free cash flow for the quarter grew 18% to $359,000,000 and free cash flow grew 26 percent to $327,000,000 We are committed to effectively managing our balance sheet and the proactive measures we took to reprice our long term debt resulted in a 30% favorable change in cash interest payments compared to last year. Capital expenditures for the quarter were also down 81% from data center divestitures.

Speaker 3

Through April 30, we repurchased 2,800,000 shares year to date, totaling $346,000,000 This brings the cumulative shares repurchased under our current authorizations to $2,900,000,000 and 37,000,000 shares, reducing gross share since the inception of these authorizations by 22% ahead of our 3 year targeted reduction of 20% fully diluted shares outstanding at the end of the quarter of 146,000,000 shares. Our successful share repurchase program continues to drive impressive ROI for our free cash Deployment we have $1,100,000,000 remaining under our current authorization, and we plan to be in the market every quarter subject to market conditions and other factors with a minimum offset to share based compensation dilution. Moving to the balance sheet, we finished Q1 with $664,000,000 in cash and total liquidity of $1,700,000,000 Net debt was $3,200,000,000 representing net leverage of 2.4 times on a trailing 12 month basis. Shifting to our outlook, given our strong start to the year, we are raising the lower end of the range for our full year revenue guidance. We now expect full year revenue to be between $4,500,000,000 $4,560,000,000 representing growth of 6.5% at the midpoint.

Speaker 3

Additionally, we are targeting Q2 total revenue in the range of $1,100,000,000 representing growth of 6% at the midpoint of our range. We expect applications and commerce to deliver low to mid teens growth for Q2 and the full year. In our core platform segment, we expect revenue to deliver low single digit growth in the Q2 and the full year. We are proud of our track record of margin expansion and we will continue to maintain operational discipline to drive further leverage in our model. We expect normalized EBITDA for Q2 to be approximately 28%.

Speaker 3

Additionally, we remain 31% normalized EBITDA margin in Q4. Full year normalized EBITDA margin is expected to be approximately 29%. We are on track for our full year unlevered free cash flow and free cash flow targets of $1,400,000,000 plus and $1,200,000,000 plus respectively. On capital allocation, we will continue to evaluate opportunities for shareholder return, subjecting them to our published rigorous returns based framework to ensure we achieve the optimal mix for cash flow deployment. The entire GoDaddy team remains committed to delivering against the 3 year framework we shared at Investor Day with 6% to 8% annual top line growth fueled by our applications and commerce segment accelerating normalized EBITDA margin expansion to 33% by 2026 and generation of $4,500,000,000 plus in cumulative free cash flow.

Speaker 3

Our profitable growth and 1 to 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. With that, we will have Christy Masoner from our Investor Relations team open the call for questions.

Speaker 4

Thanks, Mark. Our first question comes from the line of Yigal Aronian from Citi. Yigal, please go ahead.

Speaker 5

Hey, good afternoon, guys. Maybe I'm just going to start on the strong bookings growth. And I know you talked about pricing, particularly in A and C. About 22% booking growth there in 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.

Speaker 5

So just how should we be thinking about how that translates and what all that means as we kind of look through into the whole year here?

Speaker 6

Hey, Gal, thanks for the question. Couldn't be more excited about the bookings growth in A and C and the momentum we have coming out of Q1 and the impact of 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 given the size of our business. Obviously, it takes a while to show up into the revenue growth numbers as we go on.

Speaker 6

Couldn't be more excited about it though. Just a reminder too, we do have a few headwinds out there relating to the dispositions, those will peak in Q2. We expect them to abate throughout the year. But again, we still have a few of those headwinds out there. So again, we have great momentum, but we're trying to balance some of the actions that we took.

Speaker 6

So when you put that all together, I would say we're comfortable that lowering the low end of the guide was the appropriate thing to do and we'll continue to keep everyone updated as we go throughout the rest of the year. But yes, we are pretty excited about some of the pricing and bundling initiatives and the impact they had on Q1 bookings.

Speaker 5

Okay, great. Really helpful. And maybe on ARO, I know you gave some qualitative comments here, but any more you could share? We're rolling out internationally. We've got a couple of months under our belt here.

Speaker 5

You mentioned you're seeing kind of domain customers move to Arrow when they're offered it. Anything you're seeing incremental uplift and conversion, ARPU growth on the whether it's applications account collectively or just websites as marketing, Anything else investors can kind of hang their hats on, on how well Arrow is doing or what is to kind of drive that conversion you've been expecting? Thank you.

Speaker 7

Yeah. Thanks, Yigal. Super excited about Aero. It's the best vehicle we have built to carry products to our customers. We know it's doing very well with new customers.

Speaker 7

And, you know, as I've shared, we've started to roll it out to our base as well. Aero just 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 good ideas, 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. And we're very methodically moving through those three phases. What I can share today is that on discovery, we're seeing fantastic results there.

Speaker 7

Customers buy our domain. They see the cards. They engage with the cards. Customers are starting to learn that, oh, GoDaddy has way more products for me, way more offering for me. And I shared a little comment about PayLinks in the prepared remarks, but I'll also share the coming soon site, which is a one page website that gets created with a domain, gets a great amount of engagement.

Speaker 7

Just regular website is getting more engagement with Arrow than when we didn't have Arrow. So, you know, these cards are really starting to take off in terms of discovering engagement, which give us confidence that as we move towards monetization, we're going to have multiple levers at play. And we've started to, you know, build a years, we think this will roll out very well and deliver results for years to come.

Speaker 5

All right, great. Really helpful and excited to see how this progresses. Thanks, guys.

Speaker 7

Thanks, Yigal.

Speaker 4

Our next question comes from the line of Mark Duguidowicz from Benchmark. Mark, please go ahead.

Speaker 8

Thank you.

Speaker 9

Maybe just a follow-up on that impressive A and 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 and C base? Has it touched all A and C customers at this point? That's the first question.

Speaker 9

Thanks.

Speaker 7

Thanks, Mark. Our sort of value based pricing, AI based pricing and bundling initiatives have not gone across all A and C. It's starting to roll out across a lot. What you're seeing in the 22% applications and 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.

Speaker 7

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 customer of GoDaddy and bring them on to these new sort of pricing and bundling approach that we have.

Speaker 9

Okay. Got it. And then, I think you had mentioned that Arrow is leading to some increasing website attach rate for your domain customers. And 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.

Speaker 7

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 attached. So we see that engagement, sort of discovery and engagement, and it doing really well. But the large, large opportunity of courses in our base and, you know, we're literally not even 5, 6 weeks from putting Arrow into our base.

Speaker 7

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. We have lots of learnings from taking productivity into our base, taking commerce into our base, where we're taking that same methodical approach and going into the base. And it's going to take a little bit more time for us to gather data to be able to sort of share it publicly to say, this is what we see. But believe me, I can tell you we're super excited about it. And if the new customer engagement is any indicator of the base, there'll be years, many, many years we'll be talking about this.

Speaker 9

Sounds great. Thanks, Yvonne.

Speaker 7

Thank you.

Speaker 4

Our next question comes from the line of Ken Wong from Oppenheimer. Ken, please go ahead.

Speaker 10

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 kind of the near term dynamics and if you're sensing any kind of customer pushback there?

Speaker 7

Yeah, we're very methodical, Ken, on our approach to pricing. 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.

Speaker 7

So this is something you'll see more of and we'll talk about it over the next few quarters. But really what it opens us up for is a broader commerce solution with differentiated pricing across different bundles. And we're trying to set things up for the same sort of mindset of pricing and bundling activity together for commerce as we are bringing to the other products.

Speaker 10

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 and C where there's obviously a much larger delta from kind of the teams to the 20s, like how what just help us kind of think through what that convergence looks like?

Speaker 6

Yes. And I'll take it up a level 2. When we think about the bookings to revenue, we have multiple different products, multiple different terms. The revenue can be in 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 will 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.

Speaker 10

Got it. Thanks very much.

Speaker 7

Just a quick add, Ken, that our general term is 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.

Speaker 4

Perfect.

Speaker 7

Thank you.

Speaker 4

Our next question comes from the line of Josh Beck from Raymond James. Josh, please go ahead. Hi, Josh, I think you're muted still.

Speaker 11

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

Speaker 7

Yes, the biggest sort of encouragement our customers, the best vehicle we've put in place for bailing attach has been an aero, 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. And we introduced PayLink in a very similar way as we had introduced the other capabilities. And what we found is we obviously had existing ways of helping our customer discover PayLinks, helping them engage with them and start to transact using PayLinks. But Arrow sort of brought it together in a very simple manner.

Speaker 7

It was right there in front of customers. And we saw the customers engage with it at significantly higher rates than without Arrow. So that's what's driving sort of the engagement with PayLink. Overall for GPV, we did hit the 2,000,000,000 annualized GPV milestone this last quarter. And the biggest part of that continues to be going into our base of customers and converting them to GoDaddy Payments.

Speaker 11

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 further pressure on them to really incentivize them to move over?

Speaker 11

Just help us understand how you're helping promote that conversion?

Speaker 7

Yes. There are customer events, customer side events, for example, like you said, a customer coming upon 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 transaction NPS and care. Our customers are used to having a great relationship with us.

Speaker 7

So when we engage them, number 1, they're open to the idea of GoDaddy offering them GoDaddy payments. The second pillar of, you know, what we approach them with is that we offer them the one stop shop. They have other relationships with GoDaddy, you know, we can reduce one bill, one partner to work with, we can make it easier. And that's attractive to our customers because, you know, a lot of them start by saying, oh, I didn't even realize that you had payments. Oh, it's pretty great.

Speaker 7

Oh, I like the way this works. Oh, this works seamlessly with all my other stuff I do with GoDaddy. So that's a win for us too. And then, you know, you've got pricing that's the best value in the market today, which sort of comes in as a 3rd pillar of that sales pitch. And what we continuously are finding is that that works.

Speaker 7

That encourages our customers with great relationships with us, run micro businesses, adopt GoDaddy Payments and that's what's been driving our GPV growth.

Speaker 11

Super helpful. Thank you, Amal.

Speaker 7

Thank you.

Speaker 4

Our next question comes from the line of Vikram Kesavallola from Baird. Please go ahead.

Speaker 12

Hey, can you hear me?

Speaker 3

Yeah. Hey, Becker.

Speaker 12

Great. Hey. Thanks. Thanks for taking the questions. My first question is for Aman.

Speaker 12

I think you mentioned in your prepared remarks that gabib has now been rolled out to the entire care team. I'm 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 there seeing so far there and what the early reception has been from the care team. And then my second question is for Mark.

Speaker 12

It looks like you exceeded the Q1 guidance on EBITDA margin. Just wondering if you could talk more about some of the drivers of the outperformance there and how much of that was specific to the quarter versus factors that, you know, Vikram, quick word on Gabby. I'm super excited about the

Speaker 7

Vikram, quick word on Gabbi. You know, I'm super excited for what Gabbi offers us over the long term, right? Being able to bring the massive amount of data that only GoDaddy has working with 21,000,000 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 guy is just starting to use it.

Speaker 7

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 AI powered. But super excited about it. I mentioned a couple of use cases that are already live with Gabby, where Gabby is able to do the summaries or just start to take on tasks that otherwise Guides would have had to do, sort of start to move up from Guides doing that to automation and Gabbi taking care of that. So there's lots of use cases we have in mind. We have a fantastic roadmap over the next couple of years in front of us and yes, pretty excited about it.

Speaker 6

And Vikram, on the normalized EBITDA margin, I always say quarter to quarter you may see some fluctuations depending on the timing you spend. Overall, if you look at Q1, we've always said accelerated A and 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.

Speaker 6

And all those all that framework remains in place and we continue to see the benefit of the A and C tailwind related to that.

Speaker 12

Great. Thank you.

Speaker 4

Our next question comes from the line of Aaron Kessler from Seaport. Aaron, please go ahead. Let me unmute. Great.

Speaker 13

Maybe just first on the any updates just on macro, just what trends are you seeing there? And I know those customers were flat kind of year over year, I assume there was maybe some disposition impact on that. I can just talk on that. And then also you

Speaker 4

made to that point trends and growth adds that you're seeing along with that. Thank you.

Speaker 7

Thanks, Aaron. On the macro, I think the word we internally feel we sense 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 continuing to come in at the top of the funnel. Of course, some divestitures and integrations as an offset to that for the company, which I look at it as that as short term pain.

Speaker 7

But good strong gross adds coming in, the steadiness in the macro, we believe will continue to power that. And again, continuing to have a lot of firepower in terms of really efficient marketing at our disposal. Our marketing is getting better and better. It's driven with data. And lots of opportunities for us to continue to explore to put more dollars at play and get really efficient returns on them.

Speaker 4

Great. Thank you. Our next question comes from the line of Ji An Lee from Evercore. Ji An, please go ahead.

Speaker 14

Thank you guys for taking the question. So, I want to kind of go back to Arrow. First, maybe just to, it sounds like Arrow is 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 a contribution here.

Speaker 14

And also, I think in the Investor Day, you sort of alluded to, Aero being applicable broadly across DIY and Pro users. So I'm just wondering if there is any product features for Arrow that you're building specifically for the pros or agency community?

Speaker 6

Yes. Thanks, John. And I'll start with the first part and then Manav will probably answer the second part there. You know, way we're looking at Arrow right now, we are in the discovery and the engagement phase. We haven't hit the monetization phase.

Speaker 6

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.

Speaker 7

Yeah, and I think, the way you might think about it, a lot of value is being created for customers with an arrow because they're getting a bundling bundle experience that's seamless, that's connected. And some of that monetization opportunity we've talked about like aero premium and paywalls, but there's also monetization opportunity that would happen at renewals, but that would be a year out from the time the customer bought the domain. So just Jim, keep that in mind as well. On your question on aero features for Pro, the feature that I'm personally very excited about is aero insights, which is the capability where aero assesses an existing website and gives super actionable advice to pros on how to improve that website. We have a version of that that's going to be able to work for customers too.

Speaker 7

But that product from the first day from the ground up was built for pros. It's first implementation is with WordPress. And it's a fantastic product. Like we get great engagement from pros on it. Again, as with all Arrow products that is still at the discovery and engagement phase, we have not added monetization yet.

Speaker 7

But this year we expect to test a number of monetized methods for aero insights as well.

Speaker 14

Great. Wonderful. And then just a quick follow-up on the GPV strengths that you're seeing. If you can parse out a little bit, is that more customer attach growing? Is it more just a growing GPB per customer?

Speaker 14

And it's coming from web plus marketing or more on the managed WordPress side? If you can just talk about also the growth of these two segments separately as well. Thank you.

Speaker 7

Thanks, Yan. 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? Where we have our hardware, we own the full stack from the hardware to the operating system on it, to the applications that are on top of it. And what we're taking really is sort of this omni commerce solution that we're trying to bundle in different ways and target to the customers that we have.

Speaker 7

So that's actually the biggest driver of the GPV. I mean, it's a fantastic driver for GPV, right? We want to be in store with the customer and online. We don't want to be just online with the customer. We want to sort of have access to all of their business.

Speaker 7

And that's what we're doing with the base of our customers. Opportunity in

Speaker 6

the biggest opportunity in front of us for commerce is converting our existing customer base. That's where you're seeing the growth in GPV today.

Speaker 14

Great. Thanks for your time.

Speaker 7

Thanks, Jim.

Speaker 4

Our next question comes from the line of Elizabeth Porter from Morgan Stanley. Elizabeth, please go ahead.

Speaker 15

Hi. Thank you so much. I wanted to ask again on Arrow. We were clearly seeing the benefit with more attach and ARPU, But I wanted to better understand how Arrow might be changing any sort of top of funnel demand. You noted some stronger gross customer adds.

Speaker 15

And then second, what is the potential implication on improving customer growth after some muted growth over the last couple of years? Thank you.

Speaker 7

Yeah. On Aero 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, Arrow is not just an experience for our customers, it's 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. And if the customer thinks about GoDaddy and thinks about domains, Arrow is going to help the customer think about GoDaddy and think about a lot of things together.

Speaker 7

So that is the largest piece of shifting the top of the funnel with Arrow. Elizabeth, if that makes sense, is really taking the go to market plan for Arrow into every bit of our marketing into every channel that we have and making that really, really successful. In terms of customer growth, yes, we absolutely see in the medium and long term, a growing customer base for GoDaddy. We see that as a key sort of point of growth. We have the brand awareness globally that is fantastic.

Speaker 7

Like it's unparalleled. We have amazing products to bring to them. We have plenty of firepower in our P and L to be able to reach those customers, right? So we absolutely believe there are a lot more customers to go to that you can reach and add to that 21,000,000 every year.

Speaker 6

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 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.

Speaker 6

So we're happy with the model. It should start to abate over time and we'll keep everybody posted on a quarterly basis.

Speaker 15

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 front to A and C, but 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?

Speaker 6

Yes. And 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, you know, a big driver. The other big driver is, you know, our access to global talent pools now is our international but the third continues to be our infrastructure simplification. And that is just getting more efficient, reducing the amount of locations we have, getting out of leases, that type of environment.

Speaker 6

So those three buckets are the big contributors to how we continue to expand our margin and that will continue as we go into the outer years.

Speaker 15

Great. Thank you.

Speaker 4

Our next question comes from the line of Trevor Young at Barclays. Trevor, please go ahead.

Speaker 16

Great, thanks. On aftermarket, 2nd 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?

Speaker 6

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

Speaker 6

From a steady state point of view, we still think this is a business that is going to be low single digit growth. We're continuing to see the volume at the lower end grow. We're continuing to see good average transaction value at the lower end of growth. But we definitely saw the benefit in Q1 of some of those larger transactions. But like we've said, we don't build that into the model and we only build in what we can see right in front of us.

Speaker 16

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 2024 guide?

Speaker 6

Yeah, 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 were far enough along we built it into the model.

Speaker 16

Okay. And anything on sizing the drag?

Speaker 6

We look at it as overall, the divestitures are about 100 basis points for the year with that peaking in the Q2 and abating through the rest of the year.

Speaker 16

Okay, great. Thank you, Mark.

Speaker 4

Our next question comes from the line of John Baughn from Jefferies. John, please go ahead.

Speaker 8

Hi, John. Thank you. This is John Bien for Brent Thill. So you pushed through price increase on productivity and now on payments. Just wondering how much pricing power is left, especially given it seems a lot of SMBs is still somewhat struggling.

Speaker 8

And then on that last point, I know there was a question early 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 or the better or worse in terms of SMB health and sentiment? Thank you.

Speaker 7

Thanks, 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 the simple price increase that one might see.

Speaker 7

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. I'll maybe point back to our growth and margin drivers slide on during the Investor Day and sort of pricing and bundling was the biggest pillar because again, it's not just about price increase, it's about creating the right bundle and pricing it in a dynamic manner to get the best return both for bookings growth and for renewal at the same time.

Speaker 7

So that's just a little bit of context for how you might think about our pricing and bond bundling initiative. In terms of the macro, I think the best word we've used is sort of we see a steadiness to the macro and we think that's a positive. We think for our customers, they always tend to be an optimistic group. We never do a survey with our customers and they never come back with sort of why I think the world sky is falling. They're always optimistic about their business and the steady macro I think just helps them have a little bit more optimism.

Speaker 8

Great. Thank you very much.

Speaker 7

Thanks, John.

Speaker 4

Our next question comes from the line of Chris Kucharaj from UBS. Chris, please go

Speaker 7

ahead.

Speaker 17

Great. Thanks for taking the question. Maybe just first one would be around paywalls. Can you just unpack a little bit what you mean by that and the use of that around Arrow? And second question would be just back to marketing.

Speaker 17

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 Q1. 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 aero awareness versus maybe more lower funnel tactics? Thank you.

Speaker 7

Yeah, let me start by talking about the Arrow Paywall. You know, 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 that you can choose one from. You've got an email address that's been created for you. You've got a pay link that's ready to go.

Speaker 7

You can take payments on it 60 seconds later. Right? You've got marketing campaigns that are set up for you already. We're looking for engagement and we're gathering data about how customers engage with these different capabilities or products or cards as we call them, right? The paywall is a technology which basically looks at that usage.

Speaker 7

And at a certain point of value for the customer, it will interrupt the customer and say, hey, if you want, let's say, a better logo or if you want to improve this website in a certain way or you want to edit this website here, you actually have to start to have a paid plan. Like it was great that you had that Arrow did all this work for you and we love it that you love it. But at this point now you have to pay for it, right? And that's, you know, paywalls and sort of being, having the ability to dynamically become part of the customer journey and introduce friction where you want to get paid is a sophisticated sort of capability that SaaS companies have. And I'm very excited to have it at GoDaddy too, right?

Speaker 7

And Arrow, given its breadth of products, really offers us the capability to have lots of different paywalls that would test. So I shared an example, I think, in the past about a paywall for websites. But slowly what you're going to see is us sort of understanding the customer journey, the flow, and then interrupting that and looking to sort of sign up with a subscription with that customer. And in terms of marketing, as I said, we're, you know, I'm going to say this and Mark will probably say something related to it too. And we laugh about it sometime internally.

Speaker 7

You know, I'd of course like to spend a lot on marketing with Arrow and tell the whole world about the capability we have, but we're very disciplined in our approach of looking at the return of marketing. That has to do with my history going back many, many years, relying on gathering a lot of data, how is our market, how our marketing channels are working, how are we really getting the value from them. So we'll continue to stay super disciplined and look to spend whatever we can within our guidelines. But I think in terms of leverage for the MRR, you want

Speaker 6

to 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 leverage across all of our P and L.

Speaker 6

And obviously, our ability to continue to expand the margins, especially as we see the uptick in ANC and the tailwind that that gives us go into the future.

Speaker 17

Understood. Thank you very much.

Speaker 7

Thank you.

Speaker 4

Our next question comes from the line of Naved Khan from B. Riley. Naved, please go ahead.

Speaker 18

Hi. Can you hear me?

Speaker 3

Yes. We can. Hey,

Speaker 18

so just a quick question on the booking growth for A and C. It's pretty impressive. And in your commentary, you kind of attribute that to pricing and bundling. I just want to double click on that. Is it more bundling versus pricing that's kind of driving this?

Speaker 18

How should we understand it from the outside looking in? And then at the Investor Day, Aman, I think you talked about value based pricing and leveraging dynamic pricing and things like that. How much of that is happening currently? And how much scope of that is there to do it further and more broadly?

Speaker 7

Yeah, 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 of services that we can create for them, and then how should we price that. And where we where and Mark talked a little bit about the areas where we've already invested in that. We actually want to take that thing across our whole portfolio.

Speaker 7

So sitting here, we do believe that, as we said at Investor Day, there's sort of at least 3 years of goodness for us that we see with the pricing and modeling initiative. And we're excited about going after that opportunity because we do have a huge base, 21,000,000 customers that we can approach with that type of thinking. Is that true?

Speaker 18

Thank you.

Speaker 7

You have more now.

Speaker 18

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

Speaker 6

Has it full year guide hasn't changed. It can fluctuate from quarter to quarter. Obviously, we're overall reducing our spend year over year.

Speaker 18

Perfect. Thank you.

Speaker 7

Thank you.

Speaker 4

Our next question comes from the line of Alexey Gogola from JPMorgan. Alexey, please go ahead.

Speaker 19

Hello, everyone. Thank you for letting me ask a question. Mark, I was wondering if you could give us some insight how Create and Grow ARR was doing this year and what is your expectation for the rest of the year?

Speaker 6

Yes. Without getting into the specifics of growth rate around ARR, Alexey, just remember it is our lagging of our lagging indicators. So we generally will trail revenue, not only the bookings to revenue formula, but it also trails the revenue to the trailing 12 months that impacts it. So while we expect to see a healthy growth in ARR ARPU that we again, it's going to lag throughout the year and but it will continue to crease over time. On ARR, ARR, we continue to look at it growing as our subscription base continues to grow.

Speaker 6

It's a good sign of health. We continue to see that ARR has been very healthy in our applications in commerce as well as very steady within our core platform. And we continue to say that subscription revenue should be 1 to 2 points ahead of overall sorry, subscription bookings should be 1 to 2 points ahead of revenue throughout the year.

Speaker 19

Okay. Thank you, Mark. 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?

Speaker 7

Yeah, the Worldpay partnership isn't driving the GPV growth necessarily. And we like the partnership with Worldpay. We're excited about what the new team that is 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 selling more and more every month.

Speaker 7

So that's where we're at. But our GPTV is mostly growing with us selling into our own base.

Speaker 19

Thank you, Aman.

Speaker 7

Thank you, Alex.

Speaker 4

And our last question comes from the line of Yigal Aronian from Citi. On again, go ahead, Yigal. Ygal.

Speaker 5

Yes. Hey, everyone. Thanks for letting me ask a follow-up and apologies for taking a couple more minutes of your time. Last week, Veracyte 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 1 on 1 with their distributor partners to try to open up the funnel for Dotcom in particular. So and getting a lot of questions and there's been a lot of interest from investors on that point.

Speaker 5

So I thought I'd just ask it from your point of view and what that might mean for you? What you're seeing on dotcom or just in general as both a registrar and a registry? What you guys are seeing in kind of like the I know you have broader exposure, so what you're seeing in that disparity in dotcomversustotal domains? And if you're getting a little bit more support from VeriSign, does that mean more efficiency in marketing spend where you can kind of spend a little bit more you open up the top of the funnel a little bit more? Just what can that mean for your business?

Speaker 5

Thanks.

Speaker 7

Thanks, Yigal. I think you kind of answered the question. We have a 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.

Speaker 7

We're in more markets than any other domain registrar, 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.

Speaker 16

Thank you.

Speaker 7

Thank you.

Speaker 4

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

Speaker 7

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

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Earnings Conference Call
GoDaddy Q1 2024
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