Q1 2025 Earnings Call Transcript

Welcome to GoDaddy’s First Quarter 2025 Earnings Call. Thank you for joining us. I'm Christie Masoner, VP 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].

On today's call, we will 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-K furnished at the SEC. Growth rates represent year-over-year comparisons unless otherwise noted. The matters we'll 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 1, 2025, 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 happy to introduce Aman.

Good afternoon, and thank you all for joining us today. Good afternoon and thank you all for joining us today. At GoDaddy, our mission is to empower entrepreneurs and make opportunity more inclusive for all. In an environment marked by global economic uncertainty with small businesses navigating more complexity, we continue to improve and expand the critical tools necessary for them to run their business, backed by Care that helps make them successful.

The inherent value of our products, disciplined innovation and execution of our strategy is the backbone of our business and our strong Q1 results. In Q1, we drove 8% bookings growth and we expanded normalized EBITDA margin to 31%, propelling free cash flow to 26% growth, supporting our North Star of maximizing free cash flow over the long term. These results and the durability of our model reinforce our confidence in our full year guide and Investor Day targets. Our strategy is steadfastly focused on attracting high intent customers, creating customer value, and transforming that value into long term shareholder value.

The energy within the company is palpable with the continued acceleration and velocity of execution as we drive towards these goals. As always, I will touch on our key initiatives, starting with pricing and bundling. Focused on our present solutions and going across segments, this 2025 initiative delivered ahead of our expectations in Q1. Pricing and bundling is a multiyear initiative, and we continue to do further testing with customer cohorts that span across our A&C and core platform segments, and we are encouraged by the results so far. Our enhanced platform capabilities quickly integrate third party products into our bundles, resulting in expanded test options for this initiative.

As we had shared, we have continued to shift from the product lens to the customer cohort lens for pricing and bundling, maintaining the dual goal of growing bookings and minimizing churn. Our seamless experience initiative continued to deliver improved customer conversion, product engagement, and renewals. This initiative is powered by our most sophisticated experimentation pipeline and is focused on removing friction and creating an intuitive experience, saving customers time better spent on growing their businesses. The results of our efforts across many experiences and products are found in the increase in average order size and improvement in renewal rate, driving customer retention and lifetime value on the GoDaddy platform.

Commerce growth remains strong this quarter and annualized gross payments volume increased at a healthy pace with the primary driver continuing to be conversion within our existing base of customers. Our recently launched high margin offerings such as GoDaddy Capital, our merchant cash advance program, and same-day payouts, while still small, are gaining traction. These valuable additions priced competitively are important to our customers and strengthen our one-stop-shop commerce offering. Last but certainly not least, GoDaddy Airo continues to permeate across our products and customer experiences, and Airo's demonstrated results are showing up as better attach, term length, and renewals.

Data from the 13 month Airo customer cohorts shows that we are driving changes in customer behavior with Airo resulting in more customers purchasing second and third products. Websites plus marketing continues to be the biggest beneficiary, and Airo customers are getting better results from their websites too, leading to a fantastic win-win. While the Airo experience is driving financial results and Airo Plus, our directly monetized experience, is progressing with new improvements, our focus continues to be to engage customers across the broader set of capabilities that Airo provides. This builds on the success we are already seeing with Airo and represents a large long term opportunity for our customers and for GoDaddy.

And we are still at an early stage. Airo has already shown its powers to automate and use Generative AI to provide magical experiences for customers. And with Agentic AI, we expect to take this even further. Agents powered by our personalized AI platform will take recommendations to our customers to the next level, doing the work for them across multiple jobs to be done.

In closing, I want to underscore that GoDaddy has built a durable business, one that has consistently performed across economic cycles and technological shifts. We are driving results and remain focused on what we can control, accelerating the pace of innovation in a disciplined manner. The result of our model is profitable growth, and the maturity of our operations allows us to deliver results in the current period as we set up the next, positioning the business for long term success. With that, here's Mark.

Thanks, Aman. I want to take a moment to acknowledge that the broader macroeconomic environment, including tariffs, is top of mind. To be clear, for GoDaddy, our direct exposure to tariffs is not material. For our customers, their grit and determination alongside our integrated one stop shop solutions delivering unmatched value remains mission critical to their needs, especially as they navigate a complex landscape.

Our tools empower them to compete efficiently and effectively. Our durable model and our customers' resilience gives us confidence in our full year 2025 guidance and our investor day targets, including our North Star. In Q1, we delivered A&C revenue growth of 17%, expanded normalized EBITDA margins over 200 basis points and grew free cash flow to $411 million. We also have fully utilized the remaining portion of our 2022 $4 billion authorization to retire over 25% of our fully diluted shares outstanding since inception of the program.

Total revenue was at the top end of our guided range, growing 8% on a reported and constant currency basis to $1.2 billion. Annual recurring revenue grew 7% to $4.1 billion. International revenue grew 10%, surpassing our prior expectations on strong aftermarket sales in international regions. For our high margin A&C segment, we drove 17% growth in revenue to $446 million and 14% growth in bookings on the ongoing strong adoption of our subscription solutions.

Segment EBITDA margin expanded nearly 200 basis points to 44%. Our core platform segment delivered revenue growth of 3% to $748 million. Core platform's performance this quarter reflected strength in primary domains up on pricing and units, as well as strength in aftermarket. Core platform bookings grew 5%, and segment EBITDA margin expanded by over a 50 basis points to 31%.

Moving to profitability, normalized EBITDA grew 16% to $364 million, delivering an expanded margin of 31%, up over 200 basis points and exceeding our guide for the quarter. The expansion was driven by favorable product mix and sustained operational discipline from infrastructure simplification and global talent recruitment, alongside increased marketing for our innovative Airo experience. On bookings, we delivered $1.4 billion representing 8% growth on a reported basis and 9% growth on a constant currency basis. As a reminder, bookings primarily represents the cash collected during the period.

Free cash flow grew an impressive 26% to $411 million. Our efforts are delivering the results we set out to achieve, bringing in higher lifetime value customers who will drive stronger, more profitable growth over time. Our stronger, more resilient cohorts are already translating into improvements with retention above 85% for customers on our GoDaddy platform. We are driving a higher average order size, and our ARPU grew 9% to $225 on a trailing 12-month basis, demonstrating the sustainability of our ongoing efforts.

Since year end, our customer count has remained stable at 20.5 million as we lap the impact of the last divestiture. And looking ahead, we anticipate returning to customer growth later this year. We remain confident that our strategic focus here centered on growing higher lifetime value customers will drive compounding growth in free cash flow over the long term. Turning to the balance sheet, we exited the quarter with $719 million in cash and total liquidity of $1.7 billion, as we utilize the remaining $767 million under the 2022 share repurchase authorization.

Net debt was $3.1 billion representing a net leverage of 1.9 times on a trailing 12 month basis. Our goal over the coming quarters is to continue to strengthen our already strong balance sheet, and we are reducing our target net leverage ratio from the previous guidance of 2x to 4x to under 3x moving forward, aligned to how we've been operating. In April, we completed our $4 billion, 2022 repurchase authorization program, repurchasing a cumulative 43.7 million shares at an average price of $91, representing a gross share reduction of over 25% in our fully diluted shares outstanding since the inception of the program.

Our commitment to a disciplined capital allocation framework is unchanged, and share buybacks remain a key mechanism to return value to our shareholders. With that, I am pleased to announce that our board has approved the 2025 repurchase authorization of up to $3 billion through 2027. This new authorization reflects our enduring confidence in the strength of our underlying business, the durability of our cash flows, and our belief that investing in our shares currently represents an attractive return opportunity for our capital. Shifting to our outlook, given the strong start to our year and the durability of our model, we are reaffirming our full year 2025 outlook provided in February and expect total revenue to be within a range of $4.86 billion to $4.94 billion, representing growth of 7% at the midpoint of the range.

For Q2, we are targeting total revenue of $1.195 billion to $1,215 billion, representing 7% growth at the midpoint of the range. Within that, we expect A&C revenue growth of mid-teens and core platform growth of low single-digits. For Q2, we are projecting a normalized EBITDA margin of about 31%, and we are reaffirming our full year normalized EBITDA margin expansion target of 100 basis points. We expect normalized EBITDA to maintain an approximate one to one conversion to free cash flow.

We are also reaffirming our full year free cash flow target of at least $1.5 billion, representing growth of over 11%. Our disciplined capital allocation approach remains unchanged. And we plan to evaluate all opportunities according to our rigorous and returns based framework. I am pleased with our Q1 accomplishments and strong financial results, a great start to a year that has already underscored the importance of GoDaddy's durable model.

The strength of GoDaddy's foundation is evident in our long history of strong customer retention, the growing quality and stability of our customer cohorts, and the competitive advantages we've developed over time as a partner and champion for micro businesses. We are executing with discipline and purpose as we drive towards our North Star, maximizing free cash flow over the long term. We are making steady progress towards our investor day targets of achieving $4.5 billion plus in cumulative free cash flow generation, underpinned by 6% to 8% annual revenue growth and expansion of our normalized EBITDA margin to 33% by 2026. With that, I will hand the call over to GoDaddy's Vice President and Head of IR, Christie Masoner.

A - Christie Masoner: [Operator Instructions] Our first question comes from the line of Elizabeth Porter from Morgan Stanley.

Okay. Great. Thank you so much. So I first wanted to ask, on the kind of the macro changes.

It sounds like it's a pretty resilient base. But any signals that we could be deriving from kind of your conversations that may be clouded when we look at things like small business sentiment index in your view. And if we do see some pressure evolve, if at all, like, just a more detailed view on how that could be incorporated into the guidance.

Thanks, Elizabeth. This is Aman. I can take that. When we look at customer sentiment, and I think you're aware we do surveys sort of on a consistent basis.

We actually did a survey in April, and we did see some pressure in terms of how our customer base and micro businesses look at sort of their positive outlook on the economy. We do see some pressure on that. But the broad idea where our customers continue to be resilient and they feel strongly about their own performance and that their business will continue to grow is still within sort of the five year norms that that we've seen. So what I would say about sentiment is while we see a little bit of pressure, I think, generally, our customer is still positive.

And also, we have very specific data points within the company, right in terms of our customer churn rate, our average order size. And we continue to see that performing sort of on a day-to-day or month-to-month basis. I'd also like to mention that, you know, when you think about the value that GoDaddy products bring to our customers, it's so much higher than the cost for our customers. And when you attach that, there are customer based indexes towards the service industry.

It really puts GoDaddy in a very good position to sort of navigate whatever we see, in the macro over the next few quarters. So we feel good about that. And I'll turn it to Mark.

Yeah. Yeah. And I think you covered a lot of it, Aman. Just a couple of data points.

One, our customer base has a tendency to lean towards services. And in this market, they're very resilient, they're very optimistic, they are still looking at growing revenue and our tools help them do that effectively and efficiently, compete with some bigger players out there. So the sentiment right now, there's a lot going on, seems to be they're looking for opportunities to do more with what they have and our products obviously fit right into that. So feeling good about it, why we're reaffirming the guidance.

We feel good about what we're seeing out there and we've obviously, we monitor constantly. We have many different touch points whether through the care organization, whether through our surveys, whether through just doing customer visits. And we're seeing the consistent optimism, although they are looking at what's going on around them at the same time.

Great. And just as a follow-up, I was hoping to get some early signs and rates from the Airo Plus that just launched, as in Q4. Any feedback on the pricing in particular? And then what are the right customers for Airo Plus? Is it really anyone that's willing to engage in Airo? Or if you could just help us frame the applicable base would be super helpful.

Yes. As we shared, you know, Airo continues to do very, very well, and we're seeing improvements in order size and sort of term. We're seeing improvements in attaching the second and third product with Airo. And engagement with Airo is a very good sign for us to put Airo Plus forward to those customers.

And as you know, Airo Plus offers an expanded offering at a very competitive price for our customers. In terms of actual metrics from Airo Plus, it's still very, very early in the testing from Airo Plus. And as it's hardly a quarter, in that we've launched this and expanded it to our customer base. So there's still more to be done, there, but we're encouraged by where we are today.

Our next question comes from the line of Ygal Arounian from Citigroup.

To follow-up on Airo, on the average order size, Mark, you quantified that last quarter. I don't know if you can, quantify it again this quarter if it's changed at all. But, maybe just more broadly, what you're seeing, how it's changing in terms of attach, order size, kind of moving up on to higher tiers and the strong stronger conversion, love to get more color on that.

Yeah. Thanks, Ygal. I would say we're seeing similar than to what we saw in Q4, on the increases in the average order size. Broad based, we're seeing it going to that second product very quickly, attaching very prominently in those first few days, which has been fantastic.

Still early days on tiers and that type of things, Plus is very early to what we've introduced. So we're looking at it from an overall impact to our customers in and of itself and continuing to see that positive behavior around the average order size and initiation, seeing that second product coming in attaching a lot faster. We're starting to see that show up in our retention rates for our customers who are on the GoDaddy platform. So those are the positive signals we're out there, seeing the engagement around Airo.

And then obviously Plus, we introduced and we'll start to measure that as a skew, but really early stage on the impact of that in and of itself.

Yeah. And maybe I'll just add, you mentioned conversion. Airo overall has been good for conversion. It's been good for attach and that continues.

And more and more of our customers are starting with Airo and the trend of customers coming to websites plus marketing through Airo has just continued to grow nicely. So that's something we're very happy about. We want our customers to start with that expanded toolset, to have exposure to that broader base of products that we have because we think that puts our customers in a great position to get that value and puts us in a great position long term to sort of have more and more products with our customer base.

Yeah. And just coming back to our strategy is around attracting higher intent customers. And we are very happy with the results because we are seeing those higher intent customers coming in and those behaviors are showing that we're really getting to that customer base.

Okay. Great. And one on, the customer count, just given it remains a focus for investors. Just to be clear, was it your expectation that would be down sequentially, as we're still lapping some of those divestitures?

Is there any way to parse out what it would have been ex that? And then maybe layering on top of that the Super Bowl ad in February and what you saw out of that if that drove incremental sign ups, customers, free trials, anything like that?

Ygal, on the customer, we saw a stability in our customer base. We again are not focusing on customer growth in and of itself. Our intent and our strategy is around that higher intent customer. So it's hard to parse that out into different buckets, so to speak.

But we are happy that we're getting to that stronger cohort of higher intent customers and the stability is really being generated by the fact we're lapping the actions that we specifically took to get put ourselves in this position in the first place.

And then to the Super Bowl or the new campaign that we have. The campaign is going very well. We're very happy, with the results in terms of just getting the awareness with a very large case of folks that GoDaddy has much more to offer than domains. This is obviously a very important message, and we think Airo is a fantastic vehicle to deliver that.

But we'll continue to sort of in a way, I would say in a manner that is disciplined, we'll continue to invest in awareness of what GoDaddy has to offer, and the current campaign is going quite well.

Great. Thanks. I definitely know Walton Goggins a lot better now than I did a few months back.

So I think happy to hear that.

Yeah. And I think he's done great for us. Let's see. He's been great.

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

Okay. Great. Thanks for taking the questions. Hey.

My first one is on Airo. You referenced the opportunity there with Agentic AI. Just wondering if you could talk more about your vision for that and just how you plan to further enhance the Airo experience from what it looks like today? And then second question is on pricing and bundling.

I think you mentioned that that has been delivering ahead of your expectations in Q1. Just wondering if you can elaborate more on, you know, where you're having the most success with that strategy this year, and it sounds like you're doing some additional testing as well. Just where do you see the most opportunity to continue leveraging that, across the platform? And I'll leave it there.

Yeah. Thanks, Vik. On Airo -- the power of Airo sort of with it with its birth has been around automation, taking friction out for customers. But that automation is deterministic.

And what Generative AI has done is it's allowed our customers to create content to be able to move very quickly based on the large dataset that we have. But what Agentic AI offers is to take that simplification that Airo brings to the next level where, you know, micro businesses, our customers can have agents deployed on their behalf that can get the jobs to be done across different products. Now as the customer shifts context across those products, typically, what you will find is that the customer runs out of time, the customer runs out of energy, the customer runs potentially out of just the ideas of what they want to do.

But with AI agents, we can fill a lot of those gaps and really support our customers in a different way. We at GoDaddy are also investing. I think we've talked about this in the past in a large scale data platform and AI platform that works that that is very much with the platform mindset at the company. And one of its new capabilities over the last couple of quarters is this idea of personalized AI for that specific customer, which is very important to provide that personalized Agentic experience.

So that's something I'm pretty excited about. It's something that I personally spend, quite a bit of time on a weekly basis. So that that's the next thing we want to see, or the next capability we want to bring to Airo. And in terms of pricing and bundling -- the nothing has changed in in the program.

It continues to be a multiyear program. It's delivering ahead of our expectations in Q1, and we feel very good about it for the rest of the year based on our testing. And yes, as I noted, we are continuing to test new bundles and new pricing options with those bundles over the next few quarters, and that sort of sets up the next period for us. And the key thing here is the one stop type shop solution that we have and when we can bring in third-party products too, the value we bring to our customers so much more than the $225 ARPU that we have.

These services are mission critical to our customers. And simpler we can make it, the easier we can make it, the more we can we think they'll just adopt our services. So that's what we're really trying to do with pricing and bundling, and it's going great.

Next question comes from the line of Trevor Young from Barclays.

Great. Thanks. Just back to returning to active customer growth later in the year. What needs to go right from here for that to play out?

Is it just lapping that last divestiture, which I think maybe laps in 3Q? And are we now largely done with that brand rationalization, which I think was mostly in the hosting area, or is that kind of an ongoing initiative? And then second question, gross margin continues to expand year on year. I think it's fourth quarter in a row.

Can you speak to what's driving that? Is it just a function of the favorable product mix, or have there been some underlying savings realized maybe in areas as you've like exited data centers and shifted more workloads to the cloud?

Yeah. Thanks, Trevor. On the on the first part of this, just I want to emphasize that our strategy is not around returning to customer growth per se. Our strategy is around attracting higher intent customers, and that's what we continue to go after.

We are lapping, the actions that we took over the last year or so, as you acknowledged, and that will put us on a more comparable base going forward, which adds to that tailwind that we should be returning to positive customer growth here later in the year. But again, we're happy with where we are in attracting that higher intent customer who's coming in with a higher average order size, who's attaching to that second product, whose retention is stronger and therefore driving that long term value that we talk about and obviously that gets us to our left start. On margin expansion, product mix, nothing to call out on savings per se.

We continue to get a favorable product mix. What I always say is we'll be around 64% give or take 100 basis points depending on the product mix and we continue to fall within that range every quarter. It's a little favorable here or there at times. But it's the same drivers.

It's the product mix. It's a software that's being sold, which ones are selling a little bit more than others.

Our next question comes from the line of Alec Brondolo from Wells Fargo.

Thank you so much for the question. I would love to dig in, to the dichotomy, I guess, between Airo and Airo Plus. As Airo Plus grows, how do you think about what products get, I guess, are in the bundle or in kind of the direct monetization bundle Airo Plus versus what products are given away to customers for free in Airo?

Yeah. Just very broadly, what Airo does is it provides a basic set of functionality across different jobs to be done to the customer with every domain and over time any product purchase at GoDaddy. You buy something, you get those Airo services for free. They show up and they're ready to go.

What Airo Plus does is across those key services, Airo Plus provides a higher end SKU for them. And that's the key difference. Right? Airo allows the customer to try the product and see that it performed.

And then when they get to a certain level of engagement, that triggers for us the idea that this customer likely should be in Airo Plus so they can expand the job to be done. So that's the key difference between Airo and Airo Plus.

Perfect. If I can maybe just ask one more. The repurchase, $700 million. I think that was the largest repurchase in the last several quarters. Was that a function of the pressure on the stock after fourth quarter earnings? Are there other dynamics to consider? Any feedback there would be helpful.

Yeah. So in the first half of this year so far, we bought back $767 million in our 2022 authorization program. If you go back and look, we've been opportunistic in the market from period-to-period and we continue to evaluate it under that same strategy. We'll do the same with the 2025 authorization here as we go forward.

We always say at a minimum, we're going to buy back our dilution, but we will continue to be opportunistic in the market.

Next question comes from the line of Ken Wong from Oppenheimer.

Fantastic. Thanks for taking my question. I realized you guys haven't seen any kind of immediate pressures in terms of macro. As you think back to kind of past downturns, and I know you've talked about potentially being kind of counter macro or counter recession in terms of your business.

I guess, how are you thinking about some of the objectives you guys are focused on as far as, one, customer growth and then, two kind of getting customers to buy more? Do you think that you can still see that kind of resilience in a downturn?

Yeah. When we look back GoDaddy has grown pretty much through every kind of macro situation and through sort of every recession we've been part of. Now every recession is different. We can't look back and project exactly into the future.

But when we think about the business as a whole and our very large customer base, over 20 million customers. The key things we look at is number one, the value we bring to our customers versus the price we charge. There is a tremendous amount of consumer surplus that customer get tremendous value from a domain name, from a website, from other services we offer, and we'll price value competitively on those. Beyond that, when we look at our opportunity to continue to get high intent customers, which is our strategy and we've been executing it for a few years.

We've been very successful getting high intent customers and we continue to see that being a strength of ours. And third, when you think about our business, we have sophisticated capabilities in terms of pricing or what is what we call pricing and bundling that allows us to approach our customer base in specific cohorts and test and make sure that the changes we're making both optimize growth on the top line and minimize churn for us. And, yes, it's also true that I think you briefly mentioned that in tougher economic time, there can be some countercyclical behavior. And we feel that, our offerings are critical to them in a situation where they need more support.

But it's hard to guess what the future is going to be. So we're keeping a keen eye on it, but like I said, those three things make us feel good about our position.

Yeah. No doubt our customers today need us more to operate effectively and efficiently in their markets. And they need more care and guide as they're in this complex landscape. So we feel really good about what we're seeing.

It's a resilient group and we'll continue to monitor, but I never want to say we are counter recessionary, but we have a tendency to be more mission critical to the micro business in these environments than others.

Got it. Really appreciate the color. And then if I could just one more for you, Mark. I know the quarter sounds like GPV held up well. Any color in terms of what you might be seeing on that GPV front in April in a in a post-tariff world?

Yes. Nothing to call out. We're still seeing the conversion of our existing customer base. We're still seeing it at a good pace. We're seeing our customers, transacting healthily. Nothing to highlight at this structure.

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

Thank you so much for taking the question. Hopefully, you all can hear me. I wanted to ask coming back to the pricing and bundling, certainly it seems like these third party products is something that you're adding to the -- what is probably already a pretty big array of tests. So anything you can share on where you're looking to maybe add third party solutions kind of where they fit in.

And then second part, just as we think through the bookings I think A&C bookings was 14%. If you look at it on a two year CAGR, you're actually get accelerated. I think the comps get a little bit tougher as we go into Q2. So just any puts and takes that we should be thinking about, with respect to A&C bookings for the year would be great.

Yeah. I can start and Mark can follow-up on the second part. When we think about pricing and bundling -- one of the advantages we have is, yes, we have a breadth of products, but our platform now allows us to bundle third party price very quickly and test them. And we're actually testing across, quite broad spectrum of customer cohorts, customers that may have products that are in our core segment or our A&C segment.

So the number of tests is growing, and that that gives us confidence that we're going to get more winners. No specific area to call out that, we're sort of focused on x area versus y area. We actually have a decent set of store listed companies and products that we're working with. And the testing is going well, which that's really the key to communicate with you that we have those more those sort of larger set of offerings to put forward and we like what we're seeing.

Yeah. On the bookings, just a reminder, bookings for us represents the cash collected in the period and we reinforced or reaffirmed our free cash flow targets for the year, even our targets going up through 2026. So we feel really good about the progress we're making overall as a business and the platform and the one stop shop. No doubt Q1 this year versus Q1 of last year, tough compare. It was when pricing and bundling really took off last Q1. And while we don't guide bookings, we expect revenue growth for the rest of the year in the mid-teens and we'll continue to look at the progress, pricing and bundling is a pro forma.

Yeah. Just to clarify, that's A&C revenue growth.

Yes, A&C.

Our next question comes from the line of Brad Erickson from RBC.

Cool. One more on pricing and bundling. Why not? I can think about 2024, would you say pricing or bundling had kind of a bigger effect, or were they kind of the same?

I know you don't tend to unpack those, but we get a lot of questions from investors on this. And maybe just as you think about what that mix looked like in 2024, for as we look towards 2025 and the bookings there, do you see that mix kind of staying the same, or is maybe one stronger than the other? And what are kind of the inputs of any mix shift there, if there are any?

Yeah. Perhaps one way to address this, and in the past, I have talked about how hard it is to pull these things separate because the model is to bundle something, create that value for the customer, test that value, and then to take the price on it. And that price is also actually determined through testing given engagement with those set of products. So it's kind of hard to rip them separate.

But one way to talk about it might be that where we see the best return, the sort of long standing lifetime value creation is where we create that value for customers through some sort of bundle. Right? And I know that's not exactly sort of answering right here, right now, ‘24 versus ‘25, but that is a good signal to have that where when bundling is part of it and it's intertwined well, we see the greater lifetime value coming through it. Hopefully, that helps.

Yeah. Yeah. No. That's helpful.

And then just to follow-up on Airo, it's always good to hear kind of some of the examples of how you're seeing customers kind of taking advantage of that in a, hopefully, a value accretive way. Just maybe any anecdotes or kind of latest observations you can share and just in terms of, how people are taking advantage and thinking of it in the context of the paywall testing and where you see value creation that you could, eventually monetize?

Yeah. We -- as you know, we really track very, very carefully the engagement across all of the Airo products. And if I had to highlight one the product that's getting a lot of engagement right now is our conversations product. It's something we've talked briefly about once in a while, but this is a little application that our customers can download and use to talk to their customers.

And within this application, we use AI or we use Airo to actually create responses on behalf of our customers. So like a micro business, a solopreneur, they're only one person, but they can sort of talk to a lot of their customers very, very easily. So we're seeing some good sort of some really good engagement on conversations. And not necessarily specific to conversations, but wherever we see that engagement, that sort of gets our attention in terms of that they're monetization opportunity there, especially with something like conversations where we talk about very large scales and a very, very large number of customers using it.

Yeah. And I have to tell you, in this environment, conversations is becoming quite popular. We were out meeting with the pizza guys as we refer to them. And you're talking about someone who's making pizzas during the day, and they are still having to book their next event while they're making those pizzas.

A pizza, I learned, takes 90 seconds to make. So within 90 seconds, they're responding using conversations to their incoming calls so that they can line up their next events. And we're seeing that more and more in this environment because revenue and making sure people have pipelines is becoming more prevalent for them.

Yeah. It's great to have conversations with real customers when they have a real business like pizza shop and using our products. It's really, really fun.

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

Hi. This is Ella Smith on for Alexei Gogolev. Thank you so much for taking our questions. So first, I was hoping to ask about, the impressive ARPU growth. Can you rank order some of the products and contributions which drove ARPU growth to an impressive 9%?

Yeah. Well, you talk about it, and it's a little bit of a flow out. Right? And remember, bookings is always at the front end of the cycle and ARPU is always at the back end of the cycle, it's a trailing twelve month revenue number.

And you really look at our success last year around pricing and bundling, the seamless experience, even some of the momentum around Airo, those have all been contributing to the bookings growth and now we're rolling into our ARPU growth, which is again kind of points to the sustainability of the efforts we're making around going after these higher intent customers. So I would say across the board, it's the strategy working around the higher intent customers who are pushing the average order size up, which are attaching to that second product faster, whose retention rates is getting stronger on our GoDaddy platform.

So just the strategy is working.

That makes a lot of sense, Mark. Thank you so much. And for a quick follow-up, I was hoping to hear an update about GABi and how that's being used internally. Can you speak to the optimize optimization potential there? And do you think GABi would ever become externally facing to your customers?

Yeah. Super excited about our continued evolution of technology automation AI within care. GABi continues to take on more and more jobs to be done. We are very excited about sort of GABi and the conversation bot, which is the external facing version of it, sharing more and more data.

No sort of immediate plans to make GABi be external just yet. But this is a fast evolving space. So it's hard to say what'll happen in six months. I can tell you about tools that we're using AI on just three months ago, and now we have new technology that's like, my god.

Like, it's changed amazingly in three months. So but yeah, super happy about GABi, super happy, and I'm bullish on AI just being a great enhancement for productivity within our organization.

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

So first question is on the, GoDaddy agency announcement. It we're it's great to see the announcement last week. As we've noted an anecdotal evidence of agencies already using GoDaddy subscription products. Just wanted to see if you can talk about addressable opportunity for your current product suite and the target customer segment of your products.

And I guess if you could provide either revenue or user mix that are being handled already by agencies today. And then also directionally, the adoption within your A&C segment, the adoption of managed WordPress, your own subscription solutions. And I guess last but not least, the adoption of Airo. We understand the A&C segment may be still the agency space may be still kind of early for you guys, but if you could provide any comments along those metrics, that'd be really appreciated.

Yeah. So I think you pretty much answered the question as well. It's very, very early, in terms of the agency space for GoDaddy. As you know, over the last few years, our products have improved leaps and bounds.

We have some great offerings in websites with marketing that are able to do certain jobs to be done for those customers. We also have a new and much improved managed WordPress instance that that is just really, really good. There's a couple of products out there. I think we're still exploring.

We're still looking at that market. I think it continues to be a great long term opportunity for GoDaddy to step in that space, but nothing to share yet. Just a very small and just some little exploration here or there.

Yeah. Definitely a great long term opportunity. Nothing that we've built into anything we're talking about today. We're excited about it. That's a new customer base for us somewhat, but not nothing to call out today. Obviously, as things get traction, we'll share more.

Alright. Sounds great. I'm on it. Mark, just a quick follow-up. We just wanted to see if you could provide an update on your bundling efforts as you're aimed at some of the specific hosting customers.

Yeah. So the bundling -- pricing and bundling effort this year does have a focus on presence products. Those presence products do include hosting, which sits in the core segment, and they include websites with marketing and managed WordPress, which are part of A&C. So just the way we approach this testing is a bit based on customer cohort and the customer engagement.

It can involve term of the customer. It can involve the products that customer has. But that's an area -- that continues to be an area of focus for us.

Our next question comes from the line of Mark Zgutowicz from Benchmark.

Hey, guys. This is Alex on for Mark. Thanks for taking the question. I understand you're no longer speaking to GMV, but as we think about the reduced barriers to service SMB or larger clients broadly, afforded through AI driven product development and efficiencies, which clearly highlights your differentiated signal.

How would you characterize or qualify the upmarket opportunity today relative to 12 months ago, especially as Airo index is your top of funnel exposure away from domains?

Yeah. So, as you know, we've got a commerce offering that's growing, and I've talked about it in the prepared remarks even this time that the new offerings sort of expand our one stop shop. I would say maybe a couple of two years ago, we didn't really have an offering. Today, we have a very compelling offering.

For the micro business, we're edging up to a business that sells a million dollars or just above that. And there's plenty of opportunity above that. For now, we continue to be very focused on our existing customers, serving their needs very well, and continuing to evolve the product speed suite and keeping the pricing competitive. So that's our current strategy with commerce.

And it's great that we're able to grow GBV in a healthy manner and be able to do it at, I would say very, very efficiently because we have access to our customers. And our customers love working with us, and they accept the new offering with delight.

Our next question comes from the line of Brent Thill from Jefferies.

Hi. This is, Chuck on for Brent Thill. Just had to wait for the unmute button to pop up. I have two questions.

One, on the -- I think at the dinner last year, you talked about Airo maybe also helping with the pros and maybe it'll be on a managed WordPress side. I'm wondering if you could talk about, how that's going, how are some of your more professional developer type, users responding to it. And then second question was, related to the A&C bookings growth. You know, it's it was a little bit slower than revenue growth this time.

And I guess the comp was tougher, but I'm wondering if that's the pattern now. I mean, the last year for first three quarters was running faster than revenue growth. So if you could talk about dynamic, it would be great.

Yeah. Unmanaged WordPress, I can take that and Mark can follow on the second part. We have a couple of great products that use Airo’s capability. We have the site optimizer.

We also have a new editor that uses Airo capabilities allows customers to build a managed WordPress site despite talking to the agent about it, sort of like a chat interface. So those products are now in the market. It of course, takes a little time to get the word out and sort of go to market on these things. But we like the products.

We like the starting point. It's just very, very early, in that area. As you well know that we started with Airo with the independent customer, with the do it yourself customer, and that was our focus for the most of the first year. But we have those new products that we just showcased at the dinner, and we're excited about getting them to more customers.

And like we said on the bookings, bookings represents cash receipts we get in the quarter. We've talked about our free cash flow targets and reaffirming them for the year, so we feel really good about the pace. No doubt, Q1 bookings compared to a Q1 bookings number is tougher than the revenue comps that we have this year. We don't guide the bookings, but we expect revenue to grow in the mid-teens for A&C.

So we continue to be good with the progress. We continue to be good with what it's generating for us and we continue to be good with the targets that we put out there.

Our next question comes from the line of Robert Coolbrith from Evercore ISI.

Hi. Thanks. Great to hear you confirm that this sort of services skew within the customer base overall. But just wondering, specifically within the commerce business inside A&C, does that dynamic sort of hold true as well that there's a SKU, towards services businesses within your commerce business within A&C?

And second one I've been getting questions on is just related to Office 365 or some of the other Microsoft products. I think that they, they rolled out some price increases in February for consumers, but now it sounds like, there was one also for commercial products in April. So just wondering if that was sort of baked into your guide, previously or if that's incremental at all to your view for ‘25 bookings.

Yeah. For our commerce customers, since the largest source of customers into our commerce offering is our base of customers, it naturally sort of have a tendency to skew towards services customers. Right? So we feel that, there is -- what's the best way to say it?

We feel that there's no -- nothing to sort of say that differentiates our commerce customer from our broader base. Let me -- let me put it that way. Right? Because we are going to the base for our commerce customer.

And in terms of Office 365, we have a long term relationship with Microsoft. It's a contractual relationship. So the sort of price increases on their side don't directly impact us. Again, we've been working with them for a decade now.

And we're very happy with that relationship.

Next question comes from the line of Naved Khan from B. Riley.

Great. Thank you. Two questions, please. One on gross margin.

I noticed the Q1 gross margins dipped a little bit more than as usual and wondering if there's anything there to point out. And should we expect margins to improve sequentially from here on? And the other question I have is around the digital marketing suite, which you guys introduced last year. What kind of attach rates are you getting on that product?

Thanks, Naved. On the gross margin, it's within the parameters we talk about. I would say 64, give or take 100 basis points depending on the product mix and that thesis still holds true for us. Any given quarter could shift a little bit based on that product mix, whether it's between core platforms, A&C or even within the product mix within those separate groups.

So nothing to call out. We know we still are making progress on our normalized EBITDA margin, happy with our ability to expand it and then looking forward to hitting our targets in 2026.

Yeah. And just quickly to touch on digital marketing suite, nothing shared, so small, doing well, Lot to do there over the next few years to make it a bigger part of our offering.

As you -- on the digital marketing suite, Aman, as you think about the bundling and pricing, is there a sizable opportunity with, with that offering, or how should we be thinking about it longer term?

Yeah. Nav, it's without going into any one product, the marketing suite obviously is an opportunity for us to bundle differently than we do today. Right? And it -- but it has to go through the testing, and we have to be able to find the right customer boards, sort of attach it to.

It is one of the many options that we have. There are some that are better options than others. We just have to work through the pipeline of the tests. So it it's great.

It's there. And hopefully, we'll talk about it more over the next few quarters.

That concludes our call. Let me just kind of turn it over to Aman for closing remarks.

Well, thank you all for joining, and a big thank you, to all GoDaddy employees for another fantastic quarter, and we'll talk to you next quarter.