GoDaddy Inc. (NYSE:GDDY) Q3 2023 Earnings Call Transcript

GoDaddy Inc. (NYSE:GDDY) Q3 2023 Earnings Call Transcript November 2, 2023

GoDaddy Inc. beats earnings expectations. Reported EPS is $0.9, expectations were $0.71.

Christie Masoner: Good afternoon, and thank you for joining us for GoDaddy’s Third Quarter 2023 Earnings Call. 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’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 to our Investor Relations site at investors.goddady.net or in today’s earnings release on our Form 8-K furnished at the SEC.

Growth rates presented 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, November 2, 2023. 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.

Aman Bhutani: 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 centers on driving profitable growth, resulting in compounding free cash flow per share and long-term shareholder value. In recent years, we have proven our commitment through decisive actions and margin expansion even in slower growth conditions. Q3 was an important quarter for us. I am pleased with the results and the continued trajectory into Q4 and 2024. Third quarter normalized EBITDA margins jumped 250 basis points sequentially, primarily driven by a reduction in tech and dev spend, some of which was expected and some realized a quarter early.

While margin improvement is increasingly evident in our financial performance, this stems from our earlier restructuring, brand integration and diligent efforts for over a year to drive cloud adoption, which unlock additional savings. As shared earlier this year, we are executing these changes in a deliberate and strategic manner with a commitment to ongoing cost structure management. The work we have done and our ongoing initiatives position us for sustained margin expansion in future quarters and years to come. Q4 will also benefit from margin improvement primarily from a reduction in tech and dev spend. Additionally, we are eager to see our high-margin segment applications and commerce grow faster since in time, that becomes an additional tailwind to our overall margin.

Applications and commerce bookings grew 12% in Q3, and we are encouraged by that momentum. October has continued that trajectory with mid-teens bookings growth in applications and commerce. One of the key messages that I hope you take away from our results and my comments today is that the third quarter marked the turning point of our tech and dev spend as a few significant platform improvements and brand integrations start to be in the rearview mirror, and our product investments get past their peak. As a result of these dynamics, we are well positioned to exit 2024 with normalized EBITDA margin of approximately 31%, another significant step forward for our business. As we look at the next few years, we see leverage opportunities across the P&L.

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Q&A Session

In care, leverage will be driven by consumer behavior, enhanced automation and the incorporation of generative AI. Within tech and dev, as already mentioned, we are actively pursuing opportunities for leverage with multiple initiatives. Furthermore, we remain committed to our disciplined approach in marketing and G&A. These strategies collectively chart a course for our continued margin expansion through 2025 and 2026, and we look forward to providing additional insights at our Investor Day early next year. As always, I want to take a few minutes and talk about our highest priority initiatives. We have added productivity explicitly to our priorities and changed the order. This was driven by the fast adoption of generative AI and new capabilities in bundling with domains and productivity, opening up new exciting opportunities.

Elevating to our first priority, we have evolved innovation in domains to innovation in domains and productivity. We have enhanced the bundling capabilities for our productivity solutions which is already contributing to the faster growth in our applications and commerce segment, and we are taking it further. As you know, the integration of machine learning and use of AI is not new to GoDaddy. We have harnessed these technologies for several years, primarily in our care and marketing functions. Building upon this foundational expertise, we quickly became a leader in the generative AI space for our industry, with customer-facing capabilities in market since April. I am excited to showcase the first iteration of GoDaddy’s digital guide now named GoDaddy Airo to you at our Investor Day later this month.

As I had shared last quarter, this innovative experience empowers customers to access the full suite of GoDaddy products and additional partner products seamlessly just by acquiring a domain. In this experience, domain purchasers received an automatically generated basic website using generative AI and automatically generated logo, ready-to-use social post, personalized e-mail address and more, all delivered in an automated, low-friction manner. All of this is in service to making a significant improvement in the number of customers that have more than two products with us. As you are aware, customers with two plus products retain at much higher rates and have much higher lifetime value all the way to ADX for customers enabled. On driving commerce through presence, over the years, we have added elegant, functional, performant and fully featured capabilities at a fast pace to address the needs of our customers in a rapidly evolving and competitive environment.

As a result, Google core web vitals recognizes GoDaddy’s website builder built sites at the highest performing websites. This quarter, we have taken strides towards our vision in empowering our customers with even broader capabilities to help them grow their businesses with confidence. Our conversations feature has elevated the way our customers connect with their own customers, making it simpler and more effective than ever before. We are proud to announce that we are the first to integrate Google’s business messages in the U.S. Furthermore, we have seamlessly integrated M365 e-mail and social direct messages, mentions and comments into our conversation platform, creating a unified all-in-one solution that is second to none. With these advancements, GoDaddy’s website plus marketing can continue to serve larger and larger customers that have more complex needs.

We also continued to drive strong growth in our omni-commerce solution. Our partnership with Worldpay has launched, and these customers are already transacting using our hardware and software. Customers in our base continue to convert to GoDaddy Payments at an impressive rate and attaching to our base was, again, the strongest component of our year-over-year GPV growth, which remains on pace to more than double our last year’s exit rate. On delivering for Pros, we mentioned last quarter that improvements in our Managed WordPress solution have reached an important milestone, driving improvement in retention rates as customers begin to recognize an enhanced solution. We now offer one of the industry’s fastest, most secure and easiest to use Managed WordPress platforms.

In a recent third-party performance benchmarking study sites hosted on GoDaddy’s WordPress loaded an impressive 2x faster, which results in improved search engine rankings for our customers. Now one quarter later, we are proud to share that these efforts drove impressive double-digit growth in Managed WordPress bookings, which is included in our applications and commerce segment. Additionally, these features are now enhanced with generative AI features to help deliver simplified experiences that expand on the enhancements we have made around performance and security, giving GoDaddy a clear value-based advantage. In just minutes, our customers can now create beautiful, secure and high-performing WordPress sites. In closing, we are committed to driving a strong combination of revenue growth plus profitability.

As Mark will detail, based on the margin expansion efforts in 2022 and 2023 and our confidence in our ability for continued margin expansion in 2024, we see the path to further enhance profitability in 2025 and 2026, above the 31% normalized EBITDA margins that we have laid out today. Our hallways radiate with the energy of tenure and new talent, and we have retrofitted many platforms and products at the company with new and exciting technologies. I am confident that our work has materially improved the fundamentals of the company, and the entire management team is determined to drive shareholder value. With that, here’s Mark.