Q2 2026 GoDaddy Inc Earnings Call
Speaker #1: With that, I'm happy to introduce Aman.
Speaker #2: Good afternoon, and thank you for joining us. At GoDaddy, our purpose is to make opportunity more inclusive for all. Our strategy is to serve our customers' needs across the entrepreneur's wheel, and AI is fundamentally changing how our customers create and grow their businesses, and how we execute on our strategy.
Speaker #2: We have built and positioned Aero as an agentic operating system for small businesses. Aero is the centerpiece of GoDaddy's largest initiative, our AI transformation.
Speaker #2: The AI transformation will enable us to continue to build on our significant track record of delivering value for both our customers and shareholders. When we introduced Aero almost 3 years ago, it was an AI-powered experience that helped our customers discover, engage, and adopt more of our products.
Speaker #2: Last quarter, Aero AI Builder took a significant step beyond that as a distinct agentic experience. Today, we have unified Aero and Aero AI Builder into a single platform as an agentic operating system for small businesses, simply called Aero.
Speaker #2: Aero can build out the comprehensive experience of whatever a small business needs to operate, from storefronts and booking systems to client portals, and it helps our customers run their businesses day to day.
Speaker #2: Everything our customers relied on before lives inside this singular, immersive AI experience. Aero for Small Businesses is our biggest focus and source of excitement, and customers are loving it.
Speaker #2: I worked directly with Aero customers every week, and their response tells me we are building exactly what they need to succeed. Customers are choosing Aero at a rate that is exceeding our expectations.
Speaker #2: Annualized bookings run rate has increased 5x to 50 million, versus the 10 million we shared just one quarter ago, and engagement continues to build among our high-intent customers.
Speaker #2: The momentum behind Aero is undeniable, and just as important, the quality has improved as we have scaled. Nearly all of this growth has been organic, demonstrating strong customer interest even before we have meaningfully leaned into marketing.
Speaker #2: Customer satisfaction also remains high, giving us confidence heading into the second half of the year. We are actively testing Aero in the domains purchase path, which is a high bar, since it is our largest funnel and one that has been optimized for conversion and attach with our existing products for years.
Speaker #2: With a number of enhancements already underway, we expect to scale marketing and deliver continued strong traction for Aero. The world is evolving quickly, and we are meeting the moment.
Speaker #2: Small businesses are engaging with technology in entirely new ways, and we are transforming our experience to meet them where they are going. That requires making deliberate choices about where we invest our time, talent, and capital, recognizing that investments carry different return profiles.
Speaker #2: Our priority is to build the best end-to-end AI operating system for our customers. As part of that shift, we are de-emphasizing a few products as standalone offerings and bringing their capabilities into Aero, simplifying the experience and enabling customers to build and manage increasingly sophisticated web experiences themselves.
Speaker #2: More broadly, as AI reshapes how small businesses create and manage their online presence, we expect the need for traditional products like Do It For You services and template-based website builders to narrow and evolve over time.
Speaker #2: As the transformation unfolds, GoDaddy is well positioned with an earned right to win, grounded in a value creation strategy that remains consistent. Building a business online takes more than a layer of AI; it takes secure hosting, payments, customer engagement tools, and dozens of other jobs.
Speaker #2: Most small businesses lack the time or expertise to stitch it together themselves. We have built one of the most trusted brands in small business over nearly three decades, backed by more than 20 million customers, a strong distribution advantage, a broad set of solutions, deep technology expertise, and a care organization that knows our customers and the needs of small businesses better than anyone.
Speaker #2: Our AI transformation is how we are putting those trends to work. Our vision for Aero is to deliver all of that as one integrated, immersive experience, and that completeness is what differentiates GoDaddy.
Speaker #2: We remain focused on generating profitable growth by attracting high-intent customers who adopt more of our technology and, in turn, drive higher lifetime value. The mechanisms may evolve—through AI, pricing, merchandising, or other means—but the model remains remarkably durable.
Speaker #2: In addition to Aero, there are three other connected workstreams in the AI transformation at GoDaddy, and I'm excited to briefly touch on these today.
Speaker #2: First, we are reinventing our own operations to be AI-native, to improve customer outcomes and increase the speed of innovation. In Care, Aero continues to improve resolution rates across both chat and voice, with the 24-hour repeat contact rate for customers served by our voice bot dropping by over 16 percentage points in Q2.
Speaker #2: This allows our care teams to focus their expertise on more complex needs and on guiding customers as they build their businesses. We are also using Aero to power processes internally.
Speaker #2: At GoDaddy, we give ourselves the opportunity to test new capabilities and rapidly improve the product through everyday use. That same rigor extends to how we fund this work.
Speaker #2: Scaling Aero at this pace comes with investment, and managing it carefully matters, as does the innovation itself. We anticipated the rise in AI compute costs and took actions early to offset them, giving us room within our financial framework to support both greater AI usage and increased marketing behind Aero.
Speaker #2: We continuously test across multiple models to make sure we are creating the expected customer experience while using the most effective and efficient options for each job.
Speaker #2: That discipline gives us confidence in our ability to manage compute and token costs as Aero scales over the long term. The second and newest workstream in the AI transformation is doubling down on GoDaddy APIs being better designed for consumption by agents, including LLMs.
Speaker #2: This quarter we launched the GoDaddy Developer Platform, a new generation of domain APIs that allow developers and AI systems to search, purchase, configure, and manage domains directly within the tools where they are already working.
Speaker #2: LLMs are increasingly becoming a large surface for creating software and businesses, and this enables our platform to be equally accessible to both people and AI.
Speaker #2: This is our first step; today, these APIs focus on the domain lifecycle, but over time we see the opportunity to expand this approach across more of our platform, making it easier for AI systems to securely interact with a broader set of GoDaddy capabilities, including hosting and commerce.
Speaker #2: On ANS, our third workstream intended to help shape the infrastructure of the agentic web, we achieved strong new alliances this quarter. Identity and discovery are essential layers of the Open Agentic Web, and domains are the natural foundation for both as the web moves toward an agentic future.
Speaker #2: To that end, GoDaddy enhanced the Agent Name Service standard launched in production, and this quarter announced our intent to contribute it to the Linux Foundation.
Speaker #2: On discovery, we co-developed the agentic resource discovery specification, or ARD, alongside many other world's leading technology and AI companies. ARD helps solve agent discovery, making it possible to locate tools, skills, agents, and other resources instantly.
Speaker #2: Together ANS and ARD point to the same conclusion: domains are and will remain a trusted foundation for identity and discovery in an AI-driven internet, and that trust enhances and extends the value and demand for domains well into the future.
Speaker #2: Our Q2 financial performance and the work we have shared today showcase a company executing on both the business we have today and the business we are building for the future.
Speaker #2: We stay focused on the fundamentals and what we can control. Our core initiatives, pricing and bundling, seamless experience, and commerce continue to perform well, strengthening our high-intent customer base and reinforcing the durability of our model.
Speaker #2: At the same time, the momentum in Aero is giving us greater confidence in the role GoDaddy will play as AI reshapes how small businesses are created and grown.
Speaker #2: We will host an investor night in December, which will give us the opportunity to connect the AI transformation work underway across the company with the value it can create for our customers and our shareholders.
Speaker #2: There is much more ahead, and we look forward to sharing it with you. With that, here's Mark.
Speaker #1: Thanks, and good afternoon, everyone. We are advancing our AI transformation while maintaining the financial rigor that has long defined GoDaddy. Our second quarter results build on our track record of focused execution.
Speaker #1: We delivered revenue above the midpoint of our guide, and expanded our normalized EBITDA margin by over 200 basis points. We generated strong free cash flow of $443 million.
Speaker #1: With trailing 12-month free cash flow of $1.73 billion, we continued our responsible and prudent capital allocation program, repurchasing $852 million as of July 29, reducing our fully diluted shares outstanding by another 7% this year, to $127 million shares.
Speaker #1: Total revenue for the quarter grew 7% to $1.3 billion. And ARR grew 6% to $4.4 billion. International revenue grew 8% to $427 million. Our applications and commerce segment grew revenue at 11% to $515 million.
Speaker #1: Growth continued to be supported by customer adoption of our solutions. Segment EBITDA margin expanded roughly 250 basis points to 46.8%. Core platform grew 4% to $783 million.
Speaker #1: On strength and primary domain registrations, and renewals led by both dot-com and higher-priced non-dot-com TLDs. Alongside a strong aftermarket quarter driven by higher volume.
Speaker #1: Segment EBITDA margin expanded to 33.4%. Total bookings grew 6% to $1.4 billion. Core platform bookings grew 5%, representing an acceleration from Q1 as we moved past the peak of our promotional offer.
Speaker #1: Applications and commerce bookings grew 7%. These are solid results against a dynamic environment with AI-driving rapid changes to customer expectations and engagement patterns. While our ANC bookings from traditional products is moderating during this period of transition, we are moving quickly to anticipate and meet these changing expectations.
Speaker #1: Moving forward, we expect ARO's scope to broaden, taking on capabilities that today live in separately priced products such as traditional do-it-for-you services and template-based website builders.
Speaker #1: We view this as a deliberate trade-off as ARO monetize through a mix of subscription and token usage continues to scale. We are encouraged by what we are already seeing: higher engagement and stronger free-to-paid conversion rates on ARO.
Speaker #1: Over time, we expect this combined offering to be even more valuable than the separately priced products that our customers engage with today. Through this transformation, as always, we will remain disciplined in how we invest in growth, ensuring that we earn attractive returns as we drive growth.
Speaker #1: This approach positions us to continue generating strong free cash flow and shareholder value well into the future. Underpinning our transformation is the durability of our model, where high-intent customers who adopt more of our solutions retain at higher rates and ultimately generate greater lifetime value.
Speaker #1: Our distribution network has long been a key advantage in engaging our customers. Once customers are within the GoDaddy ecosystem, we can surface the best next product at the right moment, shortening the time it takes customers to engage.
Speaker #1: Publish, and derive incremental value with more of the platform. These underlying fundamentals are continuing to strengthen alongside our transformation. More than 50% of our customers have at least two paid products with us, and that percentage continues to grow.
Speaker #1: With the adoption of ARO, what's even more encouraging is that over 70% of our customers who have used ARO this year have two or more products, which is higher than our non-ARO cohorts.
Speaker #1: Retention continues to improve above an already enviable 85%. ARPU increased 9% to 250 dollars, and the number of customers spending more than $500 annually continues to become a larger part of our customer base.
Speaker #1: This is what a durable self-funding model looks like. Expanding margins and strong cash conversion. Funding our AI transformation while still returning capital to shareholders.
Speaker #1: Normalized EBITDA grew 14% to $434 million, with margin expanding more than 200 basis points to 33.4%. Free cash flow grew 13% to $443 million.
Speaker #1: With normalized EBITDA continuing to convert to free cash flow at better than one-to-one, our strong free cash flow, low leverage, and high liquidity provide us the flexibility to keep investing in our AI transformation while aggressively returning capital to shareholders.
Speaker #1: We ended the quarter with $1.2 billion in cash and total liquidity of $2.2 billion. Net debt was $2.7 billion, representing a net leverage of 1.4 times on a trailing 12-month basis.
Speaker #1: And well within our target range. During the second quarter, we repurchased 6.6 million shares for $554 million. Year to date, through July 29, we have repurchased almost 10 million shares for $852 million.
Speaker #1: Reducing fully diluted shares outstanding by 7% since the beginning of the year. Turning to our outlook, we are narrowing our full-year 2026 revenue guidance to a range of $5.215 billion to $5.255 billion.
Speaker #1: Representing 6% growth at the midpoint. As a reminder, the full-year guide absorbs just over $200 basis points of cumulative impact from the dot-co registry contract expiration and our consistent exclusion of high-value aftermarket transactions.
Speaker #1: For Q3, we are targeting total revenue within a range of $1.315 to $1.335 billion. Representing 5% growth at the midpoint. The third quarter represents our toughest compare on strong aftermarket performance last year.
Speaker #1: For both the third quarter and the full year, we expect ANC revenue growth in the low double digits and core platform growth in the low single digits.
Speaker #1: Absent any FX impact, we expect bookings and revenue growth rates to be at or above parity for the remainder of the year. We are projecting a normalized EBITDA margin of approximately 33% for Q3 and reaffirm our full-year margin target of over 33%.
Speaker #1: Reflecting continued operating leverage and AI-driven productivity alongside rising investments in AI products, platform marketing, and compute. Q2 normalized EBITDA benefited from the timing shifts of certain costs, some of which we expect to be incurred in the second half of the year.
Speaker #1: We reaffirm our full-year free cash flow target of approximately $1.8 billion, with normalized EBITDA conversion greater than one-to-one. On capital allocation, we operate within a disciplined, returns-based framework and have deployed greater than 95% of our free cash flow over the last four years toward share repurchases.
Speaker #1: Our continued commitment to returning capital reflects our confidence in the strength of our cash flow and the long-term value we are creating. We remain focused on allocating capital to the highest-value uses, with a priority on driving long-term shareholder returns.
Speaker #1: Taken together, the combination of our free cash flow with our approach to capital allocation puts us on track to deliver on our North Star of three-year CAGR of over 25%, well ahead of the 20% target we set at our last investor day.
Speaker #1: Finally, I would like to formally invite you to our investor night on December 1, 2026, at our Tempe, Arizona headquarters. We will expand the programming of our typical investor dinner and use that evening to provide a more comprehensive view of our strategy, how the workstreams you heard about today come together, and what they mean for our customers, our business, and our shareholders.
Speaker #1: As the world is evolving, we are launching the experiences to match the moment. As we transform, the principles behind our strategy and model are focused on profitable growth, compounding free cash flow, and disciplined capital allocation are staying firmly in place.
Speaker #1: We look forward to seeing many of you there. With that, I'll turn it back to Christie for your questions.
Speaker #2: Thanks, Mark. As a reminder, if you'd like to ask a question, please use the raise hand feature at the bottom of the webinar screen to be added to the queue.
Speaker #2: Our first question comes from the line of Vikram Kesavula from Baird. Vic, please go ahead.
Speaker #3: Hey, can you hear me okay?
Speaker #2: We can.
Speaker #4: Hey, Vic.
Speaker #3: Okay, great. Hey, hey everyone, thanks for taking the questions. Hey, my first one is on the Domains business, and Aman and Mark, it would be great to hear your perspective on your current competitive position within primary domains.
Speaker #3: And specifically, when we think about the emergence of AI agents as part of the customer journey, and some of the different strategies taking shape across the industry, I'm curious if you're seeing any changes in that business, one way or another.
Speaker #3: And from a high level, it'd be great if you could talk about some of the steps you're taking to ensure that GoDaddy remains successful in primary domains, as customer behavior and discovery patterns evolve.
Speaker #3: And then separate from that, I also wanted to ask about the ANC segment. You referenced in the prepared remarks that bookings from some of your traditional products are moderating, as you go through this transition.
Speaker #3: Can you help us understand the magnitude of some of the headwinds coming from those products, and going forward, when do you think the ramp in error monetization will reach the point of offsetting some of those headwinds?
Speaker #3: Thanks.
Speaker #4: Thanks, Vic. Let me start with domains, and then we'll come back to ANC. On the domains business, for over a couple of decades, GoDaddy has been the leader.
Speaker #4: In domains, and many, many business models. And sort of changes in technology have happened during that time. So we feel very good about GoDaddy's overall position.
Speaker #4: With AI and the advent of LLMs, we're definitely seeing some changes in that business overall. And we're actually meeting the moment where in terms of what's happening.
Speaker #4: So, as you probably saw, we launched GoDaddy's APIs in a new and renewed format. This is literally addressing the changes we're seeing in the domains business today.
Speaker #4: With the new GoDaddy APIs, those APIs can work very well for LLMs and AI. As well, they work for our partners today. That's going to allow us to handle some of the changes that are happening in the domains business and actually put more competitive and innovative products in the market. GoDaddy has an advantage because we have so many of our own products that we can bundle together and put into the API, so we really think that's an area we can address.
Speaker #4: I think, overall, Mark can maybe comment a little bit on our overall position. We've continued to maintain a very healthy share in terms of overall primary domains.
Speaker #4: Obviously, Q2 was a strong quarter, but I'll leave that to Mark.
Speaker #1: Yeah, and just on the domains element, our market share around domains is consistent with prior periods, right? And that's the broader term of domains.
Speaker #1: So it includes all the TLDs, including non-.com TLDs out there as well. And Vic, going to your ANC comment, no doubt we are in a dynamic environment.
Speaker #1: Our customers are broadening their use of AI. We couldn't be more excited about the transformation we're entering into with Arrow and the strong early growth signs.
Speaker #1: We believe this is going to be faster as we start to increase the purchase paths around Arrow. In the coming quarters, we're expecting bookings on ANC to be in the high single digits for their measure of the year.
Speaker #1: We'll probably have more information as we get further throughout the year as to when we think those inflection points will happen, but we couldn't be happier with the growing adoption of Arrow today.
Speaker #4: Yeah, and just to touch on the strategy behind the overall ANC segment: our strategy with ANC has been to attach products across the entrepreneur’s wheel for our customers.
Speaker #4: With Arrow, we've greatly accelerated that strategy. What we thought of as a five, seven-year strategic product roadmap can now be seen as one to three-year roadmap.
Speaker #4: We can use AI to very quickly integrate our products with Arrow, and Arrow does a great job in terms of product discovery and attach, and it beats our existing web-based attach funnels.
Speaker #4: The overall vision for Arrow is to cover a majority of the jobs to be done for small businesses. Effectively creating a competitive AI operating system for those small businesses.
Speaker #4: And our focus is to optimize it for our customers. Like I said, since we have so many products ourselves, we can bring them to Arrow much faster than others.
Speaker #4: Just in the last four months—we put Arrow AI Builder out there about four months ago—we've added GoDaddy Payments, we've added customer communication.
Speaker #4: And multiple other capabilities to Arrow just in the last four months. And as we look at the next few months, we're going to introduce a host of commerce capabilities.
Speaker #4: We'll even get into things like customers being able to have business telephone numbers, IVRs, and voice and video capabilities. That will all work within the AI-immersive Arrow experience.
Speaker #4: I work with Arrow customers all the time, and I'm amazed at what they can do themselves. And that delight that they have with the product—that's the path to greater attach.
Speaker #4: That's the path to greater ANC. And that's the path to getting strong lifetime value for GoDaddy.
Speaker #1: Yeah, and just to add to that, the trade-off is we used to have separate SKUs for commerce, but now all the capabilities are included within Arrow.
Speaker #1: And we will get to see the transaction value related to that. But the reality is that becomes a second or a third attached product.
Speaker #1: When we get to second or third attached products with our customers, as we've always said, the retention goes up. The retention goes up. The LTV goes up over time.
Speaker #1: So we believe this is going to be more valuable over time, than our existing customer existing products out there.
Speaker #3: Okay, great. Thanks for all the color.
Speaker #1: Thanks.
Speaker #2: Our next question comes from the line of Ken Wong from Oppenheimer. Ken, please go ahead.
Speaker #3: Fantastic. Thanks for taking my question. I wanted to dig in a little more on the AI disruption angle. Aman, are you able to share perhaps where you're seeing some erosion?
Speaker #3: Is this by channel? Is this upmarket, downmarket? How does it impact the domain funnel, which you guys obviously are highly dependent on? And then, Mark, just on the guidance—good to see an acceleration in Q4, but I guess considering your lap in the kind of the disruption and go-to-market comps, and also the domain, the gTLD comp, I would have assumed a little more of an uptick.
Speaker #3: Just would love any color on what type of conservatism is baked into that number. Thank you.
Speaker #4: Yeah, on the domains funnel, we continue to see very healthy domain funnel economics and traffic and conversion in Q2. We continue to have a healthy rate.
Speaker #4: Now, things are dynamic, and evolve over time. So new stuff is happening. There's no doubt that the LLMs are playing a part, and we see that shift in search traffic.
Speaker #4: We've talked about it in the past. And we're continuously improving GoDaddy's services to work better with the LLMs. What we where we particularly see the change is with the API domains.
Speaker #4: And this is new services and new business models that are sort of getting attention. And like I said, over the last couple of decades, we've seen other similar plays.
Speaker #4: And over time, our strategy remains the same, but we have to evolve. We have to provide more competitive products, which is why we relaunched GoDaddy's APIs, especially in the domain space.
Speaker #4: And you'll see us launch APIs for other products, too, because we want to be able to bring forward a very competitive offering to LLMs so that we rank better in LLMs, so we get better traffic from them.
Speaker #4: And as we see the shift between search and LLMs, that GoDaddy's there and is able to be competitive over the short, medium, and long term.
Speaker #1: Yeah, and Ken, on the guidance and what we're looking at for the back half of the year, keep in mind while we're lapping the 499 offer, that's a bookings impact we'll see immediate, but the revenue still rolls out throughout the year.
Speaker #1: So, we'll still have some headwinds related to the revenue from the discount that we offered in the first part of the year. That, coupled with the fact we don't include the high-value transactions in our guidance—that is our standard practice.
Speaker #1: That gets you to where we are with the range right now.
Speaker #2: Our next question comes from the line of Mark Zagudowicz from The Benchmark Company. Mark, please go ahead.
Speaker #4: Thanks, Christie. Hi, Aman and Mark. Maybe just a couple on Arrow. You indicated that Arrow will absorb capabilities currently sold under separately priced products, while you're seeing your ANC bookings moderating.
Speaker #4: I'm just curious, how much of your existing bookings are attached to those products that you mentioned are being de-emphasized, if you will? And at what level will Arrow subscription and token revenue need to be, to sort of replace those economics?
Speaker #4: And then a separate question on the exposure to domain path traffic. What percentage are of domain traffic is being exposed to Arrow today? And what are you seeing in terms of initial conversion, product attach and bookings relative to legacy W plus M?
Speaker #4: And then the last one, just related, is how much marketing actually occurred related to Arrow in Q2, and what do you have planned for the second half?
Speaker #4: I'm just trying to get a sense of how much of the Q2—I'd call it a cost timing benefit—how much of that reverses into Q3 and Q4?
Speaker #4: Thanks.
Speaker #5: All right.
Speaker #3: Do you want to take a look?
Speaker #1: I'll take the first part of it, Aman, and then maybe you can get into the domains and where we stand with that.
Speaker #4: Sure.
Speaker #1: Thanks, Mark. When we look at the products impacted, there'll be a few capabilities in there. We won't go through the entire list, but here are some examples.
Speaker #1: We talked about commerce already. Again, commerce is not going to go away, per se, but some of the capabilities that were in separate SKUs now will be built in, right?
Speaker #1: Another example is 'do it for you.' Our professional services used to be transactions around a couple thousand dollars. Now, our customers are coming in and doing most of that work themselves.
Speaker #1: Some of it is going through Care as well. But the need for professional services is narrowing as we go further, so the impact on that business will start to wane over time.
Speaker #1: Putting or quantifying each specific area, I think we're early in the process here as we're going through that. The way I would look at it at a high level, probably was about a point to our total bookings this quarter.
Speaker #1: And obviously, the growing impact of Arrow and the adoption is still early stage. We're seeing some great traction. We're seeing our customers convert over from WAM to the Arrow to do a lot of their work.
Speaker #1: But we still have some work to do around the purchase paths, what we're offering, the attach, and all that, which we'll be doing in the second half of the year.
Speaker #1: So the transition period, I would say, we put the numbers out there for the rest of the year. As we get more data points and talk to you on December 1st at our investor dinner, we'll give more guidance as to what that means for the future periods.
Speaker #4: Yeah, and the second and third point are actually related. Questions are actually related, Mark. So when we actually tested Arrow in the domains path in Q2 as well, as I talked about last quarter, and it performed quite well.
Speaker #4: But websites plus marketing, as you know, is very deeply integrated into all our attach funnels. So what Arrow has to be does not just website building with websites plus marketing, but all of it, all of the attach capability that it has.
Speaker #4: And that's what Mark just referenced. We still feel good about being able to replace that in the second half of this year. As you will remember, we talked about it sort of a year's journey to be able to put in new capabilities that would replace websites plus marketing.
Speaker #4: We still feel good about that timeline where doing new tests in Q3 with it as well. And adding it to the domains path is an important gate for us to add more and more marketing spend, because having it in the domains path allows us to put more marketing behind it.
Speaker #4: We did put a small amount of marketing behind it in Q2. It was not a large number. We actually saw good results in terms of new customers coming and engaging with the product.
Speaker #4: But that's where we've got to do the work to convert them, and then get the attach and make all of that work. But we're encouraged by the small level of tests we did in Q2, and we intend to continue to ramp that up in Q3 and Q4.
Speaker #4: In terms of how I think about the marketing, the core principles or sort of the guardrails that we have and the return-based framework for marketing are staying the same.
Speaker #4: We still believe in the same disciplined approach to marketing. We're looking for those pockets where we can spend dollars and get a great return.
Speaker #4: And we see great possibility to do that, especially as we get Arrow into the Domains path, which should be sometime in the next few months.
Speaker #1: And just to follow up on that, we called out that some costs would be moving from the quarter to the second half of the year, and marketing is an example of some of those costs.
Speaker #4: Got it. Thanks, guys.
Speaker #2: Our next question comes to the line of Elizabeth Porter from Morgan Stanley. Elizabeth, please go ahead.
Speaker #5: Great. Thank you so much for the question. I was really impressed to see Arrow's bookings run rate increase from 10 to 50 million in one quarter.
Speaker #5: So, could you just help us unpack some of the bigger drivers of growth factors between things like new paying customer additions, kind of the higher ARPU with attach, and then the incremental token consumption?
Speaker #5: It'd be helpful just to understand, within the cohorts, where you've seen the bigger momentum. Is it more from new customers, or some of those existing customers from GoDaddy?
Speaker #5: Thanks.
Speaker #4: Yeah, thanks, Elizabeth. So, as you know, we have only about four months of data. And I would say for the first two and a half, three months, we mostly saw only existing customers.
Speaker #4: The large majority of customers, even engaging with Arrow, were existing customers. But as we start to put even a little bit of marketing spend behind it and started to surface Arrow on more of the GoDaddy landing pages, we've started to see new customers engaging with the product.
Speaker #4: So we're seeing a good sign-up rate for Arrow from completely new GoDaddy customers as well. And in terms of the economics, we continue to feel very good and confident about the economics of the product.
Speaker #4: We've talked about how we're approaching Arrow, our goal is to create a fantastic outcome for our customers while also having a profitable product. And we do that by just how we approach customers, what we spend to get them.
Speaker #4: We do that by what AI costs we deliver, what models we use, and we deliver that by how we attach to the product.
Speaker #4: Again, within the Arrow experience, all of it is very seamless for the customer, and we keep a very close eye on the economics of it.
Speaker #4: In terms of tokens that you see, we continue to see good results there. Customers engage with Arrow—a percentage of them are very, very engaged—and they buy a lot of tokens, and they continue to build what we think are just fantastic, not just websites, but full-on web applications.
Speaker #4: ...that they're building, and they're able to do it themselves.
Speaker #1: Yeah, and just to call out, we're seeing better free-to-paid conversion with Arrow than we were seeing prior to Arrow.
Speaker #5: Great. And then, you previously talked about the pricing and bundling contribution just being paused as Websites + Marketing transition upgrades occur. I just wanted to get a sense for where we are on that transition, and when you think pricing and bundling can resume contributing to RPO and bookings?
Speaker #5: Is this something where, once websites and marketing reach customer metric parity, we expect pricing to resume immediately, or is there any sort of additional lag period as you look to validate using economics and retention?
Speaker #5: Just some of the key factors you're monitoring there as we respect to pricing. Thank you.
Speaker #1: Yeah, so I'll start. Pricing and bundling continue to be contributors to our growth in the underlying products that we have out there. Even as we're making this transition, we've called out in the past the Websites + Marketing pause that we made, and now we're pointing to the fact that we're building in the capabilities of Websites + Marketing directly into Arrow in and of itself.
Speaker #1: So, the bundling and pricing—I have a healthy working. It will evolve as we start to look at the capabilities we're including in Arrow.
Speaker #1: Versus the products we are attaching to Arrow, that is something that we’ll have more information on as we go throughout the year. But pricing and bundling is still contributing.
Speaker #5: Great. Thank you.
Speaker #2: Our next question comes from the line of Arjun Bhatia from William Blair. Arjun, please go ahead.
Speaker #6: Hi, team. I'm Willow, on for Arjun Bhatia. Thanks for taking my question. I have a pricing question as well. Given the dynamic environment, just to use your words, is GoDaddy offering more promotional pricing now versus previously?
Speaker #6: For example, when I go on the website, I can see a free trial for the higher tier of the website builder, in addition to a pop-up for that $5 one-year domain promo that I believe you've called out in the past.
Speaker #6: Essentially, I'm just hoping to better understand your pricing strategy with promotional pricing. Thank you.
Speaker #4: Yeah, the only change to pricing or promotions that you're seeing on the homepage, Willow, is related to Arrow. Because we have a new product, we're giving 50 free credits for people to come in and try the product.
Speaker #4: There's no actual new promotional pricing. In fact, as you probably remember over the years, we have really reduced the viral promotions, and we continue to maintain a very low level of promotional pricing.
Speaker #4: The two core pricing promotions that we have are the $4.99, and that's one per customer, and then what we launched with Arrow.
Speaker #1: And one per new customer.
Speaker #4: One per new customer, yes.
Speaker #6: Great. Thank you so much.
Speaker #4: Yep.
Speaker #2: Our next question comes from the line of Alexi Gogolev from J.P. Morgan. Alexi, please go ahead.
Speaker #7: Hi, this is Ella Smith on for Alexi. Thank you for taking our question. So, we have two. First, historically, at your last Investor Day, you cited that pricing and bundling was the largest lever to your forward revenue growth.
Speaker #7: As you look ahead, what do you think the largest lever would be? Is it Arrow? Is it partner product partnerships? Or is it something else?
Speaker #4: Yeah, we absolutely feel very good about Arrow. The way Arrow is growing and customers are engaging with it, the way we see free-to-paid conversion—we think this is a massive opportunity for our customers to really build what they want and get their brand and their experience out there in a manner that just wasn't possible with previous tools.
Speaker #4: So, a lot of things are going to point to Arrow, and we're super excited about that. In terms of pricing and bundling, given our large portfolio of products and 20 million customers, pricing and bundling will continue to evolve, but they'll no doubt be part of our strategy—part of what we're going to do over the next few years.
Speaker #1: And then you asked about partnerships, and you threw that in there. We think that is a great opportunity. We've been very successful with some of our partnerships, but being Arrow as an operating system allows us to integrate partnerships a lot more going forward.
Speaker #1: So we think that will be a contributor as we continue to grow and see other products within. The entrepreneurs will.
Speaker #6: Very clear, thank you. And for a follow-up, your customer base as it stands is largely solopreneurs. Do you see the composition of your customer base changing as you build out agentic web offerings?
Speaker #6: In other words, would you sell to larger SMBs or enterprises?
Speaker #4: You know, we're still pretty focused on small businesses, and there's a lot of time and opportunity there. So that's what we're focused on. Over time, we'll keep you informed as things evolve.
Speaker #6: Great. Thank you.
Speaker #4: Thank you.
Speaker #2: Our next question comes from the line of Robert Colbreth from Evercore. Robert, please go ahead.
Speaker #3: Hi, thanks for taking the question. I was just wondering if you could sort of contextualize how the quarter went versus your expectations. It seems like Core did quite well from a bookings perspective.
Speaker #3: I was just wondering, was there a rapid shift in customer behavior where more customers are coming to you just for domains? They're like, okay, I've already got a completed project or something that I'm just trying to find a domain for.
Speaker #3: Was there a dramatic shift in attach for Presence, or is it more just about that pause on pricing and bundling, and websites and marketing?
Speaker #3: This is more or less how you thought it was going to play out. Just trying to understand a little bit better. Thank you.
Speaker #1: Yeah, Robert, thanks. There are always puts and takes on any quarter. This quarter, I would say, we've started to enter the phase of transformation. Probably the biggest shift we saw was customers engaging in Arrow faster and more than we anticipated.
Speaker #1: And the acknowledgment that they wanted everything in a simple-to-use one platform status. So things like websites of marketing became a capability that now we're moving into Arrow, and that shift obviously changed the dynamic around how we're engaging with our customers.
Speaker #1: But even in those dynamics, when you look at what we were able to do for the quarter, we were ahead on free cash flow per share growth.
Speaker #1: It's close to a 28% normalized EBITDA margin, 33%. We converted to free cash flow on a greater than one-to-one basis. We showed the acceleration in bookings coming out of Q1 into Q2, and our revenue, obviously, was above the midpoint of the guide.
Speaker #1: So our expectations were pretty much in line. While there were, I would say, different moving parts within that a little bit, we were largely very happy with the performance this quarter.
Speaker #3: Got it. And on the ramp in the ARR at Arrow, was that I understand that you're testing now in the domain funnel, but were there any other change in terms of your placement of Arrow in the funnel, or was it just purely organic?
Speaker #3: People say, "Okay, I see both the traditional websites and marketing path, and I see the Arrow path in front of me," and more people than perhaps anticipated are going into the Arrow path.
Speaker #3: Maybe just a little more color there. Thank you.
Speaker #4: Yeah, a number of organic placements, landing pages for GoDaddy. Just search SEO traffic, finding it, and basically, a large majority of it being organic. There is some testing on the domains path, but that's only for a limited amount of time because the test runs only for a certain period for us to gather the data.
Speaker #4: But the very large majority of what we see is organic. That's what gets us very excited—customers just coming to GoDaddy, using the product. They just love the product.
Speaker #4: And if I haven't said it already, customers love the product. We get really good feedback from customers. For a product that's new, that's launched just a few months ago, it's really good numbers.
Speaker #4: So pretty excited about it.
Speaker #3: Great. Last quick one, just on the API endpoint distribution. If you could talk a little bit about maybe what you're seeing from the MCP integration with Anthropic and then how you broaden that distribution to other LLMs?
Speaker #3: And how finely do you think the LLMs will be incentivized? Or, ultimately, how will the customer get to your endpoints versus someone else's?
Speaker #3: Thank you.
Speaker #4: Yeah, we've worked to optimize against the LLMs, and we went down a path a little while ago to say, look, we should just rethink our API strategy because the LLMs use APIs. People are building apps using LLMs, and the LLMs have to be able to natively consume GoDaddy products.
Speaker #4: So that was the rebuild for Domains. Again, super excited about that. It's very new—might have seen the press release, I think just last week.
Speaker #4: And we're very quickly going to bring other products online, too. What these APIs do is they provide the LLMs with the key information the LLMs need to be able to automatically consume those products.
Speaker #4: And that, we think, is a good step up from what we had earlier. So again, super excited about that too. That's pretty early, but hopefully, in a quarter or two, I'll be talking about that with equal excitement as I am with Arrow today.
Speaker #4: Thank you.
Speaker #2: Our next question comes from the line of Keishan Patel, on for Josh Beck at Raymond James. Keishan, please go ahead. Keishan, we'll put you on mute for now.
Speaker #2: Our next question comes to the line of Navid Khan. Navid, please go ahead.
Speaker #5: Great. Thank you very much. I'm just trying to unpack the slowdown in the ANC bookings. And I think we called out a few things over there, but maybe 100 basis points is, if I heard you correctly, I think is attributable to the maybe the fact that do-it-for-me maybe shifting over or transitioning into Arrow-led enablement.
Speaker #5: But are there some other things to call out here? Because if I look at the comp, year-on-year, you had an easier comp. In spite of that, we saw a 200 basis point resell.
Speaker #5: Just trying to understand what the components of that are. Thank you.
Speaker #1: Yeah, thanks, Navid. And not going through all the capabilities we're moving into Arrow, I think the biggest examples you can look at are the ones you pointed out—the professional services around do-it-for-you, as an example.
Speaker #1: We're seeing narrower pipelines related to our customers' needs for complex websites or us creating them for them. But then, web placements marketing also is another example where we've moved those capabilities in.
Speaker #1: And you've seen it in a drop-off in the need for web placements marketing within our ANC portfolio. So those are two examples of probably a few out there at the end of the day.
Speaker #1: But as we continue to ramp Arrow and we see the engagement over time, Arrow will become a bigger part of the growth story as this starts to fall off.
Speaker #1: Just one point of clarification there, Navid. The 100 basis points—that was for our total bookings number, not specific to ANC. So just FYI as you try to reconcile the numbers back.
Speaker #5: Okay. And then, I guess the $100 to $150 million ARR growth in the app builder—is that counted in the ANC as well, or is that somewhere else?
Speaker #5: I should understand that in terms of its impact on the bookings. And maybe just staying on this bookings topic, should I just maybe understand that Arrow is maybe sort of the stationary one because DIFM may be a higher-priced product, and Arrow maybe doesn’t necessarily need to cost as much?
Speaker #5: What are your thoughts on that?
Speaker #4: Yeah, on the do-it-for-you product, that's typically a couple of thousand dollars in terms of bookings. And when we're building with someone and with Arrow, it's a smaller number.
Speaker #4: And it's a subscription plus token-based product. What we find is that Arrow is so much easier for customers to use—they can just talk to a guide and build it themselves very quickly.
Speaker #4: So that's the main thing about the do-it-for-you product. And I think, Mark can confirm, but I think your other question was, is Arrow counted in ANC?
Speaker #4: And I believe that would be yes.
Speaker #3: Yes, Arrow is counted within ANC. That's it.
Speaker #5: So with that, why shouldn't we have a pickup in ANC bookings in the back half, if Arrow is seeing an acceleration and you're probably going to put some marketing dollars behind it as well?
Speaker #1: Yeah, we're in Navid, we're looking at this as a transformational period as we start to engage our customers in different channels. It's new into the market, so the period of time that we expect for it to start to be a bigger part of our growth is still something we're working through.
Speaker #1: Right now, we expect ANC bookings to be high single digits for the remainder of the year. And obviously, we'll update everybody as we get more data points as to how the other channels are working when we get to December 1.
Speaker #5: Understood. Thank you.
Speaker #4: Thank you.
Speaker #2: Our next question comes from the line of Egal Aranian from Woodbush Securities. Egal, please go ahead.
Speaker #6: Hey guys, good afternoon. I just want to understand the LLM traffic shifts a little bit better and exactly what's going on. So, can you explain what that traffic shift is?
Speaker #6: What are people going to use different products for? Are they coding directly? And what about Anthropic and OpenAI? What's happening with that shift? Where are they going instead of GoDaddy?
Speaker #6: Because it sounds like it's not yet a one-to-one replacement on Websites + Marketing versus Arrow. And does all this change your approach? I think you were planning on rolling out a new Websites + Marketing or an update.
Speaker #6: So does your focus shift on where you're building from here? I'm going to have a follow-up.
Speaker #4: Yeah, just to go very quickly, the LLM comment is related to APIs and newer models for people offering APIs that LLMs can consume directly.
Speaker #4: And those end up being very low-cost providers on the domain side. And again, we've seen many models of that over the years. We're updating our APIs to be able to compete and have better bundles and offerings for customers.
Speaker #4: It's just that in this case, LLMs would consume that on behalf of the customers. And on the upgrade of Websites + Marketing, we actually—as I talked about—we had tested a new product that updated Websites + Marketing over the last quarter.
Speaker #4: We actually found that Arrow could be all those products that we were looking at. So, in fact, just over the last few weeks, we've launched a much stronger editor and templating capability within Arrow.
Speaker #4: And that's just going to get stronger. We now feel very good about Arrow actually being the one operating system, the one tool that can build your websites in different ways, that can do customer communications for you, that can do payments, it can do commerce, and many, many other things.
Speaker #4: So, you're actually seeing a convergence of what we were talking about earlier.
Speaker #6: Okay. Sorry, to be clear on the API functionality or API usage, that means people are building websites the way that they would through GoDaddy on the LLMs.
Speaker #6: And then just the follow-up on margins and so with all of this, I mean, we've talked about this a lot and we've seen pretty material margin erosion in other places and competitors.
Speaker #6: As they've rolled out more Vibe Coding products, and as you maintain your margin guidance for the year—even as the Arrow ARR is growing and you're seeing some of these shifts in behavior—has anything changed in terms of how you can balance the cost side on compute as you build out this product?
Speaker #6: Do you still have this advantage, as you've had over the last year, where you haven't seen margins erode? Thank you.
Speaker #1: Yeah, I'll comment on the margins. Real quick, we feel really good about our positioning around our margins and anticipating the costs that we will incur related to higher compute costs, higher token costs, and all that.
Speaker #1: We are very focused on making sure where we're spending our time is getting the right ROI, like we've done in the past. We have the same approach to what we've done—everything.
Speaker #1: And we've gone into productivity gains in our operating model right now that we're starting to see. Think about it from a headcount perspective, and our headcount costs are remaining flat.
Speaker #1: We're seeing benefits in Care. We're seeing benefits in T&D. We're seeing benefits in G&A. All those benefits translate into our ability not only to continue to expand our margin, but also reinvest in the business around these areas like Arrow, where we're going to see the return, and we feel really good about the data points that show us those returns right now.
Speaker #1: So we feel we're in a great position to continue to focus on profitability and expanding margins, while at the same time handling the costs associated with new products.
Speaker #1: Obviously, when we get to December 1st, we'll talk a lot more about what that will look like going into 2027. But we feel good about our ability to not only maintain profitability, but to increase and continue to expand profitability going forward.
Speaker #2: Our next question comes to the line of John Bayun, on for Brent Thill at Jefferies. John, please go ahead.
Speaker #5: Hi, can you hear me okay?
Speaker #2: We can.
Speaker #5: You. So, I have two questions. One is something that's come up earlier, but I just want to see if I can maybe ask it a little bit differently.
Speaker #5: I'm going through a transition period with the error. I mean, I know it's still very early and this is still evolving, but are you thinking that that's something that's like a two- to three-quarters type of transition, or...
Speaker #5: Does this last more than a year, well into 2027? And then my second question was around the WordPress community, the professional web developers, website creators, and partners.
Speaker #5: I mean, how are you thinking about the impact of what’s happening now to your customers on that side? Thank you.
Speaker #1: I'll take the first part. John, we're not putting a timetable on this. We've talked about what we expect to see for the rest of the year, and as we gather data points, we'll shift more of what we think the outlook will be.
Speaker #1: When we get together on December 1st in Tempe, we are excited about the growth in Arrow. We've talked about the $50 million run rate.
Speaker #1: Having said that, we are still in the process of launching it into Domains' purchase path. We're looking at connection points for more attached. So there's still a lot of data to gather for us to really hone in on the timing of this transition, and when we will see Arrow contributing more to our growth going forward.
Speaker #4: And just on the WordPress side, we do have Arrow for WordPress, and it continues to get traction with those customers. But that world is evolving too.
Speaker #4: We're seeing some traction with Arrow, with that world as well. But it's too early, John, to be able to talk about it or to say where it's really going.
Speaker #4: Our focus is to create an operating system for small businesses. Whether that's used by the customer directly or through a developer kind of shouldn't matter to us.
Speaker #5: Great. Thank you.
Speaker #2: Our next question comes to the line of Chris Zhang from UBS. Chris, please go ahead.
Speaker #7: Hi, thanks for taking my question. So, the first one is on the international revenue, which continues to outpace the overall company or the U.S. on a constant currency basis.
Speaker #7: Maybe you can help us unpack the drivers across the segments, and also in terms of the price and actions versus the top of the funnel, and what portion of that you see as more durable going forward. And just to get a little more color on the international.
Speaker #7: And then I have a follow-up.
Speaker #1: Yeah. On the international side, nothing really new out there. It's performing well. We're seeing traction in the markets. We are focusing on came in at 8%.
Speaker #1: I would say there's nothing specific to call out in any region, one way or another. We're just very happy with the performance internationally, as we are with the performance in the U.S.
Speaker #7: All right, I appreciate that. And just a quick follow-up on the core platform bookings. I think you mentioned the outlook for the rest of the ENC bookings for the rest of the year, but sorry if I missed it—what are you expecting for the core platform bookings growth for the second half of this year?
Speaker #1: Yeah, we should see a little bit of strength. I know we've talked about, on a long-term basis, that bookings growth and core platform will be low single digits. You might see that lean a little towards more mid-single digits for the remainder of the year as we lap the $4.99 at the back half.
Speaker #7: Got it. So, roughly stable versus the second quarter. All right, thanks so much.
Speaker #2: We'll try again for Keishan Patel on for Josh Beck at Raymond James. Keishan, are you there?
Speaker #6: Hey, yeah.
Speaker #2: Hi, Keishan, we can't hear you. All right, I am going to hand it over to Aman to close this out. Please go ahead.
Speaker #4: Thank you. Thank you all for joining. Again, I'll leave you with a couple of takeaways. One, I'm super excited about Arrow and its fast growth.
Speaker #4: And how much customers love it and the engagement we're getting. And to the questions on the AI transformation, I just want to point out that our strategy, our financial discipline, and our approach to investment remain unchanged.
Speaker #4: We're very happy with how we're approaching this business, and we want to meet our strategy of meeting small businesses where they are and offering them a ton of services.
