GDDY Q2 2025: A&C at 38% of Rev; AI Fuels Margins Despite .co Headwind
- AI-Driven Innovation and Customer Engagement: The discussion highlighted that AI-powered initiatives, like Ask Arrow and evolving agentic capabilities, are already boosting customer engagement, increasing conversion rates, and driving higher average order sizes with near-perfect retention among high-intent customers.
- Solid High-Value Segment Growth: Management’s comments emphasized robust performance in the A&C segment—with sustained bookings growth, pricing and bundling tests delivering tangible uplifts in domain and core platform sales—and pathways to scale these initiatives for future growth.
- Sustainable Financial Execution: The Q&A underscored efficient margins and free cash flow generation, paired with disciplined cost management, suggesting that even with manageable headwinds (like the .co registry transition), the company is well positioned to deliver ongoing revenue and margin expansion.
- .co Registry Change Impact: GoDaddy announced it will cease operating as the registry for the .co TLD starting in Q4, which is expected to deliver an approximate 50 basis point headwind to bookings and revenue. This change introduces uncertainty around revenue continuity in that segment.
- Execution Risk with New AI-driven Initiatives: Multiple new products such as Arrow, Ask Arrow, and AeroPlus are still in early testing and experimentation. The evolving pricing and bundling models for these initiatives raise concerns about whether they will achieve the expected customer conversion and monetization improvements.
- Margin and Conversion Pressures: Guidance remarks noted diminished margin expansion in the back half of the year and reliance on higher conversion rates from emerging high-value cohorts. If these targets do not materialize, it could adversely affect normalized EBITDA margins and free cash flow conversion.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total Revenue | FY 2025 | Expected range of $4.86B to $4.94B, 7% growth | Expected range of $4.89B to $4,940,000,000, 7% growth at the midpoint | raised |
Normalized EBITDA Margin | FY 2025 | Target of 100 basis points expansion | Reaffirmed target of 100 basis points expansion with exit at 33% | no change |
Free Cash Flow | FY 2025 | Target of at least $1.5B (growth >11%) | Raised to approximately $1,600,000,000 (growth over 18%) | raised |
FX Neutral Bookings Growth | FY 2025 | no prior guidance | Expected to be in line with revenue growth | no prior guidance |
Total Revenue | Q3 2025 | no prior guidance | Targeting $1.22B to $1,240,000,000, 7% growth | no prior guidance |
Applications and Commerce Revenue Growth | Q3 2025 | no prior guidance | Expected in the mid-teens | no prior guidance |
Core Platform Growth | Q3 2025 | no prior guidance | Expected in the low single digits | no prior guidance |
Normalized EBITDA Margin | Q3 2025 | no prior guidance | Projected to be approximately 32% | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
AI-Driven Innovation | In Q1 and Q4, GoDaddy highlighted Airo, Airo Plus, Agentic AI, and internal tools like GABI that leverage AI for customer and product benefits | In Q2, the focus deepened with substantial investments in generative AI, agentic AI, and AI-driven coding that enhances customer experience and internal operations | Strengthened focus with broader applications and faster, AI-enabled innovation. |
Pricing and Bundling Strategies | Q1 and Q4 emphasized strategic testing of new bundles, integration of third-party products, and shifting to a customer cohort lens, leading to revenue growth | Q2 expanded this strategy by leveraging AI-driven coding for rapid bundle testing and a seamless customer experience that drives both revenue and bookings | Continued emphasis now accelerated by AI, indicating rapid iteration and innovation in pricing models. |
High-Intent and High-Value Customer Focus | Both Q1 and Q4 focused on attracting high-intent, high-value customers with stable customer counts, improved ARPU, and strong retention via focused strategies | Q2 reinforced this by reporting growth in customers spending over $500, a rise in ARPU to $230, and near-perfect retention enhanced by tools like Arrow | More pronounced focus with improved metrics, reflecting an enhanced strategy for high-value customer acquisition. |
Bookings Growth and Revenue Recognition | Q1 and Q4 described strong, steady bookings growth (8–9%) with detailed segment breakdowns and a clear timing between bookings and revenue | In Q2, bookings grew 7% overall with A&C up 12% and Core Platform up 3%, and revenue maintained an 8% growth, reinforcing positive momentum despite tougher comparisons | Growth remains steady with minor shifts in segment contributions, maintaining a positive but cautious tone. |
Financial Execution and Free Cash Flow | Q1 and Q4 highlighted robust revenue growth, margin expansion (with EBITDA margins expanding by 150–300 basis points), and strong free cash flow generation with clear long-term targets | Q2 continued this trend with 8% revenue growth, sequential margin improvement (targeting a 32% normalized EBITDA margin in Q3), and a 21% increase in free cash flow | Consistent robust performance with further margin and cash flow improvements, underpinned by disciplined cost management. |
Domain Portfolio Challenges | Q4 mentioned positive aftermarket sales growth without addressing .co challenges, while Q1 largely omitted domain-specific risks | Q2 introduced a specific discussion on discontinuing .co registry operations (a 50 bps headwind) while also noting a pick-up in aftermarket sales | Emergence of a new challenge with the .co registry decision, though overall domain strategies remain strong. |
Foreign Exchange and International Market Risks | Q4 noted a small FX headwind that rolled into revenue and Q1 briefly mentioned international revenue growth, with FX risks not being significant | Q2 reconfirmed minimal FX impact with 11% international revenue growth and FX-neutral guidance for the full year | Steady sentiment with FX risks remaining minimal and international performance robust. |
Execution Risks of Early-Stage AI Initiatives | Q4 acknowledged early-stage testing and cautious evaluation of products like Airo Plus and Agentic AI, while Q1 mentioned optimism without detailed risk discussion | Q2 provided a cautious outlook on early-stage AI initiatives, emphasizing ongoing testing of new features like Ask Arrow while remaining optimistic | A consistent, cautious approach remains as early-stage AI projects are tested, with incremental learnings informing rollout. |
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A&C Growth
Q: How is Arrow impacting A&C growth and adoption?
A: Management stressed there’s no trough in A&C growth—with the segment now at 38% of total revenue and a target of about 40%—and noted that Arrow’s innovative capabilities are driving higher average order sizes and nearly perfect customer retention. -
Margin & Registry
Q: What is margin outlook and .co registry effect?
A: Management explained that the .co registry transition is a one-off event, while sequential margin expansion is on track toward a 33% target and robust free cash flow conversion, despite a minor headwind. -
Ask Arrow
Q: When will Ask Arrow fully expand?
A: Management stated that Ask Arrow is already in testing on select pages and will be enhanced with additional agentic capabilities over the next quarter, with early customer feedback proving very promising. -
Rate Saver
Q: Is rate saver sustainable and effective?
A: Management affirmed that the rate saver is a permanent product feature that cuts merchant fees by about 50%, with fast adoption among both new and existing commerce customers, strengthening the SaaS component of their commerce offering. -
SEO & AI
Q: How is GoDaddy adapting to SEO challenges?
A: Management highlighted that GoDaddy’s strong brand and diversified marketing channels have maintained effective SEO performance, and they are advancing AI-driven SEO tools to further optimize both their own and their customers’ online visibility.
Research analysts covering GoDaddy.