GoDaddy(GDDY) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue grew 7% YoY to $1.03 billion, with 9% growth on a constant currency basis [17] - Normalized EBITDA grew 15% to$ 263 million, with a margin rate of 25%, representing a 180 basis point expansion YoY [19] - Unlevered Free Cash Flow for the quarter totaled $297 million, growing 18% driven by strong profitability [19] - ARR for Applications and Commerce grew 10% to more than$ 1.2 billion, with Create and Grow products ARR growing 7% to nearly $430 million [18] - Annualized GMV across the GoDaddy ecosystem grew 10% to approximately$ 29 billion [18] - Core Platform revenue grew 5%, within the target range of 4% to 6%, primarily due to growth in the Aftermarket and increased pricing in domains [18] Business Line Data and Key Metrics - Applications and Commerce revenue grew 13%, within the guided range of 13% to 15%, driven by Create + Grow and Commerce products as well as email attach [17] - Core Platform revenue grew 5%, with ARR for Core Platform growing 2% to $2.3 billion [18] - Hosting business faced challenges due to uneven demand in Europe and FX pressure, with a modest decrease in revenue [18] - GoDaddy Payments saw positive momentum in new customer attachments within Websites + Marketing and Managed WordPress [12] Market Data and Key Metrics - International revenue grew 4% on a reported basis and 9% on a constant currency basis [17] - Europe, particularly the UK and Germany, experienced significant FX pressure and uneven demand [32][34] - The US market is being closely monitored, with no significant shifts reported yet [32] Company Strategy and Industry Competition - Strategic priorities include driving commerce through presence, delivering for GoDaddy Pros, and innovating in domains [7] - The company is focusing on simplifying site creation, enabling payments in all Websites + Marketing plans, and expanding OmniCommerce solutions [8][10] - GoDaddy is targeting larger customers with Managed WooCommerce Stores, aiming to serve high single-digit million sellers [11] - The company is leveraging its one-stop-shop approach to attract and retain customers, particularly in the current economic environment [37] Management Commentary on Operating Environment and Future Outlook - The company is navigating an uneven macro environment, with strong customer retention rates of over 85% [5][31] - Management remains committed to controlling costs, optimizing marketing spend, and investing in growth initiatives [6][24] - The company expects Q4 revenue in the range of$ 1.03 billion to $1.05 billion, representing 2% YoY growth at the midpoint [21] - Normalized EBITDA for Q4 is expected to be in the range of$ 250 million to $260 million, with a margin rate of 24% to 25% [23] Other Important Information - The company completed$ 1.15 billion of share buybacks year-to-date, repurchasing 14.8 million shares and reducing the fully diluted share count by approximately 9% [19] - GoDaddy secured a fixed power contract in Europe to mitigate rising energy costs and expanded its relationship with Amazon Web Services to reduce long-term capital spend and energy expenses [25] - The company is refinancing its 2024 debt to extend the due date to 2029, with a new term loan facility of $1.8 billion and an increased revolving credit facility to$ 1 billion [20] Q&A Session Summary Question: How has the top of the funnel changed from Q2 to Q3, and has the weakness in Europe extended to the US? - The macro environment has been uneven for over two years, with Europe, particularly the UK and Germany, experiencing significant FX pressure and uneven demand [31][32] - The US market is being closely monitored, with no significant shifts reported yet [32] Question: What changes are being seen in the willingness to attach additional products or buy bundled solutions? - The company is attracting customers with the right intent, leading to consistent cohort performance and rising ARPU [36] - The one-stop-shop approach is proving to be a competitive advantage, with customers attracted to the simplicity and competitive pricing [37] Question: Where did the quarter finish in terms of domains under management, and what is the contribution of the Aftermarket business? - Domains under management data will be available in the Q3 report, with some changes expected due to pull-forward effects during COVID [40] - The Aftermarket business contributed about 2% of revenue in Q4 last year, with no similar strength expected this year [41] Question: How is GoDaddy growing relative to the market in the presence segment, and what is the impact of competitors' changes in spending? - The company is encouraged by the progress in its Create and Grow products, particularly Websites + Marketing, which fits the needs of micro businesses [47] - Competitors' changes in spending have not had a significant impact yet, with GoDaddy's prices remaining very competitive [47] Question: What are the KPIs for Payable Domains, and how does Apple Pay contribute to GMV? - The company is looking at the percentage of customers signing up for and activating Payable Domains, with early engagement rates being attractive [53][55] - It is too early to determine the impact of Apple Pay on GMV, but the company is learning more about the relationship and executing towards it [56] Question: How are demand trends impacting larger users (Pros) versus SMBs, and what is the marketing environment like? - The macro environment is impacting all customer segments similarly, with Pros in the hosting business disproportionately affected by FX and European exposure [59] - The company has achieved marketing leverage through success-based thinking, with a focus on ROI and efficiency [60][63] Question: What are the key priorities for fiscal year 2023, and are there any large investment initiatives expected? - The company is focused on executing its strategic priorities and maintaining momentum into 2023, with a strong outlook for growth and profitability [66][67] Question: What is the progress on the shift to cloud services, and what is the impact on OpEx? - The company has continued to shift more applications into the cloud, improving product velocity and scalability [69] - The AWS contract helps mitigate future energy cost impacts, providing stability for OpEx in 2023 [70] Question: Are there any costs associated with the European business based in the US, and what is the status of price testing? - There is no significant impact on margins from US-based costs for the European business [73] - The company continues to test pricing in a nuanced manner, balancing macroeconomic conditions with competitive positioning [74] Question: How has the tone on the macro environment progressed, and what is the behavior of customers using Payable Domains? - The macro environment remains uneven, with the company navigating it well and maintaining strong customer retention rates [77] - It is too early to determine the behavior of customers using Payable Domains, but early engagement rates are encouraging [77] Closing Remarks - The company is proud of its performance in a challenging environment and looks forward to continuing its strategic priorities and growth initiatives [81]