GoDaddy Inc. (GDDY) Earnings

Management highlights

### Core AI Transformation: Aero Agentic Operating System - GoDaddy unified its original Aero AI experience and Aero AI Builder into a single, integrated agentic operating system for small businesses, which can build full business operating experiences (storefronts, booking systems, client portals) and manage day-to-day operations, replacing many separate legacy products. - Aero's annualized bookings run rate grew 5x to $50 million in one quarter, with nearly all growth organic ahead of meaningful marketing investment. Customer satisfaction remains high, and over 70% of Aero users have two or more paid GoDaddy products, a higher rate than non-Aero customer cohorts. - The company is currently testing Aero in the core domain purchase funnel (GoDaddy's largest conversion funnel) and plans to scale marketing for Aero in the second half of 2026. ### Additional AI Transformation Workstreams - **AI-native internal operations**: Aero has improved customer support resolution rates, with 24-hour repeat contact rates for voice bot customers dropping by over 16 percentage points in Q2. Management proactively offset expected AI compute cost increases via model testing and optimization, allowing it to support scaling Aero within existing financial frameworks. - **LLM-accessible GoDaddy Developer Platform**: The company launched a new generation of domain APIs that allow developers and AI systems to search, purchase, configure, and manage domains directly from third-party tools. Management plans to expand this API approach to additional GoDaddy capabilities including hosting and commerce over time. - **Agentic web infrastructure development**: GoDaddy launched the enhanced Agent Name Service (ANS) standard and announced plans to contribute it to the Linux Foundation. It also co-developed the Agentic Resource Discovery Specification (ARD) with leading tech firms to enable fast agent and tool discovery. These initiatives position domains as a lasting trusted foundation for identity and discovery in the AI-driven internet. ### Core Business Fundamentals - More than 50% of all GoDaddy customers have at least two paid products, with that share growing as Aero adoption increases. Overall customer retention is above 85% and improving, ARPU grew 9% to $250, and customers spending over $500 annually represent a growing share of the customer base. - Capital allocation remains disciplined: Year-to-date 2026, the company has repurchased almost 10 million shares for $852 million, reducing fully diluted shares outstanding by 7% since the start of the year. Over the past four years, over 95% of free cash flow has been deployed to share repurchases. - GoDaddy will host an investor night on December 1, 2026 at its Tempe, Arizona headquarters to provide a comprehensive update on its AI transformation strategy.

Guidance

- Full-year 2026 revenue guidance is narrowed to a range of $5.215 to $5.255 billion, representing 6% year-over-year growth at the midpoint. A&C full-year revenue growth is expected to be in the low double digits, and core platform full-year growth is expected to be in the low single digits. - Absent foreign exchange impact, bookings and revenue growth rates are expected to be at or above parity for the remainder of 2026. Core platform bookings growth is expected to lean toward mid single digits in the second half as the company laps prior year promotional comparisons. - Normalized EBITDA margin is projected to be approximately 33% for Q3 2026, and the full-year 2026 normalized EBITDA margin target of over 33% is reaffirmed, reflecting operating leverage and AI-driven productivity offsetting rising investments in AI products, marketing, and compute. - The full-year 2026 free cash flow target of approximately $1.8 billion is reaffirmed, with normalized EBITDA to free cash flow conversion expected to remain greater than 1:1. - A&C bookings are expected to be in the high single digits for the remainder of 2026, with updated longer-term transition guidance planned for the December 2026 investor night.

Segment performance

Total revenue for Q2 2026 grew 6% year-over-year, with total bookings growing 6% to $1.4 billion. Normalized EBITDA grew 14% to $434 million, with a normalized EBITDA margin of 33.4%, an expansion of over 200 basis points year-over-year. Segment EBITDA margin expanded 250 basis points to 46.8% overall. Free cash flow grew 13% to $443 million, with trailing 12-month free cash flow of $1.73 billion, and normalized EBITDA converted to free cash flow at greater than 1:1. 1. Core Platform: Revenue grew 4% to $783 million, driven by strength in primary domain registrations and renewals (both .com and higher-priced non-.com TLDs) and a strong aftermarket quarter with higher volume. Segment EBITDA margin expanded to 33.4%. Bookings grew 5% year-over-year, accelerating from Q1 2026. Full-year 2026 core platform growth is expected to be in the low single digits. 2. Applications and Commerce (A&C): Bookings grew 7% year-over-year. Traditional product bookings within A&C are moderating during the AI transition, with the transition reducing total company bookings by approximately 100 basis points in Q2. Full-year 2026 A&C revenue growth is expected to be in the low double digits, with A&C bookings projected to be in the high single digits for the remainder of 2026.

Risks & headwinds

- The ongoing AI transition is causing a moderation in bookings for legacy A&C products (including template-based website builders and do-it-for-you professional services) as these capabilities are absorbed into Aero, creating a near-term headwind to overall bookings growth that is expected to persist through the transition period. - Shifts in search and discovery traffic from traditional search to large language models (LLMs) create changes to GoDaddy's core domain acquisition funnel, requiring ongoing product and API updates to maintain competitive positioning. - Scaling AI-powered products like Aero creates upward pressure on AI compute and token costs, though management has implemented proactive mitigation strategies to offset these costs within existing margin targets. - The timing of Aero's ramp to offset legacy product headwinds remains uncertain, as the product is still early in its rollout and full integration into core conversion funnels is still in progress.

Analyst Q&A

• Q: What is GoDaddy's current competitive position in primary domains amid AI agent disruption, what is the magnitude of legacy A&C headwinds, and when will Aero monetization offset these headwinds? /

  A: GoDaddy has maintained consistent domain market share across all TLDs, and has launched new LLM-accessible domain APIs to adapt to shifting discovery and usage patterns. The transition to Aero reduced total company bookings by ~100 basis points in Q2, and A&C bookings are expected to be high single digits for the remainder of 2026. Aero adoption is growing faster than expected, with faster product integration compressing the original 5-7 year roadmap to 1-3 years, and more detail on the transition timing will be shared at the December investor event.

• Q: What conservatism is baked into the updated full-year guidance, and where is AI disruption most impacting GoDaddy's business today? /

  A: Guidance remains conservative because revenue from the prior year's $499 promotional offer continues to roll out through 2026, creating ongoing near-term revenue headwinds. Additionally, GoDaddy follows its standard practice of excluding high-value one-off transactions from guidance. On disruption, the domain funnel still has healthy conversion and traffic, but the company is updating APIs to compete for LLM-driven traffic and new domain usage models, which it has done successfully through prior technology shifts.

• Q: What drove Aero's 5x run rate growth in one quarter, and is growth concentrated among new or existing customers? /

  A: For the first 2.5-3 months after launch, the large majority of Aero users were existing GoDaddy customers, but growth has increasingly picked up from new customers as limited marketing has begun. Aero delivers better free-to-paid conversion than legacy GoDaddy website products, with a subset of highly engaged customers purchasing large volumes of tokens to build full custom business applications. Management maintains close discipline on AI costs and customer acquisition to keep Aero profitable.

• Q: What is the largest driver of long-term growth for GoDaddy now, and will the customer base expand beyond solopreneurs? /

  A: Aero is the largest long-term growth opportunity, as its faster adoption, higher conversion and higher product attach make it core to GoDaddy's strategy. Pricing and bundling will remain a part of growth strategy for GoDaddy's large existing customer base, and product partnerships are expected to be a growing contributor as Aero's open operating model makes integration easier. GoDaddy remains focused on the large small business market for the foreseeable future, with no near-term plans to target enterprise customers.

• Q: How is GoDaddy managing margin pressure from rising AI compute costs amid the Aero transition? /

  A: Management anticipated higher AI compute and token costs, and has offset these costs via AI-driven productivity gains across the business. Headcount costs are flat, and the company is seeing productivity improvements in customer care, product development, and G&A that more than offset new AI investment costs. Management remains confident it can maintain margin expansion while investing in Aero, with more detail on 2027 margins planned for the December investor event.