This company is growing by integrating AI into its business
AI has attracted significant investments, but many companies struggle to turn its potential into profits. Amid economic uncertainty, investors might lose patience with costly AI initiatives.
However, companies effectively integrating AI could reap substantial benefits.
GoDaddy (GDDY), known for domain registration and hosting, has leveraged AI through its successful Airo platform, enhancing customer retention and driving rapid growth in higher-margin services.
This shift has significantly expanded its market opportunities, profitability, and customer value, positioning GoDaddy for sustained growth and increased equity upside.
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AI remains a high potential technological advancement and in recent years, it has been a magnet for investment flows.
That said, many companies have struggled to understand how to actually monetize the technology and make the “potential” turn into a profit driver.
With economic uncertainty causing fear to spread across the investment community, investors may become less patient with the massive capital investment of companies exploring the technology, which could weigh on returns.
That said, those companies that show an ability to integrate AI to improve business could benefit for years to come.
That’s where GoDaddy (GDDY) comes in...
GoDaddy is the world’s leading domain registration and web hosting platform. It has established itself as the go-to brand for businesses looking to start new websites.
The firm’s core business of domain registration, hosting, and aftermarket selling has led to extremely high profitability for the firm.
With few incremental costs, a large market share, and recurring annual revenue on renewal rates of nearly 90%, this specialty has helped the firm achieve Uniform return on assets ”ROA” ranging above 80% in each year since its IPO.
Yet, the true potential of GoDaddy does not lie in its cash cow.
Instead, the firm is emerging as a premier AI user after announcing its Airo AI platform last year, a tool to help users build and improve websites in a way that attracts and retains internet traffic.
The platform quickly amassed 1 million customers after its launch and is continuing to scale.
Moreover, it is helping GoDaddy funnel customers to higher growth and higher margin opportunities that may still be underappreciated by many investors.
GoDaddy’s domain business helped build a cash flow machine. Yet, with an already dominant market share, the business needed other growth avenues.
That’s why the firm has gone on a path of expanding its product lines to become a one-stop small business growing shop.
Moving from domain hosting to domain/email/website services to now also commerce and payment solutions has expanded the firm’s addressable market from just $7 billion to over $120 billion.
Additionally, in part due to the massive popularity of Airo, the firm has been incredibly successful at converting clients.
After a significant boost in customers in 2021, the core platform user base normalized, with revenue growth in the low single digits.
Yet, as the firm has transitioned clients to its applications and commerce platform, further accelerated by the launch of Airo, it has seen sustained growth in value-add services, with revenue growing in the mid-teens annually, approximately 5x as fast as its legacy domain business.
Furthermore, with nearly half of its customer base still using only one of its services, the firm has plenty of room to increase revenue without having to find new customers.
Not only is GoDaddy finding new ways to grow, but it is doing so profitably.
Expansion to additional services, through its acquisition of new adjacent capabilities, launch of Airo, and extension vertically down the supply chain, has led to increases in the firm’s monetization of domains, average revenue per customer, and free cash flow.
In 2020, the firm had an average revenue per user of $170. In 2024, ARPU surpassed $220.
GoDaddy estimates that, at scale, its value-add products are nearly 1.5x as profitable as its legacy domain business.
Even more powerfully, the firm has found that the addition of Airo and other products has led to an increase in customer retention, allowing it to have more predictable cash flows.
GoDaddy has been able to leverage its powerful market position to generate immense profitability while finding new complementary channels to sustain growth.
The firm is a consistently high-quality performer with strong growth prospects, and trading at a relative discount for technology names, with an 18x Uniform P/E.
GoDaddy appears to have significant equity upside potential, particularly if its customers continue to turn to it and Airo for their marketing and e-commerce business needs.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research
