GoDaddy: Strong Execution Meets Strategic AI Investments – A Strategic Entry Point

GoDaddy (GDDY) has long been a stalwart in the domain registration and website-building space, but its recent Q1 2025 results and bold AI investments signal a transformative shift. While the stock dipped post-earnings, the fundamentals paint a compelling picture of a company leveraging execution excellence and innovation to drive free cash flow (FCF) growth. For investors, the question is whether GoDaddy's current valuation adequately reflects its long-term potential—or if the dip creates a rare entry point.

Q1 2025: Execution Outperforms Expectations

GoDaddy delivered a robust Q1, with revenue up 8% YoY to $1.2 billion, comfortably surpassing estimates. The Applications and Commerce (A&C) segment surged 17%, fueled by subscription-based services, while Core Platform revenue rose 3% on domain sales and aftermarket performance. Normalized EBITDA jumped 16% to $364 million, with margins expanding to 31%, reflecting operational discipline. FCF soared 26% to $411 million, a critical metric for investors, as it underscores GoDaddy's ability to generate liquidity despite macroeconomic headwinds.

AI Investments: The Catalyst for Long-Term Growth

GoDaddy's Airo® platform and its premium Airo Plus offering are central to its strategy. By embedding AI-driven automation into workflows—such as logo design, email setup, and cross-product tasks—GoDaddy is simplifying operations for small businesses. This not only boosts customer retention but also increases ARPU: trailing-12-month ARPU rose 9% to $225, driven by higher-value service adoption.

The agentic AI component of Airo enables AI “agents” to perform complex tasks across GoDaddy's ecosystem, reducing the need for manual labor. Early data shows customers using Airo attach second and third products at higher rates, a clear sign of cross-selling success. Meanwhile, the GoDaddy Agency program connects digital agencies with SMEs, expanding GoDaddy's reach into a segment where competitors like Shopify and Squarespace are less entrenched.

Valuation: A Discounted Opportunity in an AI World

Despite strong results, GoDaddy's stock fell 6% post-earnings, likely due to broader market jitters and skepticism about AI's monetization. However, this dip overlooks two critical points:
1. Undervalued relative to AI peers: While generative AI stocks like Adobe (ADBE) or Salesforce (CRM) trade at premium multiples, GoDaddy's P/E ratio of 25x is reasonable for a company with 11% FCF growth guidance and AI-driven top-line momentum.
2. Share buybacks fueling FCF leverage: GoDaddy has reduced its share count by 25% via a $4 billion buyback and plans an additional $3 billion through 2027. This creates a tailwind for EPS growth, even if revenue expansion moderates.

Analyst consensus reflects this optimism. Of 18 analysts covering GDDY, 14 rate it “Buy” or higher, with a 12-month price target of $220, implying 17% upside from current levels.

Risks and Mitigations

• Economic uncertainty: Small businesses may delay discretionary spending, though GoDaddy's 85% platform retention rate suggests stickiness.
• Competitive pressures: Rivals like AWS and Microsoft (MSFT) are integrating AI into their SMB tools. GoDaddy's focus on agentic automation and vertical-specific solutions (e.g., e-commerce) could differentiate it.
• AI adoption timelines: While Airo Plus shows promise, full monetization could take 1–2 years.

Conclusion: A Buying Opportunity Amid Transition

GoDaddy's Q1 results and AI initiatives position it for sustained FCF growth, even as it navigates near-term headwinds. The post-earnings dip has created a discounted entry point for investors willing to look beyond short-term volatility. With $1.5 billion in FCF guidance for 2025 and a capital-light AI strategy, GoDaddy is well-equipped to capitalize on the $200 billion SMB software market.

For conservative investors, the stock's 4.5% dividend yield adds further appeal. Aggressive investors should consider dollar-cost averaging into GDDY, leveraging dips below $180. The path to $220+ by year-end hinges on Airo's scalability and execution—but the risks are mitigated by a resilient core business.

In short, GoDaddy is not just surviving in an AI-first world; it's owning it. The question isn't whether investors should buy—it's when.