Chapter 2

The Monetization Engine

A company growing revenue at 8% a year does not, as a rule, out-earn a company growing at 30%. GoDaddy does. The reason is that its growth is not the same thing as its rivals' growth. Wix, Shopify and Cloudflare grow by adding customers; GoDaddy grows by selling more to the customers it already has. In FY2025 it collected $242 of revenue per user, up from $170 five years earlier — a 42% climb — while the number of customers barely moved and the count of domains it manages actually fell [1][2]. This chapter takes the engine apart: the one number the top line leans on, where the margin actually comes from, and why the truest measure of what this business earns is the cash it throws off, not the profit it reports.

One number does most of the work

GoDaddy publishes a short list of business metrics, and read together they say something unusual: the base is not growing, and the revenue is. Average revenue per user (ARPU) — total revenue divided by the average customer count — rose from $203 in FY2023 to $220 in FY2024 to $242 in FY2025, a 19% gain in two years [3]. Over the same two years total customers slipped from 21.0 million to 20.4 million, and domains under management fell from 83.6 million to 80.8 million [4]. Stretch the window to five years and the divergence is starker still.

Source: derived from reported business metrics — FY2025 10-K [5] and FY2022 10-K [6]; ARPU, total customers and domains under management indexed to FY2020.

Over five years ARPU rose 42% while the customer count moved less than two points and domains under management drifted down. GoDaddy tells investors as much in its own definitions: ARPU "provides insight into our ability to sell additional products to our customers," while the customer count is only something that "can be a contributing factor to our ability to increase our revenue base" [7]. One metric is described as the lever; the other is described as, at best, a helper. Revenue growth here is attach and price on a fixed set of accounts — selling a second and third product into a base held together by the low churn established earlier in this report (World's #1, Priced to Fade) — not accounts won.

The domain leg makes the point in miniature. Domain revenue rose from about $1.8 billion in FY2021 to $2,310.5 million in FY2025 — up roughly 27% — while the domain unit count fell about 4% over the same span [8]. A bigger revenue line on fewer units is, by arithmetic, price and aftermarket demand — GoDaddy sells second-hand domains on a gross basis through its aftermarket — rather than volume. The clearest statement of the model is that its largest single product category grew a quarter while the thing it counts shrank.

Source: FY2025 Annual Report (Form 10-K), Business Metrics [9].

Where the margin comes from

If ARPU explains the top line, segment mix explains the margin. GoDaddy reports in two segments, and they earn very differently. Applications and Commerce — the website, email, marketing and payments software that sits on top of a domain — carried a 45.4% segment EBITDA margin in FY2025 and grew 14.3% [10]. Core — domains plus the older hosting, security and aftermarket products — carried a 33.0% segment EBITDA margin and grew 4.9% [11]. The faster segment is also the fatter one, so as its share of revenue rises, the blended margin rises with it — mechanically, before any cost is cut.

Source: FY2025 Annual Report (Form 10-K), Segment Results of Operations [12][13].

That shift has been steady. Applications and Commerce grew from about 28% of revenue in FY2020 to 38.2% in FY2025, its segment margin widening from roughly 40% to 45.4% while Core's climbed from the mid-20s to 33.0% [14]. The two forces compound: a larger slice of the business is the higher-margin slice, and each slice is itself getting more profitable. Consolidated operating margin roughly doubled over the period, from 10.0% in FY2021 to 22.8% in FY2025 [15].

Within Core, the split matters for what comes later in the report. Domains grew 7.3% to $2,310.5 million, but "Core platform: other" — the legacy hosting and aftermarket line — shrank to $751.6 million from $805.2 million two years earlier [16]. Growth is concentrating in the commerce software and the domain front door; the oldest products are in slow decline. Where that leaves GoDaddy against Shopify and Wix on the commerce side is a later question (The Front Door and AI); here the point is only that the mix has been moving GoDaddy toward its best economics.

The margin gap, and where it does not come from

The result of all this is the anomaly that opens the report from the cost side: in FY2025 GoDaddy's operating margin of 22.8% ran 1,457 basis points above the 8.2% median of its peer set [17]. The instinct is to reach for gross margin — the classic explanation for why one software company out-earns another. That instinct is wrong here, and the way it is wrong is the whole point.

GoDaddy's gross margin is about 64%: cost of revenue, which excludes depreciation, was $1,801.5 million on $4,951.1 million of revenue [18]. That is squarely in the middle of the peer group — below Wix at 68% and Cloudflare at 74%, above Shopify at 48%. Cloudflare keeps eleven more points of every revenue dollar at the gross line than GoDaddy does, and still posts a negative operating margin. So the gap opens below the gross line.

Source: GoDaddy gross margin derived from cost of revenue, FY2025 10-K [19]; operating margins as reported [20]; peer figures from Wix, IONOS, Shopify and Cloudflare FY2025 filings, as reported.

The chart tells the story in one look. Gross margins across the group sit in a fairly tight band; operating margins fan out from Cloudflare's −9.6% to GoDaddy's 22.8% and IONOS's 27.6%. What separates the two ends is how much each company spends between gross profit and operating income — and most of that difference is the cost of chasing customers. GoDaddy spent 7.6% of revenue on marketing and advertising in FY2025 [21]; a company growing 30% by acquiring merchants and developers spends multiples of that on sales and marketing to do it. The two names at the top of the operating-margin ladder, GoDaddy and IONOS, are precisely the two that grew slowest — the incumbents monetizing an installed base rather than buying a new one. The peer-median margin of 8.2% is not a group of inferior operators; it is a group that has chosen to convert its gross profit into growth. GoDaddy has chosen to convert its gross profit into operating income. The 1,457-basis-point gap is that choice, measured.

That framing sets up the tension the rest of the report inherits: the same discipline that produces the group's best margin is inseparable from the slowest growth in the group. Whether that is prudence or a ceiling — whether a base that is flat by choice can keep yielding more per user indefinitely — is taken up where the growth question belongs (The Front Door and AI).

From margin to cash

Operating income is where most analyses of a software company stop. For GoDaddy it undersells the model, because the business collects cash before it earns it. Customers pay up front for a year or more of a subscription, and GoDaddy recognizes that payment as revenue only as the service is delivered. It "typically collect[s] payment at the inception of a customer contract but recognize[s] revenue ratably over the term of the contract" [22]. Two figures fall out of that timing. First, bookings — the total value of contracts signed in the year — ran ahead of recognized revenue: $5,400.0 million of bookings versus $4,951.1 million of revenue in FY2025 [23]. Second, the gap between the two piles up on the balance sheet as deferred revenue: $3,319.1 million at year-end, of which $2,367.0 million of the prior year's balance was released into 2025 revenue [24].

That deferred balance is an interest-free loan from customers. It is the largest single item on GoDaddy's liability side — the $2,384.2 million current portion alone is bigger than every other current liability combined — and it is why the company runs on negative working capital: current liabilities of $2,995.5 million against current assets of $1,840.9 million [25]. A business that gets paid before it performs, carries almost no receivables — $83.1 million, about 1.7% of revenue — and holds no inventory has very little working capital to fund [26]. Add near-zero capital spending — $23.9 million in FY2025, under half a percent of revenue — and the reported profit converts to cash almost without leakage [27].

Source: net income and operating cash flow, FY2025 10-K Statements of Cash Flows [28]; free cash flow as reported (operating cash flow less capital expenditure).

Operating cash flow of $1,599.4 million in FY2025 came in nearly twice reported net income of $875.0 million [29]. Cash flow has run ahead of net income in four of the past five years; the exception, FY2023, is itself the tell — reported profit that year was lifted above cash flow by a large non-cash tax benefit that never touched the bank account [30]. Free cash flow reached $1.58 billion, a 31.8% free-cash-flow margin against a 22.8% operating margin — a nine-point spread that is the deferred-revenue float and the non-cash charges (depreciation, amortization and stock compensation) working in cash's favor. This is why, for GoDaddy, free cash flow is the honest measure of what the business earns and reported earnings per share is not: the profit line is thinned by non-cash charges and, as that FY2023 spike shows, whipsawed by one-off tax items that have nothing to do with the operation — a distinction the management chapter takes up directly (The Pivot and the Promises).

Two honest asterisks

The cash story is real, but it is not free of caveats, and two belong on the record here so the later chapters can weigh them.

The first is stock-based compensation. GoDaddy added back $317.8 million of equity compensation to operating cash flow in FY2025 — 6.4% of revenue, and by itself larger than all depreciation and amortization combined [31]. It is a genuine cost — it pays employees and dilutes owners — that never appears in the cash outflow. Free cash flow of $1,575.5 million therefore overstates the all-in economic cost of running the business by a real amount, and whether the buybacks that follow merely mop up that dilution or actually shrink the share count is a capital-allocation question the next chapter settles.

The second is that the float is a tailwind, not a fixed level. The $206.8 million that deferred revenue contributed to operating cash flow in FY2025 exists only because bookings grew; if net billings ever stopped rising, that contribution would flatten or reverse, and cash conversion would step back toward operating income [32]. For now bookings are still climbing — $4,603.1 million to $5,400.0 million over two years — so the float is intact, but it is a function of growth, and the engine's growth, as this chapter has shown, depends on one variable continuing to climb: revenue per user on a base that is no longer expanding [33].