GoDaddy earnings on deck: AI transition tests margin outlook

GoDaddy Inc., the domain registrar, is set to release its third-quarter earnings on Thursday, with investors closely examining the impact of its shift towards AI-powered tools on the company's profitability. Analysts forecast earnings of $1.89 per share on revenue of $1.32 billion, marking a 25% year-over-year growth in revenue and a 4% increase in earnings compared to the previous quarter.

These figures represent a sequential improvement from the second quarter, where GoDaddy reported $1.83 per share in earnings and $1.30 billion in revenue, both of which beat market estimates.

Recent revenue expectations have risen by 0.17% over the past 60 days, while EPS expectations have remained constant. Eighteen analysts have rated the stock a consensus Buy, with a mean price target of $107.38, which is essentially flat to the current price of $106.54, indicating limited near-term upside despite the bullish rating.

GoDaddy's foray into artificial intelligence through its Airo platform, an AI-powered website builder, has received a mixed reception. While the company claimed that Airo had reached a $50 million annualized bookings run rate in the second quarter, this is still a small fraction of the company's $13.5 billion market capitalization.

The critical question on everyone's mind is the outlook for margins. Analysts anticipate a potential margin trough in the third quarter, as the high-margin Websites + Marketing revenue migrates to the Airo platform, which entails AI inference costs. StoneX analysts estimate a sequential compression of 80 basis points in gross margin to 63%, with the pressure mainly stemming from the company's decision to pause traditional pricing while integrating capabilities into the AI product.

Investors will also be looking for clarity on bookings momentum. GoDaddy's recent pause on Websites + Marketing pricing and bundling is estimated to have resulted in a 100 basis point reduction in bookings growth for the second quarter, as per analyst estimates. The question now is whether Airo adoption can offset this headwind and drive meaningful attach rate improvements in the future.

Moreover, longer-term competitive positioning comes into play, with RBC Capital downgrading the stock to Sector Perform in mid-October, citing concerns that AI agents could reduce GoDaddy's pricing power, lower attach rates, and erode domain share as the web evolves towards dynamic, intent-driven experiences. Management's response to this thesis, particularly with updates on developer API traction, will be crucial.

Recently, rumors surfaced in late September that Gen Digital, the parent company of Norton antivirus, had made a preliminary takeover approach for GoDaddy, although the deal's financing complexities make it uncertain. With the stock trading near the midpoint of its 52-week range and boasting a forward P/E of 10.8, Thursday's results and guidance will test whether GoDaddy's AI bet can position it for sustainable margin expansion or signal the beginning of a more challenging competitive landscape.