Wall Street Cools on GoDaddy (GDDY) as AI Transition Clouds Outlook Despite Earnings Beat

GoDaddy Inc. (NYSE: GDDY), one of the world's largest domain registrars and a leading provider of website building, hosting, and e-commerce tools for small businesses, surpassed consensus estimates on both revenue and earnings, yet the stock still dropped 12%. The sell-off signals that investors are focused less on the company's recent quarterly performance and more on uncertainties surrounding its strategic pivot toward agentic AI.

The central debate is whether GoDaddy's push into agentic AI products represents a proactive effort to strengthen its long-term business, or a defensive response to mounting AI-driven pressure on its core operations. The question is particularly consequential for GoDaddy because its core customer base of small and independent businesses is the segment most likely to be reshaped by AI tools that can generate websites, automate marketing, and manage online commerce with minimal technical expertise.

Bookings Deceleration Raises Red Flags

GoDaddy reported quarterly earnings of $1.83 per share, beating the consensus estimate by $0.14. Revenue rose 7% year over year to approximately $1.30 billion, while total bookings increased 6% to $1.4 billion.

However, Wells Fargo analyst Alec Brondolo flagged that Applications and Commerce bookings growth decelerated to 7% year over year, down from 9% in the prior quarter. Applications and Commerce encompasses GoDaddy's higher-value product suite, including its website builder, e-commerce platform, and digital marketing tools. He attributed the slowdown to shifting consumer demand toward agentic AI products.

In response, GoDaddy's management is accelerating the rollout of its Airo AI platform while scaling back investment in legacy Applications and Commerce offerings. Brondolo cautioned that this transition is likely to remain noisy through the second half of 2026 and into 2027.

Reflecting those concerns, William Blair analyst Arjun Bhatia downgraded the stock from Outperform to Market Perform. Piper Sandler maintained its Neutral rating, citing no clear catalyst for revenue growth to reaccelerate.

GoDaddy expects third-quarter revenue to range from $1.32 billion to $1.34 billion.

Bhatia remarked: "Investors had already put GoDaddy in the high-risk basket of the AI disruption trade prior to earnings, and the performance this quarter is likely to further fuel fears and weigh on shares in the near term."

The Bull Case Persists

Despite the bookings concerns, bullish analysts note that GoDaddy continues to execute on its AI strategy. Airo's annualized bookings run rate surged fivefold in a single quarter to $50 million, with CEO Amanpal Bhutani stating that adoption is exceeding expectations.

Profitability also strengthened. The company's normalized EBITDA margin expanded by more than 200 basis points to 33%, and free cash flow reached $443 million. GoDaddy repurchased $852 million worth of shares year to date, reducing its share count by 7%.

Hedge Funds Reduce Exposure

Institutional sentiment has soured. As of the March quarter close, 45 hedge funds held GoDaddy shares, down from 57 funds three months earlier. Total hedge fund holdings declined from $1.98 billion to $1.26 billion over the same period.

Short interest stood at 6.68%, indicating that a meaningful segment of investors are positioning against the company.

Source: Yahoo Finance