A web services company just reported operating margins of 24.5%, up from 20.7% a year ago, while its new AI builder hit $10 million in annualized bookings within weeks of launching, and its AI support tool cut resolution costs by 50%.
Read on, and you get the breakdown of whether the margin expansion, the AI revenue traction, and $473 million in free cash flow make this the internet infrastructure stock worth owning before the AI monetization story fully registers with the market.
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Operating Margins Hit 24.5%, and EBITDA Margins Expanded to 33% in Q1
GoDaddy Inc. (NYSE: GDDY) reported Q1 2026 adjusted operating income of $310.5 million, representing a 24.5% operating margin, up from 20.7% in Q1 2025.
That is a 380 basis point improvement in a single year on a business generating $1.27 billion in quarterly revenue.
Normalized EBITDA hit $413.5 million at a 33% margin, up over 200 basis points year over year. The company reaffirmed full-year 2026 NEBITDA margin guidance above 33%.
This margin expansion is not from revenue acceleration. Revenue grew 6.1%.
The improvement is from AI-driven operational efficiency: fewer engineers to build features, lower support costs, faster product cycles. More profitable at the same growth rate.
Adjusted operating income $310.5M at 24.5% margin: Up from 20.7% in Q1 2025, 380bps expansion.
NEBITDA $413.5M at 33% margin: Up 200bps year over year, guidance confirmed above 33% for full year.
Free cash flow hit $473.6 million in Q1, up 15%, funding both the buyback and AI investment without borrowing.
Action: Buy GDDY now. The 380bps margin expansion on steady revenue growth is the thesis. Exit if Q2 NEBITDA drops below 32%.
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Airo AI Builder Hit $10M in Annualized Bookings Within Weeks of Beta Launch
Airo AI Builder is GoDaddy’s AI-native product that lets small business owners go from idea to a functioning website, application, and business presence in minutes.
It launched in beta in Q1 2026. Within weeks of launch, it hit $10 million in annualized bookings run rate. That is not a rounding error. That is early market validation of a product that did not exist a year ago.
Airo users attach second products 30% faster than non-Airo users. It is a retention and upsell engine, not just a standalone product. Customers spending over $500 annually have grown to roughly 10% of the base.
$10M annualized bookings run rate within weeks of beta: Faster early traction than any prior GoDaddy product.
Airo users attach second products 30% faster: Retention and upsell engine, not just a standalone product.
Customers spending over $500 annually now approximately 10% of the base: Higher-value customer mix building.
A $10 million annualized run rate from a beta product in weeks is proof, not a promise. Marketing investment ramps in Q2, meaning distribution is just starting to scale.
Action: On the Q2 call, if Airo AI Builder bookings cross $50M annualized, add 10%. That confirms it scales under marketing investment rather than fading after beta.
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Airo Care Cut Support Resolution Costs by 50% and Is Live in 50 Markets
Airo Care is GoDaddy’s AI-native customer support platform. It handles voice and chat-based support for 20 million small business customers.
In testing, it improved support resolution rates by approximately 50%. It is now live in over 50 markets and 20 languages. In non-English markets, resolution rates grew over 150%.
Customer support is one of the largest cost lines for a company serving 20 million customers in 20 languages.
A 50% resolution rate improvement means fewer agents per resolved issue. The 380bps Q1 margin expansion is partly Airo Care showing up directly in the numbers.
50% improvement in support resolution rates in testing: Now live, not just in trial.
Live in 50+ markets and 20 languages: Global scale, not just English-market efficiency.
GoDaddy has been scaling internationally. AI-native multilingual support removing language barriers is the unlock for international markets that has been missing.
Action: If Q2 international revenue accelerates above 10% from the current 7%, Airo Care is driving market share gains in new geographies, and you add to the position.
The A&C Segment Is Growing at 12% and Carrying the Revenue Story
Applications and Commerce generated $498.2 million in Q1, up 12% year over year.
This segment includes website builder, commerce tools, and marketing products – the higher-value, higher-margin part of the business that serves customers beyond just domain registration.
At $498 million and 12% growth, it is the fastest-growing significant revenue stream in the company, and it compounds the Airo attachment effect.
Core Platform generated $768.7 million, up 3%. Domains are mature, but they are the top-of-funnel for everything else. Every domain customer is a potential Airo user.
A&C revenue $498.2M, up 12% year over year: The faster-growing, higher-margin segment.
Core Platform revenue $768.7M, up 3% year over year: Stable recurring base, feeds into A&C.
ARPU up 9% to $246, with a flat customer count, means GoDaddy is selling existing customers more. That is the monetization engine the 12% A&C growth rate reflects.
Action: When A&C crosses 50% of total revenue, size up.
That is the inflection where the business mix has shifted enough to justify a higher multiple than a web services company commands today.
GoDaddy Repurchased $280M in Shares in Q1 and Has a Clear Capital Return Plan
GoDaddy repurchased 3 million shares for $280 million in Q1 2026. Net debt sits at $2.6 billion with net leverage of 1.4 times.
The company is generating $473.6 million in free cash flow quarterly while returning $280 million via buybacks in Q1 alone, which tells you the business generates more than enough cash to fund both the buyback and continued AI investment simultaneously.
The CFO confirmed bookings will track or exceed revenue growth and reiterated the disciplined buyback approach. At 1.4x net leverage, the balance sheet supports both without stress.
$280M in shares repurchased in Q1 2026: 3 million shares retired.
Free cash flow $473.6M in Q1, up 15% year over year: More than covers the buyback pace.
The $280 million buyback in a single quarter at 1.4x leverage is the clearest signal that management is not sacrificing financial health to fund the AI expansion.
The business is generating enough cash to do both without stress.
Action: If Q2 free cash flow holds above $450M and buybacks stay above $250M, do not trim. Expanding margins plus aggressive buybacks are a setup you hold, not sell into.
Trivia: At its peak, what percentage of Berkshire Hathaway's publicly traded equity portfolio did Apple represent?
The Risks Are Specific, and Both Are Trackable Every Quarter
Revenue growth at 6.1% is steady but not accelerating. The 12% A&C growth offsets the 3% Core growth to produce a 6% blended rate.
If A&C growth slows below 10% or Core decelerates further into negative territory, the blended revenue growth drops, and the margin expansion story stops being the consolation prize and becomes the entire thesis.
Margin expansion without any revenue growth is a more fragile setup.
The second risk is that Airo AI Builder monetization is still early. The $10 million annualized run rate from a beta product is promising, but it is tiny relative to the $5.24 billion full-year revenue base.
Management is increasing marketing spend in Q2, which will add cost before it adds meaningful revenue.
If Airo bookings do not scale significantly faster than marketing spend in Q2 and Q3, the AI investment dilutes the margin improvement rather than compounding it.
6.1% revenue growth, not accelerating: A&C must sustain 12% or blended rate softens further.
$10M annualized is less than 0.2% of $5.24B total revenue: Still a tiny headline contributor.
Neither risk is structural. Both are measurable each quarter. A&C growth above 10% keeps the mix improving. Below 8% means the AI builder needs to show up faster.
Action: Hard stop if Q2 NEBITDA drops below 31% and A&C growth falls below 9% in the same quarter.
That combination means costs are outrunning efficiency gains. Exit without waiting for Q3.
Final Word: The Margin Expansion Is Real, and the AI Platform Has Proof of Demand
380bps of operating margin expansion in one year, $473M free cash flow up 15%, $280M in buybacks, and an AI builder hitting $10M in bookings in weeks. These are Q1 results, not projections.
Buy GDDY. Hard stop if Q2 NEBITDA drops below 31%.
Setup Scorecard
Entry Window: Current levels. The margin expansion happened in Q1 and is not yet fully reflected in the multiple. Any pullback toward $140 is a better add.
Catalyst Watch: Q2 Airo AI Builder annualized bookings, NEBITDA margin vs 33% full-year guide, A&C revenue growth vs 12% Q1 rate, international revenue acceleration from Airo Care.
Upside Setup: Airo AI Builder scales past $100M annualized, A&C crosses 50% of revenue, NEBITDA margin holds above 34%. Multiple re-rates from web services to the AI platform, which commands a higher multiple.
Downside Cushion: $473M quarterly free cash flow, 1.4x net leverage, 20M customer base on recurring contracts, $280M quarterly buyback pace all anchor the floor.
What Moves It Next: Q2 Airo bookings data, Q2 international revenue vs 7% Q1 rate, and whether the marketing ramp for Airo shows up in bookings before it shows up in costs.
That's our coverage for today; thanks for reading! Reply to this email with feedback or any value names you want me to check out.
Best Regards,
—Noah Zelvis
Undervalued Edge
