Go Daddy 2015 Annual Report Download - page 148

Table of Contents
20
Our Financial Model
We have developed a stable and predictable business model driven by efficient customer acquisition, high customer
retention rates and increasing lifetime spend. We grew our total customers from 11.6 million as of December 31, 2013 to
13.8 million as of December 31, 2015, primarily through a combination of brand advertising, direct marketing efforts and
customer referrals. In each of the five years ended December 31, 2015, our customer retention rate exceeded 85% and our
retention rate for customers who had been with us for over three years was approximately 90%. We believe the breadth and depth
of our product offerings and the high quality and responsiveness of our Customer Care team build strong relationships with our
customers and are key to our high level of customer retention.
We generate bookings and revenue from sales of product subscriptions, including domain products, hosting and presence
offerings and business applications, as described below. We offer our product subscriptions on a variety of terms, which are
typically one year, but can range from monthly terms to multi-annual terms of up to ten years depending on the product. We use
total bookings as a performance measure, since we typically collect payment at the time of sale and recognize revenue ratably
over the term of our customer contracts. Accordingly, we believe total bookings is an indicator of the expected growth in our
revenue and the operating performance of our business.
Domains. We generated 52% of our 2015 total revenue from the sale of domain products, primarily from domain name
registrations and renewals, domain add-ons such as privacy and aftermarket sales. Total revenue from domains grew an average of
12% annually for the three years ended December 31, 2015.
Hosting and Presence. We generated 37% of our 2015 total revenue from the sale of hosting and presence products,
primarily from a variety of web-hosting offerings, website builder products, SSL certificates and e-commerce products. These
products generally have higher margins than domains. Total revenue from hosting and presence products grew an average of 25%
annually for the three years ended December 31, 2015.
Business Applications. We generated 11% of our 2015 total revenue from the sale of business applications products,
primarily from productivity tools such as domain-specific email accounts, which also have higher margins than domains. Total
revenue from business applications grew an average of 49% annually for the three years ended December 31, 2015.
Total revenue derived from each of our product categories have increased in each of the last three years ended December 31,
2015, with our hosting, presence and business applications products growing faster in recent periods. This mix shift has favorably
impacted our margins.
In each of the five years ended December 31, 2015, greater than 85% of our total revenue, excluding the impact of purchase
accounting, was generated by customers who were also customers in the prior year. To track our growth and the stability of our
customer base, we monitor, among other things, revenue, retention rates and ARPU generated by our annual customer cohorts
over time, as well as corresponding marketing and advertising spend. We define an annual customer cohort to include each
customer who first became a customer during a calendar year. For example, in calendar year 2010, we acquired 2.3 million
customers, who we collectively refer to as our 2010 cohort. During the same time period, we spent $94 million in marketing and
advertising expenses. By the end of 2015, the 2010 cohort had generated an aggregate of $956 million of total bookings, and we
expect this cohort will continue to generate bookings and revenue in the future. For the five years ended December 31, 2015, the
average retention rate of the 2010 cohort was approximately 88%. Over this period, ARPU, excluding the impact of purchase
accounting, for the 2010 cohort grew from $75 in 2011 to $136 in 2015, representing a CAGR of 16%. We selected the 2010
cohort for this analysis because we believe the 2010 cohort is representative of the spending patterns and revenue impact of our
other cohorts. We believe our cohort analysis is important to illustrate the long-term value of our customers.