GoDaddy Inc.

Good afternoon and thank you for joining us for GoDaddy's third quarter 2022 earnings call. I'm Christy Masoner, Senior Director of Investor Relations, and with me today are Aman Bhutani, Chief Executive Officer, and Mark McCaffrey, Chief Financial Officer. Mark's voice may sound a bit scratchy today as he's currently under the weather. Following prepared remarks, we will open up the call for your questions. If you'd like to ask a question on today's call, please use the raised hand feature in the webinar to be added to the queue. On today's call, we'll be referencing both GAAP and non-GAAP financial results and operating metrics such as total bookings, unlevered free cash flow, normalized EBITDA, annualized recurring revenue, or ARR, gross merchandise volume, or GMV, and net debt. Growth rates presented represent year-over-year comparisons and less otherwise noted. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our investor relations site at investors.go.id.net or in today's earnings release on our Form 8K furnished with the SEC. The matters we'll be discussing today include forward-looking statements, which include those related to future financial results, our strategies or objectives with respect to future operations, including our approach to capital allocation, new product introductions and innovations, and our ability to integrate acquisitions and achieve desired synergies. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Actual results may differ materially from those contained in forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, November 3rd, 2022, and except to the extent required by law, we undertake no obligation to update these statements as a result of new information or future events. With that, here's Aman.

Thank you, Christy, and thank you all for joining us today. At GoDaddy, our mission is to make opportunity more inclusive for all, championing micro and small business customers. One of our customers, Tyron Harper, co-owner of Harp Vision, was recently asked, what happens if Harp Vision doesn't succeed? His response was, I never thought about it. I only thought about it succeeding. Every day we are inspired by our customers. I know we make a difference in their lives and in uncertain times, our mission becomes even more important. None of us have a crystal ball to perfectly predict the future, but I can tell you that our customers are creative and resilient. In a recent survey, while more of our customers expressed a negative near-term outlook, they generally remained a positive group, with two-thirds of them reporting optimism about their business. Today, we are pleased to announce our Q3 results with 7% revenue growth, 15% growth in normalized EBITDA, and continued strong customer retention of more than 85%. These achievements are noteworthy given the continued negative foreign currency impact, uneven demand patterns and lower consumer confidence. Our core competitive advantages of high global brand awareness to attract customers, sage guidance through care to help retain customers, and seamlessly intuitive experiences to deliver mission critical products and services to our customers uniquely position GoDaddy to weather economic challenges from a position of strength. While we are not immune to economic turbulence, we are committed to action and attention on what we can control. As in previous quarters, we will be prudent with our cost structure. Day to day, that comes down to focusing on success-based marketing, monitoring headcount, and directing investments on the most important growth initiatives, including simplification and automation. This formula helps us deliver a great service efficiently. Maintaining strong cohort retention, driving new customer ads, increasing ARPU and extending commerce and payments attached are all important to achieving our long-term goals. In Q3, we continue to drive strong retention that is in line with our past cohort performance. This demonstrates that through the varying economic cycles over the past couple of years, we successfully attracted the customers that have the right intent, those customers that can grow and attach more with us over time, thus benefiting GoDaddy's ARPU. On gross ads, the data over the last few months suggests that there was a pull forward during peak COVID times, though the magnitude of this is hard to calculate until normal seasonality returns to the business. As a result, gross ads and domains under management are not expected to follow the same historical arc as in recent years. Countering this, we are encouraged by our ability to maintain strong retention, increase ARPU, and continue the growth and momentum we are driving in our commerce and payments business within our existing customer base. Our strategic priorities remain consistent. First, driving commerce through presence. Second, delivering for GoDaddy pros. And third, innovating in domains. Beginning with presence, this quarter we added simplified site creation through improved guidance on template selection, making it easier for customers to start building an online presence. This update drove higher publish rates, which is an important indicator of customer success and increased lifetime value. You have heard me regularly talk about bringing commerce to every surface at GoDaddy. Keeping with that, we have enabled payments in all websites plus marketing plans, including our free plan. This shows up in the form of buy buttons, making it easier for nascent businesses, side hustles and the like to get started with our commerce offering. Our goal here is to build the commerce relationship with our customers as early as possible and then expand this relationship over time. These customers want a simple, inexpensive way to start taking payments. This functionality allows for that while providing the lowest in industry online transaction rate of 2.3% plus 30 cents. Lastly, we recently celebrated the one year anniversary of our Omnicommerce solution, and I wanted to spend a moment to acknowledge all that we have accomplished in this area since the release. We have been very ambitious in building out these capabilities because our customers tell us that they prefer a single one-stop shop solution. We believe our connected commerce solution is poised to win at a greater rate because it is adding value for our customers while saving them time and money. We made notable updates in user experience, e-commerce value, and a disruptive payments experience. We added in-store point of sale and online store inventory sync with omnichannel reporting for merchants across all channels. Our customers can clearly see their sales across their physical store, their online store, third-party marketplaces, and social media platforms, including Amazon, Etsy, Walmart.com, and others. We have added pay buttons, integrated shipping labels, Apple Pay, and a new Commerce Plus plan for websites plus marketing for up and running businesses that need sales tax automation. and our customers can use mobile app QR code payments and Apple Pay for e-commerce. We have also expanded our payments and commerce experience into WooCommerce for managed WordPress, while also actively rolling out our managed WooCommerce store solution, allowing us to serve larger customers. We started with larger customers doing up to a million dollars in sales, and we are finding that we can effectively serve high single digit million sellers as well. And we already have these customers in our base. It is still early days, but we have made good progress in identifying, converting and activating these larger sellers. Attaching to our existing base is key to our long-term ambition with GoDaddy Commerce and GoDaddy Payments. We are learning a lot about the sales and implementation cycle to serve these customers, and we will provide more updates over time. We know that customers who engage in commerce and payments are generally stickier and have over 80x higher lifetime value. We have continued to see positive momentum in new customers attaching GoDaddy payments within websites plus marketing and managed WordPress. These serve as consistent proof points that our customers want this capability from us, and it can fuel our growth and customer retention for years to come. Moving on to GoDaddy Pros. This quarter, we launched free SSL on nearly all new web hosting plans in our major markets, including the US, UK, Canada, Australia, and India. Early data shows that this is driving increased term lengths and modest improvements in new units and bookings in our hosting business. While the macro and FX challenges on our hosting business are meaningful, we are focused on what we can control, making the product better for our customers. Along with free SSL, we have continued to improve server response time by rolling out infrastructure improvements across multiple hosting platforms. We have also continued to update GoDaddy's Pro Hub, putting a more competitive offering in the marketplace. Our hosting business in Europe is also exposed to rising energy costs and to mitigate that we secured a fixed power contract. Our third priority is innovation in domains. The rollout of payable domains is going well with half of our domains now technically enabled as payable and ready for activation by customers. The first cohort of existing customers we exposed payable domains to were logged in domain plus email customers. These customers were identified as likely to have high intent and they have engaged with payable domains at an attractive rate. It is still too early to calculate how much usage payable domains will have for non-website customers, but we are encouraged by this beginning and moving as quickly as we can to merchandise it to more customers. We also released a new auctions user experience that improves the buying experience with new bulk bidding and buy it now options, improved uptime and a simpler and consistent design. We also launched a domain portfolio manager for all customers, giving them modern domain management capabilities aimed at increasing their efficiency and ease of use. While we are learning more about how the macro environment impacts the aftermarket, we continue to focus on what we control, which is to improve the experience for domain investor customers and integrate Dan.com's capabilities into the broader GoDaddy secondary market. In closing, we look forward to finishing the year steadfast in our commitment of executing against our strategic priorities and working to achieve our long term financial goals. As we think ahead to next year and beyond, we continue to be a leader in our space with ample growth opportunities and the ability to participate in our customers' success. History has shown that companies that continue to innovate and invest appropriately during an economic downturn can exit the other side in an even better position. We will stay close to our customers. We will understand their greatest needs, and we will delight them with guided care, constantly innovating towards a seamless experience, making our solutions stickier, leading to greater customer lifetime value. With that, here's Mark.

Thanks, Abad, and thank you everyone for joining us today. In Q3, GoDaddy delivered solid results despite increasing currency and macroeconomic headwinds. Revenue was $1.03 billion, growing 7% on a reported basis and 9% on a constant currency basis. Within total revenue, International revenue grew 4% on a reported basis and 9% on a constant currency basis. Applications and commerce revenue grew 13% within the guided range of 13 to 15% on the strength of our create and grow and our commerce products, as well as email attach. The ARR for applications and commerce grew 10% to more than $1.2 billion. And within that, the ARR from our create and grow products grew 7% to nearly $430 million. Additionally, annualized GMV across the GoDaddy ecosystem grew 10% to approximately $29 billion. Core platform revenue grew 5% within the target range of 4% to 6%. primarily due to growth in the aftermarket and increased pricing and domains, offset by a modest decrease in our hosting business. As Aman noted above, the hosting business has concentration and exposure to uneven demand in Europe, as well as FX pressure. ARR for core platform grew 2% to $2.3 billion. Q3 bookings totaled $1.09 billion, growing 5% on a reported basis and 7% on a constant currency basis. Applications commerce bookings grew 10%. The core platform bookings grew 3% on similar growth factors noted for revenue. Normalized EBITDA grew 15% to $263 million, a margin rate of 25%. representing 180 basis point expansion year over year. Continued discipline in spending allowed us to increase our margins at a rate higher than our bookings. Unlevered free cash flow for the quarter totaled $297 million, growing 18% driven by strong profitability. Additionally, year to date, we completed $1.15 billion of share buybacks. repurchasing 14.8 million shares and reducing our fully diluted share count by approximately 9% since year end. Free cash flow per share rose to $5.96 on a trailing 12-month basis versus prior year cash flow per share of $4.94, a 21% increase driven by strong cash flow and share repurchases. On the balance sheet, We finished Q3 with $826 million in cash and total liquidity of $1.4 billion. Net debt stands at $3.1 billion at the midpoint of our targeted leverage range of two to four times. Additionally, in October, we announced a new term loan facility of $1.8 billion, the proceeds of which are to be used to pay down our existing term loans due in 2024. The pending term loan facility contemplates a maturity date of 2029 and pricing based on SOFRA plus 325 basis points. We also announced our intent to increase the borrowing capacity under our existing $600 million revolving credit facility to a $1 billion facility maturing in 2027. These transactions, which are scheduled to close in Q4, are subject to customary closing conditions and would meaningfully increase our total liquidity. The cash interest payments under these transactions would increase our interest payments by roughly $35 million for 2023, resulting in expected annual interest of approximately $165 million. Moving on to our outlook. We are targeting Q4 total revenue in the range of $1.03 to $1.05 billion, representing growth of 2% year over year at the midpoint. As we previously discussed, the macro environment and FX has shifted since our initial guide in February. Additionally, we are facing a tough compare in our aftermarket business. While our aftermarket business showed strength in the fourth quarter last year, the demand for high value sales has been difficult to predict due to its short lead times and fast close rates. Our current guide does not factor in the same strength we experienced last year due to the current macro trends. Said simply, we do not expect aftermarket demand in Q4 to enable the same revenue outperformance we achieved in the year ago quarter. Also, Assuming a continuation of today's currency rates, we expect the adverse FX impact will be an incremental $5 million from our Q2 guide, or an incremental $40 million adverse impact from our initial February guide. Flowing through these factors into our segments, we expect some impact to our applications and commerce segment from uneven demand experienced in September and October. As a result, we expect the segment to grow between 10 and 12% for Q4, putting applications and commerce revenue growth at the low to mid-end of our range of 13 to 15% for the year. In core platform, we expect revenue to be flat to slightly down year over year in Q4 on the impacts of hosting and FX pressure mentioned previously, as well as a tough compare in aftermarket, which results in core platform revenue growth between 4 and 6% for the full year. Normalized EBITDA for Q4 is expected to be in the range of $250 to $260 million and remain within the targeted range of 24% to 25% for both the quarter and the year end, above our initial range of 23% to 24% provided in February. We expect our unlevered free cash flow for the year to be between $1.09 and $1.1 billion. putting our cash flow per share at $6 in line with the outlook shared in February. Our capital allocation strategy is unchanged. We continued our buyback program during Q3 and will continue to evaluate use of cash options for the remainder of the year in line with our disciplined capital allocation framework. Our attractive model and robust free cash flow provide us the flexibility to continue to invest in our business at a time when others may have to pull back more aggressively, and to return cash to shareholders through our buyback program. At the same time, we remain disciplined on how and where we spend, with a focus on controlling our costs, optimizing our marketing spend, monitoring headcount, and investing in tech so that we can strike the right balance between capturing attractive opportunities with delivering profits to our shareholders, always with an eye towards balanced long-term growth and profitability. On our cost structure, last quarter we shared that we are focused on acting in areas we could control, committed to that goal, we executed a couple of important contracts to reduce or mitigate exposure to increased costs. In Q4, we expanded our relationship with Amazon Web Services to continue to migrate workloads and development to the cloud. This contract will reduce our overall costs in the form of long-term capital spend and energy expenses, while giving us the agility to launch new products at a faster pace. On energy costs, As Amand mentioned earlier, we secured a contract in Europe at a guaranteed rate for the next year, giving us mid-term stability on these costs impacting our European data centers. Lastly, as noted earlier, we are currently refinancing our 2024 debt to extend our due dates to 2029 and limit our exposure to further interest rate increases. Through this anticipated new debt, we continue to expect our leverage ratio to remain between two to four times. We are committed to remaining transparent, and we will provide an update with our latest thoughts on key business trends when we share our 2023 guidance early next year. Like so many other companies, we are operating in a fluid environment and are not immune to its challenges. In closing, while the short-term revenue outlook is dynamic, we have continued confidence in our ability to execute. We believe our competitive position and strategic advantages, our diverse product offerings, our strong balance sheet, and the consistent and predictable cash flow we generate places GoDaddy as a leader amongst its peers. While the range of outcomes is somewhat wider today than at points in the past, we are creating a track record as a responsible management team that can and will lead in good times and in tougher times, allowing our business to perform across economic cycles. Our 21 million customers create the foundation for our resiliency. We will continue to focus on execution against our strategic priorities, tightly managing our business, and building deeper customer relationships as we partner alongside entrepreneurs on their journey. With that, I'll turn the call back over to Aman.

Thanks, Mark. Taking a step back, we are incredibly proud of the work our teams are doing as we are making progress against our stated priorities. GoDaddy has a proven focus strategy executed by an experienced team that will act proactively and decisively through a fluid macroeconomic environment to create long-term value for shareholders. Despite these headwinds and the tough compare in Q4, the full year is on track to deliver 7% growth or 9% on a constant currency basis. Coupled with the momentum we are driving in commerce, we are excited about what's to come in 2023 and beyond. With that, we will have Christy Masoner from our investor relations team open the call for questions.

Thanks, Saman. As a reminder, if you'd like to ask a question, please use the raise hand feature at the bottom center of the webinar screen to be added to the queue. Our first question comes from the line of Elizabeth Porter from Morgan Stanley. Elizabeth, please go ahead.

Hi, thank you so much. Obviously, macro is definitely softening, but I was hoping you could provide some color on just how the top of the funnel has changed from Q2 to Q3 and thus far into Q4. And last quarter, you did speak about Europe as being at the particular area of weakness. And has that trend extended more broadly to the U.S. and any other geographies? Thank you.

Thanks, Elizabeth. I'm happy to take that question. You know, when we talk about the unevenness of demand or the broader macro, you know, if we take a step back, it's been kind of uneven for two plus years. You know, Mark mentioned sort of some of the September, October data as well. But when I look back, I see us navigating the last two years really well. You know, our cohorts have continued to be consistent at about 85% retention or higher. You know, and here we are without sort of, you know, we came into 2022 with uncertainty. And it has been, there has been quite a lot of uncertainty, but we're sitting at 9% constant currency revenue growth and expanding margins, you know. We're taking all of that momentum with us into 2023. Are there regions of unevenness by geography, like you said, or by month or by customer segment? Yes, that's absolutely there. And just to touch on Europe a bit, as we did last quarter, it's broadly similar as we talked about last quarter. UK and Germany are big markets for us there, so clearly we feel a bigger impact there. But, you know, we're watching the U.S. very, very carefully, and we're watching our cohorts very, very carefully. But we're taking all this momentum into 2023, and we're excited. We got a lot of new product on the table, a lot of new capabilities that, you know, in commerce and payments, WordPress improvements, payable domains, registry. Like, there's so much for us to look forward to that I think we're just going to watch the numbers very carefully and make good decisions. And I'll turn it to Mark. I don't know, Mark, if you'd like to add something.

No, I think that's a good response, Aman, and just kind of bring it home. I think it's more pronounced in Europe, no doubt, than the U.K. and Germany, like Aman mentioned. But then overall, looking at Q4 and the outperformance of the aftermarket last year versus this year, We're not seeing the same demand around the larger deals. We see a lot of supply and demand, but these things are short to come and quick to close. And we've taken that out of our guide for Q4 because we just don't see it in front of us right now. So I think that when you talk about demand overall, that's something you have to call out.

Got it. That's helpful. And then this is a follow-up. You guys have always focused on attracting customers that can attach more product and have that higher LTV. And just in the current environment, what sort of changes are you seeing in the willingness to attach additional products or buy bundled solutions? You know, at one point, you know, budgets might be tighter, but then the other hand, there is, you know, an opportunity just to do more with a single platform versus any sort of smaller point solutions you might have looked at in the past. Thanks.

Yeah, I'm happy to quickly touch on that first. You know, overall, of course, just, you know, performing consistently, ARPU is rising and continues to do well. Obviously, we'll talk about it more at the end of the year. But our focus is to attract the customers with the right intent that want to use, activate the products that we have so that we continue to maintain that high customer retention rate. And as long as, you know, those cohorts perform and customers are retained, we know that, you know, in any short to midterm cycles may push customer demand up or down a bit. But over the long term, customers need the products we have. We deliver critical products to them at amazing prices, and we know these products are core to their needs. So, you know, short term up and down is okay. But overall, I think ARPU numbers are showing that we're attracting the right customer.

And, Ahmad, I'll add, you know, I think the one-stop shop, you know, theory is really coming to play. And I know we've talked about commerce and the attach we're seeing at the front of the funnel, but we're also seeing the competitive pricing in our existing customer base start to take hold. And I think, Elizabeth, going to your question, it really shows that in this market dealing with a one-stop shop is a competitive advantage, and we're seeing customers really be attracted to that, not only new customers but existing customers as well.

Great. Thank you so much.

Our next question comes from the line of Trevor Young from Barclays. Trevor, please go ahead.

Great. Thanks. First, just more of a housekeeping one to start since investors have been asking, just where did we finish the quarter in terms of domains under management relative to the 83.8 million reported last quarter? And then second one on aftermarket, Mark, maybe could you give us any sort of data points in terms of like percentage of total revenue or growth rate in the quarter or even contribution to overall court platform growth to just kind of help us size where we're at with that business?

Yeah, for the DUMs, Trevor, it'll be in our queue tomorrow. So you'll see it. And, you know, I referenced a bit in my prepared remarks about some of the pull forward and what we're seeing with gross ads. So there'll be some change in terms of the arc of DUMs. We will see the details in the queue tomorrow. And Mark, I'll turn it to you for the second part of the question.

Yeah, when you look at the Q4, it's about 2% of the aftermarket contribution that we had last year that we haven't built into this year. Trevor, hopefully that allows you to size it a bit.

Okay, great. And then a bigger picture one, Aman, just on the managed WordPress WooCommerce stores, you mentioned going after some of the larger customers with maybe a few million revs or high single-digit revs. Is that, you know, those conversions, are they typically coming from a modern competitive solution or are they legacy GoDaddy customers that were maybe like a domains and managed WordPress customer, but had their own payments or commerce integration? And now to your earlier remarks, kind of bringing it all into one house, you know, one one stop shop.

Yeah, it's still very early, Trevor, in terms of us reaching into our base and attracting customers that sell multiple single digit millions of multiple single million dollars in sales. What I would say we're seeing a bit of everything right now, but the offering we're taking to them is the one stop shop. from their in-store capabilities to their online. You know, they can go to one screen, they can see Amazon, Etsy, Walmart.com, their physical store, and all the inventory syncs, and they have it at an amazing price point for our GoDaddy payments, which is 2.3% plus 30 cents online. So, you know, we've really got a great package to approach them with, and what we're seeing is interest and good conversion with our new capabilities. And we'll talk much more about our managed WooCommerce stores product. You know, that's really targeting these larger sellers. And again, it's still early, but you know, you'll see it in general release very, very quickly. And the pilot continues to go well, sort of, and we're encouraged by the green shoots there.

Great. Thank you both.

Thanks, Trevor.

I think maybe we lost Christy. I think the next question is from Matt. Matt, do you want to go ahead?

Yeah, great. Thanks. Thank you. Yeah, I wanted to ask on the presence market, how do you think you're growing relative to the market? Are you seeing share up, flat, or down? And then some of your competitors in that area have made some material changes to how they're thinking about spending. Has that had any impact on your business?

Yeah, you know, overall, we look at our create and grow products and are quite encouraged with the continued progress there. You know, as we've shared in the past, websites plus marketing particularly has continued to grow well and really fits a need for our type of customer. You know, the micro business that wants to get up and running faster and websites plus marketing just produces a really, really good high-performance website for them. Very, very quickly. So I think we're really encouraged by that. In terms of, you know, directional changes from competitors, I think it's still pretty early. We haven't seen a ton of change overall. But, you know, our prices for those products are very, very competitive. So we're definitely keeping an eye on it.

Great. And just on the, Mark, you called out some areas that you've, or some things you've done to drive some cost savings. If the macro continues to worsen into next year, how do you think about making other cost adjustments and where would those cost adjustments be?

Yeah, thanks. And, you know, we don't have a crystal ball into next year. And obviously, we don't know if FX is going to be a tailwind or a headwind and continue to watch the depth and the breadth of the recession, especially in Europe. So a lot of moving parts there. You know, we look quarter to quarter. We look at the leverage in our operating expenses. I think we've talked about that before, about how we can obtain leverage there. We feel really good about the actions we've taken or are taking in Q4 to manage some of that risk. For example, we talked about the energy contract, the AWS contract. But, you know, we continue to look at, you know, what's in front of us, what we can do, what's within our control. We can find leverage in G&A and care. Obviously, we continue to get more efficient with marketing. I think even in this year, when you take a step back and you look at where we started to to where we finished on our normalized EBITDA margin expansion. You know, it's obviously something we are very focused on and continuing to manage as we go through this environment.

Perfect. Thanks for taking my questions.

Our next question comes from the line of Mark Zagudowitz from Benchmark. Mark, please go ahead.

Hey, Mark. Hi, Christy. Mon and Mark Lowe. Question on payable domains. I'm curious, I know it's really early here, but I'm curious what sort of are the KPIs that you're looking at initially here and how long before you will know whether or not there's a payments activation or a potential payments activation to be made. You've got obviously lots of data that you look at and your marketing is always very focused on you know, high intent, you know, attached users. So I'm, I'm sort of curious sort of what, what, you know, what data points you're looking for initially. And then just a, on Apple Pay, maybe very high level, but I'm just curious how you think about how that will contribute to, you know, GMV over time. And if maybe specifically, if you look at Apple Pay itself as a driver of cart conversion, but just any high level thoughts there would be helpful. Thank you.

Yeah, happy to take that, Mark. Just to bring it up a level, if you remember how we introduced GoDaddy payments into websites plus marketing, the first set of metrics we talked about is what percentage of customers were attaching GoDaddy payments to websites plus marketing. It's very similar for payable domains or other services where we're bringing in payments, where the first step we're looking at is when we put this capability in front of new customers, what percentage of those customers sign up for it, you know, take it on. And then, of course, we want to see what percentage of those customers activate it and then what GPV they'll transact. What we're doing a little bit differently for payable domains is that at the same time, we've started to expose it to cohorts of customers that are already in our base. So that's one of the examples that I used in my prepared remarks where you can imagine customers that have domain plus email with us. They don't have a website with us. They have domain plus email and they come in to make whatever changes on the website or to their account. And what we're doing is we're catching them at that moment and we're saying, hey, here's here's a new thing that's available to you. Would you like to try it out? And we saw an attractive percentage of those customers sign up for that and say, yeah, I'd like to use it. So in terms of exact time, I can't tell you how many weeks or months it might take to sort of get an idea. But what we're looking for is those customers and just like new customers in the existing base starting to activate. the payable capability, use the pay link, and then see over time what GPV flows through it. But obviously, you know, we have a large base and we now have this available for 50% of our domains in the U.S., which is where we have payments. So, you know, it's quite a large opportunity what we're going after. And in terms of Apple Pay, I think it's just too early to talk about, you know, what changes we might see. You know, we're learning more about that relationship and executing towards it, but it's too early to talk about that.

Okay. Thanks much. Appreciate it.

Our next question comes from the line of Mark Mahaney from Evercore ISI. Mark, please go ahead.

Hey, guys. Thanks for the question. This is Jan Lee for Mark Mahaney. Maybe a couple of questions. One is just to circle back on the macro environment. Can you just like kind of talk about the demand trains in terms of like the larger users, the pros versus the SMBs? Are the pros holding up better or is it kind of equal impact across the board? And another question on operating expense, perhaps like on the flip side, I've just kind of noticed a pretty impressive marketing leverage that you guys have had over the past few quarters. I think this is another record low. So if you can kind of talk about, just given the visibility of GoDaddy's core business, given your cashflow position, it almost seems that perhaps it's an opportunity to lean into marketing if the, you know, if the pricing CPMs are favorable. So if you can talk about the marketing environment you're seeing right now and kind of how do you think about the spend trajectory? Are you expecting to hold it at this level or be optimistic? Thank you.

I guess I'll start to handle some of that.

Sorry, Mark. I was already talking on mute, but if I could jump in. Go ahead. Go ahead. I think I've got three separate questions there, and maybe, Mark, you can grab a bit of the last one. But just very quickly, Jay, thanks for the questions. On pros and SMBs, keep in mind, you know, a lot of the pros that work with GoDaddy tend to be in our hosting business. And that's disproportionately sort of impacted by FX and European exposure. So what we see there, you know, has been significant. Mark talked about our international revenue at growing 4 percent and the five points of impact of FX there, you know, would have been 9 percent constant currency. So we definitely see those shifts. But overall, you know, the broader macro, I would say it's is impacting all kinds of customers in a similar way. But the most important thing for us is that the customers that we bring in continue to have the right intent because what we're really watching is every quarter customer that we bring in, every channel that they come from, are we getting the right renewal rates for those customers? Because that's what really creates lifetime value for the company. It's not the fast customer that we can just get for a low price that is going to churn very, very quickly. And in terms of marketing leverage, we've talked about it a little bit in the past of how we have pushed all of our marketing channels into sort of the success-based thinking. And it comes in many flavors. It comes in, you know, incrementality testing. It comes in sort of A-B testing, even based on geos. It comes in A-B testing in terms of bidding and search, which I've talked about before. And by being very focused on gathering the data and executing to what the tests show, we have been able to trim our marketing span and focus it on areas that bring us the best returns with the best intent customers. And in terms of leaning into marketing and doing more there, absolutely, I always say I would love to spend more in marketing every time. I just want it to continue to deliver the returns that we're asking for. So as long as it's within our guidelines, We definitely look for new channels, new areas where we can spend up more and attract more customers. And Mark, I'll turn it to you. I'm not sure what I interrupted you on.

Yeah, no, no. I think you covered a lot of it, Aman, and I think you hit the high points. But I'll add, you know, we continue to look at marketing as a tool based on the ROI we see in front of us. And, you know, we're always balancing our decisions today and how we invest while keeping an eye on the long term and our stated objectives. So, you know, we're trying to be disciplined in our approach, but yet look for the ROI and the opportunity to take advantage of it when it comes.

Our next question comes to the line of Meely Doss on behalf of Deepak Mathivanan from Wolf Research. Meely, please go ahead.

Hi, thanks for taking the question. I was wondering if you could provide more color on fiscal year 23. I know you guys are still in the planning process, but are there any key priorities we should be thinking about into next year? And can we expect any large investment initiatives? Thank you.

So, you know, we're looking forward to talking to everybody early next year about our 2023 outlook, but I'll give it a step back here and talk about kind of 22 and where we're going and the momentum we have going into 2023. You know, when we talk about, you know, our first meeting this year on Investor Day, you know, we had, you know, a lot of momentum going into the year, but we couldn't predict the macroeconomic environment that was out there. As we sit here today, we're looking at targeting 7% growth for the year, 9% on constant currency, and we really like the momentum going into 2023 as it stands. Even in Q4, we always knew Q4 was going to be a tough comparable for us. But you take the growth rate, you add a couple points for FX, you add a couple points for the aftermarket overperformance that we've taken out, and we really have a lot of momentum going in around our products and some of the stuff Mon has talked about. So looking forward to talking a little bit more as we get into 2023 and what we're seeing out there. But right now, we are really happy with, you know, how we're performing in 2022 and the momentum we have. And just to add to that, you know, being able to expand our normalized EBITDA margins during this period and at the same time hit our cash flow targets and cash flow per share targets, you know, we like the long-term outlook out there.

All right, thank you so much.

Our next question comes from the line of Alex Bolton on behalf of Aaron Kessler from Raymond James. Alex, please go ahead.

I think it actually is Aaron.

Hi, Aaron.

Hey, guys. Hey, Eric. I think I used his code. Great. Can you just talk a little bit about the shift to cloud and kind of what's your progress in terms of that shift to cloud services and the impact on OpEx that we should be thinking about over the next year or so?

Yeah, I'm happy to share, Aaron, that we've continued to shift more of our applications into the cloud. It gives us a much stronger ability and greater velocity to put more products out there much, much faster and manage scale much, much better. I'll let Mark talk about sort of some of the OpEx, CapEx type sort of applications. change there. But overall, we're very happy with the relationship we have. We've just renegotiated a contract. Our teams work very well together and almost all of our teams are using the cloud in some way, shape or form. Mark, I'll turn to you for OPEX.

All right, thanks. Hi, Aaron. How are you doing? Listen, early on, and we'll get more clarity as we talk to you in early 2023, but the way I would look at it right now is we have pressure around increased energy costs, especially coming out of Europe right now. We talked about the contract we signed to secure our costs for next year, but the AWS contract really allows us to negate any future impacts around energy costs. And I think from an operating expense point of view, we're looking at it to kind of cover us as we go into 2023, if that makes any sense.

Yes, it does. Great. Thank you.

Our next question comes from the line of Navid Khan from Truist. Navid, please go ahead. Hi, Navit. I think you're on mute.

Can you hear me?

We can hear you now.

Great. Yeah, so two questions. One, are any of the costs associated with your European business kind of based out of the U.S. or in U.S. dollars that might be hurting the margins somewhat? And the other question is just around the price testing you guys have been doing. Are you seeing any stickiness in that or any kind of pushback? Any color would be great.

Thanks. Yeah, nothing to really call out in the data centers and the U.S. dollars or the EMEA part of it. A lot of our European customers are based on European data centers, so obviously there is some FX impact, but nothing really to call out too significant on the margins.

And then on price testing, Navid, we've continued to test price and, you know, you'll continue to see us do it where we continue to be nuanced in our approach on pricing, looking to balance both what's happening sort of macroeconomically or within a geo versus also our ability to take share and push in versus you know, take price. So, we'll continue to do that approach, and we'll continue to guide to it, you know, the plans that we have, for example, for 2023, you'll hear about them, or they'll be within the guide from Mark as we talk about 2023 in February.

Okay. Thank you.

Our next question comes from the line of John Gunn on behalf of Brent Phil from Jefferies. John, please go ahead. Hi John, I think you're on mute.

Can you hear now? We can. Great, great. Just a couple questions, one more on the macro. It does seem like the tone got a little bit more cautious, and just wondering, you know, how that progressed maybe over time in October, and where are you seeing some of the more incremental caution? And then the second question, on the payable domains, I know it's early, but, you know, wondering how the behavior is, you know, the first time they've turned it on and are just trying it out, or is there, like, follow-on usage? Any sort of anecdotal follow-up would be great. Thank you.

Yeah, thanks, John. Maybe taking the second part first. You know, on payable domains, it's super early. What I talked about in my prepared remarks is that in the U.S., we have now technically enabled half the domains under management as payable. We still have to put that in merchandise that to customers and activate them. But I give an example or two of how we're doing that both in the new path. and in the existing customers, engaging them. So we're very excited about getting this capability to customer, very excited about some of sort of the attach rates we're seeing, but in terms of customers actually starting to use it and GPV flowing, it'll take a bit of time for us to truly understand what that usage is gonna look like. And to take a step back to talk about the overall macro, I think the word that describes it well is that it's been an uneven macro environment for two plus years now, right? And I'm really proud of what the GoDaddy team has achieved and what we've been able to do. I feel we've navigated that environment very, very well. We've attracted great customers. We continue to have greater than 85% retention rates for customers. We're sitting, we came into 2022 with a lot of uncertainty as well. And we were sitting here with 9% constant currency revenue growth and lots of new product coming into the market and commerce and payments. We have WordPress with websites plus marketing, having commerce plan down to even the free plan with payable domains, with the registry business. So it's just a lot of good for us to look forward to, and we're taking all of that momentum with us into 2023. And we've highlighted the areas where we see some risks, and we always call it like we see it, right? But at the core, GoDaddy is a market leader. We have a durable business. Our customers are resilient, which leads to us having a resilient business. Our core competitive advantage is around our unmatched scale, the sage guidance we give in customer care, you know, that customer care is great for us to attach products, you know, and we're giving examples of that. And, you know, we're building technology that works for our customer, for the micro and small business, which is seamless, which is intuitive, which helps save them time, helps save them money. And, you know, we have pricing like example payments that or even in websites plus marketing that is very, very competitive. in the market. And ultimately, you know, we put the customer at the center of what we're doing. We're staying close to the customer. We're prudent stewards of the P&L. We're investing in areas that are the biggest growth initiatives for us as a company. And we're running the business for long-term profitable and sustainable growth. You know, that's sort of our view and that's how we see it. Great.

Thank you so much.

Thank you. i'll now turn the call over to aman for any closing remarks thank you christy thank you all for your questions uh thank you to all godaddy employees for all the hard work for another good quarter and i look forward to talking to you next time thank you