GoDaddy Inc.

Q1 2023 Earnings Conference Call


spk03: Good afternoon, and thank you for joining us for GoDaddy's first quarter 2023 earnings call. I'm Christy Masoner, head of investor relations, and with me today are Iman Bhutani, chief executive officer, and Mark McCaffrey, chief financial officer. 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 raise 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 other operating and business metrics. 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 or in today's earnings release on our form 8K furnished with the SEC. Growth rates represent year-over-year comparisons and less otherwise noted. 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, May 4th, 2023, and except to the extent required by law, we undertake no obligation to update these statements because of new information or future events. With that, I'm pleased to introduce Aman.
spk05: Thank you, Christy. Good afternoon and thank you for joining us today. GoDaddy's mission is to empower entrepreneurs and make opportunity more inclusive for all. We learn from our customers every day and they are a resilient group and they value what GoDaddy brings to them. While many worry about a recession, our Venture Forward service found that our customers are noticeably more optimistic today about the future of their business than they were six months ago. One customer we showcased in the past is the Furlough Cheesecake, founded by two sisters impacted by a government furlough. In a recent interview, one of them commented, with partners like GoDaddy, we can manage our business from anywhere. GoDaddy helped us launch our business quickly from idea to up and running in one week because they had the tools in place. GoDaddy's unique combination of seamless intuitive technology and best-in-class human and digital guidance creates the ease of use that our customers want and need so they can focus on their business. This combination continues to differentiate us in the marketplace, helping us drive profitable growth and superb cash flow. We serve 21 million customers that have a high retention rate of 85%. In Q1, we drove double-digit growth of 12% in our applications and commerce segment, supported by 10% ARR growth in our create and grow products. Additionally, we surpassed $1 billion in annualized GPV for GoDaddy payments. One area we continue to watch carefully is our aftermarket business. We faced tough compares last quarter and a continued unevenness in flow of large deals that we believe is impacted by broader macro headwinds. Overall, we are pleased with our Q1 results and encouraged by the positive momentum over the quarter, especially in our subscription and commerce businesses. Our strategic priorities remain consistent and our teams continue to launch experiments and new experiences at a fast pace. As always, I will review each of our priorities. For our first priority, driving commerce through presence, we are happy to share that we gain exciting traction in our commerce offerings. We had our best quarter yet, attracting sellers more than we anticipated and rapidly crossed over the $1 billion of annualized GPV. The largest opportunity for us remains our existing base of 21 million customers and the many sellers that are already a part of it. The efficient motion of selling into our existing customer base was the primary contributor to our GPV growth, and hence it remains our focus as we work to scale this sales team. Adopting our commerce product paves the way for customers to deepen the relationship with us, which results in higher retention and increased lifetime value. Last month, we also launched Apple's contactless tap-to-pay technology within our GoDaddy app. As you know, tap-to-pay allows our customers to accept all types of contactless in-person payments with only an iPhone, just by tapping their credit card, mobile wallet, or watch. We work directly with Apple to integrate this technology natively, creating a seamless, best-in-class, low-friction sign-up experience for our app customers. We also made several other improvements to make websites plus marketing a more robust solution for sellers, including improved pay buttons and new reports for merchants to help them prepare their taxes and understand their fees and payouts. Our teams are also excited about how generative AI can add ease of use for customers by auto-populating content for them and helping them create natural language, email, chat, and text messages to engage with their customers. AI power tools are showing up across multiple experiences at GoDaddy. For example, we built instant video features in our studios app and use cases like auto generating product descriptions are coming soon. As always, we are focused on both technology tools and guidance for our customers. As our customers start exploring generative AI, we want to help them by launching a growing area of resources so our small business owners can begin harnessing its power to save time and grow their sales. For example, we now provide an essential small business guide and a prompt library. We are also working to bring these capabilities together in a manner that even the smallest businesses can benefit from instantaneously accessing vast amounts of data and transforming it into something meaningful for their business. Websites plus marketing continues to be rated as the highest performing website builder, according to Google Core Web Vitals, and it is taking share in the marketplace. The team continues to focus on making it easy for customers to build high performance websites quickly. On our second priority, delivering for GoDaddy Pros, our goal is to make them better serve their clients and grow their businesses. GoDaddy Pros value platform capabilities like performance, availability, and security, but also automation, support, ease of use, and value-added offers. Our new managed WooCommerce store offering replaced our old managed WordPress commerce offering over the last few weeks. With this new product in place, we are bringing many more capabilities to the table and will be able to test into higher price skews. On our hosting business, our focus is around stabilization and simplification. As discussed previously, we are on course to integrate brands more deeply, which includes retiring the Media Temple brand with the final migration of customers to the GoDaddy full stack. In April, we also signed an agreement to exit a couple of our smaller European brands. Our goal remains to provide customers with a higher level of service at a lower cost to serve while sharpening our focus. On our third priority, innovation in domains, We have continued to broaden our bundling offers for new and existing customers. While our initial focus was around bundling email, we have increased experimentation velocity and are doing much more here. We are improving the onboarding flow for customers with the target of higher attach and encouraged by the results we have seen. This matters because we know that customers who activate and attach more products have higher retention rates. And we continue to be excited about payable domains and have two clear insights since our launch. First, customers who adopt this product are demonstrating their satisfaction by quickly doing a significant number of transactions through the default pay link we provide. Our initial efforts to drive more traffic to this product resulted in impressive early GPV. Second, we noticed that existing customers are more ready to use this product compared to potential customers who are new to purchasing a domain. We are currently focused on creating more opportunities for both existing and new domain customers to discover and utilize payable domains. Although there is still work to be done, we strongly believe in the enormous potential of this offering On the aftermarket, you will remember our list for sale feature that allows GoDaddy customers to list their domain in the aftermarket. This quarter, we extended this capability to our registrar partners, opening a channel to bring more inventory to the aftermarket. We also added new features to the customer experience for brokered aftermarket transactions. We built a new lead center giving real-time status updates to the leads being pursued on behalf of domain sellers so they can have more visibility into progress on their transactions. Our aftermarket business continues to innovate and create value for our customers and all players in the industry. At GoDaddy, we are eager to help small businesses thrive. This fuels us to create better products that deliver greater value for our customers, which drives our attractive financial model that then translates into sustained customer and shareholder value. This is the simple approach of how we work to grow GoDaddy and differentiate our offerings. We are proud of the consistency of our strong execution and our strategy. We have a great business with a loyal and growing customer base that continues to spend more time with us. Through our strong competitive advantages and attractive financial profile, GoDaddy is well positioned to continue to grow and deliver for all stakeholders in meaningful ways. With that, here's Mark. Thanks, Abad.
spk07: Before getting into the detailed results, I wanted to summarize a few key points. First, we are making progress towards returning to double-digit growth while executing our three-year plan to expand our operating margins and deliver on our free cash flow per share targets. Second, we are delivering on our applications and commerce segment growth through increases in new customers and the conversion of our existing customers to our payments platform in the U.S. Lastly, we are on target to complete our restructuring action in the second quarter, driving better operating leverage in our core platform segment and improving our overall operating margin in the second half of the year. With that, Applications and commerce revenue grew to $338 million, up 12%, exceeding our guide of 8% to 10%. Additionally, the normalized EBITDA margin for applications and commerce was 39%. Taken together, this highlights the impressive performance we are driving in this business. which delivered ARR for Create and Grow of $450 million, up 10%, and over $1 billion of GPV. This segment is our largest opportunity to drive growth through the attachment of our Create and Grow products, commerce platform, and productivity solutions for both new and existing customers. ARR for applications and commerce grew 9% to more than $1.3 billion, Annualized GMV across the GoDaddy ecosystem grew 18% to approximately $28 billion. Our core platform segment, which includes domains, hosting, and security, continues to serve as an important on-ramp to our overall business. Core platform revenue was $698 million, with an ARR of $2.2 billion and a strong normalized EBITDA margin of 27%. Core platform revenue was supported by a 5% growth in domains from a combination of new customer ads, attach, and price increases on renewals. This was offset by tough compares for our aftermarket business, as well as the continued uneven flow of large transactions. Additionally, there are modest impacts to our hosting revenue and customer count from migration of non-core hosting platforms being sunset. Total revenue grew to $1.04 billion, up 3% on a reported basis and 5% on a constant currency basis, reflecting a sequential lift from the Q4 growth rate. Within total revenue, international revenue grew 3% on a reported basis and 7% on a constant currency basis. Q1 bookings grew faster than revenue at a rate of 4% on a reported basis and 5% on a constant currency basis, totaling $1.2 billion. Bookings growth on our subscription products outpaced the related revenue growth by approximately 100 basis points. Our durable model continues to generate cash flow through our strong customer relationships and cohort performance, highlighted by our customer retention rate of 85%. We build on this strength through intentionally focusing our marketing on attracting high-intent customers that stay with GoDaddy and spend more. This quarter, we added 100,000 net new high-quality customers, despite headwinds from our migration efforts noted above. Our ARPU grew 4% to $197 from $190 last year. Normalized EBITDA grew 11% to $250 million, with a margin of 24%, representing approximately 160 basis points expansion. We expect to continue to drive operating leverage through strong execution and our restructuring efforts. Unlettered free cash flow for the quarter totaled $304 million, growing 6% driven by strong profitability, while free cash flow remained flat at $259 million despite an increase in our cash interest expense due to the refinancing of our term debt in Q4 2022. Free cash flow per share rose to $6.19 on a trailing 12-month basis. versus the prior year's cash flow per share of $5.25, an 18% increase driven by execution, operating leverage, and share repurchases. Additionally, in Q1, we completed 114 million of share buybacks, repurchasing 1.6 million shares. This brings the cumulative share repurchase under our $3 billion authorization to $1.4 billion and 18.4 million shares, reducing shares outstanding since inception by 11%. We remain on target for our commitment to reduce our fully diluted shares outstanding by 15 to 20% over the three-year period. On the balance sheet, We finished Q1 with $892 million in cash and total liquidity of $1.9 billion. Net debt stands at $3 billion with 2.7 times net leverage within our targeted range of two to four times. Lastly, as noted above, we signed an agreement to divest certain non-core hosting assets, which is expected to close by Q3. Our restructuring charge of $50 million in the quarter included $21 million of a non-cash impairment charge for these assets. Moving on to our outlook, we are targeting Q2 total revenue in the range of $1.045 to $1.065 billion, representing growth of 4% at the midpoint. With the current momentum, we expect to exit the year at approximately 7% top line growth with a normalized EBITDA of 28%. We expect applications and commerce segment growth to be between 8% and 10% for both Q2 and the full year. For core platform, we expect revenue growth 1% to 3% in Q2 and accelerate in the back half of the year to deliver between 2% and 4% for the full year. Q2 normalized EBITDA margin is expected to improve to approximately 25%, with continued acceleration over the back half of the year to deliver full-year normalized EBITDA margin of approximately 26%, showing improved operating leverage from the actions previously discussed. I would like to spend a moment bridging our expected 2023 revenue growth to what we believe our strategy and model can produce going forward. Our current guide for the full year is 5% revenue growth at the midpoint. As a reminder, this year's revenue growth rate includes approximately two points of FX pressure from last year's bookings and is also impacted by difficult compares in our aftermarket business and the divestiture of certain non-core revenue generating assets. Looking ahead to next year and beyond, absent those negative impacts and with the momentum we are driving through the strategic initiatives Aman spoke about earlier, including ARPU expansion, even with the continuation of the current macro environment, there is a path to returning to double-digit, top-line growth while remaining committed to delivering our margin expansion and free cash flow targets. We remain disciplined in how and where we spend, with a focus on controlling our costs, optimizing our marketing spend, monitoring headcount, and investing in innovation so that we can strike the right balance between capturing attractive opportunities with delivering value to our shareholders, always with an eye towards balanced long-term growth and profitability. In closing, we have strong confidence in our ability to execute and accelerate our growth. 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 position GoDaddy as a leader amongst its peers. Our 21 million customers create the foundation for our resiliency. We remain focused on execution against our strategic priorities,
spk03: responsibly managing our business and building deeper customer relationships as we partner alongside entrepreneurs on their journey with that we will have christy masoner from our investor relations team open up the call for questions thanks mark as a reminder if you'd like to ask a question please use the raise hand feature at the bottom of the webinar screen to be added to the queue our first question comes from the line of matt fowle from william blair matt please go ahead
spk00: Great. Thanks for taking my questions. First, wanted to understand the potential acceleration next year a little bit better. So if we look at the business, absent those three headwinds that you cited, do we need an acceleration in that business in order to get to double digits, or is just a normalization of those three headwinds sort of enough to get us there?
spk07: Hey, thanks, Matt. I'll handle the first part of that. And it sounds like you have a second question, too. So on the bridge, we do see, I would say, easier comps on things like aftermarket coming into the second half of the year, which will start to serve as a tailwind. So normalizing the core platform segment growth. Obviously, as in the cards, it just turns around into easier compares in that end of it. Domains is growing at a good pace, and obviously, we're taking some actions on hosting, which will act as a headwind in the back half of the year, but turn into a tailwind as well next year. So, it's a lot of positive momentum. Obviously, applications in commerce continues to be the higher growing segment for us. We're seeing a lot of traction on commerce. And, you know, we've talked about the four pillars there and them being in the market, and we're really happy with the performance of those. So, you know, the ability to bridge to what we see as a path to that double-digit growth we've talked about, we think starts to take that momentum in 2024.
spk05: Yeah, maybe I'll just add, Matt, that, you know, we see, of course, the headwinds go away, but we also have good momentum in the business. You know, Mark already mentioned the growth in ANC, but also the domains business has done well, and demand has been better and improving. So, you know, we're very sort of encouraged by the momentum, and that's what we're really talking about.
spk00: Great. And then just wanted to ask a follow up on gross margins. It dips sequentially in the quarter. I'm guessing that's probably due to payments. So is that true? And how should we think about that trend throughout the year as presumably payments continues to gain traction?
spk07: Yeah, no doubt, Matt, that we've talked about that, you know, product mix will impact our gross margin. And we're focusing on operating margin as we run the business expansion of that. But as we get into more of the transactional businesses, we can continue to see that, you know, pressure on the gross margin, but be in that 60, low 60s, mid 60s range. As it scales, it becomes more creative. Obviously, we get the leverage on the operating margin, and it'll help us deliver on our normalized EBITDA. Great.
spk00: Thanks. Appreciate it.
spk07: Thanks, Matt.
spk03: Our next question comes from the line of Trevor Young from Barclays. Trevor, please go ahead.
spk06: Great. Thanks. First one, Mark, on the 1Q segment results core platform, a bit below guide and ANC a bit ahead. On each of these, could you maybe speak to which areas drove relative under or outperformance specific versus your expectations there? And then on repurchases in the quarter, a bit below run rate over the prior three quarters and a bit below what you'd expect given the $1 billion guide. Realized capital allocation strategy was reiterated here, but just wondering if there was something that gave you pause on those repurchases such as macro or just a conscious effort to kind of bolster cash on hand a bit. Any color there would be appreciated.
spk07: Yeah, thanks, Trevor. On core platform, aftermarket in the larger transactions continues to be the area that is uneven for us and becoming difficult to predict. We saw some strength as we were exiting the quarter, but it continues to be uneven. And that pretty much drove our underperformance, a moderate impact from some of the actions we were taking. on integrating the non-core hosting platforms, but I would say aftermarket was probably the area of, you know, putting us below the original range. On application commerce, you know, the AGBV is ahead of, you know, at a great rate. We're seeing a lot of conversion of our existing customer base, which is driving the GPV. including new customers signing on. So we're really pleased with the momentum there, really pleased with the attach we're getting around the websites related to our commerce use. So all that has got great momentum in the quarter. We also saw, you know, the benefit of the stickiness of, you know, as our customers and applications of commerce are adding more than one product The retention rates are improving. We've always seen that in trend, and now we're seeing it more in Q1 with commerce. And with that, we're issuing less refunds, and that helped us in the quarter as well, that we didn't have to – we're seeing that stickiness start to take place. So we're seeing between the two segments, I would say, you know, as we're integrating the core hosting assets, we are seeing some headwinds around retention of what I would say customers with more in the area of one product. But we are seeing the pickup in A&C of the customers with multiple products and multiple services, which is helping us. on capital allocation sorry i almost forgot there was two parts of that uh nothing to call out we were ahead of schedule at the end of the year uh we came into the year you know uh with the one billion target that hasn't changed there hasn't been any changes to our capital allocation strategy and i i would still put in there a target of one billion for the year great thanks mark thank you
spk03: Our next question comes from the line of John Byun from Jefferies on for Brentsville. John, please go ahead. John. Hi, John. You might be, I think you're still muted.
spk01: Okay. I think it was double muted. Thank you very much. So good sequential improvement in GPV from Q4, from 760 to a billion. Wondering, in terms of the driver, was there anything more besides, I guess, the existing base converting pretty well? And for existing customers, would those be switching from other payment solutions? And if so, how do you convince them to do so other than for pricing?
spk05: Yeah, John, thanks for that question. You know, Mark has talked about the pillars of revenue for commerce and we actually saw goodness across all of them, you know, but selling into our existing base of customers was the largest driver of this acceleration and growth. And we continue to be very excited about it. In terms of how that sales cycle works, our customers have a fantastic relationship with GoDaddy and we're bringing not just sort of the surprise and delight element of, hey, you have this relationship with GoDaddy and we have more to offer. We also have great pricing for them. So when you put together the relationship, all the basket of sort of one-stop shop and the pricing, that leads to them switching over from other folks. Of course, we're excited about payable domains, and that did its part, and resellers did its part, and every piece helped. But the prime focus for us is selling into our base. We're seeing goodness there. We're going to keep attacking that. And from what we can see, it seems to be a bit of a unique competitive advantage for GoDaddy because of the relationships we have. So we absolutely are continuing on a path on that.
spk01: Great, thank you. And maybe one follow-up. On the GMV, it was flag quarter-to-quarter. I don't know if there was, you know, how that was versus your expectation, whether you expected any seasonality or just increase from, you know, continued adoption.
spk05: Yeah, GMV as a whole, if you remember, you know, is the broader sort of set of customers we have also inherited from point, and it tends to follow seasonality of the business, you know, Q4 versus Q1, and nothing new to sort of report that.
spk01: Thank you. Thank you John.
spk03: Our next question comes to the line of Clark Jeffries from Piper Sandler. Clark, please go ahead.
spk04: Hello. Thank you for taking the question. First one, I think it's for Mark. I was hoping you could maybe give us some color on that exit rate of 28% EBITDA margins, how we might be able to think about that between the two segments, you know, kind of footing the disclosures you give on ANC core platform and overhead.
spk07: Yeah, thanks, Clark. So, yes, 28%. And we talked about the actions we're taking in the first half that will help benefit as we get through the second half of the year and obviously exit the year at a strong run rate there of 7% and 28% of normalized EBITDA margins. A good way to look at it is as we're going through the core platform actions that we've taken around the restructuring and the integration of those platforms into the GoDaddy technology stack, there is going to be some pressure on our retention rates. And we're seeing customers that don't have a higher propensity to spend with us are making that decision as we're doing the transfer over to the GoDaddy stack. On the flip side, being on the GoDaddy stack and having applications of commerce and commerce and our ability for our care guides to engage our customer at a better level is really showing that we're getting more customers signing on to more than one product right now, which again pushes our retention rates higher. It pushes our ARPU higher. We're seeing a lot of benefit of that. And ANC comes at a higher margin. So we're in essence gaining more customers at the higher margin level While we're seeing pressure on the core platform, you know, those are the lower margin or lower calorie customers, I would say. And therefore, we're seeing the benefit of the mix start to improve and help us get momentum into the future years or into 2024. So hopefully that helps kind of how we're looking at it.
spk05: Yeah, and maybe just very quickly, Clark, if I can add, you know, if you look at items like marketing spend, you know, obviously I've talked about it a lot over the last couple of years, but we continue to sort of make our ability to measure return on ad spend better and better across the board. globally. And what we're seeing is, you know, good gross ads, good demand coming to the site, and the lowest marketing spend sort of as a percentage of revenue that we've had in a while. So, you know, obviously that continues to help us as well, apart from sort of the actions that Mark talked about, which are more on the people side.
spk04: Perfect. And then just one follow-up, and you've mentioned a couple times the aftermarket. I just kind of want to be clear on Compared to the guide for core platform, is where the result came in compared to the guide, maybe either at the midpoint or the low point, completely describable by aftermarket? Or were there any other factors, maybe accelerated movement in the hosting segment that might have also been a contributor there? Helping to clarify that would be great.
spk07: Yeah, you just called it. I think the primary driver was aftermarket and the continued absence of the large transactions. Just as a reminder, we don't set the prices in the aftermarket. That's a buyer and seller agreement. And we kind of facilitate the transaction between two. So we're still seeing that disconnect in the market related to the buyer and seller agreeing, which shows up in the larger transactions. So primarily the cause of the core platform missing the guide. There is a little bit on the hosting, no doubt. I don't want to say it's 100% the cause. There is some as we were migrating some of the non-core assets into the GoDaddy technology stack. We have seen some pressure there, but I would say aftermarket was the primer.
spk04: All right, perfect. Thank you very much.
spk03: Our next question comes from the line of Aaron Kessler from Raymond James. Aaron, please go ahead.
spk10: Great. Thank you. A couple of questions. Maybe just first on the macro. I mean, outside of aftermarket, can you maybe talk to the top of the funnel traffic you're seeing kind of gross up additions? And just how much should we think maybe about the ARPU outlook for 23? Should we think about it similar to Q1? And just maybe talk about the adoption of higher ASP solutions that you're seeing as well. Thank you.
spk05: Yeah, thanks, Aaron. Maybe I'll just take the top of the funnel and Mark, if you want to touch on ARPU. So, you know, like I started to say earlier, top of the funnel, I think we see good demand year over year. We see good gross ads and, you know, we're pretty happy with what we're seeing. And, you know, as we had talked about last quarter as well a bit, you know, the momentum seemed to improve through the quarter. So, you know, our customers by just nature tend to be resilient and tend to be a creative group. So, you know, and we survey them like I talked about as well, but it does seem to be showing up in the numbers to a good extent as well. So, we remain optimistic about the rest of the year. And of course, we'll keep you updated on it with Mark on ARPU.
spk07: And I'll start with, you know, we don't guide towards ARPU, but looking at the outlook for the year, when we think about our goal to attract customers with a higher intent to spend with us, you know, our goal is to raise that ARPU number. What we're seeing around the commerce, you know, is obviously giving us that momentum that we believe we'll be able to continue to drive that. Q4 to Q1 is a normal pattern for us. I know we haven't gone into quarterly the disclosures of ARPU in a while, but based on our billing cycles and bookings happening earlier in the process and in the year, that revenue from the bookings will flow through to our ARPU as it rolls out in our subscription business. So it will be a natural benefit that we will start to see. So we're excited about attracting more customers with higher intent. We're seeing that, especially in the commerce area, which showed up in Q1. The momentum there has been really, really good, and we continue to be driving towards adding that ARPUF as we go throughout the year.
spk05: And we can do those two thoughts together, you know, with bookings growing faster than revenue. All those pieces basically come together. Great. Thank you.
spk03: Our next question comes from the line of Elizabeth Porter from Morgan Stanley. Elizabeth, please go ahead.
spk02: Great. You have Fiona Hines on the line from Elizabeth's team. Thank you for taking the question. I wanted to ask on the regional banking crisis. You know, we've seen in some of the senior loan officer surveys that are pointing to tougher requirements to get loans. How important is this financing channel for your target customer base? Are you seeing any impact today and what is incorporated into your outlook?
spk05: You know, I think from two views. From our customer's view, I think the challenges in the financial banking crisis have not had significant impact for our customers. You know, I would remind you that many of our customers are micro-businesses, and they don't even have access to banking services or capital, and they really are a very creative group. And for our business as a whole, you know, obviously we're not, you know, depending on SBB or sort of risks that come close to regional banking prices.
spk07: I don't know, Mark, if you would add. Yeah, it's a good inquiry. You know, when you think about RRR at $197 and you know, the cost of that to our customers and the value that we provide to them and their business. Not a real impact there. You know, even when you talk about the FDIC limits and all that and the micro businesses and entrepreneurs, you know, we think our customers are optimistic and we're seeing them eager to sell in the marketplace, but we're not seeing any limitations based on the value prices.
spk03: Great. Thank you for the question. Our next question comes from the line of Mark Zagutowicz from the Benchmark Company. Mark, please go ahead.
spk09: Thank you. Good evening. Just a couple quick ones. Your A&C revenue guide for this year looks like potentially a modest sequential decline if you look on a two-year stack basis. throughout the year. So I'm just curious with new products coming to the market in infancy there, what that might be attributed to and related, if you can maybe speak to the attachment rates you're seeing early on with your Omnicommerce rollout and whether there are any initial demand signals that you'd like to share. And then last on the two Q and annual revenue growth guides, if there's any material contribution from payables, payable domains, and also from WorldPay. Thank you.
spk07: Okay, so I'm going to hand out, there's a few things in there, Mark, so I'm going to try to go through them sequentially. If I miss anything, please point it out. ANC Revenue Guide, we are really excited about the 12% Q1, showing great momentum coming into the year. We talked about it, this is the first quarter in which we had all four pillars in market, and that we've been engaging our customers, converting our existing customer base in the U.S., and just unbelievable traction. And we're also seeing play out is that, you know, the stickiness of, you know, going from the one to the two to the three products is playing out and improving. I want to say improving our refunds, but lowering our refunds to our customers. So we saw a benefit of that in Q1. We are early stage, though. So we, you know, it's one quarter in and we like the momentum. We'll see how it rolls out throughout the year. But we feel excited about the ability to continue that momentum throughout the year and into 2024. I think on the attach of the Omnicommerce, I don't know, you wanna talk about that?
spk05: Yeah, and maybe I'll just talk about attach more broadly real quick and then get into Omnicommerce as well. We talked about bundling a little bit and as Mark said, Bundling is a great opportunity for us to bring two-plus products to our customers, and it helps, obviously, not just the average order size, but it helps with the retention because customers that engage with more than one product tend to retain at higher rates. And that's an area of focus for us, and we're pretty excited about where we're going. You know, on the Omnicommerce solution, we've had great success selling into our base, but it's still very, very early days. You know, very similar to your question about payable domains. I'm super excited about payable domains. We have some early results that sort of I indicated, you know, and there's more to do. But all of these things, we're very early in the process. We're very excited about the opportunity in the future. And overall, you know, the attach of these products to our existing customers continues to be good. I think in terms of sharing specific numbers on that, we'd want to have it reach certain milestones so we can share more with you.
spk07: And on the world pay, we had talked about that last quarter. We're really excited about the world pay agreement. They're selling our product in the market. We have, I would say, a hard launch in the second half of the year. Minimal impact this year we're planning on, but going into next year, it should have some great momentum.
spk09: Okay, great. Thanks, guys. Appreciate it. Thank you.
spk07: Thanks.
spk03: Our next question comes to the line of Egal Arounian from Citi. Egal, please go ahead.
spk08: Hey, good afternoon, everyone. So I want to ask about AI. Apologies if it's been asked, but I know you mentioned some of the generative AI from Trump Library and some things you're doing on that front, but certainly recently, but really over the past couple of months, there's been a greater dialogue about generative AI disrupting the web builder business. And I want to get your thoughts on that, you know, how you're approaching it and, you know, how you think about AI, maybe not just in the near term, but over the long term as well.
spk05: Well, Yigal, thanks for that question. And no, it hasn't been asked yet. So let me just take a moment and just take a step back, talk about the long term and then give you a couple examples of how we're thinking about it in the immediate term. You know, obviously, like many other folks, we want a future where AI is a positive contributor to humanity and society as a whole. And we're absolutely sort of aligned with that view of the world. Where we see opportunities, you know, and some of them are a little ways away, some of them are sooner, is that AI creates moments of delight and surprise for customers. It allows us to create a new set of tools that allow customers to get more value faster, easier, so they can focus on the things that they need to do growing their business. And they have to worry less about the mechanics of things that technology can take care of. And that is the history of tools. Tools may allow people to do things that they otherwise would have had a hard time doing. And AI for us And in our business, in our industry, I think is going to provide another set of new tools for our customers. In terms of how our customers think about this, I happened to sit on a flight yesterday for two hours on the seat next to one of our customers. That customer actually uses our entire solution from GoDaddy Studio to the website, to the hardware device in their store, and we had a great conversation for two hours. And I asked him about AI and, you know, what he feels as a micro-business owner. And his point was very, very simple, which actually aligns with our company's view of it. He said, you know, of course I want AI to help me message a customer or prompt me and tell me, you know, what the customer is asking about so I can help my customer. But my business relies on the personal relationship I have, and this is him talking, I have with our customers. And I don't want a machine talking to our customers. The difference happens in our business because of the owner himself, his wife, who's the creative person behind that business. They're the ones that make the difference. So they want to hold that interaction. And for them, AI is a tool. Frankly, if GoDaddy can make it easier by using AI tools to make it easier for them to engage with their customers, they're all for that. But at the end of the day, it is about tools and not about replacing what they actually do for them. If you translate that into our business, you know, Well, one, a large part of our business domains hosting email and others are sort of not related to AI in the same way. But when it comes to content creation, when it comes to websites, what we see for the foreseeable future is great opportunities to create new set of capabilities for customers that allow micro businesses to compete with larger businesses in a manner that has not been seen before. And that's what we're focused on. And we're very excited about achieving that.
spk08: Hey, that's really helpful. Yeah, I think some of the ways that... it's been depicted about how AI disrupts your business model. So a little bit too simplistic. So it's good to hear that from you. I think you also mentioned taking share within the website builder space. And, you know, you guys give your overall customer count, but not the specific customer count on websites plus marketing and manage WordPress. So I wanted to maybe see if we can elaborate on that point. a little bit more and get a little bit more color. Thanks.
spk05: Sure. As you know, websites plus marketing allows customers the best way, the simplest way to build a high-performing website. And given the domains funnel that we have, a lot of customers that we see are sort of folks with new ideas. It's their dream. They want to take it to market. And websites plus marketing implies them. Just a great, great way to start there. You know, we do look at share numbers internally. And we, you know, as you know, there's no sort of public way to look at website share. But we do spend time and energy understanding the counter websites and, you know, what our share in it is across all our presence products. And that's what we try to share with you to say that we see us taking share. And out of the product, presence products, we have actually websites plus marketing continues to be doing the best. And we continue to, you know, keep it very focused on the customer it serves well. We are not distracted about that product serving everybody. It has the target customer segment. It's doing a fantastic job. And, you know, of course, there's more to be done, and we can talk about that separately. But I'm very happy that websites plus marketing has continued to take shape.
spk08: Okay, great. Just to be clear, when you're talking about taking share, are you including WordPress in that or not?
spk05: We have overall taken share as well in the website space. I didn't break it down by each of the presence products we have, but across the products, the product that took the most share was Websites Plus Marketing. Great. Thank you. Thank you.
spk03: Our next question comes from the line of Ella Smith from Morningstar. Ella, please go ahead.
spk11: Hi, this is Ella from JPMorgan. First question is, I was wondering if you could speak more about your partnerships, recently announced partnerships, specifically with Apple and Microsoft Teams. Especially, I would appreciate if you could talk more about the Tap to Pay partnership because that seems like a pretty unique opportunity. Thank you.
spk05: Yeah, super excited about the tap to pay opportunity. And obviously, I think all of you know well what the functionality offers. I think what GoDaddy has to bring that's a bit special is that we work with Apple directly to create a truly seamless experience. I would love to, in a different setting, showcase that for our analysts and customers on a bus tour or something so you can actually see how much easier it is when GoDaddy creates that what we call the seamless and intuitive experience. And our goal there really is to have a set of services or experiences for our customers that are all so easy to use that the customer doesn't hesitate to use it. As you know, our customer is the micro business owner, and there is a cost for them to take on something new, right? Because they need to put energy into growing their business and not trying to learn new technology. So, when we lower the friction bar, when we make it easy for them, the adoption is much faster. And that's the early signal with tap-to-pay as well that GoDaddy merchants are just very, very quickly adopting tap-to-pay. And there's actually much more we're going to give them with tap-to-pay. With Microsoft Teams, the idea there is that, you know, we want to be able to serve our customers through any of the sort of services that they use to engage their customers. This is a new opportunity. You know, it's something that we're exploring and are curious about where, as you well know, Microsoft Teams has grown and sort of has very large user base. And what we're really offering is the payments capability within Teams. And it extends our existing sort of beautiful relationships in Microsoft through the productivity products already.
spk11: Great. That's super helpful. Thank you. And as a quick follow-up, I know in the last question we spoke at length about the impacts of AI to the web tool side of the business. And you did say that you don't see much impact to the core platform side of the business, but I just want to confirm that. Do you think that there is even on the back end any opportunity for AI disruption to domains and hosting, or is that just not as relevant at this juncture?
spk05: Actually over the last couple of years, I've talked about it a little bit, but let me update some of my comments. At GoDaddy, we've been using AI to provide customers with better domain names And we've put more energy into that over the last two or three years. It was actually one of the things we had mentioned when we had first seen the acceleration of the aftermarket, that we were actually using machine learning models to find better names for customers that were available, whether they were available in the primary market or the secondary market. So there is an impact of AI into our core business, but that impact so far has been a positive one, one that creates tools that allows customers to find better things. At least so far, we have not found any reason for those technologies to be negative on a negative impact to us.
spk11: Perfect. Thank you so much.
spk05: Thank you.
spk03: This concludes our Q&A. I'll turn it back over to Aman.
spk05: Thank you, Christy. Just a quick shout out to all GoDaddy employees for another solid quarter. We are super excited about the execution at the company. We're clear in our strategy and it takes all of us to get it there. And we appreciate you taking the time today to join this call and ask us a few questions. Thank you.

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