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spk14: Good afternoon, and thank you for joining us for GoDaddy's third quarter 2023 earnings call. I'm Christy Masoner, VP of Investor Relations, and with me today are Aman 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 measures 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 investors.go.edu.net or in today's earnings release on our form 8K furnished at the SEC. Growth rates presented represent year over year comparisons unless otherwise noted. The matters we'll be discussing today include forward-looking statements such as those related to future financial results and our strategies or objectives with respect to future operations. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our periodic SEC filings. 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 2nd, 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.
spk09: Good afternoon, and thank you for joining us today. At GoDaddy, our mission is to empower everyday entrepreneurs and make opportunity more inclusive for all. Our strategy centers on driving profitable growth, resulting in compounding free cash flow per share and long-term shareholder value. In recent years, we have proven our commitment through decisive actions and margin expansion, even in slower growth conditions. Q3 was an important quarter for us. I am pleased with the results and the continued trajectory into Q4 and 2024. Third quarter normalized EBITDA margins jumped 250 basis points sequentially, primarily driven by a reduction in tech and dev spend, some of which was expected and some realized a quarter early. While margin improvement is increasingly evident in our financial performance, this stems from our earlier restructuring, brand integration, and diligent efforts for over a year to drive cloud adoption, which unlock additional savings. As shared earlier this year, we are executing these changes in a deliberate and strategic manner with a commitment to ongoing cost structure management. The work we have done and our ongoing initiatives position us for sustained margin expansion in future quarters and years to come. Q4 will also benefit from margin improvement, primarily from a reduction in tech and dev spend. Additionally, we are eager to see our high margin segment applications and commerce grow faster. since in time that becomes an additional tailwind to our overall margin. Applications and commerce bookings grew 12 percent in Q3 and we are encouraged by that momentum. October has continued that trajectory with mid-teens bookings growth in applications and commerce. One of the key messages that I hope you take away from our results and my comments today is that the third quarter marked the turning point of our tech and dev spend as a few significant platform improvements and brand integrations start to be in the rearview mirror and our product investments get past their peak. As a result of these dynamics, we are well positioned to exit 2024 with normalized EBITDA margin of approximately 31%, another significant step forward for our business. As we look at the next few years, we see leverage opportunities across the P&L. In CARE, leverage will be driven by consumer behavior, enhanced automation, and the incorporation of generative AI. Within tech and dev, as already mentioned, we are actively pursuing opportunities for leverage with multiple initiatives. Furthermore, we remain committed to our disciplined approach in marketing and GNA. These strategies collectively chart a course for our continued margin expansion through 2025 and 2026. And we look forward to providing additional insights at our investor day early next year. As always, I want to take a few minutes and talk about our highest priority initiatives. We have added productivity explicitly to our priorities and changed the order. This was driven by the fast adoption of generative AI and new capabilities in bundling with domains and productivity opening up new exciting opportunities. Elevating to our first priority, we have evolved innovation in domains to innovation in domains and productivity. We have enhanced the bundling capabilities for our productivity solutions, which is already contributing to the faster growth in our applications and commerce segment. And we are taking it further. As you know, the integration of machine learning and use of AI is not new to GoDaddy. We have harnessed these technologies for several years, primarily in our care and marketing functions. Building upon this foundational expertise, we quickly became a leader in the generative AI space for our industry, with customer-facing capabilities in market since April. I am excited to showcase the first iteration of GoDaddy's digital guide, now named GoDaddy Aero, to you at our investor dinner later this month. As I had shared last quarter, this innovative experience empowers customers to access the full suite of GoDaddy products and additional partner products seamlessly just by acquiring a domain. In this experience, domain purchasers receive an automatically generated basic website using generative AI, an automatically generated logo, ready to use social posts, a personalized email address, and more, all delivered in an automated, low friction manner. All of this is in service to making a significant improvement in the number of customers that have more than two products with us. As you are aware, customers with two plus products retain at much higher rates and have much higher lifetime value, all the way to 80X for customers enabled with commerce. On driving commerce through presence, over the years we have added elegant, functional, performant, and fully featured capabilities at a fast pace to address the needs of our customers in a rapidly evolving and competitive environment. As a result, Google Core Web Vitals recognizes GoDaddy's website builder built sites as the highest performing websites. This quarter, we have taken strides towards our vision in empowering our customers with even broader capabilities to help them grow their businesses with confidence. Our conversations feature has elevated the way our customers connect with their own customers, making it simpler and more effective than ever before. We are proud to announce that we are the first to integrate Google's business messages in the US. Furthermore, we have seamlessly integrated M365 email and social direct messages, mentions, and comments into our conversation platform. creating a unified, all-in-one solution that is second to none. With these advancements, GoDaddy's websites plus marketing can continue to serve larger and larger customers that have more complex needs. We also continue to drive strong growth in our Omnicommerce solution. Our partnership with WorldPay has launched, and these customers are already transacting using our hardware and software. Customers in our base continue to convert to GoDaddy payments at an impressive rate, and attaching to our base was again the strongest component of our year-over-year GPV growth, which remains on pace to more than double our last year's exit rate. On delivering for pros, we mentioned last quarter that improvements in our managed WordPress solution have reached an important milestone, driving improvement in retention rates as customers begin to recognize an enhanced solution. We now offer one of the industry's fastest, most secure, and easiest to use managed WordPress platforms. In a recent third-party performance benchmarking study, sites hosted on GoDaddy's WordPress loaded an impressive 2x faster, which results in improved search engine rankings for our customers. Now, one quarter later, we are proud to share that these efforts drove impressive double-digit growth in managed WordPress bookings, which is included in our applications and commerce segment. Additionally, these features are now enhanced with generative AI features to help deliver simplified experiences that expand on the enhancements we have made around performance and security, giving GoDaddy a clear value-based advantage. In just minutes, our customers can now create beautiful, secure and high-performing WordPress sites. In closing, we are committed to driving a strong combination of revenue growth plus profitability. As Mark will detail, based on the margin expansion efforts in 2022 and 2023 and our confidence in our ability for continued margin expansion in 2024, we see the path to further enhance profitability in 2025 and 2026 above the 31% normalized EBITDA margins that we have laid out today. Our hallways radiate with the energy of tenure and new talent, and we have retrofitted many platforms and products at the company with new and exciting technologies. I am confident that our work has materially improved the fundamentals of the company, and the entire management team is determined to drive shareholder value. With that, here's Mark. Thanks, Abad.
spk11: The product enhancements over the last few years have put GoDaddy at the forefront of one of our most exciting eras yet, and we are poised to deliver a complete integrated software solution to our customers spanning every facet of their needs. We have seen the positive traction from these efforts in terms of faster product attach, stable retention rates, as well as the strong sustained double digit growth of our applications and commerce revenue, which has also contributed to us expanding our normalized EBITDA margin ahead of schedule. Moving to our financial results for the quarter. applications in commerce grew 11% to $363 million, delivering at the high end of our guided range. Additionally, we delivered an expanded segment EBITDA margin of 42% from 41% last quarter. The related ARR for applications and commerce grew 11% to more than $1.4 billion. Create and grow ARR grew 9% to $478 million as bookings trended ahead of revenue growth. Like last quarter, GPV continues to grow at an impressive rate as our customers within our 21 million base convert to GoDaddy payments. Core platform revenue totaled $706 million, flat year over year and in line with our guide. The segment's EBITDA margin accelerated to 30% from 27% last quarter. ARR for our core platform segment was $2.3 billion, flat year over year. Core platform revenue was supported by 4% growth in domains on stronger customer additions from higher demand and price increases. Additionally, domains bookings growth accelerated to 8%, showing a strong recovery for future revenue growth. This was partially offset by aftermarket, down slightly 2% to $107 million as it begins to reverse prior quarter trends and the 150 basis points of headwind from migration and divestitures of certain assets previously mentioned. Total revenue grew to $1.07 billion, up 4% on a reported and constant currency basis, and above the midpoint of our guide. Within total revenue, international revenue grew to $346 million, up 4% on a reported basis and 5% on a constant currency basis. ARPU grew 2% to $200 on a trailing 12-month basis, and we added 100,000 net new high-quality customers, despite the headwinds from our migration efforts. We are happy to share that the number of customers with two or more products now sits above 50%, and retention rates for the GoDaddy products remained at approximately 85%. Bookings totaled $1.1 billion, growing 5% on a reported basis and 4% on a constant currency basis. Excluding the impact of aftermarket, the drivers of growth in bookings were strong customer additions and price increases in domains, as well as strong catch in applications and commerce. We expect these factors to contribute to accelerated revenue and normalized EBITDA growth next year. Normalized EBITDA grew 13% to $296 million, while delivering an expanded margin of 28%. These margin gains were driven in part by the two points of leverage achieved this quarter from a reduction in normalized tech and dev spend, decreasing 140 basis points sequentially as a percent of revenue. With that, we want to shed some further light on the components of tech and dev to give you an appreciation of the nature of the spend categories. There are two distinct categories of spending, one that drives product innovation and the other that supports our operations. First, we invest in driving innovation that enables our customer success by providing competitive tools and interactions to enhance customer lifetime value through improved attach, retention, and pricing. In the second category, we invest in our infrastructure to support our operations by maintaining, unifying, and securing our technology platform, delivering a seamless experience for our 21 million customers. In addition, these investments facilitate a better cash profile by reducing data center-related capital expenditures, which improves our overall free cash flow and free cash flow per share. We also benefit from technologies we build in-house that are driving efficiencies in care and marketing spend. As a percentage of revenue, product innovation represents 7% to 8%, and infrastructure to run a secure company of our size represents 8% to 9%. Overall, during the third quarter, we reduced our tech and dev and capital spending by 5% from our restructuring efforts, the migration of non-core hosting assets, and reduced data center capital expenditures. And to be clear, we know there is room to do more. We believe the strength of our product portfolio today has brought us to an inflection point. And we expect reduced tech and dev spending to meaningfully contribute to our EBITDA margin trajectory going forward without sacrificing GoDaddy's ability to innovate and compete. Moving on to our cash generation unlevered free cash flow for the quarter group 8% to $320 million and free cash flow grew to 6% to $280 million despite increased interest expense and the timing of working capital spent, which is expected to flip in Q4 of this year. Although our net debt has remained the same at $3.6 billion, our net cash interest expense for the quarter increased by 28% to $40 million, primarily from the refinance of our Term B loan. We finished Q3 with $329 million in cash, total liquidity of $1.3 billion, and we remained at the midpoint of our targeted leverage range of two to four times. free cash flow per share rose to $6.82 on a trailing 12-month basis, versus the prior year's cash flow per share of $5.96, a 14% increase driven by improved operating leverage and share repurchases. Through October 31st, we repurchased 17.3 million shares year-to-date, totaling $1.3 billion. of which $118 million was repurchased since the end of Q3. This brings the cumulative shares repurchased under our current authorizations to $2.6 billion and 34.2 million shares, achieving 20% reduced fully diluted shares outstanding since the inception of these authorizations. Moving on to our outlook. We are targeting Q4 total revenue in the range of $1.095 to $1.115 billion. representing growth of 6% at the midpoint of a range. We expect our high-margin applications and commerce segment to deliver approximately 13% growth for Q4. In core platform segment, we expect revenue to deliver in the range of 2% to 3% growth in the fourth quarter. Booking's growth is expected to outperform revenue growth by approximately 200 basis points in Q4. As Amman mentioned, all of us on the GoDaddy team have the same determination and resolve around the opportunities we see ahead. And we are poised to drive additional normalized EBITDA margin leverage through the end of this year and beyond. As a result, we are increasing our targets for Q4 normalized EBITDA margin to approximately 29%. Additionally, the full year normalized EBITDA margin is expected to improve, delivering slightly above the 26% previously noted. As a reminder, from 2022, we delivered approximately three points of normalized EBITDA margin expansion. As evidenced by the incremental restructuring charge recognized this quarter, we remain committed to seeking out additional opportunities to drive efficiency throughout our operating model to achieve higher margins. We also remain on track to deliver our unlevered free cash flow free cash flow and free cash flow per share targets of $1.2 billion plus $1 billion plus and $7.25 plus respectively. In addition to our typical fourth quarter guidance. Given the degree of focus on our ability to deliver margin expansion as we re-accelerate growth, we think it is important to update investors on our margin expectations for 2024. In 2024, we expect our tech and dev expenses to fall in absolute dollars and as a percentage of revenue year over year. We also expect to continue to drive improvements through the next year, resulting in a normalized EBITDA margin in Q4 of 2024 of approximately 31%. Based on our confidence in GoDaddy's ability to accelerate the pace of margin expansion in 2024, we also plan to enhance profitability further in 2025 and 2026 as we continue the path above 31% normalized EBITDA margins that we have laid out today. We will provide more detail about our expectations for this term on Investor Day in the first quarter of next year. As always, we remain focused on executing on what is within our control. So while we continue to be excited about our product portfolio, our ability to drive durable revenue growth, and our levers to drive margin expansion, we realize that we are still in a dynamic macro environment. And we want to be responsive to the feedback from investors. I want to be clear that as we've been doing for the last several years, we are committed to actively managing the business. with the goal of delivering a strong combination of revenue growth plus profitability. We take a dynamic approach to managing the business, and we will be proactive in driving margin expansion over time and compounding free cash flow per share. Please note that we plan to provide complete 2024 financial guidance when we report our fourth quarter results in keeping with our normal practice. We believe enhancing profitability and durable top line growth will drive even stronger free cash flow generation. We will continue to deploy cash in line with our capital allocation framework, creating significant value for our shareholders. We are excited about our path ahead, and we are acting with urgency to drive results every day. With that, we will have Christy Masoner from our investor relations team open the call for questions.
spk02: Thanks, Mark. As a reminder, if you would 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 Vikram Kesavabhotla from Baird. Vikram, please go ahead.
spk01: Hey, thanks. Can you hear me OK? Yeah, we can. Hey, Vikram. Thanks. Hey, thanks for taking the questions. Hey, my first one is on the guidance. You know, I think you previously talked about exiting the year at a 7% revenue growth rate. It looks like the fourth quarter guidance here points to about 6% at the midpoint. And I think you also lowered the top end of the full year revenue range by a little bit. And so curious if you can just talk about some of the factors that are driving those adjustments. And then as a follow-up to that, I think you've previously talked about an accelerating growth rate into fiscal 24. I'm curious, just given all the updates here, is that still your expectation? And I know you don't want to formally guide to 24 at this point, but maybe if you can talk about some of the puts and takes we should be taking into consideration and I'll leave it there. Thanks.
spk11: Yeah, thanks, Vikram. I'll start with, you know, as we as we have done in prior quarters, we use a range and that range takes into account the unpredictability of our of our aftermarket business. And we try to build that into our thought process as we go quarter to quarter. You know, 7% is still part of the guided range. It allows for the upside or downside to our transactional business. You know, when we're talking about the difference between these numbers, we are talking about a few million dollars either direction. And, you know, we're all in a $4 billion business. We feel good about the momentum it is driving. So hopefully that gives us part of that question. On the second part of the question, we love our momentum going into 2024. If you look at our bookings growth and applications and commerce outpacing our revenue within the quarter, if you look at domains, 8% bookings growth versus 4% revenue coming out of the quarter and going into Q4, you look at the pricing actions we take, the overall growth of applications and commerce just as a bigger part of the picture. it really shows a lot of that momentum going forward. We have a lot of confidence in that, I would say, momentum going into 2024 and our ability to grow upon that. But we're feeling good about where we're headed.
spk01: Okay, thank you.
spk02: Our next question comes from the line of Trevor Young from Barclays. Trevor, please go ahead.
spk13: Great, thanks. First, Mark, just sticking with that commentary around the domains booking growing 8%, nice acceleration there. Can you break down what the contribution there is from price versus actual growth in domains? And then, Aman, you mentioned getting some leverage and care over time from changing consumer behavior. What did you mean by that specifically? And then as part of the automation process that you see there, do you see opportunity to further reduce headcount, either in terms of in-house headcount or your contractor partner's?
spk11: All right. Thanks, Trevor. And I'll start with the domains. And, you know, I would say both. Right. We took pricing actions in Q3 that started to show up, especially in our bookings, but is accelerating our revenue. But we are seeing strong demand within domains now. The strong demand also has a compounding effect because we're seeing them attach to that second product much faster than we ever did. And that is showing up in our growth and bookings and applications and commerce right now. So I would say it's a combination of all those working in the same direction, giving that momentum and giving us that confidence going into 2024.
spk09: And on care, Trevor, over the last couple of years, we've done a good job of leveraging our care. line item. As revenue has grown, we've kept care pretty flat to down. When we look forward, I continue to see opportunities for automation. And the consumer behavior piece that's really important is that more and more consumers want to engage with care using chat or async messaging. And that just is a lower cost interaction for us versus voice calls. We've also optimized how we connect with customers around the world. And that is continuing to be a tailwind for us because in a lot of markets, chat or facing messaging is running well ahead of voice. And that slowly starts to tip in favor of a lower and lower cost on the care side.
spk13: Great. Thank you both.
spk02: Our next question comes from the line of Mark Mahaney from Evercore ISI. Mark, please go ahead.
spk00: Hi, Deb. This is actually Jan for Mark. Thanks for taking the question. So a couple of ones. First on the margin guidance again for 24, you mentioned kind of, you know, kind of greater leverage from tech and dev. How should we, I guess maybe first, like, where is the additional leverage coming from? Like, what are you cutting? And how should we think about maybe a steady state tech and dev level? Yeah. And then the second question is on, I think you mentioned very quickly on accelerating revenue in 24 as well. If you can kind of talk through the puts and takes on that, what should we think about? Like how much of that is from easy comps versus, you know, your confidence in organic growth? Thanks a ton.
spk11: Great. Thanks, Jen. And good talking to you. On the normalized EBITDA puts and takes, we started talking about this in the first half of the year, and we were taking actions around integrating some of our core GoDaddy platforms into one technology stack. We took some restructuring actions. We talked about how the benefit of those would start to show up in the second half of the year. We saw some of that accelerate into Q3 based on our or I would say hitting the timetables and milestones around getting workloads into the cloud. So we can see that momentum continuing going into the year, allowing us to drive a lot of efficiencies within our tech and dev. The other part of it is application and commerce. From a segment margin perspective, as that continues to grow at an accelerated pace, that provides us even more leverage into our normalized EBITDA margin. So We'll get into a little bit more of the puts and takes and run rate and what we think is normalized when we get into next year and talk in more detail around 2024. But that's a high level, good way to think about where we're going to continue to see the momentum and our ability to drive that leverage in our normalized EBITDA margin.
spk09: And I think the second part of the question was around growth in 2024. And of course, there are some comps at play here, Jan. But the key piece that we're highlighting today is the growth in applications and commerce and a couple of the data points. And I know our investors are interested in our path to growth in ANC. So we shared a couple of data points today in terms of the 12% bookings growth in application and commerce for Q3, and actually shared the data point for October as well, where applications and commerce to mid-teens. And all of the components of applications and commerce, and as you're probably aware, we have three core components, productivity, presence, and commerce, and all of those are growing at healthy rates, which is what is pushing us into the teams there. And we expect that to continue into next year as well.
spk02: Our next question comes to the line of Matt Fowle from William Blair. Matt, please go ahead.
spk08: Hey, great, thanks. Just wanted to follow up on the acceleration that you're seeing in your applications and commerce bookings. Maybe just some more details on what exactly is driving that because there are other businesses that serve SMBs that are seeing pressure with SMB spending, but it seems like you're seeing improvements. So trying to figure out what the disconnect is there. Thanks.
spk09: Yeah, so when we look at our customers and we survey our customers sort of every six months or so, What we notice is that they're a resilient group and even though they may have sort of greater negativity about the overall economy, they're much more positive about their business and bringing everything to the table. And the way they look at our products, whether it's domains or websites or the productivity solutions, specifically email, as sort of low cost offerings that create a lot of value for them. So there's a lot of consumer surplus for them in the offerings that we bring to them. And the thing that's driving our sort of faster growth in applicationless commerce. Number one, as I talked about in my prepared remarks, we've unlocked some new bundling capabilities for both domains and productivity, and that's creating some new bundles which are being accepted really well by customers. So we're super excited about that. And then in the presence bucket, I talked a little bit about our investments in managed WordPress over the last a couple of years, and that product has really come a long way and is now competitive with the best in the world. And we're seeing fast bookings growth on that, double-digit bookings growth. And once we have the bookings in that, we know it's going to transition to revenue, and that's going to help accelerate Q4 and 2024 as well. And the third piece of applications in commerce is commerce. And as Mark noted and I noted, GPV is still on track to double year over year. Our customers in our base are adopting that. and commerce continues to grow quite well. So you've got kind of all three parts of the segment really firing, and that's leading to the accelerating growth.
spk11: And I'll just add, the strong demand we're seeing really has been at a higher level than we've seen and consistent level. We've talked about it in prior quarters, we're continuing to see that same demand. And the customers are coming in with second product to getting to that third product a lot quicker. So from a micro business perspective, we're seeing a lot of demand and attachment that is really pushing our model that we've talked about in the past.
spk08: Great. Thank you. Appreciate you taking my question. No problem. Thanks, Matt. Thanks.
spk02: Our next question is from the line of Chris Kuntarik from EVS. Chris, please go ahead.
spk10: Hey, Chris. Hi, thanks for taking my question. Maybe two if I can. Just going back to that comment on 50% of customers now have two plus products. I guess, how should we be thinking about that versus last year and maybe versus kind of pre-COVID and really kind of how we should be thinking about where that goes in 24 and 25? Should we be thinking about more like that number jumping to 75% or is it more the idea that 50% of customers are going to three products. Just curious on kind of how that attach scales over time.
spk11: Yeah, and thanks, Chris. Good question, right? We've never talked about that in the past. It was the first time we're bringing that number out. And I don't want to go back because it's something we're tracking a little bit more closely now. But for us, when we get to that second product, It really drives not only more efficiency within our operating model and drives our margins to a higher place. It really gets into strengthening our retention rates. It really gets into driving our ARPU. So there's a lot of metrics that are driven off that second attach and even more that get driven off those third attach. I always say, you know, our average is around 85% retention. But when that customer gets to that second product, it goes up significantly higher from there. And if it gets to a third product, it's almost a customer for life, right? So it's really all about driving that LTV. We'll continue to provide guidance on that as we go forward as to how we're tracking towards on a general basis. But it comes back to the What we're seeing now is not only strong demand, but strong attach and more intent to do something with the domain name to the second product than we've seen before. And I know, Aman, you're excited about some of the bundling capabilities here too.
spk09: Yeah, a couple of things I'd love to mention quickly. is the first of the bundling capabilities I talked about today. They're really going to help move the two plus products number. And I think we've shared this number with you and I think you're going to see, see it grow nicely. But the second thing, I know that's not the only thing we have in play. One of the great opportunities for GoDaddy is that we have a lot of customers coming through the domains funnel and a lot of them aren't fully aware of the full suite of products that GoDaddy has. And that's where we're launching GoDaddy Arrow, which is, when a customer buys a domain name, they get a basic website created for them using Gen AI and automation. They get a set of social posts that they can use right away. They get an AI-generated logo that they can use right away. And actually a few other things that just come to them with the domain name. And one of the things we're most excited about launching this capability is that it will expose our domain customers to the full suite of offering that we have for them and it will really propel two plus products, which then leads to the numbers Mark is talking about, the higher LTV that comes with it. And that's obviously a path that we're pressing on pretty hard.
spk10: Got it. Very helpful. And maybe just one quick follow-up. I didn't see a GMV number in the release. Just curious. I think that's been growing 20% for the last two quarters. Just curious what that GMV number was and just kind of how you guys are seeing strength of overall consumer and SMB.
spk09: Yeah, the GMV number continues to grow and is 36 billion right now. So I think it will be in our 10K. It should be there.
spk10: Okay, got it, thank you. Yep.
spk02: Our next question comes from the line of Brent Phil from Jefferies. Brent, please go ahead.
spk05: Hi, this is John Bien for Brentville. Thanks. Just wanted to go back at a higher level in terms of macro. Obviously, someone else asked as well in terms of the small business and the consumer health, but just wanted to see what you're seeing there. I don't know if there's any notable trend throughout the quarter by month and what you're seeing so far this quarter. And then second, in the AR growth numbers that you mentioned, creative growth was 9% versus apps and commerce over 11%. I'm wondering, does that mean productivity or commerce maybe is growing noticeably faster? Just wanted to see what those components are. Thank you.
spk09: Yeah, John, let me take the first part. Mark can take the second. You know, Based on our surveys, what we see for the micro businesses, and I can give you two data points, one for the US and one for the UK, so you can get some idea of how it's different in different parts of the world. Generally, the question of how positive are they about growing their own business is this year a little bit up to Flattish, right? They feel optimistic. I think part of it is they have to feel optimistic. They have to show up every day and make it happen. So they have that positive energy about themselves and their businesses. But if we look year over year on how they feel about the broader economy, that has gone down. So just to summarize, in the US, they're less positive on the overall economy, but almost equally positive, if not a bit higher, on their own business. And it's a little bit different in the UK where the overall number for positivity is a bit lower. And even though they continue to be positive about their business, their view of the economy has declined much faster. So there's some consistency across the markets, but the numbers are different with the US micro business owner feeling generally more positive about their business than the UK, for example. Hopefully that gives you a bit of color, John, and is helpful. And I'll turn it to Mark.
spk11: Yeah, and thanks. And, you know, I think when you look at the difference between the create and grow ARR and the overall ARR, the subscription business is productivity. So it doesn't take much of a, I would say, a leap to say, yes, it is growing at a good pace on an ARR basis and adding to our subscription strength going forward.
spk05: Thank you.
spk02: Our next question comes from the line of Navid Khan from B Riley. Navid, please go ahead.
spk06: Yeah. Hi. Thanks. Can you hear me? Okay. Yeah. You guys. So just on the, on, on your last answer. Mark on the sort of the 9% growth in creating grow. I'm wondering how fast websites plus marketing is growing in terms of where any color commentary there. And then Aman maybe you can give us some color on payable domains, how that grew in the quarter and your thoughts there.
spk11: Yeah, we don't break it down by product specifically, but I will add color to say we're seeing strength across the board in not only Create and Grow, but applications and commerce. So I would say we're really happy with the attached, the momentum in the market. The ANC bookings are really outpacing revenue at this point. So I would say strength across the board.
spk09: Yeah, and on payable domains, you know, it continued to perform and contribute to the GPV growth that we're seeing, but in line sort of with what we've seen in the past. Q3 overall was a stronger quarter for GPV. And as we look forward to Q4, you know, we're excited to see what's to come.
spk06: Thank you, guys. Thanks, Navit.
spk02: Our next question comes from the line of Ella Smith on for Alexi Gogola from JP Morgan. Ella, please go ahead.
spk03: Hi team, thanks for taking my question. Aman and Mark, could you please update us on the hosting business? If domains were up 4% in the quarter, does that imply that hosting was down high single digits in the corner?
spk11: We're seeing about 150 basis points of headwind related to the hosting business and the divestitures and the migration. You know, aftermarket's also included in the core platform number, just to keep in mind. Well, while we're, you know, we're going to have some headwinds related to some of those actions we took in the first half of the year. We're seeing, you know, the core GoDaddy hosting platform, you know, stable. We're seeing high retention rates. We're seeing a lot of cash flow generation. We're even seeing that the few little churn that we have within the core GoDaddy hosting stack is going to other areas of our platform right now and attaching products. So I would say we're continuing to work through the integration, the vestures, the compares around it. We'll have some headwinds leading into next year related to that part of it, but we're happy with GoDaddy's core hosting strength right now, being stable and primarily close to flat.
spk03: Got it. Makes sense. Thank you. And for my follow-up, I think Aman just said that GMV was $38 billion in the quarter. What about GPV? And I was hoping you can remind us around your strategy to convert customers to GoDaddy payments.
spk09: Yeah, I had said $36 billion, and GPV is on track, very similar to last quarter, to double year over year. There's no change in sort of the trajectory there. Like I just noted, Q3 was actually a strong quarter for GPV and we're looking forward to Q4. In terms of attaching GoDaddy payments to our base, let me handle both. New customers coming in, for example, the websites plus marketing still attaching GoDaddy payments at very, very high rates and us attaching to the base has continued to grow. And Godad, the biggest contributor to the GPV growth continues to be us converting existing Godaddy customers to Godaddy Omnicommerce solution.
spk02: Great. Thank you so much.
spk09: Thanks, all. Thanks, all.
spk02: Our next question comes from the line of Egal Arounian from Citi. Egal, please go ahead.
spk12: Hey, good afternoon, guys. So first question, just so you've had an activist investor, hopefully it's a fair question, an activist investor, get a little bit more active and vocal about their views and just want to maybe give you an opportunity to respond or make any comments on that or anything you'd like to share. And then second, you mentioned strength in domains, including pricing. So is that just on the pricing front? Is it raising the annual, price for domain registrations. And with the strength you're seeing in domains relative to what we're seeing in terms of .com and .net growth, which has been challenged and kind of flat, what are you seeing? What are the differences? Is it growth in different TLDs? Is it more, especially the ones that you hold at your registry business too? Maybe just a little bit of insights on what you're seeing in the domain world. Thanks.
spk09: Thanks, Egal. We talk to our investors regularly, and what we learned is that they're looking for more information from us in a couple of areas. They're looking for our plan to drive further margin expansion, and they're looking for our path to faster growth in ANC. And what you saw in our prepared comments today is that we shared more details on both of those areas. You know, we as a team are focused on the results we're delivering, and all of our forward commentary is everything that we're doing to drive value for shareholders. So, you know, our broader view is that, you know, we listen to a lot of, you know, we're engaged with our investors all the time. We're listening to them and we're sharing back information on the things that we feel they're asking us for. And then on the domain side, I'll turn it to Mark, but just a quick, Just to quickly remind you, although we don't break out dot com dot net or any specific TLD, our registry business continues to do well. It's continued to sort of perform at great rate. And we do offer, as you know, a very large number of TLDs, all over 400. So, you know, our business, our base is different. And also our reach internationally is significantly different than many other players. But I'll turn to Mark to see what he would add.
spk11: I think that covered a lot of it, Aman. I would say we're seeing strength in the demand end of it. We're seeing, you know, we took pricing action. No doubt that's contributing to the overall 8% bookings growth that we're seeing in domains coming out of the quarter. So a lot of strength there. We're a little different than some of the other players, so we have a little bit more breadth of what we offer, and we're seeing strength in some TLDs and probably our geographic regions. Others have pointed out there are weaknesses in certain areas that we're just not as exposed to.
spk12: Great. Thanks.
spk02: Our next question comes from a line of Ken Wong from Oppenheimer. Ken, please go ahead.
spk04: Hi, can you guys hear me?
spk02: We can.
spk11: We can.
spk04: Great. Thanks for taking my question. I just wanted to maybe check in if you guys can give an update on what you're seeing in the aftermarket. What are the dynamics that played out in the quarter and how we're thinking about that trend in Q4?
spk11: Yeah. So, you know, we tried to add... A little more color around the aftermarket and our stated comments this time, you know, we continue to be the global leader in the aftermarket and it's driving part of a healthy domain business overall. You know, it's a $400 million plus business and we're seeing it grow at a lesser rate than we've seen before now. Q3 was still a relatively tough compare to last year for us in that. So we've seen, you know, a less of a dip. We see that trend starting to turn like we talked about. We expect Q4 to be an easier compare. And obviously we expect going into 2024, those comparisons to get broadly more easy. But, you know, from a volume perspective overall, we're still seeing a healthy 400 million plus business on an annual basis. We continue to see the momentum growing. Like we stated earlier in the year, we're not seeing the large transactions like we used to, but we continue to see on a volume basis aftermarket being healthy and thriving.
spk04: Got it. And then maybe just a quick follow-up on the kind of spend management. I think definitely positive development. See some focus there. I guess what areas are you looking to potentially peel back on from R&D? Any concerns that that might potentially hurt product innovation?
spk09: Yeah, thanks for that question. When we look at our tech and dev squam, the way we have it allocated is that it's divided between our platform investments and our product innovation. On the platform side, there is a set of investment made, which Mark shared with some slides around cyber, around core data, platform improvements, and those have tended to help all our products. And what we found there is You know, as we integrate more and more platforms, as we've integrated the brands that we talked about this year, some of those costs peak and it started to come down. So we're seeing leverage on the platform side. And that's great. On the product innovation side, our approach has very much been about, you know, attacking a few areas and driving improvement in them. And as those areas improve, shifting, you know, our spend into other areas or our investment, I should say, into other areas and improving them. And we're very careful about how we move those investments. As an example, we invested, and I talked about the investment in managed WordPress over a couple of years, and I'm very happy to have a great product today that is now showing great growth as well. But that does mean that we have a team and a size of investment there that we no longer need to continue to invest in it. So hopefully that gives you a bit of color on how we go about sort of getting leverage on the whole, on the platform side, but also on the on the core product side where we're able to move people around and get to things and sort of drive growth without necessarily always adding more.
spk04: Got it. I appreciate the insights. Thank you very much.
spk02: Our next question comes to the line of Deepak Mathavanan from Wolf. Deepak, please go ahead.
spk07: Hey, guys. Thanks for taking the questions. Just wanted to ask about the headwinds from the hosting business, from all the diversities and some of the other moving pieces. When should we expect some of this to normalize? And what do you generally think, you know, kind of the long term growth outlook for this business is? And then sort of wanted to follow up on the answer for the question below. How much is the margin expansion targets for potentially 24 and then 25 and 26 beyond? Sort of dependent on the top line growth. Are there any specific ranges that you can kind of give us to expect on the top line side to achieve this margin targets? Thanks so much.
spk11: Yeah, thanks, Rebecca. I'll start with the divestitures and the headwinds related to it. A lot of those activities we've completed in the first half of the year. So it'll be a little bit of time before the comparables around them start to normalize. They will take to the second half of next year. So it'll create a little bit of a headwind going into the year for us. We do have some of those activities still happening in the second half of the year. So it will continue to be something we will point out, call out, and talk about the impact. That's why we called out the 150 basis point headwinds related to that going forward. From a stabilization point of view, once we get through the action that we're taking, when you look at the core GoDaddy platform in and of itself, we think this is going to be a low single digit to flat growing business over time. It's got huge high retention rates compared to our normal business, generates a lot of cash flow. And we're seeing them convert over to other areas of the GoDaddy platform when they leave. So they're staying within the technology stack, which is great for us. But we're not looking at that as driving any significant growth in our core platform going forward. So hopefully that's helpful. On the margin expansion, our model doesn't require double-digit growth going forward. We acknowledge we're living in a dynamic environment and, you know, hey, there's headwinds and there's tailwinds that are continuing to present themselves. But if you look at the momentum around our ANC business in and of itself, its ability to generate higher normalized EBITDA becoming a bigger part of the picture as we move forward. If you look at our demand, our retention rates, our ARPU, All those are pointing to more efficient and our ability to drive that operating margin. That's why we're comfortable and confident about the 31% exit rate and being in approximately there when we exit next year. That's why we're confident in saying we're going to grow from there going into 25 and 26 as well. So again, takeaway, not premised on double digit growth. and is looking to continue to expand as we get away from the actions we've taken. We grow ANC. We're on the same technology stack now, and we're seeing the momentum in the business that we think is really going to drive profitable growth moving forward.
spk09: Yeah, and just very quickly, I did mention in my prepared remarks some of the areas where we have initiatives to continue to drive more efficiency in the line items, and I won't repeat them again, but we did share some items there. And ultimately, it drives a better combination of growth and profitability.
spk02: Great. Thank you. That concludes our Q&A session. I'll turn it back over to Aman for some closing remarks.
spk09: Thank you, Christy. And thank you for joining us. As always, just a quick mention to all the GoDaddy employees who've been working super hard and a great quarter for us. And I'm excited, looking forward into Q4 in 2024. Thank you.
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