Q3 2023 GoDaddy Inc Earnings Call

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Good afternoon, and thank you for joining us for Godaddy is third quarter 2023 earnings call I'm Christie Masoner VP of Investor Relations and with me today are a mom, who tani Chief Executive Officer, and Mark Mccaffrey, Chief Financial Officer. Following prepared remarks, we will open up the <unk>.

<unk> for your questions if you'd like to ask a question on today's call. Please use the raise hand to 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 don't Godaddy that net or in today's earnings release on our form 8-K 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 20 twenty-three and accept.

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 them on.

Good afternoon, and thank you for joining us today.

Godaddy, our mission is to empower everyday entrepreneurs make opportunity more inclusive for all <unk>.

Our strategy centers on driving profitable growth.

And 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.

From our earlier restructuring, Brian integration and diligent efforts for over a year to drive cloud adoption, which unlocked additional savings as shared earlier. This year. We are executing these changes in a deliberate and strategic manner with a commitment to ongoing.

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.

<unk> segment obligations in Palmers grow faster since in time that becomes an additional tailwind to our overall margin obligations Embalmers bookings grew 12% 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.

Turning point of our tech and Dev spend as a few significant platform improvements and Brian integrations start to be in the rearview mirror and our product investments get past therapy.

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 incur 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 and marketing and G&A.

These strategies collectively charter 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 unchanged. The order. This was driven by the fast adoption of generative AI and new capabilities in bundling with domains and productivity opening up new.

Lighting opportunities.

Elevating to a first priority, we have evolved innovation and 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 obligations 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've 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 and market since April.

I am excited to showcase the first iteration of Godaddy as digital guide now named Godaddy Arrow 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 part.

Product seamlessly just by acquiring a domain and this experience domain purchasers received an automatically generated basic website using generative AI and 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 they are 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 retained at much higher rates that have much higher lifetime value all the way there.

<unk> for customers enabled with commerce on driving commerce through presence over the years, we have added elegant functional performance 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 go Daddy's website builder built sites as the highest performing websites.

This quarter, we have taken strides towards our vision and 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 U S.

Furthermore, we have seamlessly integrated M 365, 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 is websites plus marketing can continue to serve.

Larger and larger customers that have more complex needs.

We also continued to drive strong growth in our omni commerce solution, our partnership with World pay 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.

Components of our year over year, <unk> 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 our 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 Wordpress loaded an impressive two X 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 <unk>.

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 'twenty 'twenty four we see the path to further enhance.

<unk> 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 demand the product enhancements over the last few years have put godaddy at the forefront of one of our most exciting areas 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 or are for applications. In Congress grew 11% to more than one $4 billion create and grow a R. R grew 9% to $478 million as booking.

<unk> trended ahead of revenue growth like last quarter G. PV 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.

For our core platform segment was $2 3 billion flat year.

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.

<unk> 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.

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, our blue grew 2% to $200 on a trailing 12 month basis, and we added 100000 net new high quality customers. Despite the headwinds from our migration efforts, we are happy to share that the number of customers with <unk>.

Two or more products now sits above 50% our 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 and bookings were strong customer additions and price increases in demand as well as strong attachment applications ecommerce we expect these.

Factors that 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 <unk>.

And 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 customers 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 a 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.

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 noncore 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 to reduce tech and Dev spending to meaningfully contribute to our EBITDA margin trajectory going forward with our Sacramento and godaddy has ability to innovate and compete.

Moving on to our cash generation Unlevered free cash flow for the quarter grew 8% to $320 million.

Free cash flow grew to 6% to $280 million, despite increased interest expense and the timing of working capital spend 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% to 14% increase.

Given by improved leverage and share repurchases.

Through October 31, 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 two 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 111 $5 billion.

Representing growth of 6% at the midpoint of our range, we expect our high margin applications in commerce segment to deliver approximately 13% growth for Q4 and core platform segment, we expect revenue to deliver in the range of 2% to 3% growth in the fourth quarter bookings growth is expected.

Second to outperform revenue growth by approximately 200 basis points in Q4.

As a man 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 <unk>.

<unk> 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 'twenty to 'twenty. Two 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 target of one 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 reaccelerate 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.

And 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%.

<unk> on our confidence in <unk> 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.

Tell about our expectations for this journey, our 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 realized that we are still in a dynamic macro environment and we want to be responsive to the feed.

Back 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 overtime 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 Christie masoner from our Investor Relations team open the call for questions.

Thanks, Mark as a reminder, if you would like to ask a question. Please use the race and feature at the bottom of the webinar scheduled to be added to the queue.

Our first question comes from the line of cancer.

<unk> that can please go ahead.

Okay.

Hey, Thanks can you hear me okay.

Okay.

Thanks, Hey, Thanks for taking my questions. My first one is on the guidance I think you've previously talked about exiting the year at a 7% revenue growth rate it looks like the fourth quarter guidance here, so about 6% at the midpoint and I think you also lowered the top end of our full year revenue range by a little bit. 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 'twenty. Four I'm curious just given all the updates here or 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, yeah. Thanks Vikram.

I'll start with <unk>.

As we have done in prior quarters, we use a range in that range.

Takes into account the unpredictability of our of our aftermarket business.

Truck build that into our thought process as we go quarter to quarter.

7% is still part of the guided range.

It allows for the upside or downside to our transactional business.

We're talking about the difference between these numbers, we are talking about a few million dollars either direction.

Overall, a $4 billion business, we feel good about the momentum it is driving so hopefully that gives a little bit of help on the first part of your question on the second part of the question.

We love our momentum going into 2024, if you look at our bookings growth and applications commerce outpacing our our revenue within the quarter. If you look at domains, 8% bookings growth versus 4% revenue come in the coming out of the quarter and going into Q4.

Pricing actions would take the overall growth of applications in commerce, just as a bigger part of the picture.

It really <unk>.

So there's a lot of that momentum going forward, we have a lot of confidence in that that I would say momentum going into 2024, and our ability to grow upon that.

But we're.

We're feeling good about where we're headed.

Okay. Thank you.

Our next.

<unk> comes from the line of Trevor <unk> from Barclays.

Please go ahead.

Yes.

Great. Thanks.

First mark just sticking with that commentary around the domains booking growing 8% a nice acceleration there can you breakdown what the contribution there is from price versus actual growth in domains.

And then you mentioned getting some leverage in care over time from changing consumer behavior. What did you mean by that specifically and then as part of the automation process. What you see there do you see opportunity for <unk> to further reduce head count either with in terms of in house head count or your contractor partners within <unk> specifically.

Alright, Thanks Robert.

I'll start with the domains and I would say all right.

We took pricing actions in Q3 that started to show up especially in our bookings that is accelerating our revenue. What we are seeing strong demand within demand now with strong demand also has a compounding effect because we are seeing them attached to that second product much faster than we ever did and that is showing up in our growth in bookings and applications of commerce right now.

So, let's say, it's a combination of all those working in the same direction, given that momentum and giving us confidence going into 2024.

On care Trevor over the last couple of years, we've done a good job of leveraging our care.

One item as revenues grow and we've kept carefully pretty flat to down when we look forward excuse me when.

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 messaging and that just has 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 market chat or 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.

Great. Thank you both.

Our next question comes from the line of Mark <unk> from Evercore ISI. Please go ahead.

Hi, there this is actually Dan <unk> for Mark.

Thanks for taking the question. So a couple of ones first on the margin guidance again for 'twenty four.

You mentioned kind of you know.

It kind of greater leverage from Tech and Dev how should we I guess, Mike maybe first like where is the additional leverage coming for all like what are you cutting and how should we think about maybe a steady state tech and Dev level.

And then the second question is on I think you mentioned, there quickly and accelerating revenue and 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.

Your confidence in organic growth thanks to Tom.

Alright, Thanks John.

Talking to you on the normalized EBITDA puts and takes were coming and we started talking about this in the first half of the year and we were taking actions around integrating some of our core <unk>.

Go Daddy platforms into one technology stack.

<unk> took some restructuring actions we've talked about how the benefit of those would start to show up in the second half of the year. When we saw some of that accelerate into Q3 based on our our I would say hit or 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.

Other part of it is application of 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.

<unk> in more detail around 2024, but that's a high level a good way to think about where we're going to continue to see that momentum and our ability to drive that leverage and our normalized EBITDA margin.

And I think the second part of the question was around growth in 2024 and of course, there are some comps at play here, John but the key piece that we're highlighting today is.

The growth in applications and commerce in a couple of other data points and I know our investors interested in our path to growth and AMC. So we shared a couple of data points a day in terms of the 12% bookings growth in application in Congress for Q3, we actually shared that data point for October as well where applications in Congress to mid teens and all of the.

Components of the application of the commerce.

As Youre, probably aware, we have three core components productivity presence in Congress and all of those are growing at healthy rates, which is what is pushing us into the team and we expect that to continue into next year as well.

The ruble.

No.

Our next question comes the line of.

Matt Pfau from William Blair. Please go ahead.

Hey, great. Thanks, just wanted to follow up on the acceleration that youre 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 SME spending, but it seems like youre seeing in.

So I'm trying to figure out what the disconnect is there. Thanks.

Yes, so when we look at our customer then we survey our customers sort of every six months or so what we noticed that there are a resilient group and even though they may have sort of greater negativity about the overall economy. There are much more positive about their business and bringing everything to the table and the way they look at our products whether it's the.

Remains our website or the productivity solutions, specifically email.

Sort of low cost offerings that create a lot of value for them. So there is a lot of consumer surplus up for them in the offerings that we bring to them and the thing thats driving our sort of faster growth in applications Commerce number one.

Talked about in my prepared remarks, we've unlocked some new bundling capabilities for both demand and productivity and thats, creating some new bundle, 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 couple of years.

And that product has really come a long way and it is now competitive with the best in the world and we're seeing fast bookings growth on that double digit bookings growth in that once we have the bookings and 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 both application when Congress is.

Commerce and as Mike noted and I noted that <unk> 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 in and Thats, leading to the accelerating growth and I'll just add.

Strong demand, we're seeing really has been adding.

Higher level than we've seen in consistent level, we've talked about in prior quarters. We continue to use that same demand and customers are coming in with higher intent. So theyre getting to that second product to getting to that third product a lot quicker. So so from a micro business perspective, we're seeing a lot of demand and attachment that is really pushing it.

Model.

What we've talked about.

Great. Thank you I appreciate you taking my question.

Thanks.

Our next question is from the line of Christopher <unk> from UBS. Please go ahead.

Hey, Chris.

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-19 and really kind of how we should be thinking about where that goes in 'twenty four 'twenty five should we be thinking about more like that.

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.

And thanks, Chris.

Good question, Brian 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.

I don't want to 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 drives our margins to a higher place it really gets into strengthening our retention rates. It really gets into driving our <unk>. So there is there's a lot of metrics that are driven off that second attach and even more of that gets driven also serve attached I always say our averages.

Around 85% retention.

And 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 will continue to provide guidance on that as we go forward as to how we are 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 and and more intense to to do something with the domain name to the to the second product than we've seen before and I know you're excited about some of the bundling capabilities here too, yes couple of things I'd love to mention quickly is the.

The bundling capability that I talked about today, there really going to help move the two plus products number and I think we've shared this number with you and I think youre going to see it grow nicely, but the second thing I know thats not the only thing we have in place one of the great opportunities for Godaddy is that we have a lot of customers coming through the domain funnel.

And a lot of them aren't fully aware of the full suite of products that godaddy has and Thats where were 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 it right away if they got a AI generated logo that they can use.

Right away and actually a few other things that just come to them with a domain name and one of the things. We're most excited about launching this capability is that it will explore the our domain customers to the fullest.

The 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.

That's obviously a path.

On pretty hard.

Got it very helpful and maybe just one quick follow up I didn't see a GMB number in the release just curious I think thats been growing 20% for the last few quarters. Just curious what the GMB number was and just kind of how you guys are seeing strength.

Overall consumer and SMB.

Yes, the <unk> number continues to grow and is.

<unk> 36 billion.

Right now so I think it will be in our 10-K should be there.

Okay got it thank you.

Our next question comes from the line of Brent Thill from Jefferies. Please go ahead.

Hi, This is John Byun for Brent Thill. Thanks.

Wanted to go back to higher level in terms of macro.

Obviously, I know someone else asked as well in terms of a small business and consumer health, but just wanted to see what youre seeing there if there's any notable trend.

At the quarter by month, and what you've seen so far this quarter.

And then.

Second.

<unk>.

Yes.

Numbers that you mentioned creative grow growth was.

All right.

And does that kind of stuff like that so I'm wondering does that mean productivity commerce, maybe it's growing noticeably faster I just want to see what those components are thank you.

Yes, John let me take the first part I can take the second.

Based on our surveys what we see for the micro businesses and I can give you two data points one for the U S and one for the U K. So you can get some idea of how it's different in different parts of the world.

Generally the question on how positive or are they about growing their own business.

Is this a little bit up to flattish right.

Feel optimistic I think part of it is they have to fill up and I think 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 the so just to summarize in the U S.

There are less.

Positive on the overall economy.

Almost equally positive 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 U S micro business owner.

And are feeling generally more positive about their business in the UK. For example, hopefully that gives you a bit of color John and is helpful and I'll turn it to Mark.

And thanks and.

I think when you look at the difference between the create and grow.

And the overall IRR.

The subscription businesses productivity, so it doesn't take much of it.

Let's say in a way to say, yes. It is growing at a good pace on an <unk> basis, and adding to our subscription strength going forward.

Thank you.

Our next question comes from the line of <unk> <unk> from B Riley. Please go ahead.

Yeah, Hi, Thanks can you hear me okay, yes.

Hey, guys. So just on the on your last answer.

Mark on the.

Yes.

Thats part of the 9% growth.

Creating growth I'm wondering how fast.

That's nice plus marketing is growing in terms of.

Any color or commentary there and then.

Among maybe.

Can give us some some color on payable domains, how that grew in the quarter and your thoughts there.

No.

We don't break it down by byproduct, specifically, but I will add color to say, we are seeing strength across the board.

And not only create robot applications ecommerce. So I would say, we're really happy with the attach the momentum in the market.

The AMC bookings are really outpacing revenue at this point, so so I would say strength across the board.

Yeah and on payroll domain, it continued to perform and contribute to the GP growth that we're seeing but in line with what we've seen in the past Q3 overall was a stronger quarter for <unk> and as we look forward to Q4, we're excited to see what's to come.

Okay.

Thank you guys.

Thanks Alan.

Our next question comes from the line of Ella Smith on for Alexia <unk> from Jpmorgan. Please go ahead.

Hi team. Thanks for taking my question a mono 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.

We're seeing about a 150 basis points of.

While a headwind related to the hosting business and the divestitures of the migration.

Aftermarket is also included in the core platform number just to just to keep in mind.

Well we are.

Sure.

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 the core of godaddy hosting platform.

Stable right, we're seeing high retention rates, we're seeing a lot of cash flow generation.

We're even seeing that.

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 divestitures the compares around it.

We'll have some headwinds moving into next year related to that part of it but we're happy with Godaddy is core hosting strength right now being stable and primarily close to flat.

Got it makes sense. Thank you.

And for my follow up I think I'm on just said the GMB was 38 billion in the quarter.

What about <unk> and I was hoping you can remind us around your strategy to convert customers to godaddy payments, Yes, I had said 36 billion.

And <unk> is on track.

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 <unk>.

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 rate.

Attaching to the base has continued to grow and grow that the biggest contributor to the GP growth continues to be us converting existing godaddy customers to godaddy omni commerce solution.

Great. Thank you so much thanks, Bill Thanks Bill.

Our next question comes from the line of Eval Iranian from Citi. Please go ahead.

Hey, good afternoon guys.

First question just.

The activist Investor Okay Fair question, Ed at this investor get a little bit more active.

And vocal about their views and just wanted to maybe.

To give you an opportunity to.

To respond there.

Make any comments on that or anything you'd like to share and then second you mentioned strength in demand.

Yes.

Including pricing so.

Is that just on the pricing front is it raising the annual.

Price for domain registrations.

With the strength youre seeing in domains.

Relative to what we're seeing in terms of dot com and dot net growth, which has been challenged.

And kind of flat.

What are you seeing what are the differences growth in different <unk>.

Mark.

Especially the ones that you hold at your.

Our registry business to make us a little bit of insight from what youre seeing in the demand.

Thanks ago, we've talked to our investors regularly.

What we learned is that they are looking for more information from us and a couple of areas.

Looking for our plan to drive further margin expansion and they are looking for are proud for faster growth in AMC and what you saw in our prepared comments today that we've shared in more detail on both of those areas.

The team are focused on the results, we're delivering and all of our forward commentary or is everything that we're doing to drive value for shareholders. So.

Our broader view of that we listened to a lot of.

We engage with our investors all the time, we're listening to them and we're sharing back information on the things that we feel they are asking us for and then on the domain side, our clients tomorrow, but just a quick.

To quickly remind you, although we don't break out dotcom gotten any specific TLD, our registry business continues to do well.

Continuing to sort of performance.

And we do offer as you know.

<unk>, a very large number of legal over 400.

Our business our base of different and also our reach internationally is significantly different than many other players, but I'll turn it to Mark you would add.

I think that covered a lot of it.

I would say were seeing strengthened and the demand. We're seeing we took pricing action without that's contributing to the overall, 8% bookings growth that we're seeing in demand 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 <unk> probably.

Our geographic region as others have pointed out there are weaknesses in certain areas that were just not as exposed to.

Great. Thanks.

Our next question comes from the line of <unk> from Oppenheimer. Please go ahead.

Hi can you guys hear me okay great.

Great.

Thanks for taking my question just.

Just wanted to maybe check in if you guys can give an update on what youre seeing in the aftermarket what are the dynamics that played out in the quarter and how we are thinking about that trend in Q4.

Yeah. So we try to add a little more color around the aftermarket and our stated comments at this time, we continue to be the global leader in the aftermarket and that's driving part of a healthy demand business overall.

The $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 on that so we've seen a less of a dip we see that trend starting to turn like we talked about we expect our.

Q4 to be an easier compare and obviously, we expect going into 2024, those comparisons get broadly more easy but 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.

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.

Got it and then maybe just a quick follow up on.

On the <unk>.

Spend management I think definitely positive development see some see some focus there.

What's the what areas are you looking at potentially Peel back on from from R&D any concern that that might potentially heart product innovation.

Yes. Thanks for that question when we look at our Tech and Dev spend the way we have it allocated as the.

It's divided between the platform investments and our product innovation on the platform side. There is a set of investment made which Mike shared with some slides around cyber around core data platform improvements and those have tended to help all of our products and what we found there is as.

As we integrate more and more platforms as we've integrated the brands that we talked about this year some of those costs and it started to come down. So we're seeing leverage on the platform side and that's that's great on the product innovation side. Our approach has very much been about attacking a few areas and driving improvement in them.

And as those areas improve shifting on us.

Spend into other areas of investment I should say into other areas and improving them and we're very careful about how we move those investments and as an example, we invested in I talked about the investment and managed Wordpress over a couple of years and I'm very happy to have a great product today that is now.

Great growth as well, but that doesn't 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 are able to move.

People around and get things and sort of drive growth without necessarily all without anymore.

Got it I appreciate the insight thank you very much.

Our next question comes from the line of Deepak <unk> from wealth <unk>. Please go ahead.

Hey, guys. Thanks for taking the questions just wanted to ask about the headwinds from the hosting business from all the diverse judgments all the other moving pieces when should we expect some of this to normalize and what do you generally think kind of a long term growth outlook for Rod This businesses and then Sarah.

Wanted to follow up on the answer for the question below how much of the margin expansion targets for our potentially 24, and then 25% 26 beyond sort of dependent on the topline growth.

Are there any specific ranges that you could kind of give us to expect on the top line side to achieve this margin targets. Thanks, so much yes.

Yes, thanks for that I'll start with the.

The divestitures and the headwinds related to it.

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 comparable is around them and start to normalize it will take to.

Second half of next year, so sort of create a little bit of a headwind going into the year for us.

Do have some of those activities still happening in the second half of the year. So it will continue to.

It's something we will point out call out and talk about the impact Thats 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.

The actions that were taken.

When you look at the core Godaddy platform ended up itself.

We think theres going to be a low single digit to flat growing business over time, it's got huge.

Pension 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 theyre staying within the technology stack, which is great for us, but we're not looking at that is driving any significant growth in our core platform going forward. So hopefully hopefully that's helpful helpful.

On the on the margin expansion.

Our model doesn't require double digit growth going forward.

Knowledge, we're living in a dynamic environment.

Those headwinds and their sales whether that continue to present themselves, but if you look at the momentum around our ANZ business in and of itself its ability to generate higher normalized EBITDA, becoming a bigger part of the <unk>.

Picture as we move forward if you look at our demand our retention rates are.

All of those are pointing to more efficient and our ability to drive that operating margin Thats why were comfortable and confident about the 31% exit rate and being an approximately there when we exit next year. That's why we're confident in saying we're going to grow from there going into 'twenty five 'twenty six as well so so again takeaway.

Not premised on double digit growth.

<unk> is looking to continue to expand as we get away from the actions we've taken we grow AMC Robert.

<unk> technology stack now and we're seeing the momentum in the business that we think is really going to drive profitable growth moving forward.

Very quickly I did mention in my prepared remarks, some of the areas, where we have initiatives to continue to drive.

More efficiently in the line items and I wanted to see them again, but we did share some items, there and ultimately drives a better combination of growth and profitability.

Great. Thank you that concludes our Q&A session I'll turn it back over to Lon for some closing remarks. Thank you Christy and thank you for joining us as always just a quick mentioned to all of the godaddy employees who've been working super hard and are great.

Quarter for Us and I'm excited looking forward into Q4 and 2024. Thank you.