GoDaddy Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 2, 2023

There are 17 speakers on the call.

Operator

Good afternoon and thank you for joining us for GoDaddy's Q3 2023 earnings call. I'm Christy Meissner, 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 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.

Operator

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. Godaddy.net or in today's earnings release on our Form 8 ks 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.

Operator

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 2, 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.

Speaker 1

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.

Speaker 1

I am pleased with the results and the continued trajectory into Q4 and 2024. 3rd 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 unlocked 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.

Speaker 1

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% 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 3rd quarter Mark, 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.

Speaker 1

As we look at the next few years, we see leverage opportunities across the P and 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 G and A. These strategies collectively chart a course For our continued margin expansion through 20252026, and we look forward to providing additional insights at our Investor Day Early next year.

Speaker 1

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 change 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.

Speaker 1

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.

Speaker 1

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 2 products with us, as you are aware, customers with 2 plus products Retain at much higher rates and have much higher lifetime value, all the way to ADX 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.

Speaker 1

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 omni commerce solution.

Speaker 1

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 Have reached an important milestone driving improvement in retention rates as customers begin to recognize an enhanced solution. We now offer 1 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.

Speaker 1

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. 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 20222023 and our confidence in our ability For continued margin expansion in 2024, we see the path to further enhance profitability in 20252026, Above the 31% normalized EBITDA margins that we have laid out today.

Speaker 1

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.

Speaker 2

Thanks, Yvonne. The product enhancements over the last few years have put GoDaddy at the forefront of one of our most Citing errors 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 363,000,000 Delivering at the high end of our guided range.

Speaker 2

Additionally, we delivered an expanded segment EBITDA margin of 42% From 41% last quarter, the related ARR for applications at Commerce grew 11% to more than $1,400,000,000 Create and grow ARR grew 9% to $478,000,000 as bookings trended ahead of revenue growth. Like last quarter, GPV continues to grow at an impressive rate as our customers within our 21,000,000 base convert to GoDaddy Payments. Core platform revenue totaled $706,000,000 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 $2,300,000,000 flat year over year.

Speaker 2

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 $107,000,000 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 $1,070,000,000 up 4% on a reported and constant currency basis And above the midpoint of our guide, within total revenue, international revenue grew to $346,000,000 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 2 or more products now sits above 50% And retention rates for the GoDaddy products remained at approximately 85%.

Speaker 2

Bookings totaled $1,100,000,000 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 attach in applications and commerce. We expect these factors to contribute to accelerated revenue and normalized EBITDA growth next year. Normalized EBITDA grew 13% to $296,000,000 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.

Speaker 2

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 2 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 Our infrastructure to support our operations by maintaining, unifying and securing our technology platform, Delivering a seamless experience for our 21,000,000 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.

Speaker 2

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 Represent 8% to 9%. Overall, during the Q3, we reduced our tech and DIM 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.

Speaker 2

Moving on to our cash generation. Unlevered free cash flow for the quarter grew 8% to $320,000,000 and free cash Fluoro grew to 6 percent to $280,000,000 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 $3,600,000,000 Our net cash interest expense for the quarter increased by 28% to $40,000,000 primarily from the refinance of our Term B loan. We finished Q3 with $329,000,000 in cash, total liquidity of $1,300,000,000 And we remain at the midpoint of our targeted leverage range of 2 to 4 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.

Speaker 2

Through October 31st, we repurchased 17,300,000 shares year to date totaling $1,300,000,000 of which $118,000,000 was repurchased since the end of Q3. This brings the cumulative shares repurchased under our current authorizations to $2,600,000,000 and 34,200,000 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 $1,095,000,000 to $1,115,000,000 representing growth of 6% at the midpoint of our 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 4th quarter.

Speaker 2

Bookings growth is expected to outperform revenue growth by approximately 200 basis points in Q4. As Aman 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.

Speaker 2

As a reminder, from 2022, we delivered approximately 3 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 Free cash flow and free cash flow per share targets of $1,200,000,000 plus, dollars 1,000,000,000 plus And $7.25 plus, respectively. In addition to our typical 4th 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 in absolute dollars and as a percentage of revenue year over year.

Speaker 2

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 20252026 as we continue the path Above 31% normalized EBITDA margins that we have laid out today. We will provide more detail about Thank you for this during our Investor Day in the Q1 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.

Speaker 2

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 Q4 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.

Speaker 2

We are excited about our path ahead and we are acting with urgency to drive results every day. With that, we will have Kristi Masner from our Investor Relations team, open the call for questions.

Speaker 3

Thanks, Mark. As a reminder, if you would like to ask a question, Our first question comes from the line of Vikram Kesavapotla from Baird. Vikram, please go ahead. Hey,

Speaker 4

thanks. Can you hear me okay?

Speaker 5

Hey, Vikram. Hey, Vikram.

Speaker 4

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 Q4 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.

Speaker 4

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, And 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, 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.

Speaker 6

Yes. Thanks, Vikram. I'll start with As we have done in prior quarters, we use a range and that range takes into account the unpredictability of our aftermarket business. And we can't try to build that into our thought process as we go quarter to quarter. 7% is still part of the guided range.

Speaker 6

It allows for the upside or downside to our transactional business. When we're talking about the difference Between these numbers, we are talking about a few $1,000,000,000 either direction. And overall, on a $4,000,000,000 business, we feel good about the momentum it is driving. So hopefully that gives a little bit of help on the first 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.

Speaker 6

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

Speaker 3

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

Speaker 7

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.

Speaker 7

What did you mean by that And then as part of the automation process that you see there, do you see opportunity for to further reduce headcount either with In terms of in house headcount, are your contractor partners within CARE specifically?

Speaker 6

All right. Thanks, Trevor. And I'll start with the domains and 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 in bookings and applications and commerce right now.

Speaker 6

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. And on Care, Trevor,

Speaker 8

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.

Speaker 8

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 Basic 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.

Speaker 7

Great. Thank you both.

Speaker 3

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

Speaker 9

Hi, there. This is actually Jan for Mark. Thanks for taking the question. So a Couple of ones. First on the margin guidance again for 2024.

Speaker 9

You mentioned kind of greater leverage from tech and dev. How should we I guess my 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. And then the second question is on, I think you mentioned very quickly on accelerating revenue in 'twenty four as well.

Speaker 9

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 a ton.

Speaker 6

Great. Thanks, Jen, and good talking to you. On the normalized EBITDA puts and takes, we're coming we started talking about this in the first half 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.

Speaker 6

We saw some of that accelerate into Q3 based on 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 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.

Speaker 6

That's a high level good way to think about where we're going to continue to see that momentum and our ability to drive that leverage in our normalized EBITDA margin.

Speaker 8

And I think the second part of the question was around growth in 2024 and of course there are some comps at play here, Jen. 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 Interested in our path to growth in A and C. So we shared a couple of data points today in terms of the 12% bookings growth in application and commerce for Q3 I 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 3 core components, productivity, presence and commerce.

Speaker 8

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.

Speaker 10

Hello. Our next question comes

Speaker 3

from the line of Matt Pfau from William Blair. Matt, please go ahead.

Speaker 11

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 SME spending, but it seems like you're seeing improvements. So trying to figure out what the disconnect is there.

Speaker 11

Thanks.

Speaker 8

Yeah. So when we look at our customers and we survey our customers sort of every 6 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 Positive about their business and bringing everything to the table. And the way they look at our products, whether it's domains or websites For 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.

Speaker 8

And the thing that's driving our sort of faster growth in application is commerce. Number 1, 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 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.

Speaker 8

And 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 3rd piece of applications in commerce is commerce. And as Mark noted and I noted GPB 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.

Speaker 6

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 We've talked about it in prior quarters, we're continuing to see that same demand and the customers are coming in with Higher intent. So they're getting to that second product to getting to that third product a lot quicker. So from a micro business perspective, we're seeing a lot of demand An attachment that is really pushing our model that we've talked about in the past.

Speaker 11

Great. Thank you. Appreciate you taking my question.

Speaker 6

No problem. Thanks Matt. Thanks.

Speaker 3

Our next question is from the line of Chris Kuntarek from UBS. Chris, please go ahead.

Speaker 6

Hey, Chris.

Speaker 5

Hi. Thanks for taking my question. Maybe 2 if I can. Just going back to that comment on 50% of customers now have 2 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 2024 and 2025.

Speaker 5

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 3 products? Just curious on kind of how that attach

Speaker 6

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.

Speaker 6

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 2nd attach and even more that get driven off those 3rd attach.

Speaker 6

I always say, 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, Great. 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.

Speaker 6

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 Yeah,

Speaker 8

a couple of things I'd love to mention quickly is the FERC is the bundling capabilities I talked about today. They're really going to help move The 2 plus products number and I think we've shared this number with you and I think you're going to see it grow nicely. But the second thing, I know that's not the only thing we have 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 Aero, which is when a customer buys a domain name, they get a basic I created for them using Gen AI and Automation. They get a set of social posts that they can use right away.

Speaker 8

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 All of our domain customers, the full suite of offering that we have for them and it will really propel 2 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.

Speaker 5

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.

Speaker 5

Just curious what that GMV number was and just kind of how you guys are seeing strength of overall Consumer and SMB. Next.

Speaker 8

Yeah. The GMV number continues to grow and is about 36,000,000,000 Right now, so I think it will be in our 10 ks. It should be there.

Speaker 5

Okay, got it. Thank you.

Speaker 6

Yep.

Speaker 3

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

Speaker 12

Hi, this is John Bien for Brentsdale. Thanks. Just wanted to go back at the higher level in terms of macro. Obviously, someone else asked as well in terms of the small business and the consumer health, but just wanting 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've seen so far this quarter.

Speaker 12

And then second, in the ARR growth numbers that you mentioned, the creative growth was 9% versus Axiom Commerce overall 11% wondering. Does that mean productivity or commerce maybe is growing noticeably faster? Just want to see what those components are. Thank you.

Speaker 8

Yeah, John, let me take the first part, Mark can take the second. Based on our surveys, What we see for the micro businesses, and I can give you 2 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 feel optimistic they have to show up every day and make it happen.

Speaker 8

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.

Speaker 8

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 Hopefully, that gives you a bit of color, John, and is helpful. And I'll turn it to Mark.

Speaker 6

Yes. And thanks. And 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 I would say, I'll leave to say, yes, it is growing at a good pace on an ARR basis and adding to our subscription strength. Don Caller.

Speaker 12

Thank you.

Speaker 3

Our next question comes from the line of Naved Khan from B. Riley. Naved, please go ahead.

Speaker 13

Yeah. Hi. Thanks. Can you hear me okay?

Speaker 3

Yep.

Speaker 6

Yeah. And, Abid.

Speaker 3

Hey, guys.

Speaker 13

So, just on your last answer, Mark, on The sort of the 9% growth in creating growth. I'm wondering how fast website plus marketing is growing In terms of where are any color or 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?

Speaker 6

Naved, we don't break it down by product Specifically, but I will add color to say we are seeing strength across the board in not only Create and Grow but applications in Commerce. So I would say we're really happy with the attached, the momentum in the market. The A and C bookings are really outpacing revenue at this point. So I would say strength across the board.

Speaker 8

Yeah. And on payable domains, 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

Speaker 3

Our next question comes from the line of Ella Smith on for Alexey Gogola from JPMorgan. Ella, please go ahead.

Speaker 10

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 quarter?

Speaker 6

We're seeing about 150 basis points Headwind related to the hosting business and the divestitures and the migration. Aftermarket is also included in the core platform number just to keep in mind. Well, while 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 GoDaddy hosting platform stable, right? We're seeing high retention rates.

Speaker 6

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, divestitures, the compares around it. We'll have some headwinds leading into next year related That part of it, but we're happy with GoDaddy's core hosting strength right now being stable and primarily close to flat.

Speaker 10

Got it. Makes sense. Thank you. And for my follow-up, I think Aman just said that GMV was $38,000,000,000 in the quarter. What about GPB?

Speaker 10

And I was hoping you can remind us around your strategy to convert customers to GoDaddy Payments.

Speaker 8

Yeah. I had said 36,000,000,000 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, new let me handle both.

Speaker 8

New customers coming in, for example, the websites Marketing is still attaching GoDaddy payments at very, very high rates and us attaching to the base has continued to grow. And GoDaddy, the biggest contributor to the GPV growth continues to be us converting existing GoDaddy customers

Speaker 3

Our next question comes from the line of Yigal Arounian from Citi. Yigal, please go ahead.

Speaker 14

Hey, good afternoon, guys. So first question, just, so you've had an activist semester, hopefully, it's a Fair question. Active this semester, 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?

Speaker 14

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 dotcomand.netgrowth, which has been challenged And kind of flat, what are you seeing? What are the differences? Is that 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.

Speaker 14

Thanks.

Speaker 8

Thanks, Yigal. 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 A and C. And what you saw in our prepared comments today That we shared more details on both of those areas.

Speaker 8

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 our broader view is that we listen 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're asking us for. And then on the domain side, I'll turn it to Mark, but just to quickly remind you, although we don't break out dotcom, dotnet or any specific TLD, Our registry business continues to do well. It's continued to sort of perform at great rates.

Speaker 8

And we do offer, As you know, a very large number of TLDs, well 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 it to Mark to see what

Speaker 6

he would add. 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 we took pricing action, no doubt that's contributing to the overall 8% bookings growth that we're seeing And domains coming out of the quarter. So a lot of strength there. We're a little different than some of the other players.

Speaker 6

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 their weaknesses in certain areas that we're just not as exposed to.

Speaker 8

Great.

Speaker 14

Thanks.

Speaker 10

Our next question comes from

Speaker 3

the line of Ken Wong from Oppenheimer. Ken, please go ahead. Hi, can you guys hear me? We can.

Speaker 6

We can.

Speaker 15

Great. Thanks for taking my question. 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 Quarter and how we're thinking about that trend in Q4?

Speaker 6

Yes. So we tried to add A little more color around the aftermarket and our stated comments this time. We continue to be the global leader in the aftermarket and it's Driving part of a healthy domain business overall. It's a $400,000,000 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.

Speaker 6

So we've seen 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 from a volume perspective overall, we're still seeing a healthy $400,000,000 plus business on an annual basis. We continue to see the momentum.

Speaker 6

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.

Speaker 15

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's the what areas are you looking to potentially peel back on from R and D? Any Concerns that that might potentially hurt product innovation?

Speaker 8

Yeah. Thanks for that question. When we look at our tech and dev spend, 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.

Speaker 8

And what we found there is, 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 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 our spend into other areas or our investment, I should say, into our other areas and improving them.

Speaker 8

And we're very careful about How we move those investments, you know, as an example, we invested and I talked about the investment in Managed WordPress over a couple of years. 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 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.

Speaker 15

Got it. I appreciate the insights. Thank you very much.

Speaker 3

Our next question comes from the line of Deepak Mathivanan from Wolfe. Deepak, please go ahead.

Speaker 16

Hey guys, thanks for taking the questions. Just wanted to ask about the headwinds from the hosting business, from all the divestitures and some of the other moving pieces. When should we expect some of this to normalize and what did you generally think, you know, kind of the long term growth outlook for this businesses? And then sort of wanted to follow-up on the answer for the question below. How much is the margin expansion targets For potentially 2024 and then 2025 and 26 beyond, sort of dependent on the top line growth.

Speaker 16

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.

Speaker 6

Yes. 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.

Speaker 6

They will take to the second half of Next year, so it will create a little bit of a headwind going into the year for us. We do have some of those activities 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 Going forward. From a stabilization point of view, once we get through the actions that we're taking, And you will get the core GoDaddy platform in and of itself. We think this is going to be a low single digit Flat growing business over time.

Speaker 6

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.

Speaker 6

On the margin expansion, our model doesn't require double digit growth going forward. We acknowledge we're living in a dynamic And, you know, hey, there's headwinds and there's sales wins that are continuing to present themselves. But if you look at the momentum around our A and C 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 Great and being in approximately there when we exit next year.

Speaker 6

That's why we're confident in saying we're going to grow from there going into 2025 and 2026 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 AMC, 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.

Speaker 8

Yes. And just 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 won't repeat them again, but we did share some items there and ultimately it drives a better combination of growth and profitability.

Speaker 3

Great. Thank you. That concludes our Q and A session. I'll turn it back over to Aman for some closing remarks.

Speaker 8

Thank you, Christi, 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 and 2024. Thank you.

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Earnings Conference Call
GoDaddy Q3 2023
00:00 / 00:00