Earnings Call
GoDaddy Inc. (GDDY)
Earnings Call Transcript - GDDY Q3 2023
Christie Masoner, VP of Investor Relations
Good afternoon, and thank you for joining us for GoDaddy's Third Quarter 2023 Earnings Call. I'm Christie Masoner, VP of Investor Relations. With me today are Aman Bhutani, Chief Executive Officer, and Mark McCaffrey, Chief Financial Officer. After our prepared remarks, we will open up the call for your questions. On today's call, we'll be referencing both GAAP and non-GAAP financial measures as well as other operating and business metrics. More information on why we use non-GAAP measures and reconciliations to their GAAP counterparts can be found in the presentation on our Investor Relations site or in today's earnings release on our Form 8-K submitted to the SEC. Growth rates discussed will be year-over-year comparisons unless stated otherwise. We will also address forward-looking statements regarding future financial results and our strategies or objectives concerning future operations. These forward-looking statements involve risks and uncertainties detailed in our periodic SEC filings. Actual results may differ significantly from those projected in forward-looking statements. Any forward-looking statements made today are based on assumptions as of November 2, 2023. Except as required by law, we are not obligated to update these statements due to new information or future events. With that, I'm pleased to introduce Aman.
Aman Bhutani, CEO
Good afternoon, and thank you for joining us today. At GoDaddy, our mission is to empower everyday entrepreneurs and make opportunity more inclusive for all. Our strategy centers on driving profitable growth, resulting in compounding free cash flow per share and long-term shareholder value. In recent years, we have proven our commitment through decisive actions and margin expansion even in slower growth conditions. Q3 was an important quarter for us. I am pleased with the results and the continued trajectory into Q4 and 2024. Third quarter normalized EBITDA margins jumped 250 basis points sequentially, primarily driven by a reduction in tech and development 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 unlocks additional savings. As shared earlier this year, we are executing these changes in a deliberate and strategic manner with a commitment to ongoing cost structure management. The work we have done and our ongoing initiatives position us for sustained margin expansion in future quarters and years to come. Q4 will also benefit from margin improvement primarily from a reduction in tech and development 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 third quarter marked the turning point of our tech and development 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 a 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 profit and loss statement. In care, leverage will be driven by consumer behavior, enhanced automation, and the incorporation of generative AI. Within tech and development, as already mentioned, we are actively pursuing opportunities for leverage with multiple initiatives. Furthermore, we remain committed to our disciplined approach in marketing and general administrative expenses. These strategies collectively chart a course for our continued margin expansion through 2025 and 2026, and we look forward to providing additional insights at our Investor Day early next year. As always, I want to take a few minutes and talk about our highest priority initiatives. We have added productivity explicitly to our priorities and changed the order. This was driven by the fast adoption of generative AI and new capabilities in bundling with domains and productivity, opening up new exciting opportunities. Elevating to our first priority, we have evolved innovation in domains to innovation in domains and productivity. We have enhanced the bundling capabilities for our productivity solutions, which is already contributing to the faster growth in our applications and commerce segment, and we are taking it further. As you know, the integration of machine learning and the 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 Airo to you at our Investor Day later this month. As I had shared last quarter, this innovative experience empowers customers to access the full suite of GoDaddy products and additional partner products seamlessly just by acquiring a domain. In this experience, domain purchasers received an automatically generated basic website using generative AI and an automatically generated logo, ready-to-use social posts, a personalized email address, and more, all delivered in an automated, low-friction manner. All of this is in service to making a significant improvement in the number of customers that have more than two products with us. As you are aware, customers with two or more products retain at much higher rates and have much higher lifetime value all the way to adverse experiences for customers enabled. 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 at the highest performing websites. This quarter, we have taken strides towards our vision in empowering our customers with even broader capabilities to help them grow their businesses with confidence. Our conversations feature has elevated the way our customers connect with their own customers, making it simpler and more effective than ever before. We are proud to announce that we are the first to integrate Google's business messages in the U.S. 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 website 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 Worldpay has launched, and these customers are already transacting using our hardware and software. Customers in our base continue to convert to GoDaddy Payments at an impressive rate and attaching to our base was, again, the strongest component of our year-over-year GPV growth, which remains on pace to more than double our last year's exit rate. On delivering for pros, we mentioned last quarter that improvements in our Managed WordPress solution have reached an important milestone, driving improvement in retention rates as customers begin to recognize an enhanced solution. We now offer one of the industry's fastest, most secure, and easiest-to-use Managed WordPress platforms. In a recent third-party performance benchmarking study, sites hosted on GoDaddy's WordPress loaded an impressive two times faster, which results in improved search engine rankings for our customers. Now one quarter later, we are proud to share that these efforts drove impressive double-digit growth in Managed WordPress bookings, which is included in our applications and commerce segment. Additionally, these features are now enhanced with generative AI features to help deliver simplified experiences that expand on the enhancements we have made around performance and security, giving GoDaddy a clear value-based advantage. In just minutes, our customers can now create beautiful, secure, and high-performing WordPress sites. In closing, we are committed to driving a strong combination of revenue growth plus profitability. As Mark will detail, based on the margin expansion efforts in 2022 and 2023, and our confidence in our ability for continued margin expansion in 2024, we see the path to further enhance profitability in 2025 and 2026, above the 31% normalized EBITDA margins that we have laid out today. Our hallways radiate with the energy of tenure and new talent, and we have retrofitted many platforms and products at the company with new and exciting technologies. I am confident that our work has materially improved the fundamentals of the company, and the entire management team is determined to drive shareholder value. With that, here's Mark.
Mark McCaffrey, CFO
Thanks, Aman. The product enhancements over the last few years have put GoDaddy at the forefront of one of our most exciting eras yet. And we are poised to deliver a complete integrated software solution to our customers spanning every facet of their needs. We have seen the positive traction from these efforts in terms of faster product attach, stable retention rates, as well as the strong sustained double-digit growth of our applications and commerce revenue, which has also contributed to us expanding our normalized EBITDA margin ahead of schedule. Moving to our financial results for the quarter. Applications and commerce grew 11% to $363 million, delivering at the high end of our guided range. Additionally, we delivered an expanded segment EBITDA margin of 42% from 41% last quarter. The related ARR for applications and commerce grew 11% to more than $1.4 billion. Create and grow ARR grew 9% to $478 million as bookings trended ahead of revenue growth. Like last quarter, GPV continues to grow at an impressive rate as our customers within our 21 million base convert to GoDaddy Payments. Core platform revenue totaled $706 million, flat year-over-year, and in line with our guide. The segment's EBITDA margin accelerated to 30% from 27% last quarter. ARR for our core platform segment was $2.3 billion, flat year-over-year. Core platform revenue was supported by 4% growth in domains on stronger customer additions from higher demand and price increases. Additionally, domains bookings growth accelerated to 8%, showing a strong recovery for future revenue growth. This was partially offset by the aftermarket, down slightly 2% to $107 million as it begins to reverse prior quarter trends, and the 150 basis points of headwind from the migration and divestitures of certain assets previously mentioned. Total revenue grew to $1.07 billion, up 4% on a reported and constant currency basis and above the midpoint of our guide. Within total revenue, international revenue grew to $346 million, up 4% on a reported basis and 5% on a constant currency basis. ARPU grew 2% to $200 on a trailing 12-month basis, and we added 100,000 net new high-quality customers despite the headwinds from our migration efforts. We are happy to share that the number of customers with two or more products now sits above 50%, and retention rates for the GoDaddy products remained at approximately 85%. Bookings totaled $1.1 billion, growing 5% on a reported basis and 4% on a constant currency basis. Excluding the impact of aftermarket, the drivers of growth in bookings were strong customer additions and price increases in domains, as well as strong attachment applications in commerce. We expect these factors to contribute to accelerated revenue and normalized EBITDA growth next year. Normalized EBITDA grew 13% to $296 million while delivering an expanded margin of 28%. These margin gains were driven in part by the two points of leverage achieved this quarter from a reduction in normalized tech and development spend, decreasing 140 basis points sequentially as a percent of revenue. With that, we want to shed some further light on the components of tech and development 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, unifying, and securing our technology platform, delivering a seamless experience for our 21 million customers. In addition, these investments facilitate a better cash profile by reducing data center-related capital expenditures, which improves our overall free cash flow and free cash flow per share. We also benefit from technologies we build in-house that are driving efficiencies in care and marketing spend. As a percentage of revenue, product innovation represents 7% to 8%, and infrastructure to run a secured company of our size represents 8% to 9%. Overall, during the third quarter, we reduced our tech and development 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 reduced tech and development spending to meaningfully contribute to our EBITDA margin trajectory going forward without sacrificing GoDaddy's ability to innovate and compete. Moving on to our cash generation. Unlevered free cash flow for the quarter grew 8% to $320 million, and 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 remain at the midpoint of our targeted leverage range of 2x to 4x. Free cash flow per share rose to $6.82 on a trailing 12-month basis versus the prior year's cash flow per share of $5.96, a 14% increase driven by improved operating leverage and share repurchases. Through October 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 authorization to $2.6 billion and 34.2 million shares, achieving a 20% reduction in 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 billion to $1.115 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. In core platform segment, we expect revenue to deliver in the range of 2% to 3% growth in the fourth quarter. 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. As a reminder, from 2022, we delivered approximately three points of normalized EBITDA margin expansion. As evidenced by the incremental restructuring charge recognized this quarter, we remain committed to seeking out additional opportunities to drive efficiency throughout our operating model to achieve higher margins. We also remain on track to deliver our unlevered free cash flow, free cash flow, and free cash flow per share target of $1.2 billion plus, $1 billion plus, and $7.25 plus, respectively. In addition to our typical fourth quarter guidance, given the degree of focus on our ability to deliver margin expansion as we reaccelerate growth, we think it is important to update investors on our margin expectations for 2024. In 2024, we expect our tech and development expenses to fall in absolute dollars and as a percentage of revenue year-over-year. We also expect to continue to drive improvements through the next year, resulting in a normalized EBITDA margin in Q4 of 2024 of approximately 31%. Based on our confidence in GoDaddy's ability to accelerate the pace of margin expansion in 2024, we also plan to enhance profitability further in 2025 and 2026 as we continue the path above 31% normalized EBITDA margins that we have laid out today. We will provide more detail about our expectations for this at 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 realize that we are still in a dynamic macro environment, and we want to be responsive to the feedback from investors. I want to be clear that as we've been doing for the last several years, we are committed to actively managing the business with the goal of delivering a strong combination of revenue growth plus profitability. We take a dynamic approach to managing the business, and we will be proactive in driving margin expansion over time and compounding free cash flow per share. Please note that we plan to provide complete 2024 financial guidance when we report our fourth quarter results in keeping with our normal practice. We believe enhancing profitability and durable top-line growth will drive even stronger free cash flow generation. We will continue to deploy cash in line with our capital allocation framework, creating significant value for our shareholders. We are excited about our path ahead, and we are acting with urgency to drive results every day.
Christie Masoner, VP of Investor Relations
Thanks, Mark. Our first question comes from Vikram Kesavabhotla from Baird. Vikram, please go ahead.
Vikram Kesavabhotla, Analyst
Can you hear me okay?
Christie Masoner, VP of Investor Relations
We can.
Aman Bhutani, CEO
Hey, Vikram.
Vikram Kesavabhotla, Analyst
Thanks for taking the questions. My first one is on the guidance. I think you previously talked about exiting the year at a 7% revenue growth rate. It looks like the fourth quarter guidance here points to about 6% at the midpoint. And I think you also lowered the top end of the full year revenue range by a little bit. And so curious if you can just talk about some of the factors that are driving those adjustments? And then as a follow-up to that, I think you previously talked about an accelerating growth rate into fiscal '24. I'm curious just given all the updates here. Is that still your expectation? And I know you don't want to formally guide to '24 at this point, but maybe if you can talk about some of the puts and takes we should be taking into consideration. And I'll leave it there.
Mark McCaffrey, CFO
Yes. Thanks, Vikram. I'll start with, as we've done in prior quarters, we use a range, and that range takes into account the unpredictability of our aftermarket business. And we try to 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. When we're talking about the difference between these numbers, we are talking about a few million dollars either direction. And overall, on 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 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 the domains, 8% bookings growth versus 4% revenue coming out of the quarter and going into Q4. You look at the pricing actions, we take the overall growth of applications and commerce just as a bigger part of the picture. It really shows a lot of that momentum going forward. We have a lot of confidence in that, I would say, momentum going into 2024 and our ability to grow upon that. But we're feeling good about where we're headed.
Vikram Kesavabhotla, Analyst
Okay, thank you.
Christie Masoner, VP of Investor Relations
Our next question comes from the line of Trevor Young from Barclays. Trevor, please go ahead.
Trevor Young, Analyst
Great. Thanks. First, Mark, can you explain the 8% growth in domains, specifically how much of that is due to price changes versus actual growth in the domain market? And Aman, you talked about gaining leverage in care over time due to shifts in consumer behavior. Can you clarify what you meant by that? Additionally, in terms of automation, do you see potential for further reducing headcount, whether that's in-house or with your contractor partners in care?
Mark McCaffrey, CFO
All right. Thanks, Robert. 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 domain. Now the strong demand also has a compounding effect because we're seeing them attached to that second product faster than we ever did, and that is showing up in our growth in bookings and applications and commerce right now. So I'd say it's a combination of all those working in the same direction, giving that momentum and giving us that confidence going into 2024.
Aman Bhutani, CEO
And on care, Trevor, over the last couple of years, we've done a good job of leveraging our care line item as revenue has grown. We've kept care pretty flat to down. When we look forward, I continue to see opportunities for automation, and the consumer behavior piece that's really important is that more and more consumers want to engage with care using chat or messaging. And that just is a lower-cost interaction for us versus voice calls. We've also optimized how we connect with customers around the world, and that is continuing to be a tailwind for us because in our case, 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.
Trevor Young, Analyst
Great. Thank you both.
Christie Masoner, VP of Investor Relations
Our next question comes from the line of Mark Mahaney from Evercore ISI. Mark, please go ahead.
Unidentified Analyst, Analyst
Hi there. This is Jian for Mark. Thanks for taking the question. I have a couple of inquiries. First, regarding the margin guidance for 2024, you mentioned increased leverage from technology and development. Can you clarify where that additional leverage is coming from and what expenses you are cutting? Also, how should we view a steady-state level for technology and development? My second question relates to the acceleration in revenue for 2024. Could you discuss the factors influencing that? How much of the expected growth is due to easier comparisons versus your confidence in organic growth?
Mark McCaffrey, CFO
Thanks, Jian, it's great to talk with you. Regarding the normalized EBITDA considerations, we began discussing this in the first half of the year, focusing on integrating our core GoDaddy platforms into a unified technology stack. We implemented some restructuring measures and mentioned that the benefits from these would start to materialize in the second half of the year. We started to see some acceleration in Q3 as we met our timelines and milestones for moving workloads to the cloud, which indicates that this momentum will carry through the year and help us achieve greater efficiencies within our tech and development areas. Additionally, as commerce application continues to expand rapidly, it offers us further leverage for our normalized EBITDA margin. We will provide more detailed insights into the specifics and projections for what we consider normalized as we approach next year and discuss in greater depth about 2024. This framework outlines how we expect to attain leverage in our normalized EBITDA margin moving forward.
Aman Bhutani, CEO
The second part of the question was about growth in 2024. There are some comparisons to consider, but the main point we're emphasizing today is the growth in applications and commerce. Our investors are particularly interested in our growth trajectory in this area. We shared a few key statistics today, including the 12% bookings growth in Application & Commerce for Q3, and we also provided an October data point showing growth in the mid-teens. All components of applications and commerce are experiencing strong growth rates, which is driving us into the teens. We anticipate this trend will continue into next year as well.
Christie Masoner, VP of Investor Relations
Our next question comes from the line of Matt Pfau from William Blair. Matt, please go ahead.
Matthew Pfau, Analyst
Hey, great. Thanks. Just wanted to follow-up on the acceleration that you're seeing in your applications and commerce bookings. Maybe just some more details on what exactly is driving that because there are other businesses that serve SMBs that are seeing pressure with SMB spending, but it seems like you're seeing improvements. So trying to figure out what the disconnect is there? Thanks.
Aman Bhutani, CEO
Yes. So when we look at our customers and we survey our customers sort of every six months or so, what we noticed is that they're a resilient group. And even though they may have sort of greater negativity about the overall economy, they are much more positive about their business and bringing everything to the table. And the way they look at our products, whether it's domains or websites or the productivity solutions, specifically email, as sort of low-cost offerings that create a lot of value for them. So there's a lot of consumer surplus for them in the offerings that we bring to them. And the thing that's driving our sort of faster growth in applications is commerce. Number one, as I talked about in my prepared remarks, we've unlocked some new bundling capabilities for both domains and productivity, and that's creating some new bundles, which are being accepted really well by customers. So we're super excited about that. And then in the presence bucket, I talked a little bit about our investments in Managed WordPress over the last couple of years, and that product has really come a long way and is now competitive with the best in the world. And we're seeing fast bookings growth on that double-digit bookings growth. And once we have the bookings in that, we know it's going to transition to revenue, and that's going to help accelerate Q4 and 2024 as well. And the third piece of application and commerce is commerce. And as Mark noted and I noted, GPV is still on track to double year-over-year. Our customers in our base are adopting that, and commerce continues to grow quite well. So you've got kind of all three parts of the segment really firing, and that's leading to the accelerating growth.
Mark McCaffrey, CFO
And I'll just add, the strong demand we're seeing really has been at a higher level than we've seen and consistent level. We've talked about it in prior quarters. We're continuing to see that same demand. And the customers are coming in with higher intent. So they're getting to that second product to get into their third product a lot quicker. So from a micro business perspective, we're seeing a lot of demand and attachment that is really pushing our model that we've talked about in the past.
Matthew Pfau, Analyst
Great, thank you. Appreciate for taking my questions.
Mark McCaffrey, CFO
No problem, thanks Matt.
Christie Masoner, VP of Investor Relations
Our next question is from the line of Chris Kuntarich from UBS. Chris, please go ahead.
Christopher Kuntarich, Analyst
Hi, thanks for taking my questions. Maybe two, if I can. Just going back to that comment on 50% of customers now have two-plus products. I guess how should we be thinking about that versus last year and maybe versus kind of pre-COVID and really kind of how we should be thinking about where that goes in '24 and '25. Should we be thinking about more like that number jumping to 75%? Or is it more the idea that 50% of customers are going to three products? Just curious on kind of how that attach scales over time.
Mark McCaffrey, CFO
Yes. And thanks, Chris. Good question, right? We've never talked about that in the past. So it's the first time we're bringing that number out, and I don't want to go back because again, 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 drive our margins to a higher place. It really gets into strengthening our retention rates. It really gets into driving our ARPU. So there's a lot of metrics that are driven off that second attach, and even more, they get driven off those third attached. 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, right? So it's really all about driving an LTV. We'll continue to provide guidance on that as we go forward as to how we're tracking towards them in a general basis, but it comes back to the what we're seeing now is not only strong demand but strong attach and more intent to do something with the domain name to the second product than we've seen before. And I know, Aman, you're excited about some of the bundling capabilities here, too.
Aman Bhutani, CEO
Yes, a couple of things I'd love to mention quickly is the first the bundling capabilities I talked about today. They're really going to help move the two-plus products number. And I think we've shared this number with you, and I think you're going to see it grow nicely. But the second thing, that's not the only thing we have in play. One of the great opportunities for GoDaddy is that we have a lot of customers coming through the domains funnel. And a lot of them aren't fully aware of the full suite of products that GoDaddy has. And that's where we're launching GoDaddy Airo, which is when a customer buys a domain name, they get a basic website created for them using gen AI and automation. They get a set of social posts that they can use right away. They get an AI-generated logo that they can use right away and actually a few other things that just come to them with the domain name. And one of the things we're most excited about launching this capability is that it will expose our domain customers to the full suite of offerings that we have for them, and it will really propel two-plus products, which then leads to the numbers Mark is talking about, the higher LTV that comes with it. And that's obviously a path that we're pressing on pretty hard.
Christopher Kuntarich, Analyst
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 too for the last two quarters. Just curious what that GMV number was and just kind of how you guys are seeing strength of overall consumer and SMB.
Aman Bhutani, CEO
Yes. The GMV number continues to grow and is about 36 billion right now. So I think it will be in our 10-K. It should be there.
Christie Masoner, VP of Investor Relations
Our next question comes from the line of Brent Thill from Jefferies. Brent, please go ahead.
Unidentified Analyst, Analyst
This is John for Brent Thill. Thanks. Just wanted to go back at a higher level in terms of macro. Obviously, someone else has asked as well in terms of the small business and consumer health. But just wanted to see what you're seeing there. I don't know if there's any notable trend throughout the quarter by month and what you're seeing so far this quarter? And then second, in the ARR growth numbers that you mentioned, create and grow was 9% I'm wondering. Does that mean productivity or commerce maybe is growing noticeably faster? Just want to see what those components are? Thank you.
Aman Bhutani, CEO
Yes, John, I will address the first part, and Mark can handle the second. From our surveys regarding micro businesses, I can provide two data points, one for the U.S. and one for the U.K., to illustrate the differences in various regions. Overall, while these businesses are somewhat optimistic about their growth this year, it is slightly stable. They need to maintain this optimism as part of their daily efforts. However, when we assess their feelings about the wider economy year-over-year, we see a decline. In summary, U.S. micro business owners are generally positive about the economy overall, but they are even more positive about their own operations. In contrast, the U.K. shows a lower level of positivity; although they remain hopeful about their businesses, their perception of the economy has deteriorated more significantly. Thus, while there are consistent trends across markets, U.S. micro business owners appear to be more optimistic about their situations compared to those in the U.K. I hope this provides some useful insights, John, and I will pass it over to Mark.
Mark McCaffrey, CFO
Yes, 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 a, I would say, a lead to say, yes, it is growing at a good pace on an ARR basis and adding to our subscription.
Christie Masoner, VP of Investor Relations
Our next question comes from the line of Naved Khan from B. Riley. Naved, please go ahead.
Naved Khan, Analyst
Hi, thanks. Can you hear me okay?
Aman Bhutani, CEO
Yes, hi Naved.
Naved Khan, Analyst
So just on your last answer, Mark, on the sort of the 9% growth in create and grow. I'm wondering how fast website plus marketing is growing in terms of ARR. 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?
Mark McCaffrey, CFO
We don't break it down by product specifically, but I will add color to say we're seeing strength across the board in not only create and grow but applications and commerce. So I would say we're really happy with the attach, the momentum in the market. The A&C bookings are really outpacing revenue at this point. So I would say strength across the board.
Aman Bhutani, CEO
Yes. And on payable domain, we continued to perform and contribute to the GPV growth that we're seeing, but in line sort of with what we've seen in the past. Q3 overall was a stronger quarter for GPV. And as we look forward to Q4, we're excited to see what's to come.
Naved Khan, Analyst
Thank you guys.
Aman Bhutani, CEO
Thank you, Naved.
Christie Masoner, VP of Investor Relations
Our next question comes from the line of Ella Smith from JPMorgan. Ella, please go ahead.
Ella Smith, Analyst
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?
Mark McCaffrey, CFO
We're seeing about 150 basis points of 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. 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. 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 moving into next year related to that part of it, but we're happy with GoDaddy's core hosting strength right now being stable and primarily close to flat.
Ella Smith, Analyst
Got it. Makes sense. And for my follow-up, I think Aman just said that GMV was 38 billion in the quarter. What about GPV? And I was hoping you can remind us around your strategy to refer customers to GoDaddy Payments.
Aman Bhutani, CEO
Yes, I mentioned 36 billion. GPV is on track to double year-over-year, similar to last quarter, and there is no change in the trajectory. It was a strong quarter for GPV, and we are looking forward to Q4. Regarding GoDaddy Payments, we are experiencing high attachment rates with new customers from websites and marketing, and our attachment to the base continues to grow. The primary driver of GPV growth remains the conversion of existing GoDaddy customers to the GoDaddy omni-commerce solution.
Ella Smith, Analyst
Great. Thank you so much.
Aman Bhutani, CEO
Thanks, Ella.
Mark McCaffrey, CFO
Thanks, Ella.
Christie Masoner, VP of Investor Relations
Our next question comes from the line of Ygal Arounian from Citi. Ygal, please go ahead.
Ygal Arounian, Analyst
Good afternoon, everyone. My first question is about the activist investor who has become more vocal about their opinions. Can you share your thoughts or comments regarding their involvement? Secondly, you mentioned that there is strength in domains, including pricing. Are you planning to increase the annual price for domain registrations? Given the strength you're witnessing in domains, especially in comparison to the stagnant growth of dot-com and dot-net, what trends are you observing? Are there specific growth areas in different TLDs, particularly those in your registry business? I'd appreciate any insights you can provide on the current state of the domain market.
Aman Bhutani, CEO
Thanks, Ygal. We communicate regularly with our investors, and we've learned that they are seeking more insights from us in a couple of key areas. They want to know our strategy for enhancing margin expansion and our approach to accelerating growth in A&C. In our prepared comments today, we provided more details on these topics. Our team is dedicated to the results we deliver, and all our forward-looking statements reflect our efforts to create value for shareholders. Overall, we are actively engaging with our investors, listening to their concerns, and providing information based on their inquiries. Now, regarding the domain side, I will pass it to Mark, but just to remind you quickly, while we do not break out details on dot-com, dot-net, or any specific TLD, our registry business is performing strongly. It has continued to show excellent performance, and we offer a wide range of over 400 TLDs. Our business base is quite distinct, and our international reach significantly differs from many other competitors. Now, I'll let Mark share his thoughts.
Mark McCaffrey, CFO
I believe that summarizes much of it, Aman. We are observing strong demand. We implemented price adjustments, which undoubtedly contribute to the overall 8% growth in bookings that we've experienced in our domains this quarter. There is significant strength in that area. Unlike some competitors, we offer a broader range of services, and we are seeing robustness in certain top-level domains. Additionally, while others have noted weaknesses in specific geographic regions, we are not as affected by those areas.
Christie Masoner, VP of Investor Relations
Great, thanks. Our next question comes from the line of Ken Wong from Oppenheimer. Ken, please go ahead.
Ken Wong, Analyst
Hi, can you guys hear me?
Christie Masoner, VP of Investor Relations
We can.
Mark McCaffrey, CFO
We can.
Ken Wong, Analyst
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 the quarter? And how we're thinking about that trend in Q4?
Mark McCaffrey, CFO
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 million-plus business, and we're seeing it grow at a lesser rate than we've seen before. Now Q3 was still a relatively tough compare to last year for us in that. So we've seen 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 get broadly easier. 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.
Ken Wong, Analyst
Got it. And then maybe just a quick follow-up on spend management. I think it's definitely a positive development and there's some focus there. What areas are you considering potentially scaling back on from R&D? Are there any concerns that this might hurt product innovation?
Aman Bhutani, CEO
Thank you for the question. Our technology and development spending is divided between platform investments and product innovation. On the platform side, we have allocated funds towards initiatives like cybersecurity and core data platform improvements, which have benefited all our products. As we integrate more platforms and brands, we’ve noticed that some costs initially rise and then decrease, allowing us to achieve leverage on the platform side, which is encouraging. Regarding product innovation, our strategy focuses on a few key areas where we drive improvements. As those areas develop, we adjust our investment into other sectors. For instance, we've invested in Managed WordPress over the past couple of years, and I’m pleased to report that it is now experiencing significant growth. However, this means that the team and investment level required for that product have stabilized, so we don't need to keep increasing our spending. I hope this provides insight into how we leverage our investments on both the platform and core product sides while promoting growth without always needing to add more resources.
Ken Wong, Analyst
Got it. Appreciate the insights. Thank you very much.
Christie Masoner, VP of Investor Relations
Our next question comes from the line of Deepak Mathivanan from Wolfe. Deepak, please go ahead.
Deepak Mathivanan, Analyst
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 do you generally think kind of the long-term growth outlook for these businesses? And then sort of I wanted to follow-up on the answer for the question below. How much is the margin expansion targets for potentially '24 and then '25 and '26 and beyond? Sort of dependent on the top line growth. Are there any specific ranges that you can kind of give us to expect on the top line side to achieve these margin targets? Thanks so much.
Mark McCaffrey, CFO
Yes. Thanks, Deepak. 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 will be a little bit of time before the comparables around them start to normalize. They will take to the second half of next year. So it will create a little bit of a headwind going into the year for us. We do have some of those activities still happening in the second half of the year. So it will continue to be something we will point out, call out, and talk about the impact. That's why we called out the 150 basis-point headwinds related to that going forward. From a stabilization point of view, once we get through the actions that we've taken when you look at the core GoDaddy platform in and of itself, we think this is going to be a low single-digit to flat-growing business over time. It's got huge high retention rates compared to our normal business, generates a lot of cash flow. And we're seeing them convert over to other areas of the GoDaddy platform when they leave. So they're staying within the technology stack, which is great for us. But we're not looking at that as driving any significant growth in our core platform going forward. So hopefully, that's helpful. On the margin expansion, our model doesn't require double-digit growth going forward. We acknowledge we're living in a dynamic environment and the headwinds in their sales wins are continuing to present themselves. But if you look at the momentum around our A&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 of those are pointing to more efficient and our ability to drive that operating margin. That's why we're comfortable and confident about the 31% exit rate and being approximately there when we exit next year. That's why we're confident in saying we're going to grow from there going into '25 and '26 as well. So again, takeaway, not premised on double-digit growth and is looking to continue to expand as we get away from the actions we've taken. We grow A&C. 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.
Aman Bhutani, CEO
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 efficiency in the line items, and I want to repeat them again, but we did share some items there. And ultimately, it drives a better combination of growth and profitability.
Christie Masoner, VP of Investor Relations
Great. Thank you. That concludes our Q&A session. I'll turn it back over to Aman for some closing remarks.
Aman Bhutani, CEO
Thank you, Christie, and thank you for joining us. As always, just a quick mention to all the GoDaddy employees who have been working super hard and a great quarter for us. And I'm excited looking forward into Q4 and 2024. Thank you.