GoDaddy, Inc. (NYSE:GDDY) Q3 2023 Earnings Conference Call November 3, 2023 5:00 PM ET

Company Participants

Christie Masoner - Vice President, Investor Relations

Aman Bhutani - Chief Executive Officer

Mark McCaffrey - Chief Financial Officer

Conference Call Participants

Vikram Kesavabhotla - Baird

Trevor Young - Barclays

Matthew Pfau - William Blair

Christopher Kuntarich - UBS

Naved Khan - B. Riley

Ella Smith - JPMorgan

Ygal Arounian - Citi

Ken Wong - Oppenheimer

Deepak Mathivanan - Wolfe

Christie Masoner

Good afternoon, and thank you for joining us for GoDaddy's Third Quarter 2023 Earnings Call. I'm Christie Masoner, VP of Investor Relations. And with me today are Aman Bhutani, Chief Executive Officer; and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. [Operator Instructions].

On today's call, we'll be referencing both GAAP and non-GAAP financial measures and other operating and business metrics. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our Investor Relations site at investors.goddady.net or in today's earnings release on our Form 8-K furnished at the SEC. Growth rates presented represent year-over-year comparisons, unless otherwise noted.

The matters we'll be discussing today include forward-looking statements such as those related to future financial results and our strategies or objectives with respect to future operations. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our periodic SEC filings. Actual results may differ materially from those contained in forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, November 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.

Aman Bhutani

Good afternoon, and thank you for joining us today. At GoDaddy, our mission is to empower everyday entrepreneurs and make opportunity more inclusive for all. Our strategy centers on driving profitable growth, resulting in compounding free cash flow per share and long-term shareholder value. In recent years, we have proven our commitment through decisive actions and margin expansion even in slower growth conditions.

Q3 was an important quarter for us. I am pleased with the results and the continued trajectory into Q4 and 2024. Third quarter normalized EBITDA margins jumped 250 basis points sequentially, primarily driven by a reduction in tech and dev spend, some of which was expected and some realized a quarter early. While margin improvement is increasingly evident in our financial performance, this stems from our earlier restructuring, brand integration and diligent efforts for over a year to drive cloud adoption, which unlock additional savings.

As shared earlier this year, we are executing these changes in a deliberate and strategic manner with a commitment to ongoing cost structure management. The work we have done and our ongoing initiatives position us for sustained margin expansion in future quarters and years to come. Q4 will also benefit from margin improvement primarily from a reduction in tech and dev spend.

Additionally, we are eager to see our high-margin segment applications and commerce grow faster since in time, that becomes an additional tailwind to our overall margin. Applications and commerce bookings grew 12% in Q3, and we are encouraged by that momentum. October has continued that trajectory with mid-teens bookings growth in applications and commerce.

One of the key messages that I hope you take away from our results and my comments today is that the third quarter marked the turning point of our tech and dev spend as a few significant platform improvements and brand integrations start to be in the rearview mirror, and our product investments get past their peak.

As a result of these dynamics, we are well positioned to exit 2024 with normalized EBITDA margin of approximately 31%, another significant step forward for our business. As we look at the next few years, we see leverage opportunities across the P&L. In care, leverage will be driven by consumer behavior, enhanced automation and the incorporation of generative AI. Within tech and dev, as already mentioned, we are actively pursuing opportunities for leverage with multiple initiatives.

Furthermore, we remain committed to our disciplined approach in marketing and G&A. These strategies collectively chart a course for our continued margin expansion through 2025 and 2026, and we look forward to providing additional insights at our Investor Day early next year.

As always, I want to take a few minutes and talk about our highest priority initiatives. We have added productivity explicitly to our priorities and changed the order. This was driven by the fast adoption of generative AI and new capabilities in bundling with domains and productivity, opening up new exciting opportunities.

Elevating to our first priority, we have evolved innovation in domains to innovation in domains and productivity. We have enhanced the bundling capabilities for our productivity solutions which is already contributing to the faster growth in our applications and commerce segment, and we are taking it further. As you know, the integration of machine learning and use of AI is not new to GoDaddy. We have harnessed these technologies for several years, primarily in our care and marketing functions.

Building upon this foundational expertise, we quickly became a leader in the generative AI space for our industry, with customer-facing capabilities in market since April. I am excited to showcase the first iteration of GoDaddy's digital guide now named GoDaddy 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 automatically generated logo, ready-to-use social post, personalized e-mail address and more, all delivered in an automated, low-friction manner.

All of this is in service to making a significant improvement in the number of customers that have more than two products with us. As you are aware, customers with two plus products retain at much higher rates and have much higher lifetime value all the way to ADX 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 e-mail 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 2x faster, which results in improved search engine rankings for our customers. Now one quarter later, we are proud to share that these efforts drove impressive double-digit growth in Managed WordPress bookings, which is included in our applications and commerce segment.

Additionally, these features are now enhanced with generative AI features to help deliver simplified experiences that expand on the enhancements we have made around performance and security, giving GoDaddy a clear value-based advantage. In just minutes, our customers can now create beautiful, secure and high-performing WordPress sites.

In closing, we are committed to driving a strong combination of revenue growth plus profitability. As Mark will detail, based on the margin expansion efforts in 2022 and 2023 and our confidence in our ability for continued margin expansion in 2024, we see the path to further enhance profitability in 2025 and 2026, above the 31% normalized EBITDA margins that we have laid out today.

Our hallways radiate with the energy of tenure and new talent, and we have retrofitted many platforms and products at the company with new and exciting technologies. I am confident that our work has materially improved the fundamentals of the company, and the entire management team is determined to drive shareholder value.

With that, here's Mark.

Mark McCaffrey

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 aftermarket, down slightly 2% to $107 million as it begins to reverse prior quarter trends, and the 150 basis points of headwind from migration and divestitures of certain assets previously mentioned.

Total revenue grew to $1.07 billion, up 4% on a reported and constant currency basis and above the midpoint of our guide. Within total revenue, international revenue grew to $346 million, up 4% on a reported basis and 5% on a constant currency basis. ARPU grew 2% to $200 on a trailing 12-month basis, and we added 100,000 net new high-quality customers despite the headwinds from our migration efforts. We are happy to share that the number of customers with two or more products now sits above 50%, and retention rates for the GoDaddy products remained at approximately 85%.

Bookings totaled $1.1 billion, growing 5% on a reported basis and 4% on a constant currency basis. Excluding the impact of aftermarket, the drivers of growth in bookings were strong customer additions and price increases in domains as well as strong 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 dev spend, decreasing 140 basis points sequentially as a percent of revenue.

With that, we want to shed some further light on the components of tech and dev to give you an appreciation of the nature of the spend categories. There are two distinct categories of spending, one that drives product innovation and the other that supports our operations. First, we invest in driving innovation that enables our 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 customer.

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 dev and capital spending by 5% from our restructuring efforts, the migration of noncore hosting assets and reduced data center capital expenditures. And to be clear, we know there is room to do more. We believe the strength of our product portfolio today has brought us to an inflection point, and we expect reduced tech and dev spending to meaningfully contribute to our EBITDA margin trajectory going forward without sacrificing GoDaddy's ability to innovate and compete.

Moving on to our cash generation. Unlevered free cash flow for the quarter 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 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 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 dev expenses to fall in absolute dollars and as a percentage of revenue year-over-year. We also expect to continue to drive improvements through the next year, resulting in a normalized EBITDA margin in Q4 of 2024 of approximately 31%. Based on our confidence in GoDaddy's ability to accelerate the pace of margin expansion in 2024, we also plan to enhance profitability further in 2025 and 2026 as we continue the path above 31% normalized EBITDA margins that we have laid out today. We will provide more detail about our expectations for this 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 realized that we are still in a dynamic macro environment, and we want to be responsive to the feedback from investors. I want to be clear that as we've been doing for the last several years, we are committed to actively managing the business with the goal of delivering a strong combination of revenue growth plus profitability. We take a dynamic approach to managing the business, and we will be proactive in driving margin expansion over time and compounding free cash flow per share.

Please note that we plan to provide complete 2024 financial guidance when we report our fourth quarter results in keeping with our normal practice. We believe enhancing profitability and durable top line growth will drive even stronger free cash flow generation. We will continue to deploy cash in line with our capital allocation framework, creating significant value for our shareholders. We are excited about our path ahead, and we are acting with urgency to drive results every day.

With that, we will have Christie Masoner from our Investor Relations team, open the call for questions.

Question-and-Answer Session

A - Christie Masoner

Thanks, Mark. [Operator Instructions]. Our first question comes from the line of Vikram Kesavabhotla from Baird. Vikram, please go ahead.

Vikram Kesavabhotla

Can you hear me okay?

Christie Masoner

We can.

Aman Bhutani

Hey, Vikram.

Vikram Kesavabhotla

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

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 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

Okay, thank you.

Christie Masoner

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

Trevor Young

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 in care over time from changing consumer behavior. What did you mean by that specifically? And then as part of the automation process that you see there, do you see opportunity to further reduce headcount either with -- in terms of in-house headcount or your contractor partners within care specifically?

Mark McCaffrey

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

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

Great. Thank you both.

Christie Masoner

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

Unidentified Analyst

Hi, there. This is actually Jian [ph] for Mark. Thanks for taking the question. So a couple of ones. First, on the margin guidance again for '24. You mentioned kind of kind of greater leverage from tech and dev. How should we -- I guess -- maybe first, like where is the additional leverage coming from? Like what are you cutting? And how should we think about maybe a steady-state tech and dev level? And then the second question is on -- I think you mentioned very quickly on accelerating revenue in '24 as well. If you 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? [Indiscernible].

Mark McCaffrey

Great. Thanks, Jian, and good talking to you. On the normalized EBITDA puts and takes. We're coming -- we started talking about this in the first half of the year, and we were taking actions around integrating some of our core GoDaddy platforms into one technology stack. We took some restructuring actions. We talked about how the benefit of those would start to show up in the second half of the year. We saw some of that accelerate into Q3 based on our, I would say, hitting the timetables and milestones around getting workloads into the cloud. So we can see that momentum continuing going the year, allowing us to drive a lot of efficiencies within our tech and dev.

The other part of it is application of commerce. From a segment margin perspective, as that continues to grow at an accelerated pace, that provides us even more leverage into our normalized EBITDA margin. So we'll get to a little bit more of the puts and takes and run rate and what we think is normalized when we get into next year and talk in more detail around 2024. But that's a high-level good way to think about where we're going to continue to see them and our ability to drive that leverage in our normalized EBITDA margin.

Aman Bhutani

And then I think the second part of the question was around growth in 2024. And of course, there are some comps at play here, Jian. But the key piece that we're highlighting today is the growth in applications and commerce. And a couple of the data points, and I know our investors are interested in our path to growth in A&C. So we shared a couple of data points today in terms of the 12% bookings growth in Application & Commerce in Q3 and actually shared the data point for October as well with applications and commerce to mid-teens. And all of the components of applications and commerce -- and as you're probably aware, we have three core components, productivity, presence and commerce, and all of those are growing at healthy rates, which is what is pushing us into the teens there. And we expect that to continue into next year as well. Hello?

Christie Masoner

Our next question comes from the line of Matt Pfau from William Blair. Matt, please go ahead.

Matthew Pfau

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

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 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 e-mail, 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

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

Great, thank you. Appreciate for taking my questions.

Mark McCaffrey

No problem, thanks Matt.

Christie Masoner

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

Christopher Kuntarich

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

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

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 explore our domain customers to the full suite of offering that we have for them, and it will really propel two-plus products, which then leads to the numbers Mark is talking about, the higher LTV that comes with it. And that's obviously a path that we're pressing on pretty hard.

Christopher Kuntarich

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 two 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

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.

Christopher Kuntarich

Okay, got it. Thank you.

Christie Masoner

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

Unidentified 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 the consumer health. But just wanted to see what you're seeing there. I don't know if there's any notable trend throughout the quarter by month and what you're seeing so far this quarter?

And then second, in the ARR growth numbers that you mentioned, create and grow was 9% [indiscernible] 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

Yes, 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 two data points, one for the U.S. and one for the U.K. So you can get some idea of how it's different in different parts of the world. Generally, the question of how positive are they about growing their own business is this year a little bit up to flattish, right? They feel optimistic -- I think part of it is they have to feel optimistic. They have to show up every day and make it happen. So they have that positivity 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 U.S., 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 U.K. where the overall number for positivity is a bit lower. And even though they continue to be positive about their business, their view of the economy has declined much faster. So there's some consistency across the markets, but the numbers are different with the U.S. micro business owners feeling generally more positive about their business than the U.K., for example. Hopefully, that make it a bit of color, John and it's helpful. And I'll turn it to Mark.

Mark McCaffrey

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.

Unidentified Analyst

Thank you.

Christie Masoner

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

Naved Khan

Hi, thanks. Can you hear me okay?

Aman Bhutani

Yes, hi Naved.

Naved Khan

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

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

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

Thank you guys.

Aman Bhutani

Thank you, Naved.

Christie Masoner

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

Ella Smith

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

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

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

Yes. I had said 36 billion. And GPV is on track, very similar to last quarter to double year-over-year. There's no change in sort of the trajectory there. Like I just noted, it was actually a strong quarter for GPV, and we're looking forward to Q4. In terms of attaching GoDaddy Payments to our base, new -- or let me handle both new customers coming in, for example, the websites plus marketing attaching GoDaddy Payments at very, very high rates and us attaching to the base has continued to grow. And the biggest contributor to the GPV growth continues to be us converting existing GoDaddy customers to GoDaddy Omnicommerce solution.

Ella Smith

Great. Thank you so much.

Aman Bhutani

Thanks, Ella.

Mark McCaffrey

Thanks, Ella.

Christie Masoner

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

Ygal Arounian

Hey, good afternoon guys. First question, so you've had an activist investor get a little bit more active and vocal about their views and just want to maybe get -- 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 on the pricing front? Is it raising the annual price for domain registrations? And with the strength you're seeing in domains, relative to what we're seeing in terms of dot-com and dot-net growth, which has been challenged and kind of flat, what are you seeing? What are the differences? Is it growth in different TLDs? Is it more -- especially the ones that you hold at your registry business, too? Maybe just a little bit of insight on what you're seeing in the domain world.

Aman Bhutani

Thanks, Ygal. 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&C. And what you saw in our prepared comments today is that we shared more details on both of those areas. 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're engaged with our investors all the time. We're listening to them, and we're sharing back information on the things that we feel they're asking us for.

And then on the domain side, I'll turn it to Mark, but just to quickly remind you, although we don't break out dot-com, dot-net or any specific TLD, our registry business continues to do well. It's continued to sort of perform at a great rate. And we do offer, as you know, a very large number, TLDs over 400. So 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 he'd add.

Mark McCaffrey

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 in domains coming out of the quarter. So a lot of strength there. We're a little different than some of the other players. So we have a little bit more breadth of what we offer, and we're seeing strength in some TLDs. And probably our geographic regions, as others have pointed out, there are weaknesses in certain areas that we're just not as exposed to.

Ygal Arounian

Great, thanks.

Christie Masoner

Our next question comes from the line of Ken Wong from Oppenheimer. Ken, please go ahead.

Ken Wong

Hi, can you guys hear me?

Christie Masoner

We can.

Mark McCaffrey

We can.

Ken Wong

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

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 more easy.

But from a volume perspective, overall, we're still seeing a healthy $400 million-plus business on an annual basis. We continue to see the momentum. Like we stated earlier, in the year, we're not seeing the large transactions like we used to, but we continue to see on a volume basis aftermarket being healthy.

Ken Wong

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&D? Any concerns that, that might potentially hurt product innovation?

Aman Bhutani

Yes. Thanks for that question. When we look at our tech and debt spend, the way we have it allocated is the -- it's divided between the platform investments and our product innovation. On the platform side, there is a set of investment made, which Mark shared with some slides around cyber, around core data platform improvements, and those have tended to help all our products. And what we found there is as we integrate more and more platforms, as we've integrated the brands that we talked about this year, some of those costs peak and it started to come down. So we're seeing leverage on the platform side, and that's great.

On the product innovation side, our approach has very much been about 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 other areas and improving them. And we're very careful about how those investments. And as an example, we invested -- and I talked about the investment in Managed WordPress over a couple of years. And I'm very happy to have a great product today that is now showing great growth as well. But that does mean that we have 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 are able to move people around and get to things and sort of drive growth without necessarily always adding more.

Ken Wong

Got it. Appreciate the insights. Thank you very much.

Christie Masoner

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

Deepak Mathivanan

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 this margin targets? Thanks so much.

Mark McCaffrey

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 APRU 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

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

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

Aman Bhutani

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.