The full year result 2024 conference call and live webcast. I am Yusuf, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and that this conference is being recorded. The presentation will be followed by a Q&A session. If you would like to ask a question from the webinar, you may click the Q&A button on the left side of your screen and then click the raise your hand button. If you're connected via phone, please press star followed by one on your telephone keypad. Should you require operator assistance, please press the dedicated button on the bottom left side of your screen or star zero on your telephone keypad. At this time, it's my pleasure to hand over to Stephan Gramkow. Please go ahead.
Hello and good morning, everybody. I would like to welcome you to the analyst investor call of IONOS on the results of the Q4 and full year 2024. Thank you for joining. My name is Stephan Gramkow and I'm responsible for investor relations at IONOS. Let's have a look at our agenda for today's call. Achim Weiss, CEO of IONOS, will provide an update on our vision and the overall business and important strategic topics. Britta Schmidt, CFO of IONOS, will then take you through the financial details of the last year and Q4 in particular. Britta will then also talk about our outlook for 2025 and midterm targets. Achim and Britta will then be happy to answer any open question after the presentation. I would now like to hand over to Achim. The floor is yours.
Thank you very much, Stephan. Good morning, ladies and gentlemen, and a warm welcome to our conference call. I'm Achim Weiss, CEO of IONOS, and I'm pleased to give you an update on our business and on key topics. I would like to take a moment to outline the vision that drives our company forward. On this slide, you can see our guiding principle, strengthening our position as the leading SMB digitalization partner and trusted cloud enabler. As we look to the future, our mission at IONOS is clear. We aim to empower small and medium-sized businesses, so-called SMBs, to succeed in the digital age. We believe that every business, regardless of its size, deserves access to the same level of technology and expertise that large enterprises enjoy.
Our goal is to bridge this gap by providing innovative, user-friendly, and affordable digital solutions that enable SMBs to grow, thrive, and compete in their field. We focus on the digitalization of SMBs because we know that they are the backbone of most economies. Through our comprehensive product portfolio, we enable our customers to strengthen their online presence, optimize their processes, and deepen their customer relationships. Let's have a look at our performance in 2024. The reliability of our mission-critical products, backed by the dedicated support of our personal consultants, has helped us to develop and maintain a very loyal customer base. In 2024, we were able to add 160,000 customers, totaling around 6.32 million customers at the end of last year.
We successfully increased our ARPU by around 9% on the back of our ability to up and cross-sell, as well as the introduction of new pricing structures at the end of 2023, with the new prices being introduced gradually to the existing customer base over 12 months. The fact that the churn rate increased only slightly with the introduction of the new prices demonstrates the high level of customer loyalty and our pricing power. Customer growth and the increase in ARPU led to a revenue growth of 10% last year. Furthermore, IONOS' platform model and substantial economies of scale, combined with the robust growth, have led to consistently high levels of profitability for the company, which led to an adjusted EBITDA growth of around 16% in 2024. Overall, these numbers demonstrate the successful execution of our business strategy, underpinning our predictable growth in revenue and profitability.
Consistent investment in brand awareness and customer satisfaction is essential for customer acquisition, loyalty, cross-selling, upselling, and churn reduction. Despite the previously mentioned price increases, we improved our Net Promoter Score overall from 32 to 34 last year and the post-contact NPS from 52 to 56, indicating enhanced customer satisfaction. Our ongoing commitment includes targeted initiatives such as the Save Desk and proactive retention programs. Simultaneously, we have continued to invest in the strategic development and expansion of our brands. As we have consistently emphasized, brand building is a long-term endeavor and requires persistence. In 2024, our efforts significantly boosted brand awareness across all core markets. One second, we have a technical issue here. Okay. Sorry, guys, we have some issues here with the prompter. I restart at this point here. Simultaneously, we have continued to invest in the strategic development and expansion of our brands.
As we have consistently emphasized, brand building is a long-term endeavor requiring persistence. In 2024, our efforts significantly boosted brand awareness across all core markets. Given the proven value and importance of these brand-building activities, we maintain our strong marketing presence for IONOS brands in 2024 with an investment of EUR 64 million, approximately the same as in 2023, and projected to remain stable going forward. This approach allows us to further enhance marketing efficiency, reducing marketing expenses relative to revenue from 7.9% to 7.1% last year. Lower customer acquisition costs, rising ARPU, and economies of scale led to an increasing customer lifetime value, or CLTV, in relation to customer acquisition costs, or CAC, and thus to higher returns. With every euro we spend on customer acquisitions today, we generate a gross profit of over EUR 15 over the average lifetime of a customer.
We aim to further enhance profitability by improving customer retention and reducing churn. Our strategic focus is on attracting high-valued customers, those interested not just in low-cost domains, but in long-term relationships where we continuously provide additional appealing products that strengthen their engagement with IONOS. As a result of successful upselling and cross-selling, the average number of services per customer is increasing. Currently, customers use an average of four services. Together with our focus on acquiring high-level customers and expanding our cloud business, we were able to increase average revenue per user by around 9% year over year, yielding an ARPU of EUR 16.60 at the end of 2024. Over the last three years, we have been able to increase ARPU by an average of around 8% per year.
At the same time, we were able to increase the customer base by around 3% year over year to more than 6.3 million customers. Going forward, our pricing approach remains balanced and strategic, aiming to attract new customers, maintain competitive positioning, enhance customer satisfaction, but also to do price adjustments where appropriate. Europe stands at the threshold of a transformative era shaped by evolving global political dynamics, presenting significant opportunities for the future growth of IONOS. The pursuit of digital sovereignty, specifically independence from U.S. hyperscalers and full data control, is becoming increasingly critical. This trend will profoundly influence not only cloud solutions, but also web presence and productivity services across public sectors, companies, and organizations of all sizes. We already observe growing demand for digital sovereignty and data autonomy, a recurring theme highlighted by our sales teams.
We are especially positioned to lead this shift in Europe, capitalizing on our strengths as a premier cloud solutions provider. Artificial intelligence continues to boost internal efficiency and reduce operational costs while enhancing customer-facing features and creating new revenue opportunities throughout additional use cases and upselling. AI is currently integrated into eight out of ten product lines, with full integration planned by the end of this year. Our primary focus is to optimize efficiency, foster innovation, and enhance customer satisfaction through strategic AI implementation. Our AI initiatives also support market competitiveness, providing small and medium-sized businesses with access to advanced technology, typically reserved for larger enterprises. By delivering secure and compliant AI solutions, we enable SMBs to effectively leverage AI to grow their businesses. AI further accelerates digitalization by streamlining customer support and business processes with data securely managed in the cloud.
In July 2024, we launched the AI Model Hub, a sovereign multimodal platform within the IONOS Enterprise Cloud, allowing integration of customer-specific data to improve AI-driven responses. We aim to empower businesses to effectively utilize generative AI by incorporating their unique knowledge, addressing the common challenges SMBs face in recognizing relevant use cases. To further simplify AI adoption, we will soon introduce IONOS GPT, an intuitive platform enabling businesses to integrate their internal content, such as documents, databases, or other data. This demonstrates clear practical benefits of AI in daily operations, with all customer data securely stored in our European data centers and never used externally. IONOS GPT serves as an accessible interface to our AI Model Hub, supported by targeted education and training. We will also offer a free new model to help SMBs easily experience and adopt AI technology, driving meaningful business advancements.
We are also on the verge of significant changes in the AdTech segment. As you know, the AdTech business consists of domain brokerage and digital advertising. Domain brokerage is the secondary market for trading of used domains and related services. Digital advertising is an arbitrage business where our partners monetize traffic on their domain park on our platform through Google AdSense for Domains product. Beginning last year, our partners have started to migrate to Google's newly introduced RSOC, or Related Search On Content product. RSOC provides additional potential in the arbitrage business through improved user experience from additional design and layout options, leading to better conversion rates. RSOC is also less restricted with regards to traffic sources, widening the total addressable market for our partners. This year, Google wants to accelerate this transition.
We expect a small one-time effect on earnings throughout this transition phase this year, which Britta will talk about in more detail. At this point, I would like to hand over to our CFO, Britta Schmidt, to talk about our financials before we start with the Q&A session.
Thanks, Achim. Good morning, ladies and gentlemen, also from my side. With the annual results, we introduced segment reporting to further increase transparency in our reporting, but also to reflect the different development and management of the business areas. Going forward, we will report two segments. On the one hand, our digital solutions and cloud segment, which includes web presence and productivity and cloud solutions. This segment generated EUR 1.248 billion in revenue in 2024, accounting for approximately 80% of our total revenue. The adjusted EBITDA margin in this segment is very strong, standing at 32.9%.
If we look at the two included business lines separately, we can see that our web presence and productivity business generated EUR 1.25 billion in revenue in 2024, accounting for approximately 66% of total revenue. Our cloud solutions business generated EUR 177 million in revenues, accounting for around 11% of total revenue. The second segment, which you see on the right, is our AdTech segment. Achim just talked about it, which is the former aftermarket business. This segment generated EUR 312 million in revenue, accounting for approximately 20% of our total revenue, with an adjusted EBITDA margin of 13.4%. Our total revenue for 2024 stands at EUR 1.56 billion. The total adjusted EBITDA is EUR 452 million, which corresponds to an adjusted EBITDA margin of 29%. We are extremely happy with the development of the fourth quarter. Total revenues in Q4 2024 reached EUR 418.7 million, reflecting a 14.7% year-on-year growth.
Adjusted EBITDA for Q4 came in at EUR 117.7 million, with an adjusted EBITDA margin of 28.1%. This represents a 40.2% increase compared to the previous year. Due to the different phasing of our marketing investments during the year, which were skewed towards the middle of the year, marketing expenses in Q4 were EUR 13 million lower compared to the previous year. Adjusting for the lower marketing expenses to make it comparable, adjusted EBITDA would have been EUR 104.8 million, still growing 25% year-over-year. We cannot only look back on a very successful fourth quarter, but as well on a very successful full year 2024, with revenues reaching EUR 1,563.0 million and a growth of 9.6% compared to the previous year. Our adjusted EBITDA for 2024 reached EUR 452.2 million, which corresponds to an adjusted EBITDA margin of 29%, both slightly above our guidance from March last year.
Compared to the previous year, this represents a growth of 15.9% and an increase in the EBITDA margin of 160 basis points. Margin expansion and higher profitability was driven by strong operational leverage, as well as cost-efficiency initiatives, but also higher marketing efficiency, with marketing expenses as a percentage of revenue decreasing from 7.9% to 7.1%, which underlines our efficiency and cost awareness. Overall, we are satisfied with our results for 2024 and see a positive outlook for the future, with strong business fundamentals and a solid financial position. Our ability to deliver revenue and profitability growth demonstrates the strengths of our business model and our ability to grow and succeed in the market. Let's now take a closer look at our various business areas.
Our high-margin digital solution and cloud segment achieved an impressive growth of 12.4% year-over-year in the fourth quarter and 11.6% year-over-year for the full year 2024. The adjusted EBITDA margin increased by more than 7 percentage points to 32.4% year-over-year in the fourth quarter and about 2.5 percentage points to 32.9% year-over-year in full year 2024. After a challenging start in the first two quarters of 2024, the AdTech segment delivered an impressive recovery in the second half of the year. With a growth of 23.5% in the fourth quarter and growth of 2.4% year-over-year in 2024, the segment was able to recover as expected. The adjusted EBITDA margin fell by 1.2 percentage points year-over-year in Q4 as a result of the product transition we have already mentioned before. We will discuss the AdTech segment in more detail in a minute.
Looking on slide 17, let me quickly comment on the footnote. Based on group-wide standardization efforts, we reclassified some products between web presence and productivity and cloud solutions for some of our brands. This resulted in shifts of around EUR 2 million per quarter between the two business lines, however not affecting growth rates or the overall segment. Now let's have a look into the performance of the different business lines within the digital solutions and cloud segment. In the fourth quarter 2024, our web presence and productivity business grew by 12.1% year-over-year to EUR 264.3 million. This area has seen sustained customer growth, an increase in ARPU through successful cross and upsell, and the gradual impact of our new pricing structures. Our cloud solution business delivered strong growth of 19.4% to EUR 49 million.
This was also driven by the first significant contribution from the ITZBund contract, which we won in April 2024 and which was expected to add revenue growth in the fourth quarter of 2024. On the next page, we depict the different drivers of the performance. Please note, as part of the closing procedures, we aligned customer definitions across the group, leading to smaller changes in total customer number but not affecting net additions. Our total customer base after the alignment stands at 6.2 million at the end of 2024. In the fourth quarter, we added 50,000 new customers, totaling in a year-over-year increase of approximately 160,000 customers. This growth trajectory is a testament to the resilience and impact of our strategic initiatives and marketing efforts.
The economic climate has provided us the leeway to make subtle adjustments to our pricing strategy, ensuring our offerings remain attractive while enhancing customer satisfaction and loyalty. Despite the implementation of the refined pricing model in the second half of 2023, as well as last year, which caused a slight and temporary uptick in churn, we've managed to maintain our annual churn rate at approximately 14%. We anticipate this rate to normalize during 2025 as the pricing structure is already stabilized. This is guided by the principle to prioritize customer satisfaction and retention. Our pricing strategy overall has been crafted to cater both new and existing web presence and productivity customers within our digital solutions and cloud segment. For existing customers, price adjustments have been phased in upon contract renewal, steadily influencing revenues.
Initiated in the third quarter of 2023, these adjustments are fully reflected in all applicable customer contracts since the third quarter of 2024. Cross and upselling strategies have proven to be very effective, raising our average revenue per user, ARPU, to EUR 16.60. This improvement highlights our ability to deliver enhanced value through innovative product offerings and a robust cloud solution business, where ARPU tends to be slightly higher. Coming to cloud solutions now in more detail. In the full year 2024, cloud solutions revenue reached EUR 177 million, marking a 13.3% year-over-year increase. Looking at the individual growth rates, public cloud growth increased to 29%, also on the back of the first-time contribution from ITZBund, as mentioned already.
I mentioned in our last webcast that growth is also influenced by price reduction for certain products that started in mid-year 2024 to facilitate stronger product adoption and thus indirectly investing in growth in a rapidly expanding market, as Achim was pointing out earlier. Private cloud grew by around 10%, and managed cloud was more or less flat as expected due to our strategic decision to adjust the product portfolio in the third quarter, which involved phasing out certain products and shifting our full focus to supporting our customers in adopting cloud solutions. Looking forward, we are focused on enhancing our product portfolio and services to strengthen our position as a competitive player in the market, capitalizing on the tailwind we expect from the increase in demand for digital sovereignty. In our AdTech segment, which comprises our aftermarket business, we've seen a significant turnaround in the fourth quarter.
Revenue grew by 23.5% year-over-year to EUR 93.7 million, contributing to full year revenue of EUR 312.2 million, representing a 2.4% year-over-year growth. This strong recovery is a testament to our efforts to adapt to the changing market landscape. As already mentioned, adjusted EBITDA margin was 13.4% in 2024. While AdTech has historically operated at lower margins compared to our core business, we are really pleased with the progress we made in this area. However, we do expect some volatility in the coming quarters, as Achim already pointed out. The introduction of Google's new RSOC product, the subsequent transition from the previous Google AFD product, and the expected acceleration in the migration based on Google's announcement at the end of March will continue to have an impact on our business. In the first months of 2025, nevertheless, we have seen a very good start into this year with continued strong growth.
However, we expect a reasonable impact on revenue growth from the product migration in the coming quarter. While it's difficult to predict 100% and the exact impact of the change, we are confident that the transition to the new RSOC product will ultimately benefit our business. Turning to our capital expenditure on page 22, 21, sorry, we can see that our total CapEx for the year 2024 was at EUR 76.9 million, or 4.9% of total revenue. This is a slight decrease from the previous year where total CapEx was at 5.7% of our total revenue. Breaking down our CapEx, we can see that our growth CapEx was EUR 52.9 million, or 3.4% of total revenue. This is an important investment into our future growth, particularly in our cloud solutions business. Our maintenance CapEx was EUR 24 million, or 1.5% of total revenue.
We are pleased to see that our maintenance CapEx requirements remain low and predictable thanks to our efficient operation and advanced technological platforms. We are also benefiting from efficiency gains, including a one-time effect from platform consolidation due to improved packing density of the service utilized. Looking ahead to 2025, we expect our total CapEx to remain at a level between 5%-6% of total revenues. We believe that this investment will be essential to support our growth plans and drive sustainable, profitable revenue growth. On page 22 now, you can see the reconciliation from our adjusted EBITDA to free cash flow. For the full year 2024, our adjusted EBITDA stands at EUR 452 million. We subtract adjustments totaling EUR 22 million, primarily standalone costs and expenses related to our long-term incentive program, arriving at reported EBITDA.
Next, we deduct the EUR 77 million in CapEx we just talked about and EUR 57 million in tax payments. We also add back EUR 6 million for the long-term incentive program, as this is a non-cash item. However, this equalized as we paid out EUR 8 million as part of the long-term incentive obligations from the IPO. Working capital was slightly positive with EUR 17 million. This results in a free cash flow before leasing of EUR 310 million. After accounting for EUR 14 million in leasing cost, free cash flow after leasing is standing at EUR 296 million. This compares to free cash flow after leasing of EUR 219 million in the previous year and therefore shows a significant improvement. It's also worth noting that we had interest payments of EUR 63 million and also bought back own shares for a total of EUR 22 million.
After considering these items, our comparable free cash flow stands at approximately EUR 211 million. Our debt leverage and interest rate position is summarized on page 23. As of the end of full year 2024, we have successfully reduced our net debt to EUR 855 million. Our debt consists of an external bank loan and a shareholder loan from United Internet. During the year 2024, we repaid EUR 180 million, reducing the shareholder loan to just EUR 170 million at the end of 2024. Our leverage ratio is now 1.9, which is a significant improvement compared to the end of Q4 last year when our leverage was at 2.7. With the repayments, we continuously improved our weighted annual interest rates, which is now standing at 5.03%. We are well positioned to further reduce our debt and strengthen our financial stability.
This supports our strategy for sustainable growth and the creation of value for shareholders. As shown on the slide before, we decreased our leverage significantly and created a solid financial foundation that enabled us to opportunistically accelerate our growth strategy. With our strong financial position, we are now well positioned to consider strategic acquisitions that can help us scale even faster. Our focus is on expanding our market leadership in Europe, particularly in the area of web presence and productivity. Our unified product platform, our so-called Internet Factory, allows us to seamlessly integrate potential targets as we can easily start to sell all of our products into the customer base of the potential target. Another opportunity is our bolt-on product acquisitions, which we have also done in the past. As we consider potential acquisitions, we will be looking for companies that share our values and have a strong cultural fit.
We will also be focused on ensuring that any acquisition we make is accretive to our earnings and aligns with our long-term strategy. We believe that strategic acquisitions can help us to drive growth, increase our market share, and create value for our shareholders. While exploring our opportunities, we'll be disciplined in our approach and only consider acquisitions that meet our strict criteria. Looking ahead into 2025, in our digital solutions and cloud segment, we are targeting a revenue growth of around 8%, with web presence and productivity growing at around 7%-8% and cloud solutions growing at around 15%-17%. The growth rate for digital solutions and cloud is slightly below previous year, driven by the higher price adjustments in web presence and productivity, which were introduced at the end of 2023 and rolled into the customer base in 2024, boosting revenue growth slightly.
While we will continue to adjust our prices going forward, they will be more targeted and limited to specific products and customer groups and will not be as pronounced as in 2024. We expect an adjusted EBITDA margin of around 35% for digital solutions and cloud, which is a testament to our continued focus on operational efficiency and margin expansion. In our AdTech segment, we expect revenue in 2025 to be above the previous year level. As we discussed earlier, the product migration to RSOC is ongoing, and we strongly believe that the transition to the new product will ultimately benefit our business. While we expect a setback in our AFD-related revenues for 2025 of around EUR 20 million-EUR 30 million, we are confident to compensate by an accelerated migration of our customer base to the new product, enabling us to still grow our revenues.
However, due to the accelerated migration and as the RSOC business is still in its infancies, we expect a one-off effect in profitability of the AdTech segment of around EUR 5 million-EUR 10 million in 2025, resuming gradually thereafter to the level of 2024 and before. At the group level, we are targeting a total adjusted EBITDA of around EUR 510 million for 2025, which equals nearly 13% growth in adjusted EBITDA and once again an increase in adjusted EBITDA margin by at least one percentage point. We are really pleased with the progress we've made in 2024, and we are confident that our initiatives will continue to drive growth and profitability in 2025. We will continue to monitor the market and adjust our strategies as needed to ensure we are well positioned for long-term success. On that note, let me also reaffirm our midterm guidance.
Our midterm guidance assumes a compound annual growth rate, CAGR, of around 10% for our total revenue, with a CAGR of around 9% for our web presence and productivity business and around 20% for our cloud solutions business. We also expect to achieve a high single-digit growth CAGR for our AdTech business. In terms of profitability, we expect a further increase of the adjusted EBITDA margin to around 35% and a CapEx to revenue ratio of around 5%-6%. We also expect to generate significant free cash flow, which will enable us to invest in our business and drive growth. We are excited about the opportunities that lie ahead and are confident that our business model and strategy will continue to drive growth and profitability in the coming years. That concludes our presentation for today.
We hope that we have provided you with a comprehensive overview of our results for 2024 and our plans for this year. We are proud of our performance in 2024 and what the team has achieved, and we are really confident that we will achieve our goals for 2025. We will continue to work hard to support our customers, improve our products and services, and strengthen our market position. We now open the floor for your questions.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question from the webinar may click the Q&A button on the left side of your screen and then click the raise your hand button. If you're connected via phone, please press star, followed by one on your telephone keypad. You will hear a tone to confirm that you have entered the queue.
If you wish to remove yourself from the question queue, you may press the lower your hand button from the webinar or press star two on your telephone. Anyone who has a question may queue up now. The first question comes from George Webb, Morgan Stanley. Please go ahead.
Good morning, Achim and Britta. I've got a few questions, please. Firstly, I guess on the growth guidance, what's changed in your outlook, which means that you're now comfortable looking for 8% constant currency growth on the web presence plus cloud business combined for this year? I guess the prior soft targets would have pointed probably for those combined segments to still be around 10. I guess what's changed is the first question.
Secondly, in terms of the margin guidance, there's a very impressive degree of operating leverage you're expecting on that core business, 200 basis points on 8% growth number. Could you add a bit more detail around some of the things that are driving that degree of leverage?
Thirdly, Britta, you mentioned, and thank you for the details around AdTech and AFD and domain parking changes. If I look at that outlook slide you've given, slide 25, there's no numbers on there, but it looks like you're expecting Q1 AdTech revenues to be higher than Q4, which would be very significantly higher in percentage terms year over year. Q2 to Q4 sequentially is clearly lower. Could you give anything around the range of outcomes you expect on the aftermarket growth? We've got the lower bound, I guess technically at zero. What could a reasonable upper bound look like as well? Thank you.
Thanks, George. Let me start with the 8% growth on web presence and productivity or digital solutions in cloud overall. We always said that the price increases, which we've done end or mid of 2023, were a little bit of extraordinary given that we capitalized on the overall economic backdrop, and it was more like a catch-up effect. Obviously, as we stand for customer loyalty and want to keep our customers long-term and grow with them, we are not continuing this this year. That was at least our strategic decision. It means our price increases this year will be slightly lower, and we haven't started a significant price increase as well in 2024, which would be rolling into the customer base in 2025. That's the main reason, meaning we now see a slight dip in revenue growth.
However, given all the other initiatives we are driving in terms of retention, cross and upsell, getting new customers in, as you have seen, we have seen a good growth in the Q4 of 2024. This will then lead to a higher growth the coming years. We are still guiding for the 9% CAGR in revenue growth. In terms of cost efficiencies or operating leverage, I think it's a mixture of AI definitely kicking in into our operations, helping us to control our costs better. For sure, and we mentioned it, it's economies of scale in the marketing efficiency where we reduced marketing from 7.9% to 7.1%. It's overall our Internet Factory, which we refined during 2024, moving stronger into a functional matrix organization, driving efficiencies throughout the different functions.
We are confident that operating leverage, as you know, in those businesses is really strong and that there are still opportunities where we can do more with the help of AI with the same amount of people. In terms of AdTech, yes, we are seeing a very strong first quarter, still coming a lot from the AFD business. However, we see as well a lot of new partners and our existing partners onboarding into RSOC. We are really confident that RSOC will drive the business going forward. However, it is a migration, so we believe revenue growth will go down throughout Q2, Q3, and then pick up again. That is at least our current assumption. As we said, we might see a slight impact on profitability.
Yeah, if I'm in the AdTech business and we have the proof points now, and we have certain partners which have now switched partly or all of their traffic to the new model, and they see better conversion rates. That was obviously the interesting point where we said, okay, we believe that this is going to happen, but now we have some proof points that some partners are already at the point, at the level where they have increased conversion rates compared to the AFD product. All in all, we believe that this business is, after the transition, in great shape for further growth. Like Britta mentioned, might have a slight impact this year on EBITDA, but we think it's slightly or slight impact. That's what we see today.
That sounds good. I guess that's a key point of this in the EBITDA mix is quite small. Just to be clear on a couple of things, I mean, where are you today in terms of the percentage of the AdTech business on the domain parking side, which is RSOC versus AFD? Actually a little bit tied to that, when we think about the revenue declines through Q2, Q3, I'm guessing this is more related to, on the AFD side, some of those Google changes around whether advertisers are opted in or not opted in for AFD placement. Is that fair?
RSOC is still a relatively small part of the revenues, especially in Q1. We see still AFD blooming, I would say. It's pretty strong. It seems like the industry is currently capitalizing on this product. Yes, as we mentioned, Google changed their policies. They will automatically opt out the advertisers from AFD. That will happen gradually throughout the year. It is not a yes or no. As I said, it will happen gradually throughout the year, enabling the industry to adapt to the changes. Keep in mind that as well, Google has an interest in keeping this revenue stream up and living.
How does it work in the end? We have these partners and they are very familiar with the AFD business for many, many years. It is still working. AFD is still on. Google still supports that model as well. When do you change? That is why Google is now pushing a little bit the throttle. The change will happen a little faster. I think most of the partners are looking very closely at how much revenue they do with the AFD versus RSOC.
There will be a switch over for most of them in the next months where it's more relevant or more productive to switch to RSOC. That is when they will do it. Most of our partners are in test phase already. They gain experience with RSOC. They build up their web pages and all these kind of things which need to be done on RSOC. I think it's just like people are. Things are working right now very well. Let's keep this working until the last moment. You have to cross over at some point and switch to the new product. That is what we think is going to happen. Some customers already did or some partners already did. The early adopters were basically and the rest will follow.
Okay, thank you. Sorry, I've appreciated I've asked a lot of questions here. Just the final one, because I think it's quite important. When I interpret that slide again on the outlook for AdTech, we could be looking logically at a pretty big number in Q1, 40-50% growth. I guess the right way we should think about that is you're guiding for above the previous year. So as a baseline, if we were still thinking single-digit growth in AdTech or low single, whatever the right number is, we shouldn't be surprised if the number in Q1 is very high, but then actually it's much lower in the rest of the year, right?
Correct.
It's a fair assumption, yes.
Cool. Thank you very much.
Next question comes from Toby Ogg, J.P. Morgan. Please go ahead.
Yeah, hi morning, Achim and Britta. Thanks for the questions. Couple from me. Firstly, just on the digital solutions in cloud segment guide for eight, could you just help us with some of the specific drivers of your confidence in that eight and whether you've built in any conservatism or any buffers into that? Just given your exit rate was over 12% in Q4, I understand there will be a lower level of pricing contribution in 2025, but anything else that would drive the moderation embedded in the guidance to eight?
Just secondly, just on the AdTech segment, you mentioned there with respect to the midterm targets, the high single-digit AdTech CAGR, how far off that do you think you'll be in 2025? What would drive the acceleration in the AdTech segment beyond 2025 to hit that high single-digit CAGR? Thank you.
Yeah, let me start maybe with AdTech because we are just in this AdTech world. High single-digit, I think just deduct a couple of percentage points for this year. George mentioned it before, it might be in the low to mid singles for 2025. What will drive it to go to the high singles? It will be the further adoption of RSOC and the opportunities the RSOC product offers for our customers.
We believe that in general, the RSOC product is a better product than AFD. It has a bigger TAM. It offers better conversion rates. Overall, we believe there should be an acceleration in revenue growth once the product is fully migrated. In terms of digital solutions and cloud, first of all, yes, it is the price increases which rolled in over 12 months. As I said, we have not done significant price increases in 2024.
We've been relatively reluctant as we did this relatively aggressive one and, as I said, more a catch-up effect. Additionally, we had in Q4 the first contribution of ITZBund. This is a contract which will have one-time payments and one-time builds. Obviously, building up..
Consumption.
Consumption, sorry. Consumption bills. This will come in over the year in 2025. Obviously, with the experience which we have from Q4, we have built in, I would say, one buffer. For any other buffer, I will not comment. That is, we think that we might be slightly delayed in ITZBund, just given what we see from their internal customers, etc., so that we haven't built in the full potential which would be there in that area.
Maybe if I add to the price increase from last year, you remember that we were not the first one during the corona crisis to just boldly increase prices. Our strategy was always to not get the shit storms online from the customers. A lot of our competitors did, and they lost a lot of customers. We were like a little reluctant, or not reluctant, but we were like a little careful and said, okay, let's not be too bold and not with failed arguments saying, oh, the domain price increases now because of corona, which is domain does not really increase in price because there's no energy required for domains really. Our strategy was to be a little more careful when we picked the time to do this.
We picked in 2023 where we did actually our major price increases, which Britta already mentioned or I already mentioned that it funneled through the customer base over 12 months because of contract periods. I think it was a wise decision because we did not lose a lot of customers in compared to some competitors we can see the numbers from. I think that, and that's why we had this higher growth in 2024. We do not do these kind of price adjustments this year. We did not do it last year, which would then result in this year. We did it 2023, rolled through the base in 2024. Now we are just in the normal phase and not in some extraordinary price adjustment phase.
Understood. Thank you.
The next question comes from Stephane Beyazian from ODDO BHF. Please go ahead.
Yes, thank you. I've got a few. Just on the output to start with, I'm just trying to understand a little bit the mix there because the growth is pretty solid in Q4 at 11% growth. On simple math, I would assume that there is around 2% coming from volume, and that leaves us with pricing and customer upgrades. I was just wondering whether you could help me understand the two factors, pricing and the contribution of customer upgrades, and if there is anything you could say more around the balance of customers between your different plans and how fast that migration to higher-end plans thanks to AI is taking place. My second question is regarding M&A, have you made any progress in identifying new targets in new geographies? Thank you.
Yeah. Let me comment on ARPU. Yes, we've seen a very strong increase, but I think throughout the year in ARPU resulting still from the aftermaths of the price adjustments and continued strong customer growth, which we have seen in 2023 and which are now after the 6-12 months discount periods rolling into the paying customer base, so to say. They're the higher paying because they pay something before, don't get me wrong. Obviously, our continuous efforts in cross and upsell drive ARPU. In terms of M&A, we are looking around. As you know, M&A is an opportunistic business. We are in touch with relevant partners if appropriate. There's nothing which we have on our desks at the moment.
You see the average services customers have increased to four coming from three point, I can't remember exactly, three point something, up to four now. That is the result of the continuous cross and upselling efforts we are having or we are investing. With a customer base of 6.3 million customers, obviously, it makes a lot of sense to look for products which we can sell into the base quickly and easy. That is what we do. We can improve ARPU and number of services frequently or every year.
Do you see any product in the near future, whether it is from AI or not, that could help to accelerate the customer migrations?
Yeah. I mean, there is a lot. We have a big product roadmap. As you might remember, we already have the most products from our competitors. If you look at the whole cross-section of what we have, anything from domain to enterprise class, air-gapped cloud hosting. We continuously improve that portfolio. Yes, there is a bunch of products coming along, starting from the IONOS GPT, I just mentioned looking, but also other smaller products which help customers improve their website, improve their selling in their shop. Looking now into products where we help AIs to better understand the website of a customer.
There will be a movement. There will be some customers looking for or asking AIs for advice for something. We make sure that our customers are presented very well in the new models trained now by OpenAI and others. These are additional products which come along, AI-related, many of them, but not necessarily. There are also just traditional products, enhancements, different backups for Microsoft 365, whatsoever. There is a bunch of different products coming along every year. We will use them for cross and upselling, of course.
Okay, thank you.
Next question comes from Sarah Roberts, Barclays. Please go ahead.
Hi, good morning. Thank you for taking my question. Just a couple from me. Firstly, on the aftermarket business, can you just remind us what the margin profile is of RSOC versus AFD? I appreciate that it is a fairly small proportion of the business today being RSOC, but as the Google product transitions to that over time, how profitable do you think the AdTech revenue stream could be?
My second question is around active customers. Just be curious to what you are seeing in terms of trends in Q1, in terms of net additions, and what are your expectations for FY2025? Thank you.
Yeah. Let me comment on the AdTech business. Traditionally, the margin was between 13-20%, which we believe is a fair assumption as well for RSOC going forward. More in the 15% range. As I mentioned before, the RSOC product is in its infancies and needs a one-off investment. Margins might be slightly slower at the beginning. It will be for some customers now, at a mid-single digit, but we are continuously improving the margin going forward into 2025 with the product migration kicking in.
As I mentioned, we are confident to get it back to historical levels and see more or less a one-off effect during this year, which will amount to maybe EUR 5 million-EUR 10 million, what we said before. In terms of customers, maybe you want to comment? We see a good start into the year. January and February have been very well. We do see new customers joining us, staying with us. We see good.
Exactly. Sorry.
Yeah, go ahead.
Yeah, exactly.
Like you said, and also like I already mentioned, looking for higher-value customers. I think we are pretty good on track in customer acquisitions of valued customers across all product ranges, really.
Was that helpful? Looks like we can't hear any.
Next question comes from Nizla Naizer , Deutsche Bank. Please go ahead.
Great. Thank you. I have a couple of questions from my end as well. Firstly, could you kindly talk a bit about your US business? How did it perform in Q4? What are your expectations for 2025 with all the chatter around macro, etc.? Secondly, is Q1 performing in line with the outlook that you've given us for digital solutions and cloud? I appreciate the color you've given on the AdTech business, but on digital solutions and cloud, is there something that we need to be mindful of in terms of the seasonality going into 2025?
I have one final question, if that's okay. In cloud in Q4, could you remind us how much of the growth was due to the federal contract, and how would that evolve in 2025? Just trying to understand what the organic business growth would be like if you remove the federal contract from the outlook. Thank you.
Yeah. The U.S. business trailed well in 2024. To be honest, we do not see any change in 2025 and not expecting any significant change. I think the general mechanics are the same across the world. We provide mission-critical products, and we do believe that small, medium enterprises in a more digitizing world do need our products. We actually believe that new customers will continue to join us, and our customers which are with us do see the value we provide. Therefore, we do not see any larger impact from whatever happens to the U.S. economy, as we have not seen significant impacts from the European economy.
Actually, the U.S. is running really well in that sense that we could get the customer acquisition costs down, inflow up, and we actually shift a little bit of the marketing money from Europe to the U.S. because it is running very well.
Yeah. Looking into just commenting on the ITZBund, we had a first-time contribution from ITZBund of around EUR 5 million in Q4. We will see how this develops going forward. We have shared what we can share around the contract details. I would not assume that you just can divide the full contract value by five and then add it to 2025 because, as I mentioned before, we are conscious about delays which might apply there.
That leads me directly to answering your question on Q1. We might see that actually Q1 in cloud solutions might be slightly lighter, driven by ITZBund not contributing a lot in Q1. As I said, it is one-time builds, and then we see consumption coming up, and then we build another block, etc. This is driving the revenue seasonality there. Web presence and productivity, as we know it, is a very resilient and plannable business. Cloud solutions per se as well, but it is still relatively small, so therefore smaller things drive more volatility.
Thank you.
Welcome, Nizla.
As a reminder, for questions from the webinar, please press the Q&A button on the left side of the screen and then click the raise your hand button. If you are connected via phone, please press star followed by one. The next question comes from Ben Castillo from BNP Paribas. Please go ahead.
Morning, Britta. Thanks for taking my question. Just one for me really on churn and net customer ads. Firstly, on churn, could you just help us with a bit more specificity on the churn rate increase that you saw last year? If you take 2024 on a full-year basis versus 2023, how much did churn go up by? That would be helpful. Secondly, on the customer ads, a bit less added last year, 160,000. How should we think of that going forward? Is that about right to what you're aiming for in terms of net ads, or do you hope and believe that you can accelerate that net customer addition number? Thank you.
Customer additions, as I mentioned, we see a very good start into the year up to now. We had in 2024, and we talked about this before, we had a relatively slow summer driven by a lot of events taking place, which usually, yeah, get our customers engaged somewhere else, our prospective customers.
Yeah, exactly. We had a lot of sports events which are not usually accumulated in one year.
Correct. We believe that in 2025, we should not see that dip as pronounced. We will always see a dip in summer because that is how, if you look into our net additions over time, you will always see that, but it will not be as pronounced for 2025. We would expect to be slightly above what we see in 2024. In terms of churn, on an annualized basis, we have seen an uptick of a little bit more than 1 percentage point. Do not forget, there are two dimensions to churn.
First of all, we have seen a not-too-bad customer inflow, which drives more churn. In addition, we have seen, obviously, churn by the price increases. We are standing now at the 14%, as mentioned, and we believe it will continue. We do see it gradually going down already, and we believe it will continue to go down to the historic levels to 13%. Obviously, our ambition is through retention measures to get it below the historical levels.
Exactly. Since the price increase from 2023 ran through the base in 2024, we saw this slight increase in churn, but it has all happened. It is now, like I already mentioned, but also there are no additional large price increases this year planned. Last year, we did not do any major increases. We see the churn rates coming down to the normal level again.
Normal was like before, but like Britta said, we actually aim for lower levels than historically.
Got it. Thanks very much.
The next and final question at this time comes from Stephane Beyazian from ODDO BHF. Please go ahead.
Stefan, we cannot hear you.
Sorry, my question is being asked. Thank you. Just a final one. I was wondering if you could provide a little more color on the CapEx outlook as you've been running relatively low. Also, just a general question, how do you see the potential to better penetrate in the, let's say, larger enterprises segment? Do you see that as a source of growth, let's say, in the medium to the long term from the auto- entrepreneurs segment where you're very strong? Thank you.
Maybe I can start with the last one. Yeah, we see you're familiar with all the discussions happening right now in Europe. I'm pretty much connected now on different political events here in Berlin. What I can hear is everybody's now thinking very intensively on how can we be more independent from China and from the U.S., basically, so more self-contained in Europe. There's multiple dimensions, of course, anything from microelectronics, but a big portion is also digitalization, digital products, cloud. We really believe that this is coming not just from the government side, but also for larger enterprises because the motion is everywhere about being independent. Nobody wants to risk.
Every company needs to look at its risk profile. Right now, everybody is seeing that there's a high risk in just being depending on a single or two different hyperscalers. I think the notion for multi-cloud is already going, and this will continue, and maybe people will also shift everything to European offerings. Yes, we believe that this will have a big impact, like I mentioned, significant change, really. It will take some time. Like always, talking is very easy. Having then taken a decision, yeah, we need to move everything to Europe takes some weeks, yeah, or months, and then actually doing it is a different game.
If you have a very large setup, to migrate the setup takes some months. We believe this will have a tremendous impact. Not sure when it really sets in. Smaller companies might be faster. Larger companies might take a little more time with larger setups. In total, we are absolutely confident that the whole notion of sovereignty in Europe will greatly benefit us. In the U.S., of course, we don't have that notion, but still, we sell our cloud for small and medium businesses. We don't target large enterprises in the U.S. In the U.S., we were rather competitive to Digital Ocean, as an example. That's a different story, and that will continue, and it's also growing.
Let me comment on the CapEx. You have seen that in 2023, CapEx stood at roughly 6% of revenue. In 2024, it stood at around 5%. We are now guiding for 5-6%. I think that shows that we are actually really efficient in using our CapEx. Please keep in mind we previously guided for 6-7% of CapEx. We have actually found several levers to make our CapEx use more efficient by packing density, but as well by dedicated use of CapEx and procurement efforts.
I think that we are really, really well off here still allowing us to grow in both of our business lines, web presence and productivity and cloud solutions. I think that speaks for combined with a strong EBITDA margin, which we are delivering. This really speaks for the strong cash flow conversion and the strong free cash flow we can deliver now and as well in future. I guess there is no specific plan for one or two more data centers. You are happy with the balance that you currently have between? We will always look into new colocations or similar. We will expand our data center network, let's call it that way. We will do this as always and as in the past in a very cost-efficient manner.
Starting with Colocation and only if we do see enough demand, enough customers coming in, really building a data center by ourselves. That was always our strategy, and we will consistently stick to that strategy going forward.
Yeah, we do not really see, we are not in planning right now for further larger data centers for the next years. There will be no big surprise. Colocation is completely fine for the next time. We might extend our own data center in France. That might be on the list for something in two years or so to come, but that is basically it.
Very good. Thank you.
Ladies and gentlemen, this concludes our Q&A session. I would now like to turn the conference back over to Stephan Gramkow for any closing remarks.
Thank you very much, and thank you all for joining today's call. Please feel free to reach out for any follow-up questions. Have a great day, stay safe, and goodbye.