Hearing from them today is they want to reach new customers in new channels faster than ever, and they need to do so at price points that are cost-effective for them, as well as ease of use. And our products provide them the ability to do that. And I say that today, because that will be the framework that we will use as we go into the, you know, Investor Dinner and Investor Day , later in the year. That'll be the framework we talk about as we create shareholder value creation framework. And while I don't want to get too far ahead of myself and what we're going to say in Investor Day and talk about the years out, I do want to leave with three points. Number one, we are seeing better demand and faster attach than we ever have.
And when we say that, that means our customers and our retention rates are going to be stronger, and our LTV will start to approach the 80x we talked about at our last Investor Day. And we are really excited about the momentum we're seeing in the funnel and the demand we're seeing from our customers today. Now, number two, if you look at the efficiency we've been able to create through, you know, consolidating our technology stack and just making it a tighter experience, we're doing so using operating leverage that again will help us drive our margins into the future. And when we talk about exiting at 28% normalized EBITDA margins at the end of the year, that's the floor. Not the ceiling, the floor of where we're going with our margins going forward.
That ability to do so is based on what we're seeing from our customers, the ease of use of our products, and the actions we took in the first half of the year. With that, it just fulfills the model itself, right? We talk about a durable model, free cash flow that we generate, that allows us to make capital allocation choices, return value to our shareholders. We've authorized another $1 billion in our share buybacks. That's on top of the $3 billion we already had authorized. We're well underway. We plan on continuing to use that capital allocation strategy going forward as well. I just wanted to leave everybody with those three points out there right now.
happy to answer any questions on that, but thought it was a good framework to make sure, you know, we were talking about our customers.
I think you addressed everything.
All right, good. We're good. We haven't been around for 100 years. The previous, you know, presentation talked about that. I have to admit, we've been around a long time, but not 100 years.
Yeah. It'll be interesting to see where the internet is in 100 years.
That's right.
All right, so let's dig into all of that. Let's start kind of near term. Kind of one of the biggest questions we got from investors coming out of 2Q earnings, just been understanding the bridge, right? And understand all the excitement, all the things we're throwing out here. You know, growth right now is in low single digits, kind of 3%. You're talking about a 7% exit rate in 4Q. Margins are ticking up also between 2Q and 4Q. So just start in the next couple quarters as we get through the year, and how we're bridging from 3%- 7% and the improvement of the margins.
Yeah, absolutely. You know, we talked about coming out of Q1, certain actions we were going to take and the certain headwinds we were facing. And I'll start with, we feel the, you know, the core GoDaddy business in and of itself, and I'm saying business, not segment, is operating at a run rate that gives us comfort that we will get to there, right? The way I like to reconcile it, because everybody, I think, likes to do a little math. I think I've been teased a little bit that I keep saying it's just math. But when you look at FX impact from the hangover last year that we've talked about, and it's always good to remind people, everything starts with bookings for us and then, you know, amortizes out into revenue.
So the bookings last year, which was impacted by FX, is rolling out as we speak. So that's a little bit of a headwind as the year goes on. So we like to say a point of FX headwind coming out of last year. We had a point of FX in the quarter in and of itself that impacted us. We had the aftermarket tough compares, which was about a point. So you keep on adding the points of comparison, and you get to that run rate. As the year goes on, we'll have that acceleration. The comps get better, you know, the actions we took start to, you know, kind of roll themselves out. The FX starts to roll themselves out.
The pricing actions we took at the end of Q2 will start to have a tailwind for us as we go throughout the year. That's why we feel really good about the momentum coming out of 2023 and going into 2024.
Okay. I'm asking for another bridge. It'll probably be less math than-
Okay. All right.
More-
I like bridges.
So we're going from 3%-% 7. You know, you've been striving more for double-digit growth. You talked about, you know, we'll have an investor day. I'm sure we'll kind of reset some of those targets. So I'm not expecting 2024 guidance or anything like that, but just a little bit more to where you kind of want to be as we go throughout 2024. What are the factors?
Well, we look at the momentum of the business. Again, we knew with the first half of the year we were going to have to take some actions, and, you know, we were going to have to integrate some platforms when we talked about, you know, tightening our core technology stack. That was we're going to create headwinds in the short term, and we felt this was the right time to do that because our product offering to our customers today is a lot more broad, and therefore, the ability to attach and bundle in a core platform becomes a, I would say, an accelerator for us, because those platforms now are easy to use, easy to manage, better to price.
So that gives us a lot of momentum around acceleration of revenue as we go forward. Now, in the short term, definitely hit some headwinds. Anytime you integrate a platform and you're taking customers from one platform to another, you're naturally going to see some wear off of customers, right? They will churn. But those churns are relatively what we call low-value customers. They weren't doing a lot with the platform anyway. And on the flip side, we're seeing gross adds higher than we've seen in years with our top of the funnel, and this is where I came in in the beginning statements, and they're attaching a lot faster. So now that's coming in, you have customers that are doing things with higher intent. And when we go from, you know, domain to......
Email to website to now payments, that creates a lot of momentum in that operating efficiency we continue to talk about. Now, we had to take those actions in the first half of the year. That was just the right thing to do. We had to sell off a couple of small non-core assets. We did that at the end of the quarter. Once you start to take those out of the equation, yes, you have that acceleration of revenue growth and, and that efficiency in the operating model that we keep talking about. Now, I won't get out ahead of myself into 2024, but we really like the ability to accelerate. And, and, you know, again, it has to come through bookings first. And, and as our bookings start to show that, that acceleration, obviously, that will help us with the revenue.
Now, there are areas like transactions that we're going to be doing through payments. Some of that will be transactional, so over time, we'll gain a lot of momentum. We're seeing a lot of activity in converting, but that'll take some time, and it'll add to that subscription revenue as we go on.
Right. Okay. Then what, kind of what you called 100,000 high-quality customers that you added?
Yeah. Yeah. The 100... That's the net number. And, and I would say, as we go through, you know, having more better high-quality customers that are willing to spend and transact, it, it is where we get that LTV on a long-term basis.
Got it. You've been, you know, pretty positive on the macro, and I'm sure we'll hear about the macro a ton over the course of the next few days here. You know, what's shifted in the macro for you guys? Do you think it's more kind of the actions that you've taken, or is the better environment for SMBs? What are you seeing there?
I think if you look at least our micro businesses, we're seeing a lot of optimism around their ability to do business, and they feel more positive than they ever have in their ability to connect with new customers, and I think that is generating a lot of momentum within our customer base. I always like to use the example. We were out meeting a customer, and, you know, she has a store. She just opened her first offline, you know, in-person store. She had been doing business in her living room. She'd been importing, you know, materials and then selling them. Now she's selling them in store and globally. They opted to rent the storefront to increase their business rather than buy a house.
They believed in their business that much and their ability to do it. And that, to me, speaks to the optimism that the small business, I call them the underdogs. The underdogs are having a lot of optimism that they can get the customers through multiple platforms, multiple channels, and do so in a way that is easier, and that's what our products help them do. And that really, I think, is a difference from what we saw, you know, in the macro environment, you know. I would say a year or two ago. And when I say the demand we're seeing, we've seen spikes in demand over the last couple of years. We've gotten excited. Oh, we saw demand. It's coming back, right?
Then a month later, you know, there's another spike in the pandemic. What we're seeing now is a lot more consistent demand, month to month, of people doing business, wanting to do business, and looking for ways to expand their business. And remember, the microbusiness, it's around 10 people, right? And they feel that they can get to more markets today better than they ever have.
Right. Okay. That's pretty reassuring, so that's good to hear. Understand on some of the dynamics for these micro businesses that are new, kind of digitizing their offerings. So that's pretty interesting, too. I want to stay on this point for a little bit more, just-
Absolutely.
We'll dig into the domains specifically a little bit later, but, you know, you've got this big domains business, and, you know, now you've got this big kind of commerce business around it. How do you think about your funnel and how your funnel supports that conversion flow? Are most people still coming to you first through the domain side? Are they coming through the web builder side? Are they coming through both?
Yeah. We finally connect with the customers across multiple platforms today. Domains is still a big part of that. There's no doubt about it. Domains is still a big entry point when people are thinking about doing something. We like to say dream. When they're dreaming about something, they go to their you know, what domain name should I get? What we're seeing, though, is they're you know, moving to that second stage a lot faster than they used to. And that's where we say they have a higher intent when they're coming in to do business.
Now, the way our technology stack works, and we've talked about it a lot, is you can actually start transacting with the domain now, and that allows people to say, "Hey, I have a dream." I always use the example myself, you know, I own markbaseballcard.com, and if I want to sell my baseball cards, I don't have to do anything now. I just have to go somewhere. I have a domain name, and I can start transacting, and that'll go right to my account. That creates that atmosphere of seeing the outcome of the actions I'm taking of my dream a lot faster, and then from there, you get into the, "Okay, now maybe I'll just do a website." So we're seeing, I would say, it's not a linear path like it used to be.
It's more of a, "Hey, where can I transact? How can I transact? Oh, do I need a website now? Oh, now I want to use social media platforms. How do I incorporate, you know, my website into those?" So we're seeing a lot more of, I would say, the wheel than the linear funnel that we used to. And that's why we came up with the Entrepreneur's Wheel , because it's not as linear as it used to be, but domains continues to be-
Okay.
a good point of entry.
Okay. My two sons just did a roadside stand right outside our house this weekend and sold their baseball cards. Maybe I need to get them a Payable Domain.
You need to get them a Payable Domain. You can get them a little device that they can accept payments for, you know. But you can do that so efficiently now, and you know, it's not a bad thing.
Yeah.
I mean, you could... I, I've bought all my kids' domain names, right? And someday they may do something. My daughter is in law... She's a lawyer now. She practices at a firm, but I have all the versions of her law firm in her name, so when she goes into practice, she can start, you know, accepting payments immediately.
Right. You'll get a few net adds after this.
All right.
... Okay, just one more on that point. You went to a freemium model a few years ago now?
Yes, yes.
Has that been a big factor in this conversion drive?
It still works very well. We do free trial and the freemium model. So free trial, we give people access to some of the, you know, the functionality we have on a broad base, so, you know, they know what the our platform is capable of helping them with. And then they can choose the freemium or go up tier and based on what functionality they want to use. So it's working very well, and the conversion rate is very good. I would say what we've now done is allowed, even in the freemium model, for them to attach the payments. So we can make money as they transact, even though they're in the freemium model.
So again, coming back to this point of entry, this wheel can go in different directions, but, you know, at some point, for them to get to the value achieved, you know, we get to the value achieved as well.
Okay, great. So let's dig into the web builders. You've got two main products, right? GoDaddy Website Builder. Are you still calling it Websites + Marketing ?
Yes, we're still calling it-
But externally, it's GoDaddy Website Builder-
Yeah.
and then your Managed WordPress product. But how, how do these two fit together? Because, you know, often those kind of SaaS CMS platforms are competing with WordPress.
Sure.
What... How do they work together? Why focus on both?
Yeah. So we look at it as two elements. We've had Websites + Marketing for a long time, very established business for us growing. It’s very easy to use, very. When you talk about the micro businesses, it’s very intuitive to get something set up, and as we’ve streamlined our technology stack, that even gets easier and easier using Websites + Marketing . Managed WordPress is what the pros use, so we gear that more towards the more complex pros and allow them to use that, and we want to be able to service them as well. Because again, they still need the domain name. They still need the payments. They want to use managed WordPress, and we want to be able to service that market as well.
So we look at it as, you know, one, from a Microbusiness standpoint, Websites + Marketing works very, very well, especially when you're first starting out, very intuitive. But as, as you get into more complex and pros want to use Managed WordPress, we have that ability, too, and it keeps them all within the Entrepreneur's Wheel . So it works very effectively, and, and it's not necessarily a competing customer we're looking at.
Okay. Do people ever switch as they, as they scale?
It will happen sometimes. I don't know if we track it, you know, how much or how it'll, how it works, very efficiently. It will happen, but most of the time, we see once someone sees the functionality they get and they get comfortable with it, they will stay with it, within that product group.
Okay, got it. And I don't know if you're willing to share this or can, if you've disclosed it in the past, or... Is one growing faster than the other? They're kind of similar move at-
Haven't gotten into that. I would say they're both doing very well, and especially now with payments and our ability to attach the payments right to both products. We're very happy with the momentum we're making within that.
Okay. Open up with your kind of customer, kind of address on, on where your customers are. You've always talked about microbusinesses. Why, why is that the right place for you? Do you feel like you compete in other places, or you just want to own that kind of microbusiness piece?
We, you know, being where we came from, domains, the microbusinesses has always been what we've known for, what we've had a right to play in. It's a natural entry point for us. It's what we're known for. So, grabbing customers at that early stage is something we do very well. In the past, you know, when we were just a domain, you know, we just offered domains, customers would go elsewhere to get other functionality. And we always believed that if we could keep them within our entrepreneurs wheel, then we can really get to that value proposition. And that microbusiness is where we've always targeted, and we will continue to target. Now, what we have now also that we never had before is the ability to go upscale.
So as we look at power sellers and people who are doing more transactions, we are seeing our ability to move up. But when you look at the low-end SKUs of the competitors in the website business and our high-end SKUs, you still have a pretty big gap. So we feel right now we are well positioned in the microbusinesses. This is someplace, you know, we've done very well at. We have 21 million customers. You know, coming back to the, you know, we have nearly 14 million interactions with them every year. That is a place that we feel very good at, and it allows us to move upstream without getting too much into some of the other SKUs that other customers, other competitors have.
Got it. Okay. Let's hit on the, the Worldpay partnership for a second.
Yeah.
It's still early. Anything you could share on that? And how does that or does it change the type of customer that's coming in to your platform?
Yes, it's very, very early. We're very happy with it. We said when we announced it, that we would launch in the second half of the year, minimal impact for 2023. We'd talk about 2024 more when we got closer. We're probably not close enough. I'm going to talk about it for the impact on 2024, but all the milestones for launch are being met. What I love about this partnership is when you think about Worldpay and their customer, it would have taken us a long time to focus on that level of customer and bring them into the funnel. It gives me access using a partnership with a sales force that is going to sell our technology out into the market.
It allows us to focus on the opportunity in front of us and converting our 21 million customers over to our payment platform at the same time. So without having to go into, you know, changing my sales and marketing engine to address another market, this partnership allows us to do that, and we were both at the right time, at the right place, I always say, when we were forming our technology around payments, and they wanted to see what it was doing, we were able to do so on a basis that we didn't have to create multiple platforms and others, in order to service their market. So we're—I feel really good about it.
Again, minimal impact on this year as we're getting it launched, but it allows us access to a market at the end of the day that it would have taken us a few years to get to.
Got it. Maybe one of those things that bridges you to that double-digit growth next year.
Yeah. Thank you for saying that.
My, my words.
But I love it. I'll quote it.
Going to the pros for a second be cause that's been a big area of focus from your kind of peer group, collectively. So you guys have GoDaddy Pro, you have the WordPress product for them. How's that roll out? That product is still relatively new, right? A year and a half or so.
Yes.
How's that going? How's it contributing?
So it's contributing, right? To your point, it's a relatively new product that we're building out today. We've talked about a lot. We're gearing it towards the pros and making their life easy, making life more self-intuitive. I would say it's early stage in a website builder. We've had Websites + Marketing a little bit longer. We've seen the progress around that, and we're happy with the momentum we have in the Managed WordPress, our ability to build out that technology, where we see that technology going. We're getting a lot of positive feedback on what we've done in the last year to, you know, make sure that platform is operating to the pros' needs, and we'll continue to do that.
Okay. I had a question here on the bundling of the commerce product. You talked about both at the quarter and just now, coming at kind of a record pace. You know, you're seeing better growth there in the Applications and Commerce segment. I think that's a big part of it. Anything to add on the bundling and the impact, you know, where you are and, you know, what it could do?
Yeah. Absolutely. One of the great things about integrating our technology stack more tightly is our ability now to bundle easier, more easily with our customers. When you're on different technology stacks, that becomes, you know, a little trickier because you have different SKUs, and you have to go to different platforms to combine things. But this allows us now more bundling opportunities as we go forward. When we look at the response that we've talked about and the ability to attach faster, what we're seeing, you know, that's what we're seeing in the funnel now, it's just more intuitive.
As we'll look at things and what we're starting to put into the domain itself, at the end of the day, we're bundling functionality a lot faster into the domain end of the things, which, you know, hey, we're the only one in the world that have the entire technology stack, from domains to payment. We own the pipes for everything. So that allows us to make that a shorter process, and the example I always like to use is, you know, okay, we talked about it. You can take payments now on your domain. That takes a lot of pipes to develop to get there, but that bundling capability is now very powerful. We've talked about, you know, I can't get out of a conversation without generative AI, but the ability-
We'll get there.
Yeah, I know. I'm a little teaser, but the ability now to offer the website just with the domain name right away by clicking a button, you know, that bundling and that attach just becomes much more efficient, and that's when our LTV starts to go up. Now, we talk about pricing a lot and, you know, our ability to price and what pricing actions. As this all becomes more intuitive, it gives you more flexibility on pricing, too, because the more value the customer is getting out of the bundle, the more, you know, value they're willing to pay. And we're still at that price point where they're getting a lot of value out of what we're giving them today.
Okay. Well, we'll dig into all that. GoDaddy Payments, still relatively new. Is that, is that the common driver? Yet, you know, it's flowing through the numbers at least a little bit, but in terms of attach and kind of sell through, you're getting great adoption.
Yes.
What are you seeing there?
Yeah. So, you know, we are seeing the attach rates when our customers are coming into the funnel extraordinarily strong, choosing GoDaddy Payments over any other option. We still offer other options, so they have a choice. But the one-stop shop, simple to use, intuitive application at a better price point is become really attractive. In our existing customer base, you know, we've talked about it in the prior quarters, we are seeing our existing customers convert over. That was always a muscle that we thought was going to take a little longer, especially in the U.S. We're seeing that happen more effectively. So you're seeing that show up in our GPV numbers, because those are customers that are not starting out.
They're not your kids, you know, starting to, you know, sell their cards on the block, and therefore-
Right
... it'll take two years for them to get the quantity. But they're customers that are coming over that are already, you know, have big businesses and transacting, and that acceleration has gone very, very well for us, to the point now we're launching in Canada, coming up here, and that'll be the next step, right? We got the playbook going in the U.S. We got the muscle developed around how do we convert customers, and now we can start applying that to other locations that work very well. So very happy with the progress.
It is very early, but it is one of those, the more customers you get on, the more momentum you will have over a period of time, and that's what gets us excited, is we see the transactions coming in, we see the GPV being very strong, we see people converting, and you start at a base, and that base just keeps getting bigger for year to year.
Okay, excellent. So, payments only in the U.S. right now, coming to Canada soon?
Yes.
Rest of the roadmap?
Yeah, so we'll do this, you know. Unfortunately, payments is not one of the things you can just launch globally.
Yeah.
You have every country has a different regulation, different requirements, so we're trying to go to the ones that are easier, that we can just flip the playbook. Canada is a great market for us. We'll continue to do that one, and then we'll expand out from there. We haven't disclosed what the actual, you know, I would say, country-by-country launch schedule is, and there is a reason for that, too. We will evaluate it, depending on what's going on in the macroeconomic environment, and we will make changes based on what we see. Right now, we feel good about, you know, hey, Canada is a good market for launching right now.
Okay, great. On pricing a little bit, you see, you talk about the value that you're giving customers. We're seeing pricing across the board from you guys and your peers. Can you talk about the pricing component where you see the opportunity and, you know, for me, kind of the businesses have developed so much, went from just offering a domain to just a website.
Oh, yeah.
And now you're kind of running your whole website and, you know, for $30 a month, whatever it is, on, on average, it's great value for, for a business. How do you see the pricing?
Boy, that was a great lead-in, by the way.
It is a great value.
If I answered the question, we can move on. So pricing is definitely something that I think, as we've seen in the markets, you know, I won't say we're the only ones doing. We've taken pricing. We took pricing last year, we're taking pricing this year. I would say the difference between the two is last year, we took it at the end of Q1. This year, we're taking it at the end of Q2. We're also doing it on new and renewals. So it takes time to flow through the system as we do pricing. That's just the mechanics of it, so everybody's aware of that. Retention rate is something we really, really monitor because that 85 mark, you know, we wanna stay in that neighborhood because that drives the LTV over time.
But, you know, when you look at our ARPU, you know, and our customer base, we're still, you know, I come back to what I said at the beginning, we're very cost-effective for people wanting to do business, and that's why our retentions are strong. That's why, you know, our care organization does this very well. The more value we start to bundle into that, you know, that to us, gives us the opportunity to say, "Hey, if you're getting more value and you're getting the value achieved, then we have more pricing leverage as we go forward because it's still cost-effective for you." That's why we get excited about the ability to, you know, integrate the technology stack and get that attach going very well. But pricing is a lever, there's no doubt about it.
You know, but you have to do so in a manner, in our mind, that we are really looking at the customer value they're getting, make sure it's in line, and that we monitor that retention rate to make sure we are staying, you know, within that LTV calculation that we always talk about. You know, at the end of the day, this is a durable model that will drive that lasting long-term value, and making sure you have the balance between the pricing and the retention becomes very, very important for us.
Right. Okay. All right, let's talk about AI.
Yes.
We won't over-focus on it, but, I think one of the biggest questions that comes from investors is if you're seeing any noticeable impact on your business one way or the other. So that's one thing I think we should talk about. And then you guys have launched a number of products.
Yes.
Maybe highlight the ones that are the most important and what it's doing for your customers.
So I'll take this back to a customer story. You know, sitting there when we launched some of our AI functionality into our websites, and specifically the functionality around, you know, it would upload a product description automatically based on, you know, reviewing all the customer's information, details, and types of products. So we're sitting there with the customer and we said: Hey, what would be really valuable to you? And he said, "Oh, I spend so much time doing product descriptions. I have 1,600." And we said: Well, are you using our AI functionality? And remember, we're in a market that, you know, micro businesses, these are food trucks, these are little mom-and-pop shops. And they said: "Well, like, where is it?" We say, "Hey, that, you see that button there that says Auto Product Descriptions?
That's actually our AI functionality." And in this case, the daughter, who was looking over her shoulder, goes, "Mom, this will never work. Like, we are too particular about our product descriptions. We... You know, this - there's no way this can work." We try it, she hits the button, auto-populates all the descriptions exactly the way they wanted. That is the functionality and the value we're starting to see, and again, it comes back to that value achieved, getting them to be able to reach out to the customers more, and that's the interactions we're starting to see. When we like to talk about AI and generative AI, in their mind, it's just easier in getting them to a better answer, right? The other one we're seeing very commonly is, you know, coming back to the underdog.
They have to connect with their customers a lot faster, and they're dealing with multiple social media platforms now, and they get messages coming in, and most of the time, they don't wanna wait to respond. They need to engage their customers a lot faster. In our functionality now, we create the response for them, and they can go in and edit it, right? But they're starting with the base of a response. And when that happens, they're able, anytime, at any point in the night, to respond to their customer. For them, that is a valuable tool because they're competing with, like I said, bigger players with more resources.
Once they have that customer, they want to establish that relationship, and that's where a lot of the generative AI is starting to take hold within our marketplace, and those are things that are launched. Like, those are things that are in play right now, and we're seeing more and more engagement within our customer base around it. Now, I always laugh because my original question of, "Hey, have you used our AI functionality?" And they look at me like: "What are you talking about?" They don't necessarily make that connection right away, but that's, in essence, what they're doing. And then that comes back to... So they're getting more value out of our tools right now, and that creates that durable model that allows us to drive that LTV over.
Okay. So when Gen AI kind of broke onto the scene, the big fear from investors, and I think it's kind of cooled off a little bit, but was either something new was gonna come out and displace your business, or one of the bigger guys, you know, or Microsoft, is gonna create a product with their Gen AI technology that will kind of, you know, do the same thing. So fear on both ends of the market. What do you see that as a risk, or if not, why not?
It's funny. Yes, there was a little bit of, I would say, narrative going on there earlier in the year around all this. You know, creating a landing page versus creating and running a business are two separate things. We help our customers engage with their business. We've talked about that a little bit. While, you know, people will make this more efficient, like we've made our website development more efficient, so now you can just launch it with a domain name and have a website a lot quicker, you still have to attach it to the underlying business to make sure you're getting value out of it.
When we talk about our business in and of itself, and you know, we'll use the statistics, 21 million customers, 25% of, you know, nearly 25% of the internet traffic passing through our servers, nearly 14 million interactions with our customer care. That's a lot of data. And that data, you know, helps, you know, that learning process to get AI more effective, and we have that, right? And that is a valuable tool for us. And again, coming back to why we felt it was so important to integrate our technology stack this year to make sure that was in a easy to use, easy to monitor, something that we could really drive the value. That, that's where we see our big opportunity going forward.
Okay, excellent. We'll open it up to questions in a few minutes. But let me just ask a couple quick questions on time. So just broadly on domains, you guys are the largest domain registry. You also operate a registrar business, got the aftermarket business. You grew your domains under management 3% in the quarter, and it was, like, better than the market in general. How are those businesses working together, and are they giving you an edge?
Yeah, so, you know, this is a place we've had a right to play for years, and we continue to be, you know, I would say, innovative within the domain space. Adding functionality to the domain itself creates a big advantage for us. The aftermarket, well, you know, we've talked about it a lot. It still is a $400 million+ business for us that allows people to get the names that they couldn't normally get to. So we see a lot of momentum. It's not gonna, you know, grow at the pace that we see applications and commerce growing, but it's still... You know, once we get to this normalization and the comparables get easier, we're gonna be able to see that be at a steady, growing business.
Now, things like domains, the aftermarkets, there's always going to be a little bit of volatility. You know, I would say .ai is very popular right now, if you can imagine that, right?
Yeah.
There will always be little drivers that help the momentum there in that business. And again, we offer—I would say—a differentiated domain name now in that, one, you can take payments, two, you can go to an aftermarket to get a domain name that might not be readily available. Now you can just pop up a website based on the functionality we're building, and we're talking about. Can't wait to talk about that at our investor dinner in November, a little bit more. And I think that creates that base for that, you know, our ability to build off that. And you know, coming back to the technology platform is all integrated now. So our ability to take the domain all the way to the payment is very, very easy.
So again, when we see the demand coming in with higher intent, I, you know, our belief is they're coming in because they know this functionality exists and starts with the domain name now, and that creates an advantage for us.
Okay. Then just remind us when the tough comps that aftermarket fully lap?
So the hard ones were Q1 and Q2 for this year. Q3 is a little bit better. Q4 probably gets more to normalized, which again comes back to the first question of, hey, that, you know, the acceleration in Q4, how are—what are some of the levers you're seeing? That's when it gets easier for comparison.
Is there a macro dynamic in that, or does it just kind of depend on what's going on?
So yes, there is a macro dynamic, and this is the only part of our business where we don't set the price. So the price is set by a buyer and a seller coming to a valuation agreement, and whether they do that or not is out of... Yeah, we try to facilitate it, but they have to make the decisions themselves, and then we facilitate the transaction on our platform. We are seeing, you know, that volatility in the market where valuations in and of themselves are, you know, a little questionable. We think it's gonna stabilize and be normalized going forward, but right, in the macroeconomic environment, that is definitely one, because we don't control the pricing on it, that we saw a big fluctuation, especially at the higher end-
Okay.
of the transaction.
All right. Well, let's open it up to investors. I think there's a mic that'll go around. I still haven't asked you any of the tough CFO questions, but maybe some of the investors will.
Maybe I should get my mic back on before I do anything.
You got scared on that.
Yes. Hello, good morning. First question, can you remind us the take rate on the payment products? So on the volume, what do you take?
I don't... 2.3%.
Okay. And so for the clients that have payments now, what would be the increase in revenue? Like in ARPU, what would be the same store sales growth of those clients? How much more do you earn from those clients?
So, I think when we look at going through the stack, and I think the number we've disclosed is when we go from domain to email, to website, to payments, that becomes an 80x LTV for us over a period of time. So that's how we measure it.
Mm-hmm.
Still early stage on it, but, but we believe-
Yeah
... that'll be the driver of the 80x, and we-
Gotcha.
... The 80, I'll go with the 80x until we have an investor day, and I'll take that number if-
I was trying to bridge from the three to the seven, that if the new clients same-store sales revenue were at three and now they're at 10, with all that, those products, now it would be much easier to go from three to seven.
Thank you for bridging that gap. That's awesome.
Well-
But you're hitting the right point, is this is a something as time goes on, builds momentum around the payment and the transaction, which, you know, makes us feel really good about the acceleration of growth. Because once we get into, you know, more transacting customers, converting our existing customer base over to our platform, and newer customers that we're, we've talked about with higher intent now building businesses, it becomes a bit of a snowball effect. And when you talk about our ability to increase our margins, A and C, our segment, is at higher margins.
The more that grows, the bigger part of the pie, and again, coming back to, you know, some of it's just math, but as it gets bigger, it has a bigger impact on our overall margin profile that allows us to feel good about accelerating our operating margins over the long term.
In terms of the payments, is there an effort to migrate people from kind of the retail pricing, the 2.3%, to something that's more SMB or institutional eventually?
No. We, we feel really good at where our pricing is today, and, and, you know, again, we own the pipe, so we, we do it based on what we, you know, the value we're, we're giving our customers and our, our ability to be profitable. No, you know, 2.3 is our stated price. Will we ever decide to do anything? I don't want to get out into that, but-
Sure.
But right now, we feel really good about the pace, the GPV we're getting, the 2.3, and the value proposition we're offering our customers. You know, remember, I'll come back to the underdog, the microbusinesses, their ability to make a little bit more money because they get a lower fee from us. And that is a big deal in the marketplace right now, when everybody else is calling them and saying, "Hey, you need to pay more on this," and they, you know, "Oh, price of this is going up," we're one of the few that are calling them and saying, "Hey, we can save you some money here. Just let us take care of it, and we'll convert you over." So...
Thanks.
We, we have... Okay. Just on the AI, so the added value is really real for your clients. Would you, would you have a specific pricing line for the AI product, like, not included? Like, it's included, you will bring more clients, but really charge a, a specific line for AI.
We haven't gotten into how we ultimately put this through our pricing. I would say it comes into our ability to bundle and how do we bundle it as a-
Mm-hmm.
as an entire package and functionality to our customers. We've, you know, not talked about line item by line item, how it would roll out, but we have acknowledged that the more value they're getting out of it, the more value they're driving, the more it gives us the ability to, number one, keep our retention rates, and two, you know, get value achieved on our own.
That's our time.
Wow!
You're off the hook on the tough CFO questions.
Sure, you know-
We'll do that next year.
We can do that next year. Yeah, we'll be here all day. You can come back.
Thanks for being with us, Mark.
All right. Thanks, guys. That was great.