Good afternoon. My name is Jesse, and I'll be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy Q3 2018 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Christie Mason, you may begin your conference.
Good afternoon. Thank you for joining us for GoDaddy's third quarter 2018 earnings call. With me today are Scott Wagner, Chief Executive Officer, and Ray Winborne, Chief Financial Officer. Scott and Ray will share some prepared remarks, then we'll open up the call for questions. On today's call, we'll be referencing both GAAP and non-GAAP financial results and operating metrics, such as total bookings, unlevered free cash flow, net debt, and ARPU. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our investor relations website at investors.godaddy.net or on our Form 8-K filed with the SEC with today's earnings release. Unless otherwise stated, when we refer to organic measures, we're referring to those measures excluding the impact of HEG and Main Street Hub.
The matters we'll be discussing today include forward-looking statements, which include those related to our future financial results, new product introductions and innovations, our share repurchase program, and our ability to integrate recent or potential future acquisitions and achieve desired synergies, including our acquisitions of HEG and our recent acquisition of Main Street Hub. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Actual results may differ materially from those contained in the forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, November 6th, 2018. We undertake no obligation to update these statements as a result of new information or future events. With that, here's Scott.
Thanks, Christie Mason. Thanks to all of you for joining us today to discuss our third quarter results. We're in an environment where it's never been more important to take an idea, whether it be a business, civic organization, or community event, and not only get that idea online, but to enable that idea to grow and thrive through an integrated tool set and experience. We continue to execute on our vision of making GoDaddy an indispensable partner for entrepreneurs as they create a digital presence that both drives their idea forward and creates pride in their work. Our third quarter results reflect our execution on that strategy, with revenue up 17% year-over-year and unlevered free cash flow growing even faster at 28%. Today, we'll spend time on three topics. First, the progress we're making in our online presence applications.
Second, an update on our customer experience, both frontline customer touchpoints and at the infrastructure level. Finally, Ray's going to cover our continued financial execution. Before we begin, at a broad level, GoDaddy is about ideas coming into the world and representing both our customers' ventures and their journeys in authentic and compelling ways. As part of that, we're thrilled with our new partnership with Ayesha Curry, one of the most successful food entrepreneurs in the world, with over 7 million followers on social media. Ayesha is the perfect example of an entrepreneurial doer who started her business from scratch, juggling that and an active family. GoDaddy will be helping Ayesha launch her latest food-related venture in 2019, We're excited to be in a position to evolve our brand and customer experience together.
While we're excited to be affiliated with known personalities and celebrity icons, you'll also see that our messaging to the world celebrates our 18 million-plus customers, their ideas, and their everyday entrepreneurial journeys as well. Now, moving to my first point on presence with GoCentral. The themes we shared with you last quarter have continued, including improvements in mobile use, customer retention, free to paid conversion, and rising Net Promoter Scores. We're continuing to add significant features to the website builder and its broader application as an online presence engagement tool. We recently added Yelp as a partner for our expanding presence solution, making it simpler for businesses to create their Yelp profile and claim their business listing right from the GoCentral dashboard.
We've also added marketplace syndications for product commerce to both post and sell products across Amazon, eBay, Etsy, and other major marketplaces from a single GoCentral dashboard. As we've partnered with these and other platforms, we're building out a streamlined process to quickly add new points of presence, allowing us to accelerate our pace and depth of new third-party integrations as we head into 2019. Another important development in our presence offering is our recently closed acquisition, Main Street Hub, which is our platform for assisted branding and social media engagement. We're four months into the integration, and while we still have a lot of work ahead of us, we're seeing early points of validation of our original acquisition thesis. We can bring a ton of know-how to our customers with assisted services for both site building and social media management through this integration.
Ultimately, there's real value in cultivating our customers instead of just selling to them. Remember, everybody, part of the benefit and promise of GoDaddy is that we actually serve customers, and we're just beginning to unlock the ways that we can help our customers communicate to their audience. In our early efforts, we're seeing positive receptivity from our customer base, and we're encouraged by the potential. That all ties into my final point on customer experience.
While we often talk with you about what we provide to our customers, that is our products and their feature set, we're making significant strides in how our customer touchpoints align, whether that be in our marketing, our website, our individual product components and flows across our care reps and other points of engagement. This is a combination of both big initiatives and a lot of blocking and tackling basics that we're seeing lead to consistent improvements in success measures, with GoDaddy's Net Promoter Scores increasing significantly since we started this effort, and customer satisfaction scores at their highest in GoDaddy's history. While these frontline customer touchpoints are crucial, we're also making substantial improvements to GoDaddy's platform and infrastructure, which is showing up in our ability to iterate on both our product and experience.
With AWS, we've begun migrating workloads into the cloud on pace with our expectations. We're seeing the early potential around what it's able to do for performance, scalability, and flexibility. To give you one example of how this can change our speed, we recently deployed a product onto AWS's infrastructure and cut two-thirds off lead times that we typically have. That's on top of allowing our teams to focus more on the underlying software and application performance versus the infrastructure capacity itself. Before I hand it off to Ray, I'd be remiss if I didn't take a moment to recognize Bob Parsons, GoDaddy's founder, who stepped down from our board of directors in October. Bob was a pioneer in the industry and built GoDaddy in true entrepreneurial fashion, throwing his heart and soul into a dream while taking big risks.
GoDaddy is all about enabling entrepreneurs and people's ideas to start, grow, and thrive. Bob continues to epitomize our customers. He's now devoting his attention to a wide range of new entrepreneurial activities. Personally, it's been a true pleasure and honor to get to know Bob over the last six years. I, and we, thank him so much for all his contributions. With that, here's Ray to cover the financials.
Hey, thanks, Scott. I'll touch on the financial results for the quarter and the outlook for the rest of the year. We delivered another solid quarter with great top-line performance and strong growth in unlevered free cash flow while continuing to invest for the future, including closing the acquisition of Main Street Hub earlier in the quarter. On the top line, revenue came in at $680 million in the quarter, growing 17% year-over-year or 14% excluding the impact of purchase accounting and Main Street Hub. Underlying growth was in line with the second quarter and reflects strength across all segments of the business, with particular outperformance coming from domains on the back of strong registrations and aftermarket sales. International revenue was $236 million in Q3, growing 19% year-over-year or 15% excluding the impacts of purchase accounting. Foreign currency headwinds were negligible on Q3 revenue.
Bookings grew to $742 million, rising 11% year-over-year or 12% on a constant currency basis. Let me touch on a few things related to our bookings trajectory. First, as the U.S. dollar strengthened midsummer, we saw currency flip from 130-basis-point tailwind in Q2 to 110-basis-point headwind in Q3. That effect is obviously magnified in the international results. Second, as we've mentioned in the past, we are continually testing merchandising tactics to improve the customer experience and customer lifetime value. Some of these will impact bookings and revenue in the short term, but are good for the long-term health of the customer and, in turn for our business. While this will show up in all regions, it will likely show up more in international, as we prefer to test and iterate within smaller controlled segments before launching initiatives more broadly.
Finally, though it's still a relatively small piece of our business that's been growing quickly, we've seen some softening in China that led to a little less than a point of deceleration in Q3 total bookings. Moving on to key metrics. Customer growth was solid at just under 7%, bringing the quarter-end customer base to 18.3 million, including eight million international customers. We've added 1.1 million net new customers in the past 12 months, reflecting a mix of strength in gross new customer adds and slight improvements in retention. ARPU rose to $145, up 9% year-over-year, with growth favorably impacted by the effects of the HEG acquisition last year. ARPU grew in the mid-single digits on a more normalized basis. With lifetime customer value at 10 times the cost to acquire customers, our unit economics remain robust and are a source of value creation for shareholders.
We've been leaning into marketing spend, particularly as we find strong returns in conversational marketing, where we are evolving our ability to more precisely target the need states of our customers, present the right message, and meet them in the right channel. Through this and other efforts, we're creating incremental capacity for go-to-market spend through both product on-ramps and spending into our base. Unlevered free cash flow for the quarter grew 28% year-over-year to $176 million. Unlevered free cash flow margin was 26%, reflecting solid flow-through on top-line growth. One point on cash flow, you'll notice that CapEx was light in Q3, which was due more to timing of planned spend, but we expect that to bounce back in the fourth quarter. We remain early in our transition to the cloud, and we don't expect to drive any meaningful leverage in CapEx in the near term.
With respect to the balance sheet, we finished Q3 with $852 million in cash and short-term investments. Net debt landed at $1.6 billion, or about 2.3 times net leverage on a trailing 12-month basis. We're on track to be at 2 times leverage by the end of the year, exactly where we said we'd be a year ago. Our priority remains taking advantage of the highly cash-generative nature of this business. First, through internal investment, second, through acquisitions, and third, via share repurchases. Given the strength of our balance sheet, our declining leverage ratio and financial capacity, the board of directors approved an open-ended authorization to purchase up to $500 million of our Class A shares. We're going to execute this in a thoughtful manner so as not to constrain our ability to take advantage of M&A opportunities as they arise.
We've had a strong year thus far, both in terms of top-line and bottom-line strength, as well as investments we've made in product, customer experience, and our platform. With that, let me turn to the outlook for the rest of the year. For revenue, as a result of strong third quarter performance and our expectations for the fourth quarter, we are raising our full-year range to $2.655 billion-$2.660 billion, implying full-year growth of 19% at the midpoint. For full-year unlevered free cash flow, we expect to generate approximately $620 million, implying 25% year-over-year growth. That reflects the impact of cash burn associated with Main Street Hub and investments that we're making in the customer experience, expanded business capabilities, and an acceleration in branding and conversational marketing.
As a reminder on our cash flow guidance, it includes total cash tax-related payments for approximately $25 million, excludes a one-time tax payment of $24 million associated with the gain of the PlusServer sale last year, and excludes cash interest payments, which we project will be approximately $85 million for the year. As we look to 2019, we feel great about the consistency of our results, which reflect the power of our strategy and execution. The framework of double-digit top-line growth and 18%-20% growth in unlevered free cash flow that we provided to you at our investor day holds true for 2019. We see this as a healthy mix of run rate top-line and bottom-line growth, plus investing for the future while continuing to accrete margins over time. Obviously, the last couple of months have been choppy in the markets.
From a GoDaddy standpoint, it's nice to provide mission-critical services for getting people's ideas online and making them great, which is a business that has defensible advantages. In an increasingly volatile world, there is a stability and consistency with GoDaddy that hopefully resonates with everyone on this call. Thanks everyone for joining us today. With that, let's open up the call for questions.
Your first question comes from the line of Mark Grant with Goldman Sachs. Your line is open.
Hey, thanks for taking the question, guys. A couple quick ones from me. If you could provide a little bit more color around what drove bookings in the quarter. You mentioned a couple of things, and we saw the change in deferred. Are you seeing anything in your go-to-market that is worth kind of drilling into there? On the conversational marketing side, you mentioned you're leaning into those initiatives and seeing some good returns. Can you talk a little bit about any potential impact to customer acquisition costs that you're seeing? I guess said another way, are those initiatives serving to improve customer growth, or is it more about driving intelligent upsell within the base? Thanks.
Hey, Mark. I'll start. It's Ray. I did highlight a few factors in my call comments on bookings. There were a number of factors at play, the changes in subscription term due to product mix and frankly, decisions we're making around the customer experience were the key drivers. Shorter term length is a conscious decision, as an example. In many cases, it results in a better customer experience. If you think about examples, multi-year renewals would be one, where we'd rather sell, say, a single-year subscription and have more renewal points when that comes around. That gives you an opportunity to sell more products at a more frequent interval. A lot of times, that serves the customer better as well.
It's Scott. Your second question, Mark, was around just marketing and how to think about the cost of customer acquisition going forward. The bulk of our marketing still is focused around customer acquisition, as you said, we're spending more effort about talking to our base, conversational marketing. That's still a relatively tiny amount of spend. We're happy with it. We're going to continue to grow that aspect and motion for us, it's still pretty small. If you look at our overall customer number, Ray had mentioned on a 12-month basis, we're up 1.1 million customers. Our gross new adds on a net basis for the quarter are good. From a customer add standpoint, both on a gross level and at a retention level, we're happy with what showed up.
As we've mentioned, we don't necessarily manage to that number, we're happy with the customer, both adds and retention. Great. Thanks. Ray, you mentioned the shorter duration there. When you improve the customer experience, as you mentioned, is that something that we can take as an indication that we might be able to see some improvement in that 15% customer churn number that you've talked about?
Yeah. Mark, over time, we've continued to see slight improvements in churn, particularly in the more developed markets. That's obviously where we're pushing every day to try to improve that, improve the experience, improve the retention.
Great. Thank you.
Your next question comes from Jason Helfstein with Oppenheimer. Your line is open.
Thanks. Two questions, apologize if it was covered. Been jumping between calls. I think this is the second quarter where bookings slowed on a year-over-year basis, ex FX. As part of that, we saw kind of deferred revenue to go down to 2% of bookings, which was obviously a big change from last year, so same kind of pattern in the second quarter. I guess, can you talk about, is there more of a shift to monthly versus prepaid that's causing that? If you think about the 12% organic growth on bookings, is that a reasonable rate going forward? I've got one follow-up.
Hey, Jason, it's Ray. Mark had a similar question. It is back to term as one of the key drivers there beyond FX and then, the softening in China that I mentioned. Both of those affect your change in deferred. That is where it's coming from. As you look at the longer term, obviously we've seen, call it 13% growth on revenue. Bookings has been slightly diverging from that. We're looking at double-digit growth as we move forward. That's what you should hear about.
Just a follow-up then for Scott. Should the company be increasing marketing spend to either add customers in existing markets or drive kind of a higher usage, higher ARPU from existing customers? Do you think kind of your capital is better spent on geographic expansion, either organic or acquired? Thanks.
Yeah. Thanks, Jason. I think the answer is both, right? If you look over time, we've accreted our unit economics. The average customer add is still quite profitable. It doesn't mean that you chase the last incremental customer everywhere, but a good customer who's coming in and is purposeful about getting an online presence, website, domain name, then connecting it to other applications around the world, that is a phenomenal economic customer. We're going to continue to focus on international expansion and growth around that. The great promise for what we're doing is obviously can we fulfill the full suite of needs that a customer's going to have, not only to start an idea, but to actually have it build up over time, which is about, how do we work with our own base of customers? The answer is both.
We're going to continue to try to be able to do both, but also within reason, about how things flow through the P&L and through a year.
Thanks.
Your next question comes from Brian Essex with Morgan Stanley. Your line is open.
Hi, this is John. Congrats on the quarter, thanks for taking my question. I wanted to dig in a little bit on Poynt. It looks like you may have acquired that business this past quarter. Can you offer some color around what that platform is, what your plans are for it, and how much demand you see for payments on the platform?
Yeah, thanks for the question. It's Scott. For those of you who may not know what Poynt is, it's a startup in the digital commerce space. What Poynt's going to allow us to do is kind of accelerate three different use cases around commerce. The first is to be able to sell digital goods and downloads via the GoCentral platform. The second is to enable our customers to have subscriptions, paid membership, and packages, again, that they're going to deliver to their own customers and audience. The third is to be able to create really a unified payment system, again, that are going to be extended to our own customers. Think about it as a lot of the capabilities that GoDaddy might have, and we're going to go try to help enable that for somebody who may only have a couple of employees.
Again, the focus for Poynt is going to be to build out the GoCentral platform, although each of the things that I described can also be an asset and a plug-in to WordPress. We're excited about having the Poynt team join us.
Yeah, I appreciate the color. It looks like you're rebuilding it on the platform. Is that correct?
I'm sorry. Rebuilding on the platform?
Rather rebuilding the Poynt platform on your platform.
Yeah, it's going to just be integrated into GoCentral.
Perfect. Thanks. I'll hop back in the queue.
Your next question comes from Brent Thill with Jefferies. Your line is open.
Thanks. Ray, just on the booking number, and I don't mean to beat this ongoing, but when you think about the shift away from year to shorter duration, can you just give us a sense of the allocation of what customers are billing for yearly versus a shorter duration? What the trend line's been there?
Hey, Brent. No, we haven't gotten into that level of granularity in the disclosures. If you look at the product mix, that's driving a lot of it. Particularly when you look at GoCentral, it's more of a monthly product. A lot of our WordPress products are monthly products, and as those are growing, they're becoming a heavier piece of the mix. Then we're using the care organization in different ways as well. Some of those are multi-year in the past, and we're starting to pull those in, again, back to customer experience.
Okay. If you go to kind of the three causes, I think there's a lot of focus on this metric this quarter. Is FX the biggest headwind if you had to kind of allocate a headwind among those three factors? Was that the biggest one that you would cite?
Yeah. FX was number 1 in the list. You've got your, China was almost a point in a slowdown, term is your other one.
In China, you don't believe there's any that's more macro versus anything that's happening on the execution side from your perspective?
Yeah. It doesn't feel like it's a GoDaddy specific issue from what we've seen.
Great. Thanks for the clarification.
You bet.
Next question comes from Matt Pfau with William Blair. Your line is open.
Hey, guys. Thanks for taking my question. Just wanted to follow up on HEG and if you can provide an update there. I know last quarter it seemed like acquisition had been progressing as you had planned, but you also sounded like there was room for improvement there as well. Maybe just an update on that business. Thanks.
Yeah. Thanks, Matt. Well, I think we were happy with where we were, and we were continuing to do the work, particularly to integrate HEG to a global product portfolio and a single platform. That work's going on. Again, good progress. We're managing to plan. Again, it's kind of hit all of its basic metrics, and the two priorities are single product portfolio that can be deployed all across the world, and then a global care model with an integrated platform around it. There's still work to do on it, and that'll last probably for the next several quarters, but it's moving along.
Great. That's it for me, guys. Thanks a lot.
Your next question comes from Deepak Mathivanan with Barclays. Your line is open. Deepak, your line is open. Your next question comes from Naved Khan with SunTrust. Your line is open.
Yeah, thanks a lot. I had a couple. Maybe just on the Main Street Hub acquisition, this was the first quarter you had it. Was the contribution on revenue and booking kind of in line with your expectation? I think you guided to maybe $10 million a quarter kind of run rate. We did not have any kind of guidance about the contribution on booking. How should we think about that? And is $10 million a quarter still the right way to think about it going forward until you relaunch it?
Yeah, it's Ray, that's exactly where you should be thinking about it. We called out a $40 million annual run rate, $10 million on a quarter, it's dilutive on an EBITDA basis, both of those are true in the first quarter. As we integrate the business, we're seeing good progress, as Scott mentioned in the call comments, it's gonna be into 2019 before we start to see anything meaningful coming out of that run rate.
Any contribution on bookings for the Main Street Hub?
Same as revenue. This is more of a monthly product.
Got it. Okay, a quick follow-up I had was just on the M&A front. I guess you're still sort of keeping that optionality open in spite of the announced buyback. Any updates on what the pipeline might look like now versus maybe in the last quarter?
I wouldn't comment on any specific target, but if there are assets out there available, you can assume we're looking at them. It's still a strong pipeline.
Yeah, in the broader context, this is Scott, is again, we're operating one of, if not the largest platform for small businesses and organizations, not only to just get their idea started, but hopefully build it up around the world. That creates opportunity for us to certainly integrate specific products and expand our geographic scope. We'll continue to look at both and do so in a judicious way that's gonna add value to our customers and to our position in the world and what we can deliver for them. We think there's gonna be additional opportunities for that. Obviously, that's our priority, and just given how the state of the world right now, we thought it'd be prudent to also have the ability to do buybacks on a judicious basis.
Got it. Thank you, Scott. Thank you, Ray.
Your next question comes from Mark Mahaney with RBC Capital Markets. Your line is open.
Okay, thanks. You talk about GoCentral in the deck about continued solid adoption rates. Could you quantify at all that ramp for GoCentral? Scott, just like the last two quarters, any early comments on synergies with AWS? Thank you.
Thanks, Mark. In terms of GoCentral shows up in our hosting and presence line, which on an annualized basis is going to be about $1 billion this year. Within that, there are a variety of hosted applications that are growing, but obviously growing slower and GoCentral's growing much quicker. We're not breaking out the difference between the two, but that's the split. On AWS, in terms of using AWS for our own product applications, again, quick example is we've cut lead times by two-thirds. Our dev cycles by two-thirds the amount of time in terms of deploying product code live into the environment, and that's just fantastic for our speed. We're continuing to work with Amazon on a couple of different things, and the GoDaddy's products into the Amazon ecosystem as well.
Mark, when you think about the full transition of the heavier workloads, it's going to be a multi-year effort. To Scott's point, what we're doing right now is getting the product development and the application development into the cloud. That's where we're really realizing the velocity and ease.
Okay. Thank you, Scott. Thank you, Ray.
Your next question comes from Mark May with Citi. Your line is open.
Thank you. A couple, please. On gross margins, you've continued to show nice improvement there. I wonder if you could just quickly remind us what are a couple of the main factors that are driving that, and how sustainable do you think these improvements are? Secondly, you've shown some nice leverage in terms of marketing and advertising recently, but it's now down to 10% or 11% of revenue or something like that, and I'm sure your payback periods are much shorter than what is probably acceptable.
I guess I'm just trying to get a sense for how willing would you be to extend those paybacks a bit, kind of lean into marketing, even in some of your more, quote, "established markets" in order to possibly test the market and maybe test growing the business a little faster than what you are at the expense maybe of short-term margins?
Yep, great questions. It's Ray. I'll start with the gross margin and then let Scott take the marketing. Gross margin's ticked up a little bit this quarter, after being relatively flat at 66% for the last year. All else equal, it's as we've said in the past, as the business continues to shift towards the higher-margin software products, we're going to see that drift up. I'd still caution you, as I always do on this call, not to model in accretion there, because we will take that and move it up and down the P&L based off of different investments.
Yeah. This is Scott. I'll take the second one on marketing. Thanks for framing it that way, Mark. We'd like to grow marketing, and we'd like to grow marketing faster than revenue as we head into next year. As everybody on the call, I think, really appreciates, our aggregate return on our marketing spend is fantastic. We're looking at two places on how and where we can continue to grow that marketing spend. The first is around pulling new customers into the franchise. Again, if you look at the quarter's results, our customer adds and retention and how they netted out were really attractive there, and part of that is how and where we've spent our marketing dollars, really over the last, both this quarter and the quarter before. Back to conversational marketing, which is actually going and addressing our base.
Again, we're seeing really nice signs of return there, and that's something that we're going to scale up in 2019. I think the nature of these two questions, which is gross margin accretion, how much reinvestment into marketing, is something that we've been managing, really for the last several years as a public company, which is putting dollars back into the business to grow our franchise, again, at attractive LTV economics, and looking at the relative reinvestment within different line items in the P&L accordingly to still kind of have a really nice top-line growth and still accrete to the bottom line. I think that's the philosophy as we head into next year that we're going to go forward on. Again, the idea of, boy, can we lean in to go-to-market spend a little harder? Yeah, we're looking for it.
Again, we're economic enough that we're not going to get over our skis. We'll test, learn, and when we find things that work, we're going to pick it up.
Thanks.
Your next question comes from Ron Josey with JMP. Your line is open.
Hi, this is David on for Ron. I was wondering if you can give us an update on the integration of Main Street Hub from a GoDaddy lead perspective.
Hey, David, it's Scott. We're in the process of taking the Main Street Hub service, which is social media and reputation management, and introducing it into the GoDaddy base. We're seeing a really nice return, as expected, around the introduction of that to a known customer base as opposed to in the wild. Really, we're in the still early stages of that journey, but we're seeing basically what we would expect. Now our work is to really take both website building, maintenance, and social media, wrap it all together, and have absolutely one offer and delivery system across both, because that's the difference-making thing in the world and in the market, and we're kind of building that product and delivery experience. If and as we do, it's going to have fantastic returns on the sales productivity. We know that for a fact.
Thank you.
Your next question comes in with Sterling Auty with JPMorgan. Your line is open.
Thanks. Hi, guys. We've had a couple of quarters over the last couple of years where the term length has been an item of focus. Just wondering with some of the comments that you've made, what's left? Is there a way to quantify, and I know it's probably impossible, but what the average term length is, or how much more impact could we see from further shifts in duration?
Hey, Sterling, it's Ray. Yeah, you're right. This has occurred over time for different reasons. A lot of what we've been doing now is back to the improving that customer experience and therefore retention. What we're talking about is days. I don't want it to make it sound like we've taken our term down by months or quarters. These are days, but when you apply a shortening of days to the size base, it matters on a year-over-year growth rate.
Okay. One follow-up, just maybe any color in terms of the business application, revenue line item 26%. Good growth, but we seem to be kind of tailing into that range that you've talked about in terms of the multiple times of domain growth. Just wondering what you're seeing in terms of O365 growth versus other contributions there.
Hey, it's Ray again. Really pleased with the growth this quarter, 26%, over $100 million a year or a quarter revenue line item now. We've continued to see good growth coming out of O365 and penetration on units. In long term, we continue to see this line item, not just productivity, but as we add products in here, growing at 3x to 4x on a customer growth. Been very happy with what we're seeing.
Okay. Thank you.
You bet.
Your next question comes from Sameet Sinha with B. Riley FBR. Your line is open.
Hey, guys, this is actually Lee Krowl filling in for Sameet. Thanks for taking my questions. Just a quick question on something you mentioned in your prepared remarks. You guys kind of talked about testing merchandising tactics internationally. Just on that front, can you maybe talk about whether or not the competitive landscape has changed internationally and maybe if that's made it perhaps a little more difficult to do these tests against a more competitive suite of products out there?
Hey, Lee, it's Ray. No. It is so fragmented when you get outside the U.S., particularly in some of the smaller markets, is where we test these merchandising tactics that it's something we absolutely do on purpose because we don't see the impacts from a competitive standpoint.
I think more broadly, just thinking about standing in the world and how and what dynamics happening, I don't think there's anything substantively different. If you think about the traditional web services companies, that is a fragmented array of different companies that at this point, we love both entering and sort of taking presence and share from that audience all around the world. If you think about just different geographies, obviously Asia, the adoption of Asia, country by country looks a little differently in terms of social media platforms and how they relate to the open web. Our business in Asia Pacific has been growing nicely for a while, and there's certainly not only a role that we have to play, but one that continues to offer growth for us.
At a macro level, there's nothing that I would say has necessarily changed in terms of the global, either competitive dynamic or just the offer set.
Got it. Just on the integration with third parties like Yelp and Etsy, can you just kind of remind me what the fundamental implications are for things like that? Is it more of just a feature set to be a convenience to customers, or is there a revenue opportunity there and maybe just the impact potential going forward?
Well, in terms of product commerce, it's relatively small today, that's a big opportunity for us to build it up. Again, if you think about commerce, there's two big ways to do that. There's service commerce, which is your booking or billing or offering a subscription membership, which is the vast majority of actually small business ideas and opportunities, that's something that we're growing really nicely and we do well today, and we're really throwing our shoulder against it even more. Then the other is obviously product commerce, which is selling physical goods with inventory, which is sort of a different vertical on its own.
One of the things that we are just starting to release to small portions of the traffic is a way to take somebody's store and shopping cart within GoCentral's e-commerce platform and syndicate that to Amazon, eBay, and Etsy right from GoCentral. Again, to have one place where a customer is in control of both their inventory and the offer, both at the open web and in the major marketplaces. Again, that's small for us today, but we think is really addressing the need state that most of the customers have.
Got it. Thanks, guys.
Your next question comes from Michael Olson with Piper Jaffray. Your line is open.
Hey, thanks. Just since you mentioned it, what do you think is going on in China that's created a bit of softening? Is it overall market characteristics or competition or some sort of other specific change? Maybe while we're on international, you just mentioned a broadly fragmented market, but wondering if there are any particular countries or regions that you'd call out as having the opportunity for kind of most near-term potential to impact the model in any material way.
Hey, Mike, it's Ray. I'll start off with, it doesn't look like it's anything specific to GoDaddy. I don't know if I would call out macro, but we haven't seen what's behind it in China. To Scott's point, it's still growing very nicely. It was just growing a lot faster in the first half of the year.
Relative to markets and growth, there's nothing to really call out. If I back up over the last five years, there's been an evolution of customer add around the world that has a big concentration in Europe. Obviously, we're picking up in Asia Pac, which obviously has a whole bunch of different countries with different makeups there. The growth algorithm from a customer add standpoint internationally has been kind of solidly into the mid-teens, and that's the customer profile that we've been on for the last several years.
Thank you.
Your next question comes from Deepak Mathivanan with Barclays. Your line is open.
Hey, guys. Thanks for taking the question. Sorry about the issues earlier. Two questions. First, the recent announcement on .com price increases potentially from the registry side starting in 2020, is that something you expect to impact gross margins? I know in the past you passed through the registry cost to consumers. What should we expect for the .com side? The second one, how big of the international business is in local currencies versus U.S. dollars? Even on the FX impact, I know in the past you have made pricing adjustments to reflect U.S. dollar trends. Is that something that you tried, or what is the bigger driver?
Hey, Deepak, it's Scott. I'll talk to the Verisign situation. For those of you who aren't aware, Verisign's received authorization from the NTIA starting in 2020 to be able to raise the price of .com as a registry by 7%, and that amount today is $7.85, which it's been that amount since 2011. As Deepak points out, the last time Verisign took a price increase, the industry passed that through to the end registrant. .com, and more importantly, the software around bringing somebody's .com to life is valuable. Modestly, we're providing the value in that relationship around taking a domain name and actually turning it into something that somebody cares about. We're focused on continuing to serve people in a great way with their idea, and provide the real value in not just a name, but around what you do with a name.
Yeah. Deepak, it's Ray. When you look at currency, it's turned into a slight headwind for us. Truth is, when you look at roughly 70% of our global bookings are in the U.S. dollar. To your point, when we see fluctuations in the local currencies, we do attempt to address it with pricing. You're not able to do that dollar for dollar in most cases, and there's usually a lag, so we see some impacts there in the short term. When you start talking about some of the things we've seen since late summer in some of the currencies, as examples, Turkey, Brazil, it's a pretty dramatic change in the currency, so you're not going to be able to capture that back with price adjustments.
Your next question comes from Lloyd Walmsley with Deutsche Bank. Your line is open.
Thanks. When you look at kind of buckets of core products, newer products like GoCentral or Main Street Hub, then specifically on potential adjacencies, what do you see as the most interesting kind of potential adjacencies, either organically or through M&A, and how should we think about that opportunity over the kind of near to intermediate term? Thanks.
Yeah. Hey, Lloyd, it's Scott. I think I'll talk about three things around the question. The first is what I'd call the ongoing evolution of the open web to the different social platforms. If you think about an entrepreneur with an idea, could be a business, could be an organization, could be an event, but getting that idea to an audience, both existing and new customers, requires certainly a position in the open web, right, which is how you get found by Google, but now also a position into the different social media platforms. That at an end customer level is actually complexity, and that's through both GoCentral and Main Street Hub, and in an integrated platform, not only to get a site, but to intersect that content with social media, is a huge priority of ours.
The second is actually adding more applications which used to be standalone, either products or activities like bookings, invoicing, email marketing, hanging off that publishing platform, right? What you're talking about is more value delivered through not just a website, but really a whole engagement platform that really is about marketing. Not just publishing, but taking publishing and turning it into marketing. The other idea and big pain point, again, at our customer level is what we've talked about before, which is both voice and messaging, and actually creating ways that our customers can interact with their audience in effective ways. We have our, let's call it toe in the water via SmartLine, and there's all sorts of ways that you can add voice and group text messaging and enable that capabilities to our end customers.
Those are the two real platforms, if we think about jobs we're doing for our customers. Obviously, one of the unique ways that GoDaddy can provide that for people is not just with technology products, but also with some hands-on help with people. Our focus is, again, around a product experience. One of the unique things that we can do in the world is provide a little bit of hands-on touch and care either to get somebody ramped up or, frankly, in the case that people don't have time to do something themselves, provide a service. It's not necessarily a new product per se, but it's definitely a different engagement system. Those would be the three that I highlight.
Thank you.
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Great. Thanks, everybody. Thanks for your questions. Thanks for listening, and we'll talk to everybody in a quarter. Take care.
This concludes today's conference call. You may now disconnect.