Good afternoon. My name is Mariama, and I will be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. I would now like to turn the call over to Marta Nichols, VP, Investor Relations. You may begin your conference.
Thank you. Good afternoon, and thanks for joining us for GoDaddy's 4th quarter and full year 2016 earnings call. With me today are Blake Irving, CEO Scott Wagner, President and COO and Ray Widmore, CFO. Blake, Scott and Ray have some prepared remarks and then we'll open the call up 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 measures to their GAAP equivalents may be found in the presentation posted to our IR site at investors. Godaddy.net or on our Form 8 ks filed with the SEC with today's earnings release. The matters we'll be discussing today include forward looking statements, which include those related to our future financial results, new product introductions, the acquisition of HEG and the possible divestiture of HEG's Plus Server business. These forward looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Risks related to HEG also include uncertainties regarding the timing of the acquisition, retention of customers and employees, and our ability to successfully integrate HEG into GoDaddy and divest the Plus Server business.
Actual results may differ materially from those contained in the forward looking statements, and any statements that we make on this call are based on assumptions as of today, February 15, 2017, and we undertake no obligation to update these statements as a result of new information or future events. So with that, I'll turn the call over to Blake.
Thanks, Marla, and thanks to all of you for joining us today. Look, we feel great about how we closed 2016 on a strong note with another year of consistently good growth in the books as well as a definitive agreement to acquire HEG in hand and a strong product and marketing roadmap for 2017. As we complete our 2nd year as a public company, our results and growth have remained very consistent with continued solid growth across all our major revenue lines, domains, hosting and presence and business applications and over 20% growth in cash flow. At year end 2016, we've grown to serve over 14,700,000 customers, an increase of 7% versus a year ago. Our average revenue per user or ARPU also rose 7% to $130 despite continued currency headwinds.
We finished 2016 with revenue over $1,800,000,000 up 15% year over year. Bookings crossed the $2,000,000,000 mark in 2016 and domain bookings topped $1,000,000,000 for the first time illustrating both our scale and leadership position in the industry. This year, we look forward to generating continued growth in both revenue and cash flow fueled again by both organic customer adds and growing ARPU in addition to the contribution for our expected acquisition of Host Europe Group or HEG. Our strategy is consistently focused on growing GoDaddy in a steady and sustainable way over many years and that focus remains unchanged. We see huge opportunity in the months and years ahead and we intend to go after it in the same deliberate way we have over the last several years through 2017 beyond.
We're starting this year with some big product and strategic initiatives including 1, the launch of GoCentral, our entirely new mobile optimized website builder that does so much more than just create an online presence by combining easy and elegant site building with fully integrated marketing and e commerce tools. 2, the acquisition of HEG, which dramatically expands and strengthens our footprint in Europe and 3, the upcoming launch of our new telephony offering SmartLine. I'm going to spend a little time on GoCentral and then turn it over to Scott and Ray. With GoCentral, our web presence team has reimagined and completely rebuilt GoDaddy's entire website building experience from the platform up with a focus on what businesses want results, including not just building an elegant website, but driving and attracting visitors and driving sales With just basic information like the name, address and type of business or idea, GoCentral's smart learning system generates a near complete website pre filled with relevant sections and professional images that can be easily and intuitively edited. Every site built on GoCentral is fully mobile responsive, so it will immediately look great on phones, tablets and computers with no additional work required.
More importantly and totally unique to GoCentral, users can build, customize or update their site on the go entirely from a phone or tablet. There was an industry wide belief that you couldn't build a great looking website with a mobile device. Our team hypothesized that if a mobile site builder was easy to use and produced a fantastic looking site on any device, including a PC, would see a relatively quick migration to mobile site building. That hypothesis appears to be right. So far 20% of new GoCentral customers are building sites from their mobile devices, making this a very key differentiator and an important new on ramp for us.
When I reflect on how other experiences have evolved on mobile, I think of Facebook. Most people didn't use Facebook on their phones years ago until the experience was optimized to be great on mobile. And now the vast majority of Facebook activity is on mobile and more than half of their users only access via mobile. In short, allowing customers to build directly on a mobile device is a big differentiator for us, especially meaningful in emerging markets where everything is mobile first and often mobile only. GoCentral's other big differentiator is GoDaddy's smart learning system.
We've integrated this new site builder with several key features to make the critical stuff really easy. For example, with GoCentral, you see website activity updates when you log in, you get suggestions like attaching to social networks, you can quickly begin search engine optimizing your site or launch an email marketing campaign. More importantly, while we started with dozens of smart features to help you design a beautiful site in under an hour, where the smart learning system really shines is deeply integrating GoDaddy's other offerings to help our customers acquire and connect with their customers. We're working to help our small business customers get results and achieve success quickly and easily. We're confident that anyone developing a web presence for the first time or even replacing their old site will agree that GoCentral is incredibly easy to use and produces a terrific result.
We've made GoCentral free to get started with no credit card required, so people can try out GoCentral and get going with the tool as easily as possible. You can even publish on your own domain name for free. I encourage you all to try GoCentral out and build your own site. With this product launch GoDaddy now offers a complete range of products to help customers build a great online presence from do it yourself to WordPress to professional design services. We now offer the industry's premier mobile first DIY website builder fully integrated with marketing and e commerce, a managed WordPress toolset that makes it super easy to build, update, monitor and maintain a site in WordPress, and a professional web services team who can help build or remake a customer's online presence to their specs.
And each one of these offerings is built on a global and scalable technology platform that allows us to offer each of these options to every one of our customers globally. We've got a lot more lined up in 2017 and we're already putting points on the board. I'll turn the call over to Scott now to talk a bit about our marketing strategy and provide more color on HEG. Scott?
Thanks, Blake. My focus over the last 6 months since Ray's arrival has been on our big go to market efforts, specifically the evolution of our marketing strategy and execution, our international growth and how we can do more with our customers through care. Today, I'll say a bit about our marketing and international efforts. 1st, on marketing, we returned to the Super Bowl broadcast this year to launch GoCentral, kicking off a broader campaign that plays to the cultural and commercial power of the Internet. Our ad drove millions of viewers to the GoDaddy's website with a very effective digital extension tactic, yielding millions of video views across multiple channels in our best Sunday ever for new customer sign ups.
In their analysis of this year's ad, Forbes reported ours among the top 5 attention generating ads aired with this year's game. Everyone knows the Super Bowl helped put GoToe to a on the map a decade ago, massively expanding the company's brand awareness, but our purpose this year was different. This year, the game provided a great forum to introduce GoCentral, which Blake just spoke about, and kick off a larger campaign focused on showing no one knows the Internet like GoDaddy via a new character who personifies the Internet. In the coming months, you'll see more of the Internet character and GoCentral across many channels and tactics as we showcase GoDaddy's expertise in building, expanding and protecting the ideas that the Internet loves. With this new campaign, we have a marketing message that links our GoDaddy brand to the breadth of our product portfolio and the outcomes we deliver for our customers.
In the context of our overall marketing spend this year, the Super Bowl represents just one relatively small tactic and a global marketing strategy that delivers very effective and efficient customer acquisition relative to the high value we generate for customers around the world. And turning to international, I want to spend a moment there on our progress and how HUG fits so well with our globalization strategy. GoDaddy's international business finished 2016 at nearly $500,000,000 in annual revenue. The addition of will bring us to well over $6,500,000 paying international customers or more than 40% of our total customer base, making our international business on its own bigger than most companies in our category. As we shared with everyone in December, HEG is highly complementary to our existing business with similar customers, a fantastic leadership team, strong customer unit economics and an exceptional financial profile.
The deal dramatically strengthens our position in Europe and we see clear upside for HUG's customers from GoDaddy's products, technology platform and care. In 2017, we're focused on 1st, bringing our full GoDaddy product portfolio to HUG, including domains, SSL, managed hosting and productivity applications 2nd, integrating our global tech platform and care operations across Europe and third, accelerating go to market efforts in key European countries. We feel strongly there's much more to this acquisition than buying a European footprint customer base. The combination with HEG will expand our team in Europe from fewer than 10 professionals to 100 who can accelerate our overall business in Europe. Finally, the financial characteristics of the HEG acquisition are positive.
We expect the acquisition to be accretive to free cash flow in the coming 12 months. So that's a quick update on marketing and international. And with that, I'm going to turn the call over to Ray.
Thanks, Scott. Our Q4 and full year results were strong on all fronts with revenue near the high end of our guidance, good leverage across the expense base and cash flow ahead of our expectations. Total revenue in Q4 grew 14% year over year to $486,000,000 and bookings grew 13% to 525,000,000 dollars Currency translation this quarter was an approximately 100 basis point headwind to both revenue and bookings. We saw solid growth across all three of our product lines this quarter. 1st, Domains revenue grew 11% year over year in Q4, fueled by international growth as well as strong renewals and aftermarket domain sales.
Our hosting and presence revenue increased 14% as we began rolling out our new website builder and we've seen some good uptake on security products as well. Business applications rose 29% driven by continued strong growth in both productivity and email marketing. Turning to profitability, continue to demonstrate good operating leverage across the expense base. Unlevered free cash flow jumped 46% in Q4 to 77,000,000 dollars 21% for the full year to $357,000,000 continuing to demonstrate strong cash conversion at about 19% of revenue. Just a couple of points on cost.
No higher than usual G and A expense in Q4 included $11,000,000 in acquisition cost, primarily related to the HEG acquisition. Excluding these costs, we've gotten some good leverage in G and A and technology and development spending as expected. Clearly, the combination of our solid top line growth and good expense leverage continues to generate strong cash flow for us. The release provides you with the 3 primary components of our internal EBITDA measure to allow you to compare to previous results. Note those components should be adjusted to exclude the acquisition cost I just mentioned for comparability purposes as they were not included in our prior guidance.
On the balance sheet, we finished the year with approximately $573,000,000 in cash and short term investments and net debt of 500,000,000 On that note, I'm pleased to announce that earlier today we finalized approximately $2,500,000,000 in new term loans, fully replacing our existing term loan and providing full funding for the acquisition of the HEG Mass Business. We lowered our interest rate by 75 basis points and extended the term loan maturity date to 2024. In addition, we increased the capacity on the revolver by an incremental $50,000,000 to $200,000,000 total effective with the closing of the acquisition. The reduction in rates versus our prior term loan and initial financing expectations on the HEG Mass deal should result in annualized cash interest savings of upward of $15,000,000 We've separately received commitments for a bridge loan of approximately $530,000,000 associated with the acquisition of HEG's Plus Server managed toasting business, which GoDaddy intends to divest post close. The bridge loan was not part of this recent financing.
As we shared in December, the HEG acquisition is expected to take us up close to the high end of our targeted leverage range. However, given the very attractive cash flow characteristics of the combined businesses and the expected divestiture of Plus Server, we expect our leverage ratio to be roughly 3 times by the end of this year. So let's discuss our outlook for 2017. Just a quick note that this outlook includes no contribution for Plus Server. For the full year 2017, we expect revenue including HEG of $2,180,000,000 to $2,220,000,000 representing approximately 19% growth at the midpoint versus 2016.
Assuming HEG closes in late April or early May, we expect the mass hosting business to contribute approximately $130,000,000 in revenue this year. Before I turn to cash flow, let me touch briefly on how we're thinking about future growth. Since the IPO, the company has consistently said that it expects domains revenue to grow roughly in line with total customer growth, hosting and presence revenue to grow at approximately 1 to 2 times the rate of customer growth and business applications revenue to grow at roughly 3 to 4 times customer growth. We've nicely outpaced those rates in recent years. And for those of you building models, these are good rules of thumb to use going forward.
Specifically on domains, as we look into 2017, we're lapping some strong secular and company specific growth drivers that allowed us to meaningfully outpace the industry. So we look for domains to grow closer to the customer growth going forward. Quickly on Q1, we expect revenue for standalone GoDaddy in the range of $485,000,000 to 490,000,000 dollars implying a little over 12% year over year growth at the midpoint. Note that Q1 of 2016 included an extra day due to leap year, which we estimate added approximately 1% to our growth last year. Turning to cash flow.
As we've highlighted for the last couple of quarters, we are transitioning from providing guidance on adjusted EBITDA to unlevered free cash flow. For the full year, we expect unlevered free cash flow for the combined company of $460,000,000 to $480,000,000 implying approximately 32% year over year growth at the midpoint. This excludes expected acquisition and integration cost in the range of $20,000,000 to $30,000,000 this year. As a reminder, we target 70% to 90% conversion of our internal measure of EBITDA down to unlevered free cash flow. We expect to be at the midpoint of that range this year, driven primarily by more meaningful tax distributions tied to increasing profitability.
As we said in the past, unlevered free cash flow is lumpy on a quarterly basis and you'll see that clearly in our Q1 results this year. 1 full employee period will move from Q2 a year ago into Q1 this year, which we expect to result in a $15,000,000 reduction in free cash flow in Q1 versus last year. You'll obviously see the reverse effect in Q2. That's a lot of detail intended to give everyone a roadmap to 2017, including HEG. Taking a step back, we continue to create franchise distinction and competitive advantage with the business growing double digits on the top line and 20% plus in unlevered free cash flow over the long term.
Rolling that into 2018, we see a business on track to generate unlevered free cash flow of approximately $600,000,000 next year. With that, I'll turn the call back over to Blake.
Thanks, Ray. To briefly summarize what we've shared today, we're excited about what the future holds for us. Double digit organic revenue growth through a combination ARPU increases, new product and on ramp launches in 2017 including GoCentral and SmartLine, the acquisition of HGG with 1 point 7,000,000 new customers adding scale in international with the opportunity to extend a successful business model to Europe a new capital structure with a very attractive interest rate and maturity profile and strong deleveraging characteristics providing the ability to use the balance sheet to drive even faster growth and free cash flow. You can see that we have an action pack year ahead and we look forward to continuing to deliver against our strategy with products, technology, care and world class marketing. We're excited for 2017 and see a big opportunity to continue to grow the business long term around the world.
Thank you for your time and we're ready to open the call to your questions.
Your first question comes from Naved Khan, Cantor Fitzgerald. Your line is open.
Yes, hi. Thank you very much. Just a question on the Q1 guidance. At the low end, it looks like it implies sequentially maybe even a little bit down to flat. And now that we are in February already with half the quarter at the belt, can you just kind of lay out for us what's baked into your expectation?
Yes. Let me start, Naved, with just the guidance that we provided you guys. First of all, we're big. I mean, this company has doubled in size in the last 4 years. We crossed the $2,000,000,000 mark in bookings in 2016.
So we're growing off a lot larger base now. 2nd, within those product line items, we've grown very quickly outpacing the industry. A simple way to think about 2017, we expect hosting and presence in the biz apps lines to grow at roughly the Q4 exit rate. What's different in that guidance is domains. We've grown at a double digit clip fueled by new TLDs in the aftermarket.
The aftermarket is lumpy though and it's difficult to drive that same level of incremental growth over what now is $1,000,000,000 revenue stream. So we see it continuing to outpace the industry, but closer to customer growth in the mid to high single digit range.
Yes. And I think the two comments just to add in our look midway through the quarter. It's good. Look, good results so far, steady as she goes. And to echo something that Ray said in his script, remember, we have leap year, which is just a little bit of a Q1 specific issue.
Okay, thanks. And then quickly on the just on the business apps. So this is the, I guess, the 2nd quarter in a row where we saw some deceleration, which is coming down from 40s to, I guess, the mid-30s last in Q3 and then 29% this quarter. What's a good sort of run rate that we should sort of be expecting for 2016 sorry, 2017? Is 28%, 29% kind of a good number, mid-20s is?
Or how do you see this business evolving?
Yes. As I mentioned in the script, David, we're targeting that 3 to 4 times customer growth and our exit rate coming out of Q4. So that's about the right way to target this.
Got it. Got it. Thank you.
Your next question comes from Sterling Auty with JPMorgan. Your line is open.
Yes, thanks. In the quarter, hosting and presence revenue, was there anything that kind of drove maybe a little bit of mix where more revenue went into business applications or just more color on the results there? And I have one follow-up.
No, Sterling. It's really nothing that would have driven any difference in those two line items.
Okay. And then as a follow-up, you talked about 6% customer growth. How should we think about that in terms of the sourcing international versus domestic in 2017 beyond?
Yes. So first, that was about 7% growth in customer growth. And going forward, we're obviously going to continue to see a higher mix of new customers coming out of international just given our continued penetration in Tier 2 and Tier 3 markets as we move forward.
The one add on Sterling is again our customer base in the U. S. Is growing. It's growing nicely. And as we think about our product portfolio and expanding our product portfolio, obviously using those new products to drive additional customers is part of the strategy.
And if actually if I could sneak one more in, just following on the original question, I am getting hit with a lot of questions about the Q1 guide. You mentioned the one day or 1% impact from leap year and a few other things. But anything else you can talk to? I guess people look at the subscription business and layering on, just wondering how it could be flat or even down in what traditionally has been a seasonally strong quarter for your industry?
Yes. It's back to what I mentioned on domain, Sterling. We're just continuing to see grow over some very large secular lift we got. We've been outperforming the industry for a couple of years now growing that double digits. So while we'd love to continue to do that as that base gets bigger and bigger, it's hard to grow with those same rates.
Yes, Sterling, this is Blake. I'll pile on a little bit. Domains are still strongly outgrowing the industry and we believe we'll continue to do that. Just entered a lot of countries where we're picking up their country domain names, TCTLDs, very large portfolio of TLDs in the aftermarket performs well as that becomes more liquid as well. So I think we'll still see us outgrowing the industry, but you did see a little bit of a slope.
Got it. Thank you, guys. You bet.
Your next question comes from Mark Mahaney, RBC. Your line is
open. Thanks. A couple of things. Two numbers questions. First, I think your guidance then implies organic revenue growth of 12% for 20 17, just to get a check on that.
And then I think, Ray, you mentioned $600,000,000 in unlevered free cash flow in 2018. That would imply something like 28%, which should be, I think, a little stronger than your kind of long term 20% guidance. But is that because you get more of a, I guess, a full year contribution from HEG? Is that why the growth rate is higher than what you're forecasting for the long term in 2018?
Yes, Mark. Let me start with the organic on GoDaddy standalone. Yes, that 12 ish plus percent is what we're telegraphing to you guys. When you look forward to the $600,000,000 unlevered free cash flow, we've been telling you that the standalone business is going to grow 20%, continue to believe that and very have strong convictions around that growing at the 20% rate. The additional tack on you're seeing there is you get an extra quarter of HEG coming in next year in 2018 as well as run rate synergies by the end of 2018 for that acquisition.
So that gets you the rest of the way there.
Okay. And then in terms of the timing of the new products, GoCentral, etcetera, could you just maybe Blake, could
you talk about how those
things layer in? I'm sorry, there's the voice product GoCentral and there was the third one. Yes.
We mentioned a couple of markets. Yes. So GoCentral, we are about 2 weeks into the GoCentral announced. We launched that with the Super Bowl. And that's basically it's a 30 day free trial.
So the top of the funnel looks really good on that. We're super pleased with the way the customers are engaging with it. Trials are rolling really well, but that we'll see more when we start seeing those trials convert and we'll get a better feeling for that over the course of the next 60 to 90 days as we see publish rates that are being paid for start to happen. But we're pleased with publish right now. We're liking what the top of the funnel looks like and we expect that that to translate to conversion.
But honestly, this is a new on ramp for us. So we're not building that into the forecast because we just don't know how that's going to affect it, especially the mobile piece of this where we've got a product that is pretty spectacular on mobile devices, which is the way most of the world actually gets online now. Voice, the voice launch, SmartLine is going to be in the Q2 this year. So you'll see that roll out again. And this is again another new on ramp for us, which we're not going to speculate on how big we think that's going to be.
We're being pretty certain on what we know, which is why we're coming in where we're coming in on our guidance. But we're again pretty bullish on the product and the use cases are pretty game changing for small businesses actually.
Thank you, Blake. Thank you, Ray.
Thanks, Mark.
Your next question comes from Sameet Sinha B. Riley. Your line is
open. Yes, thank you. A couple of questions here. So first, just wanted to confirm on ATG, dollars 130,000,000 If you annualize that, that comes to, let's say, about $195,000,000 in revenue. How does that compare to their bookings?
What's the equivalent bookings rate? And secondly, could you give us an update on some of the other new products you had announced last quarter? Are you talking about the DIY site builder, if we try it, I guess that's you're talking about GoCentral, but is that does that incorporate other site builders as well, your DIFM and your security products?
Yes, Sameet. It's Ray. I'll start with the first question. We talked about what their annual bookings were when we announced the acquisition in December. It's about $236,000,000 growing in the high single digits.
The $130,000,000 number we've given you guys for the guide takes into account the conversion to U. S. GAAP. So there will be deferral of domain registrations as an example amongst multiple adjustments we're making there as well as the partial year. We're expecting close in late April, May timeframe.
Yes, Sameet. Hey, this is Blake. I'll follow-up on new products and launch. So look, the 2 that I think are substantive over the last couple of quarters is number 1, a managed WordPress offering that is incredibly simple to use and along with a pretty amazing capability to update multiple sites in bulk for developers. Those two features that we launched in the Q4 of 2016 are things that are pretty darn important for us and actually service a different customer, a customer that's a little bit more advanced, that wants more flexibility than as just an easy DIY site and actually differentiates our company from other folks because it gives us a full range of solutions from very, very simple DIY to a more comprehensive site building experience that allows ultimate flexibility and customizability.
We rolled that out in Q4 and then followed very quickly on the heels of that in the 1st few weeks of 2017 with the GoCentral product, which is a mobile optimized experience for DIY site building, does a great job on mobile, a great job on PCs, has 1500 verticals that it supports. And we have a smart learning system that actually grows with the customer and suggests what they should do next as their lifecycle grows. So as they grow with us, we'll suggest things that they ought to be doing next. Those are the 2 things that we've the big things that we've done in like the past two quarters including this quarter that we're in right now. And I would say that on security, we've got some big opportunity in security.
We have a great business there today. We think there's other things that we can do. And I think you'll see more about that from us and hear more about that in the Q3 timeframe. I think that's probably the long and short of it.
Thank you.
Sure.
Your next question comes from Jason Helfstein, Oppenheimer. Your line is open.
Thanks. Two questions and a housekeeping question. What's making you excited about focusing on basically GoCentral and website building as the marketing funnel and how do the CPAs in that compare to the traditional hosting PPAs? That's question 1. On business apps, obviously it's slowing as we pointed out.
Do you need to sign new partnerships for that? Do you focus on more the upsell opportunity to HEG? So just some color. And lastly, any help on CapEx for 'seventeen would be helpful. Thanks.
Yes. Hey Jason, it's Scott. First of all, on let's call it site building or presence, the very first thing you do with the domain name is you attach it to an online presence. And we at GoDaddy both through the building of the business over the last 10, 15 years and the variety of ways in which we do it are already supporting more sort of paid and active sites in various forms and frankly anybody else around the world. Now the interesting thing about presence and I think this is what Blake was highlighting through GoCentral is when done super well and in a connected way, it can be really the dashboard or the connective tissue to add all sorts of other applications, whether it be email marketing or marketing services or SEO, so on and so forth.
So the real tenet of GoCentral is about certainly getting somebody a great online presence, but then it's really the connective tissue about what else you add and do with that site to be successful. I'm just going to tag team, Jason.
So this is Blake. The other thing that I think is important to note, and it's not a nuance is that people want to try the tool out. And when you have a tool that is as easy to use as GoCentral and allows you to use it in trial on a mobile device as well. We heard from many, many users that every solution out in the market today is too difficult for them. We optimized for incredibly simple, both on mobile devices and on desktop and made sure that they had an opportunity to use the tool as an on ramp so they could experience it without having to commit dollars upfront, which is sometimes a barrier for folks, allowing them to use it, say, holy mackerel, this thing is really great.
Now I'm going to attach a domain to it. I'm going to publish it. I'm going to buy a domain. I'm going to do email do the other things that follow on afterwards. And we're seeing what we thought we were going to see.
We're seeing published rates that are increasing. We're seeing the
top of funnel interest that we liked. And 20% of those sites are being of new customers, not sites, new customers coming into GoCentral are building the site completely on mobile. And so Jason, in our math, which back to your acquisition question, what that means is this can be both an attachment product for us that turns into an ARPU driver and a vehicle to add some new customers. And obviously, we're going to continue to figure out our marketing spend around that math, but we think it's attractive. On HEG Business Apps specifically and what else we can go do, business applications and the opportunity there is one of the what we'd call low hanging fruit things that we're going to focus on in 2017, which is taking what we think is our frankly distinctive and best in class way to get a productivity suite
over to
the brands in Europe. And that's one of the things that we're going to do both with the 2 leading HEG brands in the UK and Germany and obviously use as an accelerant for our position in Europe. In terms of the CapEx question, I'm just going to let Ray hit that for the last one.
Yes, Jason. For CapEx in 2017, continue to model 3.5%, 4% of revenue. So you could pencil in the $70,000,000 number. And we'll highlight for you guys as we move through the year any integration capital that might be included.
Thank you.
Your next question comes from Mark May, Citi. Your line is open.
Thanks guys. Thanks for taking my question. I had 2. Just based on a couple of emails I've gotten here, I want to try to clarify the HEG guidance. I think some people are trying to use the bookings number that they have for last year and kind of a 15% growth number in back end kind of what your guidance implies?
I'm assuming that some of the issues in doing that because it implies that there might be a pretty meaningful slowdown that you're guiding to. I assume that there's some purchase price accounting, some GAAP translation and other impacts that are affecting that. I don't know the best way of addressing it, but maybe what is implied or embedded in your guidance in terms of organic growth or looked at another way the impact that those various factors may be having on your numbers this year? And then my second question is more of a kind of a product and pricing strategy question. How are you guys thinking about that this year?
I know Web Builder kind of to some degree represents a bundling of various prices and you kind of get a bundled discount. Are you guys pursuing kind of a different product and pricing strategy this year attempting to drive more volume maybe at the expense of ARPU? Thanks.
Hey, Mark, it's Ray. I'll take the first one around bookings. We disclosed in December that 2016 bookings going to be around $236,000,000 growing in the high single digits. The $130,000,000 number that we provided in the guidance is the U. S.
GAAP revenue. So we've attempted to go ahead and estimate the purchase accounting as well as the conversion to GAAP, primary difference being deferral of registrations, domain registrations. And then also, obviously, it's taken the haircut for timing between April May. And then as you saw with GoDaddy when it was taken private, you'll also see purchase accounting applied where you get a haircut at the acquisition. So all those factors are going in to reduce that number you might expect to see off bookings.
From a pricing strategy on your question, Mark, bundling is certainly something that the company has done for a long time and we're going to continue to do, whether it's within a category or across. And free trial of our applications is again something that we've done in the past and we're going to continue to do is a way of having customers try our product and make it super simple for everybody to try each one of our applications, whether it's something for presence or email or down the road for voice, because we found when people try our product and use it, then they're going to stay for a long, long time. So that strategy is going to remain the same from a financial and guidance perspective. There isn't anything that I would highlight about that approach that would kind of change the numbers or the trajectory that Ray was describing?
Hey, Mark, this is Blake. I'm going to pile on just for a sec. I think if you think about bundling, some of the things we've done, I'll just call it in product discovery features, 1 in particularly with GoCentral. While somebody is building their website and it's the first thing they do instead of getting a domain, we actually scan the content of the domain, the business category, the user selected, the geography where the user is and we'll suggest to them domain names that are not taken or that could be in the aftermarket that are things that they might want to do next. And that's a feature that somebody actually needs.
And it's a good example of something that's in product discovery and in product marketing that's kind of even a step further than just plain bundling, allowing them to discover something at the moment they need it. And actually, the feature they need exactly the right time and the right place. And we think that actually is going to be, I think, a very helpful bundling tool as well.
Thanks.
Yes. Your next question comes from Sean Kemp sorry, Sam Kemp, Piper Jaffray. Your line is open.
I'd be pretty honored to be Sean Kemp, so I'll take it. In terms of the guidance, can you call it any core GoDaddy FX that's baked into that organic growth rate number? And then on your net adds, it looks like it's down year over year again in Q4. Maybe call out any contribution to that and what's really causing that? And then last is you've talked for a couple of years now about rolling out non website specific business applications, things like paid media or CRMs, stuff around loyalty and coupons.
Can you just kind of give
us an update on the timing on when you're thinking about rolling out out those different products?
Thanks. Yes. Sam, Scott. So on the first one for FX, from a guidance perspective, very little. We will highlight that again, FX impact that shows up in bookings rolls into GAAP in the prior year.
So there's a little bit of that flow through of last year's bookings rate flowing into this year's GAAP revenue. From a customer add perspective, I think we talked about this in the Q4 also, which is really in the second half of last year, we intentionally had less quantum of customer ad growth in a couple of our big emerging international markets as we frankly focused on monetization. And as you guys know, this is a balance between customer adds and ARPU that we are certainly balancing. And what we want are really good customers who are trying to bring an idea to life and get a name and then activate it and use it over time and that's a balance. So we're not managing our customers to a specific quarterly number, but are going to continue to balance customer adds and ARPU growth as we build up the business.
I think on your last point of business apps and some of the various marketing services, I think that's down the road, down the road in 2017 and those are specific applications and in some cases productized services that can really hang off the back of GoCentral. Those aren't necessarily dependent upon GoCentral, but they go very well. So those are the kinds of things that you're going to see us spending more time on as we continue to build up GoCentral.
Great. Thanks.
Your next question comes from Michael Turrin, UBS. Your line is open.
Hi, guys. Thanks for taking my questions. Scott, you talked about the Super Bowl ad, but you sort of described it as a relatively small piece within a larger strategy. Just wondering if you can talk about some of the other things you might be doing on the marketing side, any changes upcoming in 2017? And then on the customer ad side in Q1, are there any impacts we should expect from the ad campaign?
So from a strategy standpoint and from a marketing standpoint, again, the fundamentals of it are being a high efficient and effective customer acquisition tool and vehicle, right, both in the U. S. And around the world, and that's going to continue. What is interesting about not just our ad, but this personification of the Internet and from a brand messaging standpoint is, we now have a vehicle that we can connect GoDaddy to the broad range of experiences that our customers go through online. So when we think about TV advertising or online video and social presence, it's going to be much more in a connected way about all the variety of things that our customers do with us.
And that's also going to help translate into ARPU, right? So that is a shift, but a good shift from just every marketing dollar going to helping support not only acquisition, but also ARPU generation. And I think those are the salient points to your question.
Great. And then international revenue growth continues to come in strong mid-twenty 7 percent on constant currency basis, which is pretty consistent throughout the year. But the U. S. Revenue looks like it's ticking down.
Is that law of large numbers, some of these impacts from domains getting to a certain scale or what's the right way to think about that?
I think that's exactly the way to think about it. It's just a much larger entity in itself and given the weight of domains in there and if that's slowing, that's the results you're getting there.
Great. Thanks a lot, guys.
Your next question comes from Ron Josey, JMP Securities. Your line is open.
Great. Thanks for taking the question. I had 2, please. Blake, on GoCentral, we made a few references of you just starting out on the product and then potentially selling domains or other services once you have the website during the trial period. Do you think over time GoCentral can be the main on ramp or a main on ramp the company?
Clearly, it's domain, you've talked about voice. Is GoCentral like a change in terms of potentially how you go to market, knowing, of course, you just launched it 3 weeks ago? And then the second question, just we're a year into launching the 11 new countries in Asia. Can you just talk about the progress here, what you've seen, brand awareness, things like that? Thank you.
Sure. Look, we view GoCentral as just another on ramp. Like domains are still the lion's share of our on ramp and will continue to be the lion's share of our on ramp. When people globally think of a company where they're going to go get a domain name, they think of GoDaddy. They think of it in the United States.
They think of it in India. They think of it in the UK. We are becoming a share leader around the world. And it's the first thing that they think of. We're over a 1000000 domains in the UK.
We're number 1 in India in both .inand.com. So we've seen that on ramp be a great on ramp for us and we'll continue to do so. We do think that there's a number of folks that want to try the tool out and use something before they buy a domain. And frankly, if they've bought a domain already, they can still use GoCentral and apply it to that domain and do that without using their credit card. So we think it's another on ramp just like we think the SmartLine product is going to be another on ramp as well.
But domains will continue to be a strong on ramp for us. On Asia, it's been about a year. We're happy. It's been good uptake. Brand recognition is moving up as we expect it to.
We're seeing a good uptick in China as well as we've surrounded China and Hong Kong and Singapore and in Taiwan. And frankly, we think we're off to a nice start. But it's a small base and it's not going to be something that we think is going to be substantively huge. But look, we're happy with where happy with where the company is going and where we are right now.
Great. Thank you. Yes.
Your next question comes from James Kaczmaki, Monness Crespi, Hardt. Your line is open.
Hi, thanks. Scott, you mentioned HEG helping you guys accelerate the go to market efforts in Europe. And just arguably, the synergy estimates that you have are somewhat conservative. Can you just kind of talk through the playbook there on how you're thinking about tackling that market? And I guess what gives you confidence that putting emphasis there is not going to dilute your efforts in other international markets?
And then just quickly secondly, looks like ARPU accelerated somewhat this quarter. Anything to call out there? Thanks a lot.
Hey, James, thanks. I think first, just take a step back and look at international over the last 4 years, which is we have meaningfully grown the international business and entered a series of geographies both in Europe and in the emerging world, and have I think proven both to ourselves and everybody else that boy there's business to be had and that we can enter these geographies. In Europe, I think we've said this in the past, the UK is certainly our largest market and our growth and performance there both in size, market share gain, accelerated growth, kind of has shown us, boy, that our value proposition particularly has legs, certainly in the UK, but also in Europe. Now GoDaddy traditionally on the continent hasn't spent as much time, energy, money and so our relative positions in every individual country are still relatively small. In aggregate, it's a decent size, but in every single country, they're still relatively small.
And so what we get from HEG is certainly a market position in Germany that we can work from as well as frankly some team platform capability and scale when we talk about technology infrastructure care that we can use as frankly again that platform or underlying foundation that we can go into a couple other geographies from a go to market standpoint and accelerate growth. And I think your other comment on ARPU acceleration, anything to call out, nothing specifically other than, boy, it's just the model at work in terms of good products, the products attaching and frankly our balance of customer and ARPU growth, right, and bringing in customers who are going to monetize and renew. So frankly, when you're looking at that ARPU acceleration, in many ways, it's the model at work and as a result of our acquisition decisions 4 quarters ago about the customers that we're bringing in and then the renewals of the products that they were initially brought in on.
Your next question comes from Brian Essex, Morgan Stanley. Your line is open.
Hi, good afternoon. Thank you for taking the question. Scott, I was wondering if you could maybe just touch on or maybe Blake, if you care to. It looks as though a lot of the new features and products that you're rolling out are more kind of SMB or consumer facing. Are any kind of leverageable to your developer community in terms of accelerating time to market for your developers on a mobile app, for example?
And how do you think about how the developer community or maybe the legacy Media Temple group is growing relative to the rest of the company?
Yes. Brian, so this is Blake. The interesting thing about GoCentral is it's built on the same platform that our WordPress work is built on. So a lot of the libraries that are being used for GoCentral today, same libraries being used for WordPress. The OpenStack infrastructure that GoCentral sits on top of, same infrastructure that our new offerings in the developer community are taking advantage of.
And the pieces of the product launches that I talked about in Q4, both in the managed WordPress community and managing multiple sites for developers, those are built again on some of the same technology that you're seeing GoCentral out of. And some of the things you could notice in the T and D line is we're starting to get significant and through 2016 really got significant leverage out of our tech and dev because we are using common components across the product lines. So we're actually seeing good lift and I think some good use of tech across both developer capability, managed WordPress capability for small businesses who have a little bit more advanced capability than somebody who wants to use a DIY site. I don't expect the developer community to use a DIY product. That's very simple.
I know that a lot of the things that we've learned in building this product will start showing up on mobile devices and our entire mobile framework for not just small businesses and consumers, but for developers. And you'll see that over the course of 20 17 and into 2018. There's a significant amount of leverage that we're going to get out of what we're calling basically the Go framework that sits underneath the GoCentral product and the developers are going to benefit from that as well.
Got it. Maybe just a follow-up on mix of developer versus, I guess, we'll call it DIY internationally and how might those dynamics differ from the U.
S? Yes. Well, developers internationally model pretty similarly to developers in the U. S. There's a difference between whether depending on how deep you want to go, there's actually a bigger like Plex is a bigger thing than Cpanel is in Europe, while Cpanel dominates in the United States, which is a pretty significant delta.
I think there's we don't see big differences in the characteristics. WordPress is big everywhere. I think that we're seeing most of our sign ups for our GDPRo product actually coming from outside of the United States today. We think there's a big opportunity, a lot of sign ups in India and the developer community. And one of the things I would say that we know that 50% of small businesses don't have a site.
And of those 50% of businesses that are going to build it, 50% of those businesses are going to have someone build it for them. And those are the customers and that's globally. Those are the customers we think we have a great opportunity with attacking the developer community and creating a great platform for them. That's helpful. Thank you.
Great. Thanks for taking my questions.
I have a couple of follow-up. 1,
Great. Thanks for taking my questions. I have a couple of follow-up. One, I just want to take the discussion about the Hague and the international. Basically, you mentioned that you have like market positions in Europe now that you can work from and enter other geographies within Europe.
As you look into the New Year, well, we're in February already, and you have limited budget, advertising budget, sales and marketing budget. Is there are you shifting resources from Asia to Europe in order to enter those other geographies? And then the second question I have is, you talked about going through those highly efficient, highly effective tools, ad tools like the Super Bowl back to which you did before. I mean that's a small part of the strategy, but in terms of the advertising budget that would be a big part. Are you going back to more of a seasonality in terms of your advertising?
That's it. Thanks.
Hi, it's Scott. I think to your first question is anything being diverted into Europe, the short answer is no. So we're growing in Asia and we're going to be able to approach Europe because of the increased scale of the business that allows us to obviously then invest a little bit of that into go to market in the same formula that we have now. And the second in terms of the seasonality, no. It's not going to affect the seasonality of the business.
Again, the Super Bowl, the math of this is a single digit $1,000,000 spend on the quantum of what we do on a go to market. It's a small amount.
Okay, great. Thank you.
There are no further questions at this time. I will turn the call back over to the presenters.
Thanks, everybody. It's Blake. On behalf of Scott, Ray, Marta and the entire leadership team, thank you for attending our 2016 earnings report and we look forward to talking with you in another quarter. Thanks very much. Bye now.
This concludes today's conference call. You may now disconnect.