Good afternoon. My name is Connor, and I'll 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. Marta Nichols, Vice President of Investor Relations, you may begin your conference.
Thank you, Connor. Good afternoon and thank you for joining us for GoDaddy's Q4 2015 earnings call. With me today are Blake Irving, Chief Executive Officer and Scott Wagner, Chief Operating Officer and Chief Financial Officer. Blake and Scott have some prepared remarks, which will follow with a question and answer session. On today's call, we'll be referencing both GAAP and non GAAP financial results such as total bookings, adjusted EBITDA, unlevered free cash flow, net debt, ARPU and constant currency.
A discussion of why we use non GAAP financial measures and reconciliations of our non GAAP financial measures to their nearest GAAP equivalents may be found in today's press release, presentation posted to our IR website 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 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, February 17, 2016, and we undertake no obligation to update these statements as a result of new information or future events.
I'll now turn the call over to Blake.
Thanks, Marta, and thanks to all of you for joining us today. GoDaddy's Q4 was a good one with contributions from all of our major product lines driving strong top line growth and exceptional cash flow. Strength of our execution and our financial results have remained just as consistent as the vision we shared with you on our road show last year. Our vision is to radically shift the global economy towards small business by helping individuals easily start confidently and grow and successfully run their own ventures. Millions of global customers use our growing suite of elegant, easy to use and increasingly integrated cloud based products built on a single global technology platform and supported by outcome driven personalized customer care to create a successful online presence.
I'd like to share 3 big themes around our recent progress and accomplishments with everyone today. 1st, we're consistently posting strong financial performance and growth. 2nd, we're continuing to expand our portfolio and our geographic footprint with our recent entry into Asia. And third, we're making meaningful shifts in the way we communicate with our customers through merchandising and marketing. On my first point on our business results, GoDaddy's unique combination of great products, fast, reliable and high performance technology and empathetic customer care continue to differentiate what we do and have together yielded a large high growth business with strong cash flow.
At the end of 2015, we've grown to serve nearly 13,800,000 customers, an increase of more than 1,000,000 customers versus a year ago. Our annual average revenue per user or ARPU rose over 6% to $121 at year end in spite of currency headwinds. Q4 bookings grew nearly 17% on a constant currency basis or over 13% on a reported basis to $464,000,000 Strong customer and ARPU growth together drove our 4th quarter revenue up 17% in constant currency or over 14% on a reported basis to $425,000,000 for the quarter. Full year bookings grew to over $1,900,000,000 and revenue rose to $1,600,000,000 both up or 17% in constant currency. Our adjusted EBITDA jumped 30% to almost $74,000,000 in the 4th quarter, bringing our full year adjusted EBITDA to over $337,000,000 an increase of more than 24%.
For the year, we converted over 87% of adjusted EBITDA into unlevered free cash flow near the high end of our long term expectations. We feel great about our delivery of consistently strong top line growth, expanding margins and nearly $300,000,000 in unlevered free cash flow for our shareholders in 2015. And my second point about our expanding product portfolio and geographic footprint, we reached another major milestone in our company's history in January 2016 with the launch of key new markets in Asia, bringing our total there to 10 languages in 14 markets, including Hong Kong, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam. This launch is now in 26 languages and 53 markets globally. Customers in these markets visit GoDaddy today, they see content that looks and feels local.
Our scalable technology platform enabled us to roll out these Asian markets simultaneously, including a localized suite of GoDaddy products and ccTLDs with advanced personalization and flexibility, like allowing customers to toggle between languages and switch currencies, payment types and more. Same time, we also deployed a new in region customer care team and facility in Bali in China providing local language care for all these new markets. Hey, when a customer in South Korea comes to godaddy.com, they're directed to kr.godaddy.com. They see Korean language and imagery on our site and in our products, have the ability to pay in dollars or won and when they need help, call local phone number and have the ability to speak with a care professional in our Dalian Care Center in Korean. Looking across Asia immediately after closing the books on our very strong 2015 illustrates the power of our strategy and our financial model.
Brought all these new countries online and launched local language support in Asia simultaneously, even as we were continuing to grow the business in 2015 and deliver huge unlevered free cash flow growth. It demonstrates our ability to meaningfully expand the markets we serve and produce operating leverage in our model at the same time. Steadily and deliberately expanded our overseas presence over the last several years from English speaking markets to Latin America to Europe, now Asia. International countries now contribute more than a quarter of our annual revenue. And in 2016, we expect more new customers to come from international markets than from the U.
S. For the first time to the huge move for a company that was nearly entirely focused on the domestic market just a few years ago. My third view of this call directly connected with our growing global presence, making a real shift in how we communicate with our customers, including both how we market to them and invite them to experience GoDaddy, as well as how we present and bundle products to better match customer needs. An example of this is a clear shift you've seen in our approach to marketing. As you know, we already have over 80% brand awareness in the U.
S. So we've been strategically shifting our marketing effort from singular big bang and mostly U. S. Events, which focus primarily on driving name recognition to increasing our customer touches through much broader reach and greater frequency at the top of the customer acquisition funnel. You saw this illustrated in our approach to the Super Bowl this year.
Instead of spending on a traditional 32nd spot sponsoring the broadcast game, we reached sizable audience in digital channels, notably social and display, which included video content from Fox Sports, pre game, free time and post game feeds, social ads and major presence across a number of large digital publishers like CBS Sports. 2016, you'll see several major extension of this new marketing strategy. First, we're finding a larger and much more consistent presence on top of the funnel channels like TV and radio throughout the year versus singular events and sponsorships of years past. More deliberate and consistent linkages between our top of funnel customer acquisition activity and our mid funnel. We envision a channel similar to our multi channel Super Bowl approach this year.
3rd, brand creative and messaging that are distinctive and resonate specifically with the value proposition we offer our customers. This is a real change for GoDaddy and the right approach as we build on our exceptional brand awareness and extend our reach globally. As we market more consistently throughout the year, we expect to see more balance in our business pacing throughout the quarters of the year versus the seasonally stronger Q1 we saw in passage. It's also absolutely the right approach. Another example of our changing approach to how we interact with our customers is the product bundling Scott mentioned in our last earnings call.
Historically Domains was really our primary customer on ramp. For the last couple of years, we presented customers a much broader range of offerings, often merchandising and marketing domains, presence and our email together. Introductory offers to make it super easy for customers to get started. When we make it easy for customers to attach and use our core products like site building or email, they renew at very healthy rates and have attractive long term economics. Evolving approach to marketing, product presentation and bundling are all designed to better engage with our customers and address our increasingly global growth.
Look, we feel really good about the quarter and the year. I'm super proud of what our teams across the company delivered in 2015. We launched new capabilities with a comprehensive and just wicked fast domain search, added over 100 new top level domains, expanded our domain aftermarket liquidity and grew to 62,000,000 domains under management. We introduced our GoDaddy Pro Tools, launched our new search engine visibility service and we rolled out hundreds of features, performance and availability improvements across the company. While we're filling out our international footprint to 53 markets in 26 languages, hospitals are very good and creates a great foundation for growth years ahead.
And as an aside and before I turn it over to Scott, just yesterday, I noticed another timely proof point that reinforces the incredible importance of owning 1's personal identity and presence on. I'd encourage you all to check out what's presented when you type Jebbush.com into your browser. Whether you're a presidential candidate, a small business or even a sell side analyst, I think we can all agree that with the increasing importance that the Internet plays on our daily lives, claiming and tuning your digital identity just continues to become more formed. Let me turn the call over to Scott and we'll talk about the financial results.
Thanks, Blake. Everybody, sorry about that. We had some feedback from the mainline. Thanks, Blake. Thanks, Blake.
There's 3 financial points that I'd like to cover with everyone today. First, we continue to deliver strong consistent revenue growth with a really nice balance between customer and ARPU increases. As Blake said, our bookings grew 17% in constant currency in Q4 or 13% on a reported basis. Revenue also grew 17% in constant currency or 14% reported. Looking at our 2 revenue drivers, customers grew 9% during the last year, we ended Q4 with approximately $13,800,000 paying customers.
Our annual average revenue per user ARPU grew over 6% to $121 up from $1.14 a year ago even while absorbing the impact of the stronger dollar. 2nd, we're consistently delivering even faster growth in cash flow. Adjusted EBITDA grew over 30% year over year in the quarter and frankly we had spectacular performance in unlevered free cash flow with an increase of more than 145% last quarter and more than 50% growth for the full year 2015 versus 2014. Those are great gains in our 2 key profitability measures achieved while we continue to invest in growth. 3rd, we feel well positioned to continue delivering a strong combination of top and bottom line growth going forward.
I'll provide some color on the performance of our 3 product lines. First, domain revenue finished the quarter at 218,000,000 dollars up 9% year over year. Our domains business continues to be fueled by international growth, strong and improved renewals and continued expansion in the domain aftermarket. Now in recent months, we've received a handful of questions about China, specifically on the surge of domain registrations coming from Mainland China in Q4 and how it's affected us. Here's some background.
For several months in Q3 and Q4, interest in short domain names spiked in China, particularly those 3 to 6 characters, both in pinyin and numeric names. Now the vast majority of these registrations were done through Chinese based registrars, often at below cost, but that activity didn't affect our results. We do believe that most of the incremental registrations were by local Chinese domain investors. Now the surge was positive for our domain aftermarket business as we facilitated the secondary sale of several short character names given our unique position as the largest domain marketplace in the world. While the surge in the primary market didn't affect us, do see it as great proof point of the value of domains and character based languages and the prospect for our growth in Asia over time.
With our January launch of localized GoDaddy offerings in Asian markets and languages, we look forward to building our presence and participation in those markets in a meaningful way going forward. The interest we saw in the purchase and sale of domain names in the aftermarket also highlight the value of domain names is unique digital assets with real value. With our growing domain marketplace, we're well positioned to help grow the global aftermarket and names and make these secondary name transactions both easier and more transparent for our customers and for the industry. Now today Asia is still small for us generating less than 4% of our total company bookings. We're excited about our recent launches and the opportunity to build those markets into more meaningful business for us over time.
This will be a multi year process that I'll address a little bit more when I discuss our outlook. Now turning to our products beyond naming. Our hosting and presence revenue was $156,000,000 in Q4, up about 13% year over year. As Blake mentioned, we're increasingly bundling our products, bringing domains, our basic presence offerings and email and productivity products together in introductory offers, which we believe will benefit renewals and the long term economics and value of our customers over time. Recall that when we sell products in a bundle, revenue gets allocated across all the products in the bundle according to their list prices.
Bundling like this, for example, combining our website building tool with free Office 365 shifts revenue recognition among product lines in the short term, but our focus is always on the overall lifetime spend of our customers in aggregate. When you look at the growth rates of our 3 business lines this quarter, they shifted several 100 basis points of growth to business applications from domains and hosting presence lines in the 4th quarter. Business applications revenue of $52,000,000 accelerated to growth of 50% year over year in Q4, driven by continued strong growth in both productivity and email marketing and the bundling effect I just mentioned. Like all companies with a meaningful international presence, our 2015 top line growth also reflected the impact of currency, which became more pronounced throughout 2015. For the full year 2015, bookings growth would have been 17% or 3 20 basis points higher and revenue growth would have also been 17% or around 140 basis points higher in constant currency.
Most importantly, we remain happy about our international growth and our future prospects. Our international business now represents 26% of total revenue and grew 25% in constant currency in Q4. Over the last three years, we've grown share and accelerated growth in our primary non U. S. Markets at attractive economics.
Looking ahead, we're going to continue to focus on extending our gains in Asia, the UK and other key geographies while building up our Asia business. Turning to profitability, we continue to deliver strong cash flow. I mentioned adjusted EBITDA grew over 30% in Q4 to $74,000,000 and for the full year EBITDA grew over 24% to $337,000,000 producing a 21% margin, a gain of 140 basis points versus 2014. Unlevered free cash flow was up dramatically, growing 147% in Q4 to 52,000,000 dollars bringing our full year unlevered free cash flow to $294,000,000 a gain of almost 54% versus 2014. In 2015, we converted 87% of adjusted EBITDA into unlevered free cash flow near the high end of our long term target range of 70% to 90%.
Now just a minor point on our operating cost lines in Q4. Two items in the Q4 a year ago produced somewhat unusual growth for a couple of our cost lines. Specifically, our tech and dev costs would have grown a bit faster than we reported in Q4, more like 7% year over year and our G and A growth would have been quite a bit slower about 8% year over year without the non recurring items in the year ago quarter. Looking forward, both Tekindev and G and A should be sources of operating leverage for us in 2016. Now overall, our combination of strong top and bottom line performance demonstrates the inherent leverage in our business model, allowing us to steadily grow the top line, invest in growth across the business and deliver excellent unlevered free cash flow, all of which contributed to delevering the balance sheet throughout 2015.
We finished the year with approximately $353,000,000 in cash and short term investments and net debt of $731,000,000 or about 2.2 times our 2015 adjusted EBITDA. So turning to our outlook for 2016. Today we're providing guidance for revenue and adjusted EBITDA for both the Q1 of 2016 and the full year. Our strategy is designed to generate consistent steady growth over the long term and that's reflected in our outlook, which is right in line with the expectations we shared with you at the time of the IPO and throughout all of last year. For Q1, we expect revenue in the range of $428,000,000 to 432,000,000 dollars implying approximately 14% year over year growth at the midpoint.
For the full year 2016, we expect revenue of $1,820,000,000 to 1,845,000,000 dollars also implying approximately 14% growth at the midpoint. Now this outlook incorporates the continued impact of currency as past bookings translate into revenue in 2016. In other words, without the dollar strength to trim bookings in 2015, our 2016 outlook would have been a bit higher than what I just shared. But even while absorbing this, the ranges are right in line with the long term revenue expectations we've shared with everybody before. We expect adjusted EBITDA in the Q1 in the range of $111,000,000 to $114,000,000 and the full year 2016 of $400,000,000 to $410,000,000 The midpoint of our full year adjusted EBITDA range implies 20% growth year over year also in line with the long term targets we've shared.
Two quick comments on our 16 expectations. First, this outlook incorporates the costs associated with our recent entry into the new markets in Asia, but relatively limited top line impact from that region. We expect to spend 2016 tuning our offerings and marketing in these countries to lay the foundation for more meaningful contribution from these markets in 2017 and beyond. So although Asia won't dramatically affect our P and L much in 'sixteen, we're excited about the long term potential there as these geographies build into meaningful contributors over time. 2nd, Blake described our marketing evolution, specifically our focus on reinforcing our brand message more frequently and consistently throughout the year as opposed to our historically big brand awareness push in Q1.
As we broaden our marketing reach and expand the tactics that we use, our Q1 and full year outlook reflect our expectation for slightly less Q1 seasonality than we've experienced in past years. But overall, I'm taking a step back. We're well positioned for continued growth at scale in 2016 and beyond. We serve a huge market of small businesses, organizations and individuals who are looking to build an online presence. We deliver a true lifecycle experience to these customers that combines products, an integrated tech platform and care in a distinctive way.
And the products and services that we offer grow with our customers over time. This value proposition translates into a proven financial model with great customer unit economics and strong and consistent overall revenue and cash flow growth. To wrap, our Q4 performance and execution were strong and we're focused on continuing to deliver for our customers and our shareholders over time. With that, we'll open it up for questions. Yes.
And hey, everybody, while the operator gets the queue going, we understand that the phone line was cutting out a bit during Blake's remarks. We apologize for that. Let us know if there's any elements that people need us to come back to during the Q and A. We're certainly happy to.
Your first question comes from the line of Ron Josey with JMP Securities. Your line is open.
Great. Thanks for taking the question. I wanted to spend a little more time on international expansion and the plans around Asia specifically. On international, I think Blake you said that more users come from international this year than in the U. S.
So I just wanted to see if you can remind us, I think you said there's about 4,000,000 international users as of 3Q, so maybe an update there. And then given Asia just launched, to Scott's point, where do you think these users will be coming from in 2016 going forward? I guess, obviously, you're more established markets, but any specifics would be helpful. And then lastly, on marketing, just any more details on how you plan to grow that brand awareness in those 11 Asian countries throughout 2016 would be helpful. Thank
you. Yes. So we'll try to knock those off. This is Blake in order. So the yes, we're roughly about 4,000,000 customers internationally today.
This year will be the first time that we'll take on more international customers than domestic customers this year. So we crossed that last more new customers, I should say, internationally. So very good for us. Which markets do the new customers come from? We see coming primarily from big Tier 1 markets, whether it's Brazil, the UK, Canada, India, and then we've got Tier 2 and Tier 3.
But the majority are coming from those large Tier 1 markets. And honestly, we do spend brand spend and we do in those big Tier 1 markets. That is something where we actually feed on the street. We do top of funnel advertising. And in Tier 2, we do things that are more search engine marketing and direct and display.
Brand is done in the U. S, the UK, Australia, India, a little bit in Brazil and Mexico for the most part. And we've seen good uplift and good uplifted brands when we spend into them, when we do localized markets, when we globalize and make sure we're managing payment types and currencies and languages, and we spend into those markets, we see an immediate one. So we're pretty happy with what we've been doing so far over the last few years internationally and think that Asia is going to follow that pattern, follow that same pattern that we've seen in both Latin America, Europe, India and the other English speaking markets we've covered. Got any other comments?
Thank you. Yes, that's great. Thank you.
You bet.
Your next question comes from the line of Jason Helfstein with Oppenheimer. Your line is open.
Great, thanks. Maybe just 2 things. Products are becoming more important. Maybe talk about kind of the mix and how what you're offering is impacting the bundle packages? And then can you give us a sense of perhaps some product pipeline coming over
the next 12 to 18 months? Thank you.
Yes. So Jason, I would characterize us as being a product portfolio company. So we actually have a number of products both domains, presence in e commerce and hosting and productivity. We have seen frankly faster growth in our productivity area. We talked about 50% growth in that area.
And the pipeline of offerings that will come in for the next 12 18 months will be in the area of what we believe our customers are looking for. So you've seen our business shift from primarily being a domain business to being much more of a portfolio of digital presence products that help people get found online, be able to go transact with their customers, acquire customers, retain them and then helpfully help them run their back office as well. And we're seeing good growth in business, both on digital presence and on productivity.
Thank you.
Your next question comes from the line of Deepak Mathivanan with Deutsche Bank. Your line is open.
Great, thanks. This is
somewhat related to the product question. But business applications revenue growth accelerated nicely for a few quarters since you launched email marketing. You called out bundling as one of the reasons for that due to the dollar shift. But can you perhaps qualitatively touch upon what penetration rate currently is there in terms of the total customer base and then how you're driving the attach rate for that product? And then can you also give some color on the adoption curve of the product, the email marketing product versus Office 365 and professional email that you saw in the past?
Hey, Deepak, it's Scott. So from a business application standpoint, I think we had said last call as well that we passed 2,000,000 customers that are using one of our business applications products. And so we continue to see nice increases in attach. And as our products both within productivity and email marketing again continue to get more, let's call it robust. You're also seeing some nice movement in migration into high value packages within the SKUs.
So as I described and talked to you about before, look, we continue to use bundling as ways to allow our customers to easily acquire and activate these business application products because we've found and our customers certainly find that once they start using them, there's huge value and they renew for a long, long time. And so, look, we're just going to continue to drive both attachment and activation of these. And over time add more products to these categories.
Got it. That's helpful. And another one for you, Scott. So refund rates, if you look at it as a percentage of bookings was creeping up slightly for the past few quarters, but seem to have stabilized in 4Q. Will you call out anything specific this quarter or is it just due to the mix shift in the business?
No, it's just running we're running
the business, Deepak. I think that stability is probably the right way to think about it.
Okay, great. Thanks, Scott. Yes.
Your next question comes from the line of Mitch Bartlett with Craig Hallum. Your line is open.
Sure. Maybe a question for Blake. Just could you describe what it's like to enter a new market? You just entered 10 Asian markets in early January. What are the assets and the people that need to be in place?
And maybe the product initial product strategies or just what does it look like to start in a new market and what will it look like over a number of years? I get that you're saying very little revenues from these Asian markets, but what is it what kind of what does the trajectory look like for normal market like perhaps Thailand or something like that?
Yes. So let me I'll just talk quickly about sort of how we approach international markets. First of all, international markets for us is primarily initially a software problem. So it's making sure that the code that we have written is globalizable or localizable, which means we're separating the function of the code away from language, away from market. And in market, you have both currency, you have payment type and you have imagery.
We separate those things out, that allows us from a platform perspective to have very small nuances in the products and to be able to enter markets with literally no personnel inside those markets, with the exception of a singular care facility that can be in region that manages the languages, the individual languages of those different markets. What we have found over the last couple of years when we've entered markets with that strategy, we have seen an immediate lift, just because we are actually looking we look a lot like a very local company who knows the market well. In the example, we entered in 2012, we ramped up products, we added a local care organization, we added marketing on top of that, and we've seen a 3x growth rate in India over time. So from a cost perspective, I'll hand it over to Scott and let him talk about it.
Yes. No, thanks. Mitch, let me just pick up on the India example that Blake just gave, which is you got scaled engineering and then in a market ramping hair and marketing, which in India drove a 3x plus growth than it has for the last 3 years. And so think about these markets that we're entering first on their size growth and competitive potential. So we're looking at these geographies and thinking, okay, well, where is their embedded growth particularly in naming and the local competitive context, mostly of which is just local people.
And then we are purposefully in year 1 for a couple of markets that are big and large and we think we've got a way to really meaningfully accelerate growth spending year 1 marketing dollars to activate customers. And based on that customer growth rate plus their spending profile, we're measuring the lifetime value relative to our cost of acquisition over time. And then frankly, we're spending marketing dollars into that market based on that attractiveness. So what I'm describing is a very clear formula for growth that frankly has been at work for the last 3 years in our international markets. And I'd encourage you and everybody to think about these Asia markets is just another play in the international playbook that we've been running for 3 years.
Right. That's great. Thank you.
Yes. You're
welcome. Your next question comes from the line of Paul Vogel with Barclays. Your line is open.
Great. Thanks. I just have two questions. The first, just in terms of
the big picture macro, any impact at all that you guys are seeing right now on the business? And is there anything in your guidance that would imply any change to the macro? And then I guess sort of a more modeling question. Just when we look at margins for the business, how much of a mismatch is there between where you recognize your revenue and where you recognize your costs? So obviously you talked about the FX neutral revenue growth, but is there a negative impact to margins based on a mismatch between revenue and costs?
Hey, Paul, it's Scott. I'll take both. Look, on guidance, certainly one of the appeals of our business and financial model is that we do have quite a bit of predictability and visibility in the growth. Look, I think the biggest macro factor is just what we're experiencing in currency. And if you think about the range that we just provided, I think movements in these dollar amounts which have been just pretty unpredictable is kind of will more than anything else push us towards one side of the range or the other.
And again relative to constant currency versus reported, we got 200 to 300 basis points of impact happening now and that are going to show up into 2016. And so that's the macro factor. Frankly, the fundamentals of business of our market performance of our attachment they're all doing great. So I think that's the highest that sort of question and point number 1. And 2, bookings and EBITDA, we don't have a lot of costs that are actually sitting outside the United States.
Again, as Blake described as international, as we talked about international, we don't we're a scaled expansion model and so we don't have a lot of costs that actually sit outside the U. S. And so our EBITDA performance and growth is actually reflective of a cost structure that largely in terms of people sits here in the United States.
Okay, great. Thank you.
Your next question comes from the line of Sterling Auty with JPMorgan. Your line is open.
Thanks. Hi, guys. I got one question and one follow-up. The first question is the comments that you made on seasonality, I'm really interested in. Is it that you think that just changing the marketing programs is going to help smooth out because to your point, March has been the seasonally strongest quarter for the naming business since back for 15 years plus.
So I'm wondering is that going to be enough to kind of smooth things out? Or is there anything else that you think will help change the seasonality?
Yes. Sterling, Scott. So first, the season out, it's a slight change. Again, we're a subscription business. We've got a big amount of renewal business plus new business from existing customers.
So from a quantum standpoint in the quarter, it's a relatively small amount, but it is a bit of a smoothing from Q1 into the quarters throughout the rest of the year. So truly it is not a huge change. It's a very modest shift from Q1 into the other quarters. Does that make sense?
It does. Yes. And then
And again, to be clear, it's that's affecting bookings, right? Because bookings is the in quarter billing. And so that slight taper in shift for 2016 is going to just be more reflected in bookings than in GAAP revenue.
And then just as a follow-up, the commentary about, I think you said renewal rates actually improved. Kind of curious, are you seeing that across the board? Or is it a pickup in renewal rates of the customers that have more than just domain names? Just maybe a little bit more either qualitative or quantitative color on the improving renewal side?
It's positive across, frankly, our product categories. And again, I think it's slight change in improvements, not dramatic ones. But again, on a subscription business, renewal rates that are consistent and steady, particularly at our size and scale and what we're doing from an expansion standpoint is fantastic, right? And within certainly even domains, but then around products and categories like productivity, we're seeing just nice metrics in renewal rates. But again, I think if you're sitting there and thinking about models, put it into the category of light shift, comfort in the business as we expand, but not a huge dramatic change that's going to show up next quarter.
Got it. Thank you.
Yes. Sterling, I'm just going to just build real quick with Blake, just build on Scott's comments. What we have found is, as we improve the products and we start seeing, I think, better activation and usage and folks really enjoying the products and using them, we see folks renew at a much greater rate.
That makes sense.
Your next question comes from the line of Brian Essex with Morgan Stanley. Your line is open.
Great. Thank you and thank
you for taking the question. Either Blake or Scott, I was wondering if you could maybe talk a little bit about I know it's early days, but some of the dynamics of what you're seeing in the new Asian markets and maybe relate that to India and what you've seen there, both from a pricing mix and attach rate perspective? Are you seeing the similar profile of customer? And I have to imagine that in some ways it's different, but maybe a little bit of color in terms of your initial take on penetration in those markets?
Sure, Brian. We've been in Asia we've had customers in Asia for quite some time. So we've been doing analysis and modeling the way that they look. The dynamics in Asia are quite similar to what we see in India. India.
The mix of products quite similar, pricing in local currency quite similar. And the customer profile generally is pretty homogeneous. And what they're trying to accomplish is the same. They're trying to get a digital presence starting with a name and trying to attach a website to it and many times an email address as well. So the dynamics for Asia are quite similar to other markets that we've entered in the last 2 years.
Okay. And is there anything about the experience that you've built penetrating other geographies that might make you do this more efficiently? I mean, what are some of the major things that you've learned, whether it's India or Brazil or other geos that have been stumbling blocks upfront that maybe you've kind of solved that equation going into Asia?
Look, we certainly have gotten better, I think at entering just because we've had the experience in other countries and we've certainly learned both, I think, in product deployment and how we put our product performance and how we do regional data centers to serve up speed and availability in local markets and then also how we spend in those markets
in the
top of funnel and mid funnel. So we've spent time learning quite a bit on conversions and on how to really build products that our customers feel are local. They feel local.
Hey, Brian, it's Scott. I'd add 2 things. 1 is the marketing spend and the activation to a market has been the 1. So we've done this now in a half dozen plus big Tier 1 markets plus lighter and more direct spend in others. And we're dialing in our formula for how much and the tactics around how we enter the market and then grow it over time.
And so that's been the big learning over the last 3 years. And frankly, it's just giving us confidence in our ability to enter additional markets and grow share and do so in a really scaled way. Okay.
Anything you'd highlight is the biggest risk for you? I mean, what's the key thing that you'd have to get right as you penetrate that market?
No, this is Blake. The approach that we've taken and being primarily software driven and then spending into the market is very low risk for us. We learned quite a bit in India and we grew our way into that over time. And you'll see us take the same approach. There's as Scott said earlier, it's just there's not a whole lot of dollars at work that
are outside of the country. The
We see good we see good leverage from the work that we've done in the U. S. In these markets, which really takes a lot of risk out of the equation.
Yes. And what's really helped has been frankly just a very clear name centered offer and translation, and doing that with the local ccTLD and price points and payments that allows people to get that name and start to build their online presence, which has been the foundation of the business, has been the key to entering these geographies. So frankly, more than anything else, that's the thing that I think has given us confidence in entering these categories because it's really anchored on name and then connecting that name to a digital identity in a larger online presence.
Great. Thank you.
Your next question comes from the line of James Kaczmaki with Monness Crespi, Hardt. Your line is open.
Hi, thanks. Just 2, please. So the first one on the gross margin, obviously, you guys have been able to expand that every quarter now with the growth in higher margin categories. But with the bundling that we saw last quarter, I guess we perhaps should have expected somewhat of a slowdown in the rate of the gross margin expansion because of that bundling, but it was on par with 3Q. So just how should we think about the potential slowing of the leverage there as we look into 2016?
And then secondly, on the macro comments that you made, largely, I guess, ForEx related, what we're seeing is weakening SMB environment, at least domestically. Can you just talk a little bit about what you're seeing from small businesses in general at
a high level? Thank you.
James, it's Scott. I'll take the gross margin one and then Blake can talk about the SMB environment. So on gross margin, you said it well and it's right which is we've put up large gross margin expansion over the last 6 to 7 quarters. And we expect that to pretty much flatten. You've seen it taper and it's flattening out both as we bundle in merchandise and frankly think about some of the new categories that we're going to add and what that might mean from just a gross margin percentage profile.
But again, the incremental products that we're adding in the merchandising approach from a dollar basis and a gross margin dollar basis is really attractive. So, to your point on tapered gross margin as we look into 2016 is exactly right. And that's kind of the way to think about it. Blake, if you want to talk about the SMB macro environment?
Yes, James. This is Blake. Look, our business isn't countercyclical, but we see pretty meaningful resilience from small businesses. And if you look back in time, the company between 2,006 2010 had double digit growth. And I think that what it speaks to is that it's not just established small businesses, it's people that have new ideas and they're trying to take that idea online.
And frankly, that I think optimism that folks rely on themselves when times get tough, they get a new idea and they're going to go do something with it, usually starts with a name and then a digital presence after that. And we see a pretty resilient market compared to some of the reports on SMB environment. So it's a positive trend.
Your next question comes from the line of Brent Thill with UBS. Your line is open.
Thank you. Blake, just following up on international. With the business application uptake, I just wanted to be clear that you're seeing a similar uptake that you would see in international as you are seeing in the U. S? Or is there any differences as you see the first time customers coming in as they look at maybe just going with one product or are they starting to bundle as similar to what you're seeing in the U.
S?
Yes. Well, hey, Brett, this is Blake. So look, we see the subscription business. So it starts out with the first purchase and then builds over time. And as we enter our market, we see attach rates that start to model the other countries that we entered into.
As O365 was rolled out or our email applications rollout, we see those things being attached. And similar to the markets that are more mature internationally today, which start to look a lot like the U. S. Over time. So we'll see, I think, increasing penetration of O365 as an example.
And we offer that, frankly, in every language, every language and markets that we've entered. And that's 53 markets and 26 languages. So it's we expect to see a good penetration there.
Okay, great. And Scott, just on the ARPU, you've been running double digits for the last couple of quarters. It's been mid single digits. And I think you've been clear to not expect a double digit pace. Can you just remind us going forward your expectations for ARPU?
Is the mid single digit number a number that we should think about it for modeling purposes?
Yes. And Brent, ARPU over the last several quarters has been mid single digits. So just the pacing from the 4th quarter has actually been pretty consistent with how we've been running. And honestly, that's the way to think about it going forward too. I mean, I think we are running the business with a nice balance between customer adds and ARPU growth.
And frankly, what I think what we've seen in the Q4 is a good way to think about it going forward.
Great. Thanks.
Your next question comes from the line of Mark Mahaney with RBC. Your line is open.
Great. Thanks. I think most
of my questions have been asked and I hope this isn't a repeat. Can you comment on the net adds that came in a little light versus what we expected this quarter? Do those come in largely in line with your expectations? And any color around them with the net adds was the source geographically, vertically similar to what you've seen in the past? Any trends in terms of retention or in terms of the gross adds, the churn?
Thank you very much.
Hey, Mark, Scott. In terms of the quarter on net adds, the total customer one is the right way to think about it just given the size of the base and the dynamics across markets. And the total customer growth was 9%. It's kind of steady as she goes stuff. And I wouldn't frankly, I wouldn't look too much about kind of the immediate quarter over quarter, like just the translation of both year over year and what happens in the market is might make a quarter to quarter comparison in Milwaukee.
But look, if you take a look at the customer adds, you're looking at 1,000,000 plus net new adds every single year and that's the way to think about the business going forward. And we're positioned and at the trajectory to absolutely deliver that. Thank you, Scott. Yes.
Your next question comes from the line of Gene Munster with Piper Jaffray. Your line is open.
Great. Thanks guys and congrats on a solid quarter. First on GoDaddy Pro, can we give a quick update on where the progress on that initiative is? And then second, can you talk more broadly about India? How the investments from VCs and big tech firms impacted the Internet adoption in that country?
Thanks.
Sure. Hey, James, it's Blake. Look, we continue to add thousands of pros to that program. A lot of pros entering the GoDaddy franchise, which is great. When you think that 50% of websites are not built by individuals or built by professionals for small businesses or large businesses for that matter.
We've added the ability for our pros to start including showcase a their portfolio work and previous work. We've added the ability for customers to actually find a pro in our system
and in our
program. And I think that we're frankly quite optimistic about it. Half the PROs that are entering the program today are coming from outside of the United States, which is and if you take India as an example, many and most websites in India are developed by a web professional, not by an individual. So we think internationally, the Web Pro program will have a pretty big impact for us. On India, Internet adoption correlates with market growth and we're seeing very fast Internet adoption in India and it's helping fuel the market there.
So we've seen a very nice growth profile there and we see similar things in other countries as they start to model that same type of penetration growth. So it's a positive thing.
Great. Thanks, guys.
There are no further questions at this time. I will turn the call back over to the company for closing remarks.
Hey, this is Blake, everyone. I want to thank all of you for joining us today. And most importantly, I want you to take a lesson from Jeb Bush and Jeb Bush.com and go buy your name and own your identity before somebody else does. I think I just ended on a cheery note like that. Anyway, have a good day and we'll talk to you next quarter.
Bye now.
This concludes today's conference call. You may now disconnect.