Earnings Call: Q3 2015

Nov 4, 2015

Good afternoon. My name is Dan, I will be your conference operator today. At this time, I would like to welcome everyone to the GoDaddy Third 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. Instructions will be provided at that time. Thank you. I'll now turn the call over to VP of Investor Relations, Marta Nichols. Please go ahead. Thanks, Dan. Good afternoon, thank you for joining us for GoDaddy's third quarter 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 Q&A 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, and ARPU. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our IR site at investors.godaddy.net or on our Form 8-K filed with the SEC with today's earnings release. The matters we'll be discussing 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, November 4th, 2015, we undertake no obligation to update these statements as a result of new information or future events. With that, I'll turn the call over to Blake. Hey, everyone. Good afternoon, thanks for joining us today. We're pleased to report we've put up our third quarter of solid results as a public company, with strong contributions from all of our major product lines. As we deliver for our customers and our shareholders each quarter, our vision remains unchanged. Radically shift the global economy towards small business by helping individuals easily start, confidently grow, and successfully run their own ventures. Organizations of all sizes trust GoDaddy in their quest to build a successful online presence, our recent survey of global small businesses shows that our global opportunity is still significant. We found that 59% of small businesses still don't have a web presence. We offer millions of global customers a 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. These are real people that are here to talk with and help our customers every single day. Our strategy and model have yielded a large, high-growth business with strong cash flow, serving a massive global market with growing needs. At the end of Q3, we've grown to serve nearly 13.6 million customers, an increase of more than 1 million customers versus a year ago. Our annual average revenue per user, or ARPU, rose almost 7% to $119. Q3 bookings grew 14% to $476 million, our strong customer and ARPU growth together drove our revenue up 15% to $411 million. Our adjusted EBITDA jumped 22% to almost $88 million in Q3, producing a solid margin of over 21%. We converted over 90% of adjusted EBITDA into unlevered free cash flow. I'd like to share our three big themes in our recent progress and accomplishments in Q3 results with everyone today. First, we're continuing to expand our product portfolio and deliver innovative services. Second, we're consistently posting strong financial performance and growth. Third, our efforts to evolve and grow our brand are changing the way people think about GoDaddy. Let me spend a bit of time on each of those briefly. On my first point about expanding our product portfolio, we've been innovating in all three of our major revenue lines. In domains, we continue to grow faster than the industry due to our expanding domain inventory, our industry-leading proprietary domain search, and our efforts to expand the domain aftermarket. We recently passed more than 61 million domains under management, and that's over 20% of the world's total domains that we manage. In hosting and presence, we're expanding our penetration of the hosting market with a unique understanding of the needs of small businesses, offering both hosting products and tools targeted at the professional, like our industry-leading Managed WordPress offering, and simple tools that allow a business owner to build a site on their own, like our website builder and online store builder tools. We also introduced a new search engine visibility technology that allows any website using GoDaddy DNS to place higher in search results without requiring the customer to manually update their website's code. This service has been previously offered on our website builder and Managed WordPress products, but now it's available for any website, regardless of who hosts it. Our innovative SEO technology has delivered a product that's simple for small business to use, and most importantly, it really works, and it is super effective. In business applications, we've seamlessly integrated GoDaddy Email Marketing, or GEM, as we like to call it, Shippo Shipping Solutions, and McAfee Security Solutions into our online store offering. This is enabling customers to purchase and activate these products from inside the site builder experience. This is important, so I don't want you to miss this. We're making it possible for customers to discover and use other GoDaddy products like email that meet an immediate need, while they're using other GoDaddy products, not through a separate marketing message. This, something we call in-app discovery and purchase capability, is a big benefit to our customers. It allows them to find, try, and use the right next product super easily and makes our full portfolio of products more valuable together than apart. For GoDaddy, for us, this is one of several growth levers that can help drive ARPU. Also, in business apps, we're seeing strong renewals of our proprietary workspace email product, as well as continued growth of Office 365. Our O365 offer just keeps getting better. We've brought our O365 provisioning to a median of 90 seconds for a customer's first mailbox purchase, and that's an awesome user experience that's improving both activation and usage. Our progress in all these areas demonstrates our focus on delivering truly distinctive products on a single technology platform, all wrapped with world-class customer care. We see our differentiated combination of products, technology, and care as a unique advantage for us in serving our customers. On my second point about our financial performance, we've delivered consistently strong financial results prior to and since our IPO, growing revenue across all three of our business lines, while continuing to invest in innovation and growth, all while delivering increasing cash flow and margins. Scott's going to spend more time on this in a minute. Third, the investments we're making globally in the GoDaddy brand are showing promise and results, and there's much more planned. Let me say a little bit about that. Along with all the product tech and scale work that Scott and I have talked with all of you about, we've also been taking very deliberate steps to align our brand with our global customer value proposition, our culture, and our technology investments around the world. We're doing that in several ways. First, our global advertising is increasingly aligned with our products, our technology, and our customers, increasing awareness. For instance, in India over the last three years, we've seen our aided brand awareness more than double to almost 80%. Second, we've been focusing on our employment brand with an emphasis on technology, transparency, and diversity. For example, we recently published our gender diversity and salary parity research, highlighting the challenges we and all tech companies face in building a gender-balanced workforce, from salary parity to promotion trajectory. We've also invested in a relationship with the MIT Media Lab to further the science behind bringing customers to small businesses through their community. Third, and yesterday, we announced we've engaged GoDaddy's first global brand agency, TBWA, to help us further refine our story and bring a unified message to our increasingly global audience. Small business customers need a dedicated partner to help them start, run, and grow their business online around the world, and that is GoDaddy. With the help of a clear message about who we are, what we do, and who we do it for, we believe our intense focus on our customers and their needs will continue to differentiate GoDaddy and produce strong financial results. I'm going to turn the call over to Scott to talk about the financial results in more detail. Scott? Thanks, Blake, and thanks for me for joining us as well. As Blake said, we feel great about what we delivered in the third quarter. Overall, I'd like to highlight three key financial points. First, we continue to deliver strong, consistent revenue growth with a nice balance between customer and ARPU increases. Second, we're consistently delivering even faster growth in free cash flow, with over 22% growth in adjusted EBITDA and an increase of more than 40% in unlevered free cash flow in Q3. Those are great gains in our two key profitability measures. Third, we're well-positioned to deliver this solid combination of top and bottom-line growth into 2016 and beyond. Touching on each of the three things in more detail and starting with the top line, we grew bookings 14% and revenue 15% in Q3. In terms of the drivers of revenue, customers grew 9% over last year, and we ended Q3 with approximately 13.6 million paying customers. Our annual average revenue per user, or ARPU, grew nearly 7% to $119, up from $112 a year ago. Our product lines all grew at double-digit rates in the quarter. Touching on our product lines briefly, Domains revenue finished the quarter at $215 million, up 10% year-over-year. Our domain business continues to be fueled by, one, international growth. Two, share gain in the markets in which we compete. Three, successful attachment and renewals of domains driven by our proprietary search and merchandising improvements. Four, growth in the sale of . Hosting and Presence revenue was $151 million in Q3, up about 15% year-over-year. We currently reach nearly 5 million aggregate customers with our Hosting and Presence products, including those customers who use either our easy and effective Website Builder products, and for more sophisticated audiences, those customers who build a site with open source tools and host it on our hosting infrastructure. Unlike many point solutions, we address a full range of online presence needs, serving our customers from those who want to build a site on their own, to web professionals who need more capability to build sites for others. Just as important, we believe that a successful online presence requires not just a website, but tools and capabilities to extend the site's content everywhere it needs to be online. A great example of this strategy in action is our Search Engine Visibility tool, which Blake mentioned in his introductory comments. We're also having success combining our Hosting and Presence tools with those in our Business Applications offerings, such as email, productivity, and Email Marketing. In Q3, our Business Applications revenue was $45 million, up 47% year-over-year. This product category continues to be driven by strong growth in both productivity and Email Marketing. In Q3, we reached 2 million paying customers for Business Applications products. Blake and I get asked a lot about what's next in our product roadmap for Business Apps. Importantly, we see plenty of growth opportunity just in our existing product categories. We also know there's value in many adjacent product areas where our customers spend a lot of money and there's ample room for innovation, whether it be in Online Presence, Marketing Solutions, or technical infrastructure. We've proven we can extend our model into other areas, but it's also very clear to us that doing a few things really well, and with distinction, is the winning approach. That's what we've done over the last couple of years, and it's served our customers and GoDaddy well. In addition to innovating and extending our product portfolio, we're increasingly bundling our products, bringing domains, basic presence, and email and productivity products together in introductory offers. We've learned that when we make it easy for customers to attach and use our core products, like site builder or email, they renew at very healthy rates and have attractive long-term economics. One example of this bundling and merchandising strategy is our offer of a free email with a website builder purchase. Attaching a domain-specific email like Blake at blakesblog.com creates a more professional appearance, and it makes a domain and website that much more valuable to our customers. An important point on bundling is that when we sell products at a package price, payment is allocated among the product types being sold in the bundle based on the list price of the individual product. As a result, our bundling strategy may shift revenue recognition across product lines in the short term. Our focus is on lifetime spend of our customers in aggregate. You look at the growth rates of our three business lines, these allocations shifted a bit of growth from hosting and presence line to business applications in the third quarter. We're 100% focused on maximizing the aggregate lifetime value of our customers, and we'll continue to explore pricing and bundling strategies that grow total spend and lifetime value at the customer level. We should also mention the impact of the stronger dollar on our top-line growth. In recent quarters, I've said our bookings growth would have been roughly 200 basis points higher if measured in constant currency. As bookings translate into revenue over time, that currency impact shows up in our GAAP numbers. Given the lag between bookings and revenue, we're now seeing the currency impact that affected bookings in the first half of the year show up in GAAP revenue. International revenue, which represents close to 26% of our total now, grew 17% on a reported basis in Q3. Keep in mind that the currency impact that I just mentioned in total really applies directly to this portion of the revenue base. Our underlying international business remains strong across all our key markets, and we feel good about the underlying growth trajectory and health of our overseas offerings. We just topped 4 million international customers during the quarter, and that's double the number of international customers we had just four years ago. To my second overall point on our growing profitability, we continue to deliver strong cash flow. Adjusted EBITDA grew over 22% in Q3 to $88 million, yielding a margin of over 21%, a gain of 120 basis points versus Q3 of last year. Unlevered free cash flow grew over 40% in Q3 to $80 million, roughly in line with our nine-month growth of 42%. In 2015, we've converted over 90% of our adjusted EBITDA into unlevered free cash flow at the high end of our long-term target of 70%-90% conversion. We finished Q3 with approximately $333 million in cash and short-term investments and net debt of $753 million, or about 2.4 times our 2015 adjusted EBITDA outlook. We're delivering these levels of strong bottom-line performance while continuing to invest in the business. We have been, and will continue to, hire engineers across all our applications and are investing in marketing care and our ongoing international expansion. Our strong cash and balance sheet position also allows us to pursue value-creating acquisitions where and if buying businesses, technology, or customers complement our strategy and provide distinctive return above our organic opportunities. Our performance, both in the third quarter and year-to-date, clearly reflect the leverage in our financial and operating model as, one, our product innovation continues to drive better attachment of high-margin products beyond domains. Two, our global technology platform creates scale in our infrastructure spend. Three, we scale G&A. We feel well-positioned to deliver this solid combination of top and bottom-line growth into the future. Turning to our outlook, we're raising our 2015 guidance ranges for both revenue and adjusted EBITDA. For revenue, we expect full-year 2015 to be $1.603 billion-$1.606 billion, implying approximately 16% growth versus 2014. This translates into Q4 revenues of $421 million-$424 million, implying approximately 14% growth versus prior year, in line with long-term revenue expectations that we've shared before, even while absorbing the currency impact mentioned earlier on the call. For cash flow, we're raising our full-year adjusted EBITDA range to $334 million-$337 million, implying a Q4 range of $70 million-$73 million. The midpoint of our full-year adjusted EBITDA range implies nearly 24% growth year-over-year. We also expect unlevered free cash flow in excess of $280 million in 2015, implying approximately 83%-84% conversion of adjusted EBITDA into unlevered free cash flow and year-over-year growth of over 46%. More importantly, looking forward, 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 life cycle experience to these customers that combine product tech 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 revenue and cash flow growth. For those of you who are building models, we'd like to reinforce our long-term targets of low- to mid-teens organic top-line growth, coupled with 20%-plus adjusted EBITDA growth and unlevered free cash flow growth in the mid-20s as we continue our growth trajectory, not just in the coming quarter or two, but through 2016 and beyond. Given our strong cash flow and balance sheet position, we're also well-positioned to pursue additional growth through inorganic activity into adjacent and complementary products and geographies. To wrap up, we feel great about Q3 and our continued execution, and we're focused on delivering for our customers and our shareholders over time. We believe GoDaddy's unique combination of products, technology, and care will continue to differentiate us in the market and produce strong future financial results. With that, let's open it up for questions. At this time, I would like to advise everyone that in order to ask a question by phone, you must dial star, then the number one on your telephone keypad. Pause for a few moments now to compile the Q&A roster. Your first question comes from the line of Deepak Mathivanan with Deutsche Bank. Your line is now open. Thanks, guys. Congrats on a good quarter. Two questions from me. First question on international. We saw you launched online store in India during 3Q. Can you elaborate on what big markets do you currently offer the site builder and business apps fully customized for local languages? How should we think about the focus for international next year with respect to entering into new market, upselling, and existing ones? I have a follow-up about bundling. Hey, Deepak. It's Scott. On international, I guess your second question first. First and foremost, we're going to continue to expand in the markets in which we're in, which are primarily the European and Latin American markets. Second, we will, in 2016, enter a variety of the Asian markets. To address your first point on online store and site builder, each of those are primarily localized in Tier 1 markets now, and there's a roadmap to get them into Tier 2 markets in the geographies I just mentioned, and obviously then following in the Asian launch. Hey, Deepak, this is Blake, just to pile on Scott's comments. Next year, more specifically, just to drill into Asia a little bit, first quarter, we'll enter with a core set of products, which will include Website Builder and not necessarily Online Store. Some key markets with Online Store, because payment types are a little more tricky. We will enter Singapore, Hong Kong, Taiwan, Vietnam, Indonesia, Malaysia, Philippines, Thailand, South Korea, and Japan, and of course, China as well, with a core set of products that we offer: domains, hosting, Website Builder, email, productivity. You should think of those as being the core, an Online Store in select markets where we think there's good opportunity for us, and we have payment types that are appropriate for the marketplace. Got it. That's helpful. Second on product bundling, I think, the integrated Email Marketing app being offered into the Website Builder and the Online Store, it makes a lot of sense. It requires no incremental marketing spend. Now that you've had it for, say, two quarters, roughly, can you qualitatively talk about the adaption rates that you're seeing for these apps from the initiatives in the last two quarters? What other opportunities would you characterize are left still untapped with respect to such cross-selling? Thanks. This is Blake, Deepak. Qualitatively, we're seeing pretty good uptake. If you've actually used the Website Builder, you'll note that when we surface these things, we're actually using data science to determine when the appropriate time to surface that capability is. In the case of Email Marketing, when we see that somebody has had 25 people sign up on a website to get feedback, we will surface Email Marketing for them in the time of need. We're also doing similar things with mail. Surfacing the ability to go by mail, when you show up in somebody's inbox, you show up with a very personalized domain name that says, Blake@blakeirving.com versus Blake1535@gmail.com. That matters a lot. I'll just say, we're really early in this still. A couple of quarters, we're learning, and there's machine learning involved in this as well. It's both people and machine learning. We're continuing to iterate. If you think about the offer that we've got, we have folks that are in a lifecycle. Small businesses are generally a lifecycle type of business. As they move from "I get a domain" to "I stand up a website, now I'm actually having some success, I want to surface a capability that's going to allow me to go retain or acquire more customers or get more business." That continuum of entering new product capability as somebody is growing with us really makes a difference to our customers, and I think we're seeing some of that lift, and you're certainly seeing it in the biz apps number. Makes sense. Thanks, Blake. Congrats on the good quarter. Thanks, Deepak. Your next question comes from the line of Jason Helfstein with Oppenheimer. Your line is now open. Thanks. Bouncing between two calls here, so I'm going to do my best. I'm not sure if you commented yet on what drove the lower CPA in the quarter. Just seems like we're seeing really good kind of marketing leverage. We saw clearly good margin in the quarter. You're expecting an uptrend in the fourth quarter. Can you comment on kind of initial expectations for next year as far as margin trends? Thanks. Hey, Jason, it's Scott. To your last question first on margin trends. As we look into next year, we're well-positioned for kind of 20% growth in adjusted EBITDA. I think that's the playbook, really, that's been propelling us throughout this year, which is really nice growth across our product lines with faster growth in the non-domain products that are carrying higher gross margins. Then we're getting real scale that's starting to show up. You've seen it over the last quarters, but in our tech and dev, particularly in our infrastructure in G&A, and that's going to continue, frankly, into next year, with continuing an ongoing spend in marketing and care to support our growth. The nice balance kind of creates the algorithm that you've been seeing, which is nice top-line growth and even more flow through to the bottom line. On the CPA in the quarter? Yeah. I think on the quarter, again, it's tough to sort of look at CPA one quarter or the other. The marketing spend some of it obviously does show up in the quarter, but some of it has some drag, and so I'm not sure we're going to jump up and down and take great credit for that one in the quarter necessarily. Again, we just feel good about the ongoing marketing return that we're getting and having that show up in a very consistent cohort level of spend over time. Maybe just one follow-up. Following Endurance's announced intention to acquire Constant Contact, do you guys think this signals consolidation generally in the space, and overall thoughts? No. Jason, this is Blake. Look, I think if you take Constant Contact, EIG's acquisition by itself, it's interesting. It's a logical move for them. The proximity of the businesses makes sense. They're both Boston locals. We've examined the email market for a couple of years, it's a need that customers clearly have. We are more of an organic grower than we are an acquirer of customers or revenue, and we've been growing organically. We did acquire a very small company. I'll tell you, we did an exhaustive research around the space over the last couple of years and found, on a variety of different qualitative measures and quantitative measures, and found one that we loved that had incredibly high NPS and the best product experience in Mad Mimi. We purchased this small company and frankly integrated a product called GoDaddy Email Marketing. That's what we were just talking to Deepak about in his question, have integrated that into our product suite in a way that is surfaced when somebody would most need it. We think that's the key. It's less about consolidation and more about customer need. We think that those logical extensions that our little tiny business customers or small business customers really want to do next to make their business important. Scott, I don't know if you got any comments on top of that. Yeah, I think what you're seeing is online presence as a category really being created for the small businesses and organizations that are all using cloud software. There's a variety of point solutions across a broad set of categories. From our standpoint, having those products work very well together is a real advantage for our customers and obviously for us too. It's a very big market that's expanding, and there's a bunch of different ways for things to happen and play out. I think overall, the fact that you do see consolidation in certain parts of it kind of validates the value proposition that we're providing and frankly reinforces, I think, some of our unique strengths around being able to create a bunch of need states across things and tie them together that creates real value. Thank you. That's helpful. Your next question comes from the line of Mark Mahaney with RBC Capital Markets. Your line is now open. Thank you. This is Andrew on for Mark. I just had one question on ARPU. As we think about you expanding into Asia, kind of the continued FX headwinds and the bundling, should we think about ARPU growth as slowing down here, or how do we think about it in the medium short term? Thank you. Yeah. Thanks, Andrew. It's Scott. It's good. First, I think at an overall level, we are balancing our adds and growth of customers, which certainly drives long-term value, and the monetization of our existing customers, which more shows up in ARPU. In ARPU, there's three things happening. Number one is really now and in the second half, we're lapping a number of pretty big ARPU-enhancing moves from last year, such as Managed WordPress and a big aggressive ramp on Office 365. Second is the FX impact, which you just brought forward, and that is going to continue, and that, as you rightly point out, is some tempering of ARPU. Then third is the bundling and merchandising. I think if you look at our ARPU at a shade under 7% for the quarter, in the quarters ahead, you'll probably see it in that mid-single digits line. Again, factoring in all three of these different things. Thank you. Your next question comes from the line of James Cakmak with Monness, Crespi, Hardt & Co. Your line is now open. Hi, thanks. At the end of the prepared remarks, you made some comments about potential opportunities to explore inorganic growth through adjacencies. Just wondering if you could expand on that a little bit. Yeah. Hey, James, this is Blake. I won't go into specifics about what categories we're looking at, but what I would say is that our very small business customers have needs that are adjacencies that they are spending what I would consider to be IT or tech dollars on with other providers, whether that's in marketing or communications. There are things that they are doing that they're not pleased with the situation that they're in today. Where they either don't get the results that they want from the marketing dollars they're spending, or they feel like they're not being served the same type of customer care that they get when they're dealing with us. We think there are opportunities because we have that unique set of products, technology, and care that allow us to go into adjacencies that are potentially very strong for us. We're exploring quite a few different areas that we think are potential interesting growth areas for us. That would be it. Scott, I'll- Hey, James, I'll just add two things quickly. The first is, look, our trajectory is one of great organic growth right now. The second point is, we throw off a lot of cash. We've got very strong cash flow position and a nice position on our balance sheet. It's exciting that we have been a great organic growth story. Obviously, our balance sheet position gives us the flexibility to add something inorganic if and so we choose, and that it's additive to already what we're doing on the organic side. Got it. Thanks. Then on the marketing side, one of the goals was to tackle the web professional market. With all the marketing initiatives you have in place, I guess as we look forward, can you talk about, on a cohort basis, the traction that you're seeing with the higher value, higher LTV type of clients? Thanks a lot. Yeah. Hey, James, this is Blake. We are super early. We're just two quarters into this web professional push. We have slightly under 60,000 web pros that are now in that program. Frankly, web professionals do spend more than small businesses because they're usually managing more than one small business. On a cohort basis, we expect to see a good trend, but no, we're really early in this process and still rolling out features. In fact, rolling out features as we speak that matter to these guys and allow them to manage their small business clients in a way that they haven't been able to do at scale before. We've rolled that out internationally. In fact, 50% of the folks that are in the web pro program are coming from international markets, and cohort spend internationally is the same as it is in the U.S. We're optimistic, but we're really early innings on this one. Thank you. You bet. Your next question comes from the line of Mark May with Citi. Your line is now open. Mark May, your line is now open. Thanks. We saw a lot of leverage in your customer care line in the quarter. Just wondering if you could shed a little light on kind of what drove that in the period and kind of how to think about it going forward. In terms of the ARPU growth in the quarter, maybe, sorry if I missed this, but maybe walk through a little bit some of the drivers of the ARPU growth during the quarter. I guess a subset of that is in terms of the international customer growth, what impact, if any, does that have on sort of the average ARPU metric that you provide? Thanks. Yeah. Thanks, Mark. It's Scott. First, care. Yeah, you're right. We saw some leverage in the care line in Q3. Ongoing care, it's a balance for us between having time energy with our customers and then getting them into products. That's something that we continue to invest in, and we see that time is distinctive and valuable to us. Also adding, whether it's technology and CRM or call routing, that helps us balance our staff more effectively. We're adding things like chat, which is becoming much more prevalent on our site. I think in the quarter, you're seeing, frankly, a bunch of investments that we've been making around using technology to both balance our people and the customer interactions in a way that are still giving us high-value touch, but are also helping us scale the cost structure. Look, going forward, we're going to continue to manage this balance and should think about care being roughly in line with growth, possibly with a little bit of scale. As we expand around the world, obviously that may be lumpy quarter-over-quarter. We feel like we're on a nice trajectory there. I think that's one. Number two, on ARPU growth, I think at a very simple level, you're just seeing the faster growth in non-domain products, right? In both hosting and presence and business apps in particular. All of those products carry higher relative price points, and so as more customers adopt those- And those continue to grow faster, that's going to translate into ARPU. That's got a bunch of little sub-segments to it, but at the end of the day, it's faster growth and adoption in hosting and presence in business apps. I think the third question on the international impact and how will it impact ARPU. That's part of how we've been balancing customer growth and ARPU as we're growing outside the United States. Some of those new customers are coming in at lower ARPUs, and then they spend over time. Right now, we're managing that balance, and it's showing up in our results. If we continue to expand in other markets at the economics that exist today, then it's going to be great. Look, I think just a point to call out is the FX impact absolutely does show up in not only ARPU, but particularly the international line and international ARPU as well. We're going to be dealing with that for the next several quarters. Thanks. Again, if you would like to ask a question, simply dial star one on your telephone keypad. Your next question comes from the line of Brent Thill with UBS. Your line is now open. Hey, guys. This is actually Michael on for Brent. Thanks for taking my questions. Just on the business application segment, I know you talked about having already lapped 365, and the growth rate there is still very strong. You also spoke to the aggregate between hosting and that segment. Just wondering if we could dig a bit more into the expected trajectory of that business and what you're seeing the most success with there. This is Lloyd, Brent. Hey, Michael, sorry. The overall business, we think will continue to grow at approximately the same rate you're seeing it now. That 47% growth we feel very good about. As we've talked about the way that this bundling works, there'll be some fluidity between the web hosting and presence line and the business apps line. Overall, we feel like the non-domain businesses, which are higher margin businesses for us, will continue to do well and continue to pace at a pace with a pretty strong lever. Great. We've talked a bit about international on the Q&A. I think that at one point I saw a goal of 60 countries in 2016. Can you just talk about, are you still on track for that particular clip and how that figures into the next year in expansion? Yeah. Look, we're on track right now to be very close to that number. Frankly, we'll focus on Asia. You heard me rattle off the countries. I think there's 11 of them that we'll roll in the first quarter, which will bring our overall market count to 53. That's getting pretty darn close to 60, there's a lot of the year left. For some other markets, frankly, for us, it's focusing not just on country expansion, but performance in country and making sure that the tier 1 countries that we identify as our biggest opportunities are performing well, that we're actually making sure that we're balancing our spend in those countries. As you know, in a software product, you can go into countries with very little cost, it's almost all marketing. The way that we're going to work the marketing levers over the course of 2016 will be incredibly important for us as we roll these things out. By the end of 2016, we'll be in most of the markets that really make a difference for the business. If we just get away from the 60 number and think about what's really going to make a difference substantively for the business, we're going to be there, which is a really important thing. When you think about companies that are providing a platform for very small businesses, there'll be nothing close that is targeting a very small business in that many marketplaces today. Great. Thanks for taking my questions. Yeah. Pleasure. Your next question comes from the line of Mitch Bartlett with Craig-Hallum Capital Group. Your line is now open. Hi, guys. This is George on for Mitch. Just one question. Wasn't totally clear on that. Wondering if you could just explain that a bit further. Yeah. It is not a product, George, as much as it is a capability. If you think about a scenario where I have a website builder product and I'm going to go in to make a quick change or a view, just viewing my website. I've had 25 individuals sign up to be contacted by me at some point. When we know that they've reached a critical number, and we can toggle that number up or down, depending on market. We can introduce just a button that says, "Hey, try email marketing right now." Introduce that at that incredibly important point in that small business's life cycle that surface the ability for them to discover and then use and then try, in a free trial way, try that product out, and then when they get to a certain scale, then they'll start paying for it. It's a great way for discovery of a product to be within another product. Think of it that way. Frankly, we're doing this with email. We're doing it with email marketing. There are other places you can imagine us doing this over time that will make a lot of sense for these small business customers. That make sense? Okay, thanks. It does. Yeah, thanks. Okay, you bet. Your next question comes from the line of Brian Essex with Morgan Stanley. Your line is now open. Hi, good afternoon, and thank you for taking the question. I was wondering if we could talk a little bit about hosting and presence. I think you guys have already kind of touched on tax rates, but what are you seeing in that segment? I think, while business applications certainly beat our expectations, I think hosting was kind of more in line-ish. Just what you're seeing in terms of initiatives, performance to expectations, and then how we might anticipate kind of growth going forward given the initiatives that you have in the pipeline right now. Yeah. Thanks, Brian. It's Scott. I guess as mentioned in what we talked about, our bundling and merchandising approach, where we're increasingly bringing business applications, both email and email marketing, into our hosting products, is actually moving some of the growth from hosting and presence into business apps. I think when you look at those two in totality, and we look at it and think about it, the growth is really strong and healthy. We think that this bundling approach is really impactful because it's, number 1, contextual, and number 2, it reduces a lot of friction. What we've learned and see is that when people are using our products, they don't go anywhere. We continue to experiment not just with the offer, but how we can make it really easy for customers in the right contextually relevant way to sample, try, begin to use our different products at the right time in their life cycle. You know what? We know when they do that, it works out for them, and it works out for us. Punchline on hosting and presence and apps is you're just seeing a little bit of shift of the dollar growth, kind of from hosting and presence go over to business apps because of some of this bundling. Got it. That's helpful. Maybe take a follow-up on a domain side. As we see more ccTLD and gTLDs kind of enter the market, what kind of tools do you use to gauge your penetration of the market, maybe relative to your peers? I mean, one of the things that I like about your platform is it seems that you almost have a nice scaled management layer, whereas some of your peers are smaller and don't have as many registry relationships. With all this choice that you have, one of the questions I get, I mean, the source of this question is investors are often asking me, "How do we know about who's gaining more share and who's positioned in different ways in the domain market?" Curious to hear how you look at it given the platform that you have and the visibility that you have in the market. Hey, Brian, it's Scott. Let me try the share gain one first. All right. Think about share, certainly within there's .com and the gTLDs, then there's the different ccTLDs. Right. Obviously, zone files from Verisign are both published and easily accessible, and we have a regular, frankly, automated dashboard where we can swizzle .com in any country situation around the world and track and measure our share. Over the last couple of years, as we've been entering our countries in localized form, one little execution part of that has been to establish data feeds with the registries in each of those countries to also track and measure ccTLDs. In our Tier 1 markets, we also are measuring and tracking our ccTLD share, and frankly, in all of our Tier 1 markets, it's going up. We look at both in their individual component parts, but more importantly overall, because I think this gets to the more interesting thing and is what you led into, which is our platform, is now in a position where in a geography or in a market, we can surface certain kinds of products. In some markets, it may be a ccTLD, in others, it's .com, individually with different price points, sometimes together, and have automated frankly the infrastructure and the platform to be able to do that kind of market price product independent. Again, that's one of those things that is just starting to roll out and we think is going to be a big help and is just one of the many ways that a platform plays out into making things very localized and relevant and good business for us. Yeah. Just to pile on, Brian. A couple things that I think are important to note. I think the way that we've done our proprietary search algorithm, it's insanely fast, and it also allows us to surface any TLD that's appropriate based on the word breaking that we've done in the search query. We actually do very advanced word breaking across the search, can surface TLDs from any registry that are appropriate for that particular search query. It's delivered, frankly, a 10% growth rate for us in an industry that's not growing at 10%. We continue, like I said, basically double the growth rate. We're continuing to take share in the TLDs that we play in today, which are the big ones as well, the .com, the .nets. Frankly, having 20% of the world's domains under management at 61 million domains under management is important. Leadership here is incredibly important to us, and we're going to continue to innovate and put great engineers and great UX people on these problems. We know that when you own that domains on-ramp, it's the first thing that people do when they have an idea. They go buy a domain, and then the next thing they do is go attach something to it. It's a key driver, not just for the domains business, but for the rest of our business as well, and you'll see us continuing to lead there and make really good investments. Great. Very helpful. Thank you very much. Thank you. There are no further questions on the lines at this time. We'll now turn the call back to the presenters. Hey, everyone, this is Blake. I just wanted to thank you all for standing or sitting on the phone for the last hour and hearing our comments and asking questions. We've had a great third quarter. We feel good about it, and we look forward to talking with you next quarter. Bye now. This concludes today's conference call. You may now disconnect.