GoDaddy - Q1 2024
May 2, 2024
Transcript
Speaker 16
Introducing GoDaddy Airo, the all-new AI-powered solution for small businesses. It's like having a second, third, even fourth employee in your corner. GoDaddy Airo creates and optimizes your business to help you save time and increase your customer base. Today, we'll show you how. GoDaddy Airo can help name the business, make logos, build a website, take payments, and much, much more instantly. So, from idea to online in minutes. And if the business owner wants changes, GoDaddy Airo does it easily, so the business owner can focus on doing what they love. Airo sends you texts or emails with tips, like when it's time to start a new social media campaign. It creates the campaign for you, including social ads, social posts, and email marketing. Airo will even track sales, and just like that, your campaign is underway. GoDaddy Airo helps small businesses reach their full potential.
It uses real-time data to assist with marketing and sales, give guidance, and complete tasks. Want to understand what's driving your revenue for the week? Ask Airo. Just tell it what you want it to do, and Airo does it instantly. More customers, more growth, more freedom for small business owners to focus on their passion. GoDaddy Airo can do it all, and this is only the beginning.
Christie Masoner (VP of Investor Relations)
Welcome to GoDaddy's first quarter 2024 earnings call. Thank you for joining us. I'm Christie Masoner, Vice President of Investor Relations, and with me today are Aman Bhutani, Chief Executive Officer, and Mark McCaffrey, Chief Financial Officer. Following prepared remarks, we'll open up the call for your questions. If you'd like to ask a question on today's call, please use the Raise Hand feature in the webinar to be added to the queue. On today's call, we'll be referencing both GAAP and non-GAAP financial measures and other operating and business metrics. 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 on our investor relations site at investors.godaddy.net or in today's earnings release on our Form 8-K furnished with the SEC. Growth rates represent year-over-year comparisons unless otherwise noted.
The matters we will be discussing today include forward-looking statements, such as those related to future financial results and our strategies or objectives with respect to future operations. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our periodic SEC filings. Actual results may differ materially from those contained in forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, May second, 2024, and except to the extent required by law, we undertake no obligation to update these statements because of new information or future events. With that, I'm pleased to introduce Aman.
Aman Bhutani (CEO)
Good afternoon, and thank you for joining us today. At GoDaddy, our mission is to empower everyday entrepreneurs and make opportunity more inclusive for all. Our strategy relentlessly focuses on creating customer value and successfully transitions it to shareholder value. This is the driving force behind our profitable growth model that maximizes free cash flow. I am excited by the innovative experiences we are delivering for our customers, the dedication and velocity of execution of our teams, and the trajectory those have created for our company. At our Investor Day, we shared our updated three-year strategic framework and financial targets. As our Q1 results showcase, we are off to a strong start in 2024. In service of our North Star, we continue to expand our free cash flow meaningfully, delivering 26% free cash flow growth year-over-year.
The pillars behind our North Star are accelerating growth in our Applications and Commerce segment and disciplined margin expansion. In Q1, Applications and Commerce bookings accelerated to 22%, and normalized EBITDA margin expanded 400 basis points. At our Investor Day, we also shared our progress on the GoDaddy software platform. The GoDaddy software platform helped create game-changing customer experiences like GoDaddy Airo. It combines the power of our infrastructure, large-scale data, AI and machine learning, experimentation and monetization to power our growth and margin drivers. Today, I wanted to provide an update on four of the key initiatives we shared previously. First, enhancing our pricing and bundling capabilities remains an important lever for GoDaddy. This quarter, we focused our pricing and bundling efforts on our Productivity Solutions, which was a key contributor to the 22% bookings growth in application and commerce segment.
Our software platform has a vast amount of data, and we leverage that data in more and more pricing and bundling experimentations. This gives us powerful insights on how and where to push forward as we continue to roll these learnings into additional products and bundles over time. Second, creating seamless experiences for our customers continues to be a key priority. We are removing friction out of every piece of the entrepreneur's wheel, saving our customers time and money. We continuously work on simplification and performance improvements that deliver value for our customers. Examples from this quarter include simplifying the editor in Websites + Marketing, making it easier for customers to discover new capabilities, reducing provisioning time for the Online Store to a few seconds, and using AI to streamline Managed WordPress website creation to just a few clicks.
Simple, smart, fast experiences come across as magical to our customers, and customer delight creates customer value, willingness to pay. Third, on commerce, I am pleased to share annualized GPV continued to grow at a fast pace, surpassing the $2 billion milestone. The primary driver continues to be conversion within our existing base of customers. In addition, this quarter, we launched GoDaddy Smart Terminal Flex, a handheld device that allows our customers to accept payments anywhere on the fly. Our commerce offering is growing and sets us up well for our 2024 focus on driving higher margin subscription revenue through the sale of tailored omni-commerce solutions to our customers. The significant value we are driving with our commerce offerings also introduces an opportunity for us to evolve our pricing structure within payments.
Last week, we began rolling out phased transaction fee increases across our customer population, while still maintaining our status as the best value in payments. Fourth, we continue to be tremendously excited about the range of possibilities with GoDaddy Airo. As planned, we started rolling out GoDaddy Airo to our base in late March. GoDaddy Airo opens the door to many opportunities across discovery, engagement, and monetization, and represents an incremental opportunity as a powerful growth driver over the next couple of years. We have continued to rapidly iterate this experience, and I wanted to share a couple of examples. More customers are discovering GoDaddy Airo, and we have more for them. We launched a new Pay Link card to test engagement with payments. A card is a visual representation of a product that is automatically set up and configured by GoDaddy Airo on just a domain purchase.
We see early indication that GoDaddy Airo does a better job of discovery and engagement with Pay Links than our normal methods. Another significant change in monetization is that we introduced a paywall for websites built by GoDaddy Airo. We are actively testing different points at which this paywall can be triggered, and this is a new flow that we are excited to optimize. While all this data is early, we're also excited to see that websites built by GoDaddy Airo are performing well. More domain customers are opting in for a website when we offer them GoDaddy Airo, and key product metrics are either ahead or within our expectations. These metrics give us confidence that we are achieving our goal of a seamless, intuitive, magical experience for our customers.
I also wanted to quickly share that GoDaddy Airo domain search is now on the homepage for all desktop users globally, and we are starting to test opportunities to optimize the traditional search experience using these new capabilities. Last but not least, Gabby, our guide assist bot, is now rolled out across our entire care footprint and is handling escalations and questions from our Guides. Gabby also helps with providing call summaries and case notes, helping our Guides be more efficient. Every month that goes by, Gabby becomes smarter, and over time, we can add use cases and drive further adoption. In closing, we continue to deliver on our key initiatives and unlock new avenues of growth and value creation for the long-term.
The GoDaddy team is a driven group and shares an unwavering determination to fearlessly push boundaries and prioritize, continuously experiment, meticulously track results, and strive for improvement each day. I am thrilled with the speed of execution as we continue to strive to exceed customer expectations, propel profitable growth, and create enduring shareholder value. With that, here's Mark.
Mark McCaffrey (CFO)
Thanks, Aman. We are pleased to announce our strong Q1 results and continued track record of durable growth. We demonstrated attractive progress toward our North Star, delivering strong free cash flow of $327 million, alongside continued execution of our capital allocation strategy, which reduced our fully diluted shares outstanding at the end of the quarter to 146 million. The key pillars underlying our North Star are the double-digit growth in our application and commerce segment revenue of 13%, coupled with disciplined, normalized EBITDA margin expansion to 28%, which converts to free cash flow at an impressive 1:1 ratio. Through our seamless technology and comprehensive one-stop-shop approach, we are building improved customer value. Our strategic focus is delivering results that drive better attach and conversion while maintaining impressive retention rates. Together, these efforts are building a foundation for enduring shareholder value.
Moving to our financial results for the quarter. Total revenue grew to $1.1 billion, up 7% on a reported and constant currency basis, and exceeding the high end of our guided range on the strength of the pricing and bundling initiative, as well as strong demand in our Aftermarket. ARPU grew 5% to $206 on a trailing 12 month basis, and our customer count remained stable despite the headwinds from our divestiture and migration efforts, also impacting revenue by approximately 100 basis points. Additionally, customers with two or more products remained above 50%, and our customer retention rate remained at 85%. Double-clicking into the segments, our higher-margin Applications and Commerce segment delivered $383 million in revenue, growing 13% in line with our guided range.
The drivers of this performance included strength in our bundling and pricing initiative across all major product offering, including Productivity Solutions, website building products, and commerce. Additionally, annualized GPV for GoDaddy Payments grew to $2 billion for the first time. Segment EBITDA margin was 42%, up over 300 basis points. Lastly, ARR for Applications and Commerce grew 13% to $1.5 billon. Core Platform revenue totaled $725 million, growing 4%, which exceeded our guide on strength in domains up 7% and Aftermarket up 12%. Our growth was driven by strong demand for domains in the primary and secondary market, increased pricing in the primary market, and a higher average transaction value in the secondary market. This was partially offset by a decrease in hosting on our divestitures.
Segment EBITDA margin Core Platform grew to 30%, up nearly 300 basis points. Lastly, ARR for Core Platform segment was $2.3 billion, up 3%. Consolidated normalized EBITDA grew 25% to $313 million, while delivering an expanded margin of 28%, up 400 basis points, exceeding our guide. Margin expansion was driven by continued leverage gains within all expense line items on the P&L. Moving on to bookings. In Q1, we achieved 9% growth on our reported and constant currency basis, reaching $1.3 billion. As a reminder, bookings primarily represent the cash collected during the period. Applications and Commerce bookings grew 22% from improvements in pricing and bundling for Productivity Solutions, website building products, and commerce.
Core Platform bookings increased 3% on the performance of domains and Aftermarket on strong demand for domains in the primary and secondary market, offset by headwinds in hosting. Subscription bookings grew 2 points ahead of subscription revenue. The impressive momentum in our bookings, coupled with our commitment to profitable growth and ability to convert normalized EBITDA to free cash flow at a ratio of 1:1, powers our substantial cash generation. Unlevered Free Cash Flow for the quarter grew 18% to $359 million, and free cash flow grew 26% to $327 million. We are committed to effectively managing our balance sheet, and the proactive measures we took to reprice our long-term debt resulted in a 30% favorable change in cash interest payments compared to last year.
Capital expenditures for the quarter were also down 81% from data center divestitures. Through April 30th, we repurchased 2.8 million shares year to date, totaling $346 million. This brings the cumulative shares repurchased under our current authorizations to $2.9 billion and 37 million shares, reducing gross shares since the inception of these authorizations by 22%, ahead of our three year targeted reduction of 20%. Fully diluted shares outstanding at the end of the quarter were 146 million shares. Our successful share repurchase program continues to drive impressive ROI for our free cash flow deployment. We have $1.1 billion remaining under our current authorization, and we plan to be in the market every quarter, subject to market conditions and other factors, with a minimum offset to share-based compensation dilution.
Moving to the balance sheet, we finished Q1 with $664 million in cash and total liquidity of $1.7 billion. Net debt was $3.2 billion, representing net leverage of 2.4x on a trailing twelve-month basis. Shifting to our outlook. Given our strong start to the year, we are raising the lower end of the range for our full-year revenue guidance. We now expect full-year revenue to be between $4.5 billion-$4.56 billion, representing growth of 6.5% at the midpoint. Additionally, we are targeting Q2 total revenue in the range of $1.1 billion-$1.12 billion, representing growth of 6% at the midpoint of our range. We expect Applications and Commerce to deliver low to mid-teens growth for Q2 and the full year.
In Core Platform segment, we expect revenue to deliver low single-digit growth in the second quarter and the full year. We are proud of our track record of margin expansion, and we will continue to maintain operational discipline to drive further leverage in our model. We expect normalized EBITDA for Q2 to be approximately 28%. Additionally, 31% normalized EBITDA margin in Q4. Full year normalized EBITDA margin is expected to be approximately 29%. We are on track for our full year Unlevered Free Cash Flow and free cash flow targets of $1.4 billion+ and $1.2 billion+ respectively. On capital allocation, we will continue to evaluate opportunities for shareholder return, subjecting them to our published rigorous returns-based framework to ensure we achieve the optimal mix for cash flow deployment.
The entire GoDaddy team remains committed to delivering against the three-year framework we shared at Investor Day. 6%-8% annual top line growth, fueled by our Applications and Commerce segment, accelerating normalized EBITDA margin expansion to 33% by 2026, and generation of $4.5 billion+ in cumulative free cash flow. Our profitable growth and 1:1 Normalized EBITDA to free cash flow ratio, coupled with our disciplined capital allocation framework, creates significant value for our shareholders. While I am pleased with our progress towards our North Star, we are far from done, and I continue to have strong confidence in our strategy and execution. With that, we will have Christie Masoner from our Investor Relations team open the call for questions.
Christie Masoner (VP of Investor Relations)
Thanks, Mark. As a reminder, if you would like to ask a question, please use the Raise Hand feature at the bottom of the webinar screen to be added to the queue. Our first question comes from the line of Ygal Arounian from Citi. Ygal, please go ahead.
Ygal Arounian (Director)
Hey, good afternoon, guys. Maybe I'm just gonna start on the strong bookings growth. And I know we talked about pricing, particularly in A&C. You have a 22% booking growth there, 1Q, almost 10% overall coming off of, you know, the strong booking number in 4Q as well. You know, typically we think of that type of acceleration as really meaningful in driving, you know, revenue growth acceleration in the back half. But we didn't see that in your guidance. So just how should we be thinking about how that translates and, you know, what all that means as we kind of look through to the whole year here?
Mark McCaffrey (CFO)
Hey, Ygal. Thanks, thanks for the question. You know, couldn't be more excited about the bookings growth in A&C and the momentum we have coming out of Q1 and the impact on the rest of the year, no doubt about it. You know, as we get into the bundling, you know, just a reminder, you know, revenue is recognized from the bookings, and it can be on different periods of time. So that momentum will continue, but given the size of our business, obviously, it takes a while to show up into the revenue growth numbers as we go on. Couldn't be more excited about it, though. Just a reminder, too, we do have a few headwinds out there relating to the dispositions. Those will peak in Q2.
We expect them to abate throughout the year, but again, we still have a few of those headwinds out there. So again, we have great momentum, but we're trying to balance some of the actions that we took. So when you put that all together, I would say we're comfortable that, you know, lowering the low end of the guide was the appropriate thing to do, and we'll continue to keep everyone updated as we go, you know, throughout the rest of the year. But yeah, we are pretty excited about some of the pricing and bundling initiatives and the impact they had on Q1 bookings.
Ygal Arounian (Director)
Okay, great. Really helpful. And, maybe on Airo, I know you gave some qualitative comments here, but, any more you could share? You know, we're rolling out internationally. We've got a couple of months under our belt here. You know, you mentioned you're seeing kind of domain customers move to Airo when they're offered it. Anything you're seeing incremental uplift and conversion, you know, ARPU growth on, on the, whether it's applications or A&C collectively or just, you know, Websites + Marketing. Anything else investors can kind of hang their hats on, on how well Airo or how well Airo is doing or what it's doing to kind of drive that conversion you've been expecting? Thank you.
Mark McCaffrey (CFO)
Yeah.
Aman Bhutani (CEO)
Thanks, Ygal. Super excited about Airo. It, it's the best vehicle we have built to carry products to our customers. We know it's doing very well with new customers, and, you know, as I shared, we've started to roll it out to our base as well. Airo just does a fantastic job of getting our customers engaged. And, you know, the metrics that we shared around it, they continue to be about discovery, which means our customers finding that GoDaddy has all these products, about engagement, where they start using those products, or you can say attach them, and then monetization, where they start to pay for those products. And we're very methodically moving through those three phases. What I can share today is that on discovery, we're seeing fantastic, you know, results there. Customers buy a domain, they see the cards, they engage with the cards.
Customers are starting to learn that, oh, GoDaddy has way more products for me, way more offerings for me. And, you know, I shared a little comment about Pay Links in the, in the prepared remarks, but I'll also share, you know, the Coming Soon site, which, you know, it's a one-page website that gets created with a domain, gets a great amount of engagement. Just regular website is getting more engagement with Airo than when we didn't have Airo. So, you know, these cards are really starting to take off in terms of discovery and engagement, which give us confidence that as we move towards monetization, we're going to have multiple levers at play. And we've started to, you know, build the paywalls and do stuff.
You know, over the next couple of years, we think this will roll out very well and deliver results for years to come.
Ygal Arounian (Director)
All right, great. Really helpful, and excited to see how this progresses. Thanks, guys.
Aman Bhutani (CEO)
Thanks, Ygal.
Mark McCaffrey (CFO)
Thanks, Ygal.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Mark Zgutowicz from Benchmark. Mark, please go ahead.
Mark Zgutowicz (Senior Research Analyst)
Thank you. Hey, guys. Maybe, just to follow-up on that impressive, A&C bookings number, curious how much you'd attribute to product attach versus pricing in terms of that acceleration?And on the pricing side, just curious how pervasive your Airo—your AI or value-based pricing initiative is across your A&C base. You know, does it touch, you know, all A&C customers at this point? That's the first question. Thanks.
Aman Bhutani (CEO)
Thanks, Mark. Our sort of value-based pricing, AI-based pricing and bundling initiatives have not gone across all A&C. You know, it's starting to roll out across a lot. What you're seeing in the 22% applications and bookings growth is the combination of pricing and bundling really touching our productivity and starting to hit our website business, too. So super excited about that. There is more to go there, so, you know, we're gonna continue to invest in that area and go across not just A&C, but over time, go to every customer of GoDaddy and bring them onto these new sort of pricing and bundling approach that we have.
Mark Zgutowicz (Senior Research Analyst)
Okay, got it. And then, I think you had mentioned that Airo is leading to some increasing, website attach rate for your domain customers, and I was just hoping you might be able to expand on that a bit. Maybe, just, some KPIs that you're seeing, maybe conversion rate, but that seems to be, maybe, you know, awakening a sleeping giant there for some time. Just kind a trying to get a sense of how significant that could be.
Aman Bhutani (CEO)
Yeah, it's still early days, Mark. You know, with our new customers, obviously, that's a smaller stream of customers. With our new customers, we do see, you know, significant take rates for, like, a coming soon website or actual website attach. So we see that engagement, sort of discovery and engagement, and it doing really well, but the large opportunity, of course, is in our base, and, you know, we're literally not even five, six weeks from putting Airo into our base. So it's gonna take a little time, given the large customer base and our approach of going into it in a systematic manner. You know, we have lots of learnings from taking productivity into our base, taking commerce into our base.
We're taking that same methodical approach from going into the base, and it's gonna take a little bit more time for us to gather data to be able to sort of share it publicly to say, "You know, this is what we see." But believe me, I can tell you, we're super excited about it, and if the new customer engagement is any indicator of the base, you know, there'll be years, many, many years we'll be talking about this.
Mark Zgutowicz (Senior Research Analyst)
Sounds great. Thanks, Aman.
Aman Bhutani (CEO)
Thank you.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Ken Wong from Oppenheimer. Ken, please go ahead.
Ken Wong (Managing Director)
Great. I wanted to maybe kind of pick your brain in terms of the rationale behind kind of changing payment pricing structure, and then how you think about, you know, how that could impact, you know, the near-term dynamics and if you're sensing any kind of customer pushback there.
Aman Bhutani (CEO)
Yeah, we're very methodical, Ken, on our approach to pricing, and like we've talked about, everything is tested. So, you know, we have tests out there, as we said, you know, it's on a phased basis, and we're really trying to create multiple offerings for our customers. And while we maintain our position in the industry for being the best value for money, it allows us to have differentiated products within our portfolio and reach more customers. So this is something you'll see more of, and we'll talk about it over the next few quarters. But really, what it opens us up for is, you know, a broader commerce solution with differentiated pricing across different bundles. And we're trying to set things up for the same sort of mindset of pricing and bundling activity together for commerce as we bring to the other products.
Ken Wong (Managing Director)
Got it, and then maybe Mark, just in terms of, just remind us kind of what we should be thinking in terms of the lag between kind of revenue and bookings, and specifically on A&C, where there's obviously a much larger delta from kind of the teens to the twenties. Like, how. What, just help us kind of think through what that convergence looks like.
Mark McCaffrey (CFO)
Yeah, and, you know, I'll take it up a level, too. You know, when we think about the bookings to revenue, we have multiple different products, multiple different terms. The revenue can be in, you know, come out in many different ways. The way we look at it is, you know, we think bookings is gonna be 1-2 points ahead of revenue, for 2024, and that'll give us a lot of momentum as we continue to, you know, see the results of the bundling and pricing initiative, as well as the momentum we're seeing in things like Aftermarket.
Ken Wong (Managing Director)
Got it. Thank you very much.
Aman Bhutani (CEO)
Just a quick add, Ken, that, you know, our general term is just around 12 months, a little over, so that, that can give you sort of the idea of how bookings, you know, will take about 12 months, get distributed about over 12 months for revenue.
Ken Wong (Managing Director)
Perfect.
Aman Bhutani (CEO)
Thank you.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Josh Beck from Raymond James. Josh, please go ahead. Hi, Josh, I think you're muted still.
Josh Beck (Managing Director)
Sorry about that. Yeah, I just wanted to ask, you know, about some of the success with the Pay Links. It sounds like it's driven an uplift on discovery and engagement maybe versus what you had in place prior. So, you know, are there certain channels, whether it's text or social, where it's just, it's doing a better job of driving engagement? Just, would like to understand a little bit, you know, just some more context behind that comment if possible.
Aman Bhutani (CEO)
Yeah, the biggest, sort of encouragement our customers. The best vehicle, you know, we've put in place for failing attach has been Airo, right? And the way it happens is that when the customer buys the domain name, all these cards, all these capabilities get set up automatically, and we introduced Pay Link in a very similar way as we had introduced the other capabilities. And what we found is we obviously had existing ways of, you know, helping our customer discover Pay Links, helping them engage with them, and start to transact using Pay Links. But Airo sort of brought it together in a very simple manner. It was right there in front of customers, and we saw the customers engage with it at, you know, significantly higher rates than without Airo.
So that, that's what's driving sort of the engagement with Pay Links. Overall, for GPV, we did hit the $2 billion annualized GPV milestone this last quarter. And the biggest part of that continues to be going into our base of customers and converting them to GoDaddy Payments.
Josh Beck (Managing Director)
Okay, that, that's super helpful, and maybe just kind of a follow-on to that last point. You know, when you look at the existing base and you think about the conversion opportunities, should we be looking at, you know, really when these customers come up for renewal with, you know, their existing payment provider, that's an opportunity for you? Is there, you know, maybe a chA&Ce to kind of put some type of, you know, firmer pressure on them to really kind of incentivize them to move over? Just help us kind of understand how you're helping promote that conversion.
Aman Bhutani (CEO)
Yeah, you know, there are customer events, customer-side events, for example, like you said, a customer coming upon a renewal, that may create an opportunity. But what we really lead with is that we have a relationship with these customers, right? GoDaddy has 65+ transactional NPS in care. Our customers are used to having a great relationship with us. So when we engage them, number one, they're open to the idea of GoDaddy offering them GoDaddy payments. The second pillar of, you know, what we approach them with is that we offer them the one-stop shop. They have other relationships with GoDaddy, you know? We can reduce one bill, one partner to work with, we can make it easier, and that's attractive to our customers. Because, you know, a lot of them start by saying, "Oh, I didn't even realize that you had payments.
Oh, it's pretty great. Oh, I like the way this works. Oh, this works seamlessly with all my other stuff I do with GoDaddy." So that's a win for us, too. And then, you know, you've got pricing that's the best value in the market today, which sort of comes in as the third pillar of that sales pitch. And, and what we continuously are finding is that that works. That encourages our customers who have great relationships with us, you know, who run micro businesses, adopt GoDaddy Payments, and, and that's what's been driving our GPV growth.
Josh Beck (Managing Director)
Super helpful. Thank you, Aman.
Aman Bhutani (CEO)
Thank you.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Vikram Kesavabhotla from Baird. Vik, please go ahead.
Vikram Kesavabhotla (Senior Research Analyst)
Hey, can you hear me?
Aman Bhutani (CEO)
Yeah. Hey, Vik.
Vikram Kesavabhotla (Senior Research Analyst)
Great. Hey, thanks, thanks for taking the questions. My first question is for Aman. I think you mentioned in your prepared remarks that Gabby has now been rolled out to the entire care team. I'm just curious what the early data points have been there in terms of the impact that's having on efficiency. I know at the Investor Day, you talked about the potential for that to reduce time and interactions for the team. Just curious what you're seeing there, seeing so far there and what the early reception has been from the care team. And then my second question is for Mark. It looks like you exceeded the first quarter guidance on EBITDA margin.
Just wondering if you could talk more about some of the drivers of the outperformance there, and how much of that was specific to the quarter versus factors that, you know, could ultimately benefit the balance of the year? And, I'll leave it there. Thanks.
Aman Bhutani (CEO)
Vikram, quick word on Gabby. You know, I'm super excited for what Gabby offers us over the long-term, right? Being able to bring the massive amount of data that only GoDaddy has, working with 21 million paying customers and many more over the years, you know, using AI to bring it together and putting it on the fingertips of every guide in the company, that, that's a powerful combination, right? And where we are is the tool is rolled out. You know, the guide is starting to use it. There is, of course, always a little bit of time for adoption and training for people learning how to use even a, you know, new tool that's AI, GenAI-powered, but super excited about it.
I mentioned a couple of use cases that are already live, live with Gabby, where Gabby's able to do the summaries or just, you know, start to take on tasks that otherwise Guides would have had to do. Sort of start to move up from, you know, Guides doing that to automation and Gabby taking care of that. So there's lots of use cases we have in mind. We have a fantastic roadmap over the next couple of years in front of us, and yeah, pretty excited about it.
Mark McCaffrey (CFO)
Vik, on the normalized EBITDA margin, you know, I always say, you know, quarter to quarter, you may see some fluctuations depending on the time you spend. Overall, if you look at Q1, you know, we've always said accelerated A&C will be a tailwind to our ability to expand our margins over time, and with the pacing you saw in Q1, we saw some of the benefit of that. But for the year, you know, we're on track for the 31% exit, and we feel good about that, and we're on track for the 29% for the entire year, and obviously, we've talked about our ability to expand that going out.
All that framework remains in place and, you know, we continue to see the benefit of the A&C tailwind related to that.
Vikram Kesavabhotla (Senior Research Analyst)
Great. Thank you.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Aaron Kessler from Seaport. Aaron, please go ahead.
Aaron Kessler (Senior Analyst)
Let me unmute. Great. Maybe just first on the. Any updates just on macro, just what trends are you seeing there? And I know customers were flat kind of year-over-year. I assume there was maybe some disposition impact on that. If you can just talk on that, and then also the you made to that point, trends and growth sides that you're seeing along with that. Thank you.
Aman Bhutani (CEO)
Thanks, Aaron. On the macro, I think the word we internally feel represents it best is a steadiness to the macro, and I think that's been a positive for us, right? We had, and we talked about it in 2023, you know, strong growth and customers continuing to come in at the top of the funnel. You know, of course, some divestitures and integrations as an offset to that for the company, which I look at as short-term gain. But, you know, good, strong growth and customers coming in, the steadiness in the macro, we believe will continue to power that. And again, you know, continuing to have a lot of firepower in terms of really efficient marketing at our disposal.
You know, our marketing is getting better and better, it's driven with data, and, you know, lots, lots of opportunities for us to continue to explore, to put more dollars at play and get really efficient returns on them.
Aaron Kessler (Senior Analyst)
Great, thank you.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Jian Li from Evercore. Jian, please go ahead.
Jian Li (Equity Analyst)
Thank you, guys, for taking the question. So, I wanna kind of go back to Airo. First maybe just to. It sounds like Airo is still in the early days of monetization. Are you baking in any, kind of contribution to, to revenue and/or, you know, any contribution to bookings for this quarter, for that matter? So if you can kind of talk about a contribution here. And then also, I think in the Investor Day, you sort of alluded to, Airo being applicable broadly across DIY and pro users. So I'm just wondering if there is any product features, for Airo that you're building specifically for the pros or agency community?
Mark McCaffrey (CFO)
Yeah, thanks, Jian. And I, I'll start with the first part, and then Vimal will probably answer the second part there. You know, where we're looking at Airo right now, we are in the discovery and the engagement phase. We haven't hit the monetization phase. We're very early on. We're looking at all the statistics, we're looking at the level of engagement around it, but nothing has been built into our bookings or revenue, for that matter, in our model today.
Aman Bhutani (CEO)
Yeah, and I think, you know, the way you might think about it, a lot of value is being created for customers with Airo because they're getting a bundling unbundled experience that's seamless, that's connected. And, you know, some of that monetization opportunity we've talked about, like Airo Premium and paywalls, but there's also a monetization opportunity that would happen at renewals, but that would be a year out from the time the customer bought the domain. So just, Jian, keep, keep that in mind as well. On, on your question on Airo features for Pro, the feature that I'm personally very excited about is Airo Insights, which is the capability where Airo assesses an existing website and gives super actionable advice to pros on how to improve that website. It.
You know, we have a version of that that's gonna be able to work for customers, too. But that product, from the first day from the ground up, it was built for pros. Its first implementation is with WordPress, and it's a fantastic product. Like, we get great engagement from pros on it. Again, it, you know, as with all Airo products, that is still at the discovery and engagement phase. We have not added monetization yet, but, you know, this year we expect to test a number of monetization methods for Airo Insights as well.
Jian Li (Equity Analyst)
Great, wonderful. And then just a quick follow-up on the GPV strengths that you're seeing. If you can parse out a little bit, is that more customer attach growing? Is it more just a growing GPV per customer? And is it coming from Websites + Marketing or more on the Managed WordPress side? If you can just talk about also the growth of these two segments separately as well. Thank you.
Aman Bhutani (CEO)
Yeah. Thanks, Jian. The biggest piece or the driver for the GPV growth is actually converting our customers in the base, and a lot of that has to do with a broader solution than just the online solution, right? Where we have, you know, our hardware, we own the full stack, from the hardware to the operating system on it, to the applications on top of it. And what we're taking really is sort of this omnicommerce solution that we're trying to bundle in different ways and target to the customers that we have. So that's actually the biggest driver of the GPV, and it's a fantastic driver for GPV, right? We want to be in store with the customer and online. We don't want to be just online with the customer.
We want to sort of have access to all of their business, and that's what we're doing with the base of our customers. And very often, you know, it starts with a sale of a piece of hardware, and that's a great start.
Mark McCaffrey (CFO)
Yeah, and like we've always said, the biggest opportunity in front of us for e-commerce is converting our existing customer base. That's where we're seeing the growth in the GPV today.
Jian Li (Equity Analyst)
Great. Thanks for your time.
Aman Bhutani (CEO)
Thanks, Jian.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Elizabeth Porter from Morgan Stanley. Elizabeth, please go ahead.
Elizabeth Porter (Equity Research)
Hi, thank you so much. I wanted to ask again on Airo. You know, we're clearly seeing the benefit with more attach in ARPU, but I wanted to better understand how Airo might be changing any sort of top-of-funnel demand. You noted some stronger gross customer adds. And then, you know, second, you know, what is the potential implication on improving customer growth after some muted growth over the last couple of years? Thank you.
Aman Bhutani (CEO)
Yeah, on Airo changing the top of the funnel, you know, we're, we're excited about being able to market the GoDaddy brand as a provider of not just this expansive set of products and capabilities, but the provider that can bring you those capabilities in a seamless, intuitive, almost magical manner. So, you know, Airo is not just an experience for our customer, it's not just a platform that GoDaddy has, it's, it's something we're taking into our marketing and looking at ways to really, you know, dive into customer perception. And, you know, if the customer thinks about GoDaddy and thinks about domains, Airo is gonna help the customer think about GoDaddy and think about a lot of things together. So that, that is the largest piece of shifting the top of the funnel with Airo, Elizabeth, if, if that makes sense.
is really taking the go-to-market plan for Airo into every bit of our marketing, into every channel that we have and, and making that really, really successful. In terms of customer growth, you know, yes, we, you know, we absolutely see in the medium and long-term, you know, a growing customer base for GoDaddy. We, we see that as a key sort of point of growth. We, we have the brand awareness globally that is fantastic. Like, it's, it's unparalleled. We have amazing products to bring to them. We have plenty of firepower in our P&L to be able to reach those customers, right? So we absolutely believe there are a lot more customers for GoDaddy to reach and add to that 21 million every year.
Mark McCaffrey (CFO)
Yeah, and you know, we continue to be impacted by the divestitures and migrations that we've talked about. You know, a lot of that's peaking in Q2, as some of these are starting to lap, but will abate over time. And as I always say in these scenarios, while you know, we're attracting more of the customers with a higher intent that are attaching to that second product or they're engaging on the bundles, it's very, very happy with. Or on the back end, we're losing what I call low-calorie customers that weren't really in there with any intent. So we're happy with the model. It should start to abate over time, and we'll keep everybody posted on a quarterly basis.
Elizabeth Porter (Equity Research)
Great, that makes a lot of sense. And then a follow-up on the margin side of the equation. You know, there's the kind of mix shift from to A&C, you know, but also leverage as revenue growth re-accelerates, and you guys are taking also some specific kind of cost actions to manage expenses. So just wondering if there's any way to, like, stack rank some of these drivers as it relates to the margin expansion that you guys have in the outlook?
Mark McCaffrey (CFO)
Yeah, and, and Elizabeth, I look at it in three buckets. We have, we have the, the, you know, what I would say the tailwind related to A&C growing at a higher profit point, which continues to be, I would say, you know, a big driver. The other big driver is, you know, our access to global talent pools now is our, our international base grows. Our ability to move into markets that are more cost-effective, is helping us. And then I would say the, the, the third, probably not as big as the other two, but the third continues to be our infrastructure simplification, and that is just getting more efficient, you know, reducing the amount of locations we have, getting, you know, getting out of leases, that type of environment.
So those three buckets are the big contributors to how we continue to expand our margin, and that will continue as we go into the outer years.
Elizabeth Porter (Equity Research)
Great. Thank you.
Mark McCaffrey (CFO)
Right.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Trevor Young at Barclays. Trevor, please go ahead.
Trevor Young (Equity Research Analyst)
Great, thanks. On Aftermarket, second consecutive quarter here of double-digit growth, but meanwhile, it looks like your full year expectations there are still kind of in low single-digit territory. What's driving that outsized growth right now? It looks like ATVs are up almost 20% on the year, plus the benefit of easier compares. Just trying to understand if something has structurally changed in demand for that business, you know, what's causing that resurgence? And relatedly, what would cause it to slow from here?
Mark McCaffrey (CFO)
Thanks, Trevor, and, you know, we definitely have seen a pickup of what I would say the average transaction value, and in Q1, we saw the return of the larger transactions that had been missing in the prior periods. Again, we don't build these into the model because they come in, you know, on the short-term, and they can create some volatility. But we did see the benefit of that in the 12% growth in Aftermarket this quarter. From a steady state point of view, we still think this is a business that is gonna be low single-digit growth. We're continuing to see the volume at the lower end grow. We're continuing to see good average transaction value at the lower end grow.
But, you know, we definitely saw the benefit in Q1 of some of those larger transactions. But like we've said, we don't build that into the model, and we only build in what we can see right in front of us.
Trevor Young (Equity Research Analyst)
That makes sense. Just a quick follow-up on the Heart Internet sale. How much of a drag will that be on hosting revs, and was that previously contemplated in the 2024 guide?
Mark McCaffrey (CFO)
Yeah, I think the best way to say that, we previously contemplated that, when we were talking about our guide for this year. We hadn't closed it and announced it, but we were far enough along, we built it into the model.
Trevor Young (Equity Research Analyst)
Okay, and anything on sizing the drag?
Mark McCaffrey (CFO)
You know, we look at it as overall, the divestitures are about 100 basis points for the year, with that peaking in the second quarter and abating through the rest of the year.
Trevor Young (Equity Research Analyst)
Okay, great. Thank you, Mark.
Mark McCaffrey (CFO)
Sure.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of John Byun from Jefferies. John, please go ahead. Hi, John.
John Byun (Research Analyst)
Hi, thank you. This is. Yeah, just unmuted. Thank you. This is John Byun for Brent Thill. So you, you've pushed through a price increase on productivity and now on payments. Just wondering, you know, how much pricing power is left, especially given it seems a lot of SMBs is still, you know, somewhat struggling. And then on that last point, I know there was a question early on macro, but anything you could share on the health of the SMBs, anything different this Q1 versus last quarter? I don't know if there's any change, whether better or worse, in terms of, you know, SMB health and sentiment. Thank you.
Aman Bhutani (CEO)
Thanks, John. On the pricing and bundling, you know, I just wanna clarify a little bit, you know, these are not pushed pricing changes. It really is an approach to create new and differentiated bundles, to have pricing that's, you know, value-based, it's differentiated. They, you know, it's not sort of a price increase that one might see. All of the pricing and bundling capabilities are based on sort of large scale data and machine learning. We see. You know, we have a very large customer base. The more we apply this thinking, we do see some runway in front of us to do that, and so we think it's a great lever.
You know, I'll maybe point back to our growth and margin drivers slide on during the Investor Day, and, you know, sort of pricing and bundling was the biggest pillar. Because again, it's not just about price increase, it's about creating the right bundle and pricing it in a dynamic manner to get the best return, both for bookings, growth, and for renewal at the same time. So that's just a little bit of context for how you might think about our pricing and bundling initiative. In terms of the macro, I think the best word we've used is sort of we see a steadiness to the macro, and we think that's a positive. We think, you know, for our customers, they, you know, they always tend to be an optimistic group.
You know, we never do a survey with our customers and they never come back with sort of, "Well, I think the sky is falling." They're always optimistic about their business, and, you know, the steady macro I think just helps them have a little bit more optimism.
John Byun (Research Analyst)
Great. Thank you very much.
Aman Bhutani (CEO)
Thanks, John.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Chris Kuntarich from UBS. Chris, please go ahead.
Chris Kuntarich (Equity Research)
Great. Thanks for taking the question. Maybe just first one will be around paywalls. Can you just unpack a little bit, what you mean by that and the use of that around Airo? And, second question would be just, back to marketing. Aman, you were calling out really just kind of the strength of GoDaddy's brand overall at this point. We saw some really nice leverage in the first quarter. Just how should we be thinking about kind of leverage for the remainder of the year, and what's kind of predicated in that guide from a marketing perspective? And maybe kind a how you think about using, continuing to or needing to continue to push on, Airo awareness versus maybe more lower funnel tactics. Thank you.
Aman Bhutani (CEO)
Yeah, let me start by talking about the Airo. You know, the type of thing we're talking about is you buy a domain name, and suddenly you've got a logo, you've got a coming soon website created, you've got 8 versions of websites created that you can choose one from. You've got an email address that's been created for you. You've got a Pay Link that's ready to go. You can take payments on it 60 seconds later, right? You've got marketing campaigns that are set up for you already. We're looking for engagement, and we're gathering data about how customers engage with these different capabilities or products or cards, as we call them, right?
The paywalls is a technology which basically looks at that usage, and at a certain point of value created for the customer to then interrupt the customer and say, "Hey, if you want another, let's say, a better logo, or if you want to improve this website in a certain way, or you want to edit this website here, you actually have to start to have a paid plan. Like, it was great that you had. that Airo did all this work for you, and we love it, that you love it, but at this point now, you have to pay for it," right?
And that's, you know, paywalls and sort of being having the ability to dynamically become part of the customer journey and introduce friction where you wanna get paid is a sophisticated sort of capability that SaaS companies have, and I'm very excited to have it at GoDaddy too, right? And Airo, given its breadth of products, really offers us the capability to have lots of different paywalls that we're testing. So I shared an example, I think, in the past about a paywall for websites, but slowly what you're gonna see is us sort of understanding the customer journey, the flow, and then interrupting that and, you know, looking to sort of sign up with a subscription with that customer. And in terms of marketing, you know, as I said, we're, you know.
And I'm gonna say this, and Mark will probably say something related to it too, and we laugh about it sometimes internally. You know, I'd, of course, like to spend a lot on marketing with Airo and, you know, tell the whole world about the capability we have, but we're very disciplined in our approach of looking at the return on marketing, and that has to do with my history, you know, going back many, many years, you know, relying on gathering a lot of data. You know, how are marketing channels working? How are we really getting the value from them? So, you know, we'll continue to stay super disciplined and look to spend, you know, whatever we can within our guidelines. But I think in terms of leverage for the year, Mark, you wanna.
Mark McCaffrey (CFO)
Yeah, and this applies to marketing and all investments really at the end of the day. We, we like to use the data in order to understand, you know, what's gonna get us the best return, and, and when we feel we understand that, we're, we're willing to invest in. Marketing's the same thing for us, right? We wanna, we wanna get to the point where we understand the monetization formula, and then we can start to optimize for that. So we, we feel good about our ability to make those decisions across the board and the leverage across all of our PNL, and obviously, our ability to continue to expand the margins, especially as we see the uptick in A&C and the tailwind that that gives us going into the future.
Chris Kuntarich (Equity Research)
Understood. Thank you very much.
Aman Bhutani (CEO)
Thank you.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Naved Khan from B. Riley. Naved, please go ahead.
Naved Khan (Managing Director)
Hi, can you hear me?
Aman Bhutani (CEO)
Yeah.
Christie Masoner (VP of Investor Relations)
We can.
Aman Bhutani (CEO)
Hey, Naved.
Naved Khan (Managing Director)
Hey, so just a quick question on the booking growth for A&C. It's pretty impressive, and in your commentary, you kind of attributed that to pricing and bundling. I just wanna double-click on that. Which is it, is it more bundling versus pricing that's kind of driving this? How should we understand it from the outside looking in? And then, at the Investor Day, Aman, I think you talked about value-based pricing and leveraging dynamic pricing and things like that. How much of that is happening currently, and how much scope of that is there to, you know, do it further and more broadly?
Aman Bhutani (CEO)
Yeah, Naved, thanks for that question. So, you know, the approach we've taken with value-based pricing is that the pricing and bundling initiative sort of works together on it, if you will. They go hand in hand, 'cause it's really looking at, you know, what the engagement is for that customer, what value that customer has, what, you know, bundles of services that we can create for them, and then how should we- how should we price that? And, you know, where we and Mark talked a little bit about the areas where we've already invested in that, in that. We actually want to take that thinking across our whole portfolio. So sitting here, we do believe that, you know, as we said at Investor Day, it's sort of at least three years of goodness for us that we see with the pricing and bundling initiative.
You know, we're excited about going after that opportunity, 'cause we do have a huge base, 21 million customers that we can approach with that type of thinking.
Naved Khan (Managing Director)
That's true. Thank you.
Aman Bhutani (CEO)
Do you have more now?
Naved Khan (Managing Director)
No, that's what I wanted to kind of get a better handle on. It seems like you're leveraging both to then kind of ultimately get the sale done or renewal happen. Maybe just a quick follow-up on CapEx. It wasn't discussed. Should I just assume it stays where you guided to at the beginning of the year, or maybe has it changed?
Mark McCaffrey (CFO)
Hasn't. Full-year guide hasn't changed. You know, it can fluctuate from quarter to quarter. Obviously, we're overall reducing our spend year-over-year.
Naved Khan (Managing Director)
Perfect. Thank you.
Aman Bhutani (CEO)
Thank you.
Christie Masoner (VP of Investor Relations)
Our next question comes from the line of Alexei Gogolev from JPMorgan. Alexei, please go ahead.
Alexei Gogolev (Executive Director)
Hello, everyone. Thank you for letting me ask a question. Mark, I was wondering if you could give us some insight how Create & Grow ARR was doing this year, and what is your expectation for the rest of the year?
Mark McCaffrey (CFO)
Yeah, without getting into the specifics of, you know, growth rate around ARR, Alexei, just remember, it is our lagging of our lagging indicators, so it generally will trail revenue, not only the bookings to revenue formula, but it also trails the revenue to, you know, the trailing 12 months that impacts it. So what we expect to see a healthy growth in ARR, AR of ARPU, that we. You know, again, it's gonna lag throughout the year, and but it will continue to increase over time. On ARR, ARR, you know, we continue to look at it growing as our subscription base continues to grow. It's a good sign of health.
We continue to see that, ARR has been very healthy, you know, in our Applications and Commerce as well as very steady within Core Platform. we continue to, you know, say that subscription revenue should, should be 1-2 points ahead of, overall. Sorry, subscription bookings should be 1-2 points ahead of revenue throughout the year.
Alexei Gogolev (Executive Director)
Okay. Thank you, Mark. Then the second question was about Worldpay partnership. Could you provide an update on how it's faring, and also that significant improvement in total GPV or annualized GPV? Has there been any tailwind coming from that Worldpay partnership?
Aman Bhutani (CEO)
Yeah, the Worldpay partnership isn't driving the GPV growth necessarily, and, you know, we like the partnership with Worldpay. We're excited about what the new team there is doing. Obviously, they had a lot going on over the last few months, but we think, you know, they're in a great place. We're very excited about the product offering we have with them, and we're excited about them sort of selling more and more every month, you know, so that's where we're at. But our GPV is mostly growing with us selling into our own base.
Alexei Gogolev (Executive Director)
Thank you, Aman.
Aman Bhutani (CEO)
Thank you, Alexei.
Christie Masoner (VP of Investor Relations)
Our last question comes from the line of Ygal Arounian from Citi on again. Go ahead, Ygal. You're muted, Ygal.
Ygal Arounian (Director)
Yeah. Hey, hey, hey, everyone. Thanks for letting me ask a follow-up, and apologies for taking.
Aman Bhutani (CEO)
Hello
Ygal Arounian (Director)
A couple more minutes of your time. Last week, Verisign made some comments about, you know, how they're gonna kind of ramp up marketing spend, in particular, how they're gonna, you know, work a little bit more, one-on-one with their, you know, distributor partners to try to open up the funnel for .com in particular. So, and we're getting a lot of questions, and there's been a lot of interest from investors on that point, so I thought I'd just ask it from your point of view and, you know, what that might mean for you. You know, what you're seeing on .com or just in general as both a registrar and a registry, you know, what you guys are seeing in kind of like the.
I know you have broader exposure, so what, what you're seeing in that, in that disparity of .com versus total domains. And if you're getting a little bit more support from Verisign, does that mean more efficiency in, in marketing spend, where you can kind of, you know, spend a little bit more, you know, you open up the top of the funnel a, a little bit more? Just what, what can that mean for your business? Thanks.
Aman Bhutani (CEO)
Thanks, Ygal. I, I think you kind of answered the question in the question. We, we have a diversified portfolio of domains, right? You're, you're familiar with it. You know, we, we have the opportunity to sell over 400 different TLDs, the opportunity to have massive brand awareness globally. We're in more markets than any other domain registrar is, in my view, right? And then we have the opportunity to really create more merchandising and offerings that, that are unique, compared to other players. So we think, you know, we, we have a great diversified portfolio on domains. You know, obviously, we love all our partners, and, you know, if a large partner wants to do more, we're always happy to do more. You know, we, we wanna work with everyone.
Ygal Arounian (Director)
Thank you.
Aman Bhutani (CEO)
Thank you.
Christie Masoner (VP of Investor Relations)
We have now finished the Q&A. I'll turn it back over to you, Aman.
Aman Bhutani (CEO)
Thank you for joining us. We'll see you in a quarter. Bye-bye.