Q1 2024 GoDaddy Inc Earnings Call

Participants

Amanpal Singh Bhutani; CEO & Director; GoDaddy Inc.

Christie Masoner; Senior Manager of IR; GoDaddy Inc.

Mark McCaffrey; CFO; GoDaddy Inc.

Aaron Michael Kessler; Senior Analyst; Seaport Research Partners

Alexei Mihaylovich Gogolev; Head of CEEMEA TMT & Pan Regional Analyst; JPMorgan Chase & Co, Research Division

Christopher Louis Kuntarich; Analyst; UBS Investment Bank, Research Division

Elizabeth Mary Elliott Porter; VP of Equity Research; Morgan Stanley, Research Division

George Josh Beck; MD & Senior Research Analyst; Raymond James & Associates, Inc., Research Division

Jian Li; Analyst; Evercore ISI Institutional Equities, Research Division

Kenneth Wong

Mark John Zgutowicz; Senior Equity Analyst; The Benchmark Company, LLC, Research Division

Naved Ahmad Khan; MD of Internet Equity Research; B. Riley Securities, Inc., Research Division

Sang-Jin Byun; Equity Analyst; Jefferies LLC, Research Division

Trevor Vincent Young; VP; Barclays Bank PLC, Research Division

Vikram Kesavabhotla; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division

Ygal Arounian; Director of Internet Equity Research; Citigroup Inc., Research Division

Presentation

Christie Masoner

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 will open up the call for your questions. (Operator Instructions)
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 2, 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.

Amanpal Singh Bhutani

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'm 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 3-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 4 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 applications 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 entrepreneurs' 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 manage WordPress website creation to just a few clicks. Simplified, smart, fast experiences come across as magical to our customers and customer delight creates customer value, increasing willingness to pay.
Third, on commerce, I am pleased to share that 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 hand held 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 omnicommerce 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. Go Daddy 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 payment 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 pay wall for websites built by GoDaddy Airo. We are actively testing different points at which this pay wall can be triggered and this is a new flow that we are excited to optimize.
While all this data is early, we are 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 home page 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, GABI our guide assist bot, is now rolled out across our entire care footprint and is handling escalations and questions from our guides. GABI also helps with providing call summaries and case notes, helping our guides be more efficient. Every month that goes by GABI 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

Thanks, Aman. We are pleased to announce our strong Q1 results and continued track record of durable growth. We've 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 and 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 remains stable despite the headwinds from our divestiture and migration efforts, also impacting revenue by approximately 100 basis points.
Additionally, customers with 2 or more products remained above 50% and our customer retention rate remained at 85%. Double-clicking into the segments, our higher-margin Applications & 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 & Commerce grew 13% to $1.5 billion. 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 our divestitures. Segment EBITDA margin for core platform grew to 30%, up nearly 300 basis points. Lastly, ARR for our 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 in 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 in 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 30, 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 outstanding since the inception of these authorizations by 22%, ahead of our 3-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 12-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 and $4.56 billion, representing growth of 6.5% at the midpoint. Additionally, we are targeting Q2 total revenue in the range of $1.1 million to $1.12 billion, representing growth of 6% at the midpoint of our range. We expect applications in commerce to deliver low to mid-teens growth for Q2 and the full year. In our 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, we remain on track to meet 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 plus and $1.2 billion plus, 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 3-year framework we shared at Investor Day with 6% to 8% annual top-line growth fueled by our Applications & Commerce segment, accelerating normalized EBITDA margin expansion to 33% by 2026 and generation of $4.5 billion plus 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.

Question and Answer Session

Christie Masoner

Thanks, Mark. (Operator Instructions) Our first question comes from the line of Ygal Arounian from Citi.

Ygal Arounian

Maybe I'm just going to start on the strong bookings growth. And I know you talked about pricing particularly in A&C. But 22% booking growth there, 1Q. Almost 10% overall coming off of the strong booking number in 4Q as well. Typically, we think of that type of acceleration as really meaningful in driving revenue growth acceleration in the back half, but we didn't see that in your guidance. So how should we be thinking about how that translates and what all that means as we kind of look through to the whole year here?

Mark McCaffrey

Ygal, thanks for the question. We 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. As we get into the bundling, just a reminder, 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 lowering the low end of the guide was the appropriate thing to do, and we'll continue to keep everyone updated as we go throughout the rest of the year. But yes, we are pretty excited about some of the pricing and bundling initiatives and the impact they had on Q1 bookings.

Ygal Arounian

Okay. Great. Really helpful. And maybe on Airo, I know you gave some qualitative comments here, but any more you could share? You're rolling out internationally, where we've got a couple of months under our belt here. You mentioned you're seeing kind of domain customers move to Airo, when they're offered it. Anything you're seeing, incremental uplift in conversion, ARPU growth on the -- whether it's applications account collectively or just Website + Marketing, anything else investors can kind of hang their hats on how well Airo is doing? Or what is sort of going to drive the conversion you've been expecting?

Amanpal Singh Bhutani

Thanks, Ygal. Super excited about Airo. 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 as I've 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 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 3 phases. What I can share today is that on discovery, we're seeing fantastic results there. Customers buy a domain, they see their cards, they engage with the cards, customers are starting to learn that GoDaddy has way more products for me, way more offerings for me.
And I shared a little comment about pay links in the prepared remarks but I'll also share coming soon site, which is 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 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 build the pay walls and do stuff. And over the next couple of years, we think this will roll out very well and deliver results for years to come.

Christie Masoner

Next question comes from the line of Mark Zgutowicz from Benchmark.

Mark John Zgutowicz

Maybe just a 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 AI or value-based pricing initiative is across your A&C base. Does it touch all A&C customers at this point? That's the first question.

Amanpal Singh Bhutani

Thanks, Mark. Our sort of value-based pricing, AI-based pricing and bundling initiatives have not gone across all A&C. It's starting to roll out across a lot. What you're seeing in the 22% application and then 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 we're going to continue to invest in that area and go across not just AMC, but over time, go to every customers of GoDaddy and bringing them on to these new sort of pricing and bundling approach that we have.

Mark John Zgutowicz

Okay. Got it. And then I think you had mentioned that Airo is leading to some increasing website attach rate for your domain customers. 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 awakening a sleeping giant there for some time. Just kind of trying to get a sense of how significant that could be.

Amanpal Singh Bhutani

Yes, it's still early days, Mark, with our new customers. Obviously, that's a smaller stream of customers. With our new customers, we do see significant take rates for like a coming-soon website or actual website attach. We see that engagement -- sort of discovery and engagement and are doing really well. But the large, large opportunity, of course, is in our base. And we're literally not even 5, 6 weeks from putting Airo into our base. So it's going to take a little time, given the large customer base and our approach of going into it in a systematic manner.
We have lots of learnings from taking productivity into our base, taking commerce into our base. We're taking that same methodical approach in going into the base. It's going to take a little bit more time for us to gather data to be able to sort of share it publicly to say this is what we see. But I can tell you, we're super excited about it. And if the new customer engagement is any indicator of the base, there will be years, many, many years, we'll be talking about this.

Christie Masoner

Our next question comes from the line of Ken Wong from Oppenheimer.

Kenneth Wong

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 how that could impact the near-term dynamics and if you're sensing any kind of customer pushback there.

Amanpal Singh Bhutani

Yes. We're very methodical, Ken, on our approach to pricing. And like we've talked about, everything is tested. So we have tests out there, as we said, 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 up -- us up for 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 are bringing [available] of products.

Kenneth Wong

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 20s, like how -- what -- just help us kind of think through what that convergence looks like.

Mark McCaffrey

Yes. And I'll take it up a level, too. When we think about the bookings to revenue, we have multiple different products, multiple different terms, the revenue can be -- come out in many different ways. The way we look at it is we think bookings is going to be 1 to 2 points ahead of revenue for 2024. And that'll give us a lot of momentum as we continue to see the results of the bundling and pricing initiative as well as the momentum we're seeing in things like aftermarket.

Amanpal Singh Bhutani

Just a quick add, Ken, that our general term in just around 12 months, a little over. So that can give you sort of the idea of how bookings will take about 12 months, get distributed about over 12 months for revenue.

Christie Masoner

Our next question comes from the line of Josh Beck from Raymond James.

George Josh Beck

Yes, I just wanted to ask 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 are there certain channels, whether it's tech or social where it's doing a better job of driving engagement. Just, would like to understand a little bit, just some more context behind that comment, if possible.

Amanpal Singh Bhutani

Yes. The biggest sort of encouragement for our customers, the best vehicle we've put in place for pay link attach is being in 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 introduced the other capabilities. And what we found is we obviously had existing ways of helping our customers 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 significantly higher rates than without Airo. So 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.

George Josh Beck

Okay. That's super helpful. And maybe just kind of a follow-on to that last point. When you look at the existing base and you think about the conversion opportunities, should we be looking at, really, when these customers come up for renewal with their existing payment provider, that's an opportunity for you. Is there maybe a chance to kind of put some type of 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.

Amanpal Singh Bhutani

Yes. There are some customer events -- customer-side events, for example, like you said, a customer coming up on 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-plus transactions in NPS and 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 what we approached them with is that we offer them the one-stop shop. They have other relationships with GoDaddy. We can introduce one bill, one partner to work with. We can make it easier, and that's attractive to our customers because 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've got pricing that's the best value in the market today, which sort of comes in as a third pillar of that sales pitch. And what we continuously are finding is that, that works. That encourages our customers who have great relationships with us, who run micro businesses adopt GoDaddy Payments, and that's what's been driving our GPV growth.

Christie Masoner

Our next question comes from the line of Vikram Kesavabhotla from Baird.

Vikram Kesavabhotla

Hey, can you hear me?

Mark McCaffrey

Yes. Hey, Vik.

Vikram Kesavabhotla

My first question is for Aman. I think you mentioned in your prepared remarks that GABI has now been rolled out to the entire care team. 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 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 could ultimately benefit the balance of the year? And I'll leave it there.

Amanpal Singh Bhutani

Vikram, a quick word on GABI. 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, using AI to bring it together and putting it on the fingertips of every guide in the company, that's a powerful combination, right? And where we are is the tool is rolled out. The guys are 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 new tool that's GenAI powered.
But super excited about it. I mentioned a couple of use cases that are already live with GABI, where GABI's able to do the summaries or just start to take on tasks that otherwise guides would have had to do sort of start to move up from guides doing that -- to automation and GABI 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 yes, pretty excited about it.

Mark McCaffrey

And Vik, on the normalized EBITDA margin, I would say, quarter-to-quarter, you may see some fluctuations depending on the timing of spend. Overall, if you look at Q1, 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. For the year, we're on track for the 31% to 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. And all those -- all that framework remains in place, and we continue to see the benefit of the ANC tailwind related to that.

Christie Masoner

Our next question comes from the line of Aaron Kessler from Seaport.

Aaron Michael Kessler

Maybe just first on any update just on macro, just what trends are you seeing there? And I know customers are 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 -- if you may, to that point, trends in gross adds that you're seeing along with that?

Amanpal Singh Bhutani

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, strong gross adds and customers coming -- continuing to come in at the top of the funnel. And of course, some divestitures and integrations as an offset to that for the company, which I look at that as a short-term gain. But good strong gross adds coming in.
The steadiness in the macro, we believe, will continue to power that. And again, continuing to have a lot of firepower in terms of really efficient marketing at our disposal. Our marketing is getting better and better. It's driven with data and lots of opportunities for us to continue to explore to put more dollars at play and get really efficient returns on them.

Christie Masoner

Our next question comes from the line of Jian Li from Evercore.

Jian Li

So I want to kind of go back to Airo. First, maybe just to -- it sounds like Airo's still in the early days of monetization. Are you baking in any kind of contribution to revenue and/or any contribution to bookings for this quarter for that matter? So if you can kind of talk about the contribution here. And 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

Yes. Thanks, Jian. And I'll start with the first part, and Aman will probably answer the second part there. The way 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.

Amanpal Singh Bhutani

Yes. And I think the way you might think about it, a lot of value is being created for customers with Airo because they're getting a bundling -- bundled experience that's seamless, that's connected. And some of that monetization opportunity we have talked about like Airo Premium and pay walls, 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 that in mind as well.
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 assess an existing website and give super actionable advice to Pros and how to improve that website. We have a version of that, that's going to 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, as with all Airo products, that is still at the discovery and engagement phase. We have not added monetization yet. But this year, we expect to test a number of monetized methods for Airo Insights as well.

Jian Li

Great. Wonderful. And then just a quick follow-up on the GPV strengths that you're seeing. If you can parse it out a little bit, is that more customer attached growing? Is it more just the growing GPV per customer? And it's coming from WordPress marketing? Or more on the managed WordPress side? If you can just talk about also the growth of these 2 segments separately as well.

Amanpal Singh Bhutani

Thanks, Jian. The biggest piece of 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? We have 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, it starts with a sale of a piece of a hardware, and that's a great start.

Mark McCaffrey

And like we've always said, the biggest opportunity in front of us for commerce is converting our existing customer base. That's where we're seeing the growth in the GPV today.

Christie Masoner

Our next question comes from the line of Elizabeth Porter from Morgan Stanley.

Elizabeth Mary Elliott Porter

I wanted to ask again on Airo. We're clearly seeing the benefit with more attach and 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 second, what is the potential implication on improving customer growth after some muted growth over the last couple of years?

Amanpal Singh Bhutani

Yes. On Airo changing the top of the funnel, 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 Airo is not just an experience for our customers, not just a platform that GoDaddy has, it's something we're taking into our marketing and looking at ways to really dive into customer perception.
And if the customer thinks about GoDaddy and thinks about domains, Airo is going to help the customer think about GoDaddy and think about a lot of things together. So that is the largest piece of shifting the top of the funnel with Airo, Elizabeth, 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 making that really, really successful.
In terms of customer growth, yes, we absolutely see, in the medium and long term, a growing customer base or GoDaddy. We see that as a key sort of point of growth. We have the brand awareness globally that is fantastic. Like, 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

Yes. And we continue to be impacted by the divestitures and migrations that we've talked about. 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 we're attracting more of the customers with a higher intent that are attaching to that second product and they're engaging on the bundles and is very, very happy with, 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 then we'll keep everybody posted on a quarterly basis.

Elizabeth Mary Elliott Porter

Great. That makes a lot of sense. And then a follow-up on the margin side of the equation. There's the kind of mix shift to ANC, also leverage as revenue growth reaccelerates 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

Yes. Elizabeth, I look at it in 3 buckets. We have the, what I would say, the tailwind related to AMC growing at a higher profit point, which continues to be, I would say, a big driver. The other big driver is our access to global talent pools now is our international base grows, our ability to move into markets that are more cost effective is helping us.
And then I would say the third, probably not as big as the other 2, but the third continues to be our infrastructure simplification. And that is just getting more efficient, reducing the amount of locations we have, getting out of leases, that type of environment. So those 3 buckets are the big contributors to how we continue to expand our margin, and that will continue as we go into the outer years.

Christie Masoner

Our next question comes from the line of Trevor Young at Barclays.

Trevor Vincent Young

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. What's causing that resurgence? And relatedly, what would cause it to slow from here?

Mark McCaffrey

Thanks, Trevor. And we definitely have seen a pick up, what I would say, in the average transaction value. And in Q1, we saw the return of the larger transactions that have been missing in the prior periods. Again, we don't build that into the model because they come in on the short term, and they can create some volatility. But we were -- we did see the benefit of that and the 12% growth in aftermarket this quarter.
From a steady-state point of view, we still think this is a business that is going to 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 with the lower end grow. But 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 Vincent Young

That makes sense. And 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 '24 guide?

Mark McCaffrey

Yes. 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're far enough along we built it into the model.

Trevor Vincent Young

Okay. And anything on sizing the drag?

Mark McCaffrey

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.

Christie Masoner

Our next question comes from the line of John Byun from Jefferies.

Sang-Jin Byun

John Byun for Brent Thill. You pushed through the price increases on productivity and now on payments. I'm just wondering how much pricing power is left, especially given it seems a lot of SMBs is still somewhat struggling. And then on that last point, I know there was a question earlier 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 the SMB health and sentiment.

Amanpal Singh Bhutani

John, on the pricing and bundling, I just want to clarify a little bit. These are not push pricing changes. It really is an approach to create new and differentiated bundles, to have pricing that's value-based. It's differentiated. It's not sort of a simple 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 -- 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.
I'll maybe point back to our growth and margin drivers slide during the Investor Day and 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, for our customers, they always tend to be an optimistic group. We never do a survey with our customers and they never come back with sort of, "Oh, I think the world -- the sky's falling." They're always optimistic about their business. And the steady macro, I think, just helps them have a little bit more optimism.

Christie Masoner

Our next question comes from the line of Chris Kuntarich from UBS.

Christopher Louis Kuntarich

Great. Maybe just first one would be around pay walls. Can you just unpack a little bit what you mean by that in the use of that around Airo? 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 of how you think about using -- continuing to -- or needing to continue to push on Airo awareness versus maybe more lower funnel tactics?

Amanpal Singh Bhutani

Yes. Let me start by talking about the Airo pay wall. 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 e-mail 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 a 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 of products, the cards, as we call them, right? The pay wall is a technology which basically looks at that usage, and at a certain point of value created for the customer, it will interrupt the customer and say, hey, if you want, 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 pay wall and sort of being having the ability to dynamically become part of the customer journey and introduce friction where you want to 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 pay walls that were tests. So I shared an example, I think, in the past about a pay wall for websites. But slowly, what you're going to see is us sort of understanding the customer journey, the flow and then interrupting that and looking to sort of sign up with a subscription with that customer.
And in terms of marketing, as I said, we're -- I'm going to say this, and Mark will probably say something related to it, and we laugh about it sometimes internally. I'd, of course, like to spend a lot on marketing with Airo and 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, going back many, many years, relying on gathering a lot of data, how is our market, how our marketing channels are working, how are we really getting value from them. So we'll continue to stay super-disciplined and look to spend whatever we can within our guidelines. But I think in terms of leverage for the year, Mark, do you want to…

Mark McCaffrey

Yes, and this applies to marketing and all investments, really, at the end of the day. We like to use the data in order to understand what's going to get us the best return. And when we feel we understand that, we're willing to invest in. Marketing is the same thing for us, right? We want to get to the point where we understand the monetization formula and then we can start to optimize for that. So we feel good about our ability to make those decisions across the board and to leverage across all of our P&L. And obviously, our ability to continue to expand the margins, especially as we see the uptick in AMC and the tailwind that, that gives us go on to the future.

Christie Masoner

Our next question comes from the line of Naved Khan from B. Riley.

Naved Ahmad Khan

So just a quick question on the booking growth for AMC. It's pretty impressive. And in your commentary, you kind of attributed that to pricing and bundling. I just want to develop, like, on that. 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 kind of do it further and more broadly?

Amanpal Singh Bhutani

Yes, Naved, thanks for that question. So the approach we've taken with value-based pricing is that the pricing and bundling initiatives sort of works together on it, if you will. They go hand in hand. Because it's really looking at what the engagement is for that customer, what value that customer has, what bundles and services that we can create for them and then how should we price that.
And where we -- and Mark talked a little bit about the areas where we've already invested in that. We actually want to take that thing across our whole portfolio. So sitting here, we do believe, as we said at Investor Day, there's sort of at least 3 years of goodness for us that we see with the pricing and bundling initiative. And we're excited about going after that opportunity because we do have a huge base, 21 million customers, that we can approach with that type of thinking.

Naved Ahmad Khan

No, that's what I wanted to kind of get a better handle on. It seems like you're leveraging both 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 it at the beginning of the year? Or maybe has it changed?

Mark McCaffrey

Full year guide hasn't changed. It could fluctuate from quarter-to-quarter. Obviously, we're, overall, reducing our spend year-over-year.

Christie Masoner

Our next question comes from the line of Alexei Gogolev from JPMorgan.

Alexei Mihaylovich Gogolev

Mark, I was wondering if you could give us some insight how we can grow ARR was doing this year? And what is your expectation for the rest of the year?

Mark McCaffrey

Yes. Without getting into the specifics of growth rate around ARR, Alexei, just remember, it is our lagging of our lagging indicators. So generally, we'll trail revenue, not only in the bookings to revenue formula, but it also trails the revenue to -- in the trailing 12 months that impacts it. So while we expect to see a healthy growth in ARPU, that we -- again, it's going to lag throughout the year, but it will continue to increase over time.
On ARR, we continue to look at it growing as our subscription base continues to grow. It is a good sign of health. We continue to see that ARR has been very healthy in our applications and commerce as well as very steady within our core platform. We continue to say that subscription revenue should be 1 to 2 points ahead of overall -- sorry, subscription bookings should be 1 to 2 points ahead of revenue throughout the year.

Alexei Mihaylovich Gogolev

Okay. And 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?

Amanpal Singh Bhutani

Yes. The WorldPay partnership isn't driving the GPV growth necessarily. And we like the partnership with WorldPay. We're excited about with the new team there. It's doing -- obviously, they had a lot going on over the last few months, but we think 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. So that's where we're at. But our GPV is mostly growing without selling into our own base.

Christie Masoner

And our last question comes from the line of Ygal Arounian from Citi again.

Ygal Arounian

Last week, Verisign made some comments about how they're going to kind of ramp up marketing spend, in particular. How they're going to work a little bit more one-on-one with their distributor partners to try to open up the funnel for dotcom in particular. So -- and I'm 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 what that might mean for you.
What you're seeing on dotcom or just in general as both a registrar and registry, what you guys are seeing in kind of like the -- I know you have broader exposure, so what you're seeing in that disparity in dotcom versus total domains. And if you're getting a little bit more support from Verisign, does that mean more efficiency in marketing spend where you can kind of spend a little bit more, you open up the top of the funnel a little bit more? Just what can that mean for your business?

Amanpal Singh Bhutani

Thanks, Ygal. I think you kind of answered the question. We have diversified portfolio of domains, right? You're familiar with it. We have the opportunity to sell over 400 different TLDs. The opportunity to have massive brand awareness globally. We are in more markets than any other domain registrar what have you, right? And then we have the opportunity to really create merchandising and offerings that are unique compared to other players. So we think we have a great diversified portfolio on domains. Obviously, we love all our partners. And if a large partner wants to do more, we're always happy to do more. We want to work with everyone.

Christie Masoner

We have now finished the Q&A. I'll turn it back over to Aman.

Amanpal Singh Bhutani

Thank you for joining us. We'll see you in a quarter. Bye-bye.