Q2 2023 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.

Christopher Quintero; Research Associate; Morgan Stanley, Research Division

Matthew Charles Pfau; Analyst; William Blair & Company L.L.C., 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

Unidentified Analyst

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

Ygal Arounian; Research Analyst; Citigroup Inc., Research Division

Presentation

Christie Masoner

Good afternoon, and thank you for joining us for GoDaddy's Second Quarter 2023 Earnings Call. I'm Christie Masoner, Head 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 will 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 to 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 presented 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 statement that we make on this call are based on assumptions as of today, August 3, 2023. And except to the extent required by law, we undertake no obligations 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.
In Q2, we continued to make good progress on our mission, providing a breadth of solutions to a growing number of customers globally. The fundamental health of our business remains strong with new high-quality customers, robust retention rates and improved attach. We continue to be on track for stronger growth and profitability in our business, exiting the year at approximately 7% revenue growth and 28% normalized EBITDA margin. For Q2, in our highly competitive applications and commerce segment, our revenue of $352 million outperformed our guide with 11% growth.
We remain the leader in domains with 3% growth in private registrations as domains under management grew in the quarter, offset by underperformance in the domain aftermarket. Hosting continues to stabilize from product improvements and the previously announced integration and divestitures of noncore hosting assets.
Gross adds remain strong on efficient marketing while maintaining our customer retention for GoDaddy brand at 85%. Customers are now bundling new solutions at a faster rate than we have ever seen before. Innovation, resulting in higher monetization through attach and pricing with strong retention, underpins our confidence in the positive trajectory of our business and our ability to drive shareholder value for years to come.
At GoDaddy, we are focused on creating value for customers through innovation, strengthening product market fit and driving towards a one-stop shop. We move quickly to understand and take advantage of the step function changes generative AI offers to our industry. In just a few months, we have already launched multiple new generative AI-based features that our customers are actively using to reduce their workload, and there is more to come.
As you know, our care organization has guided customers to success for over 25 years. And now for the first time, we can bundle each GoDaddy domain purchase with an AI-powered GoDaddy Digital Guide. The Digital Guide will automatically build a free personalized basic website, including a checkout path to take payments. It proposes brand colors, creates a free logo and embeds it in the basic website. It also creates marketing messages with our customer's logo and posts to social media to generate traffic to their sites.
The Digital Guide, built on years of our experience, knows the journey of our customers from identity to presence to commerce and can automatically present solutions in a unique way so they can experience a new product in context. For example, the Digital Guide can configure e-mail or a new phone number and bring messages from SMS and social sites to our conversations app, giving our customers one simple inbox that aggregates their customers' messages. And at the same time, the Digital Guide writes proposed responses, practically removing the effort and time taken to respond to inbound messages.
Bundling this with the domain purchase is different from anything else available across the industry. And GoDaddy is in a unique position to pursue this disruptive approach at scale. These new capabilities can improve loyalty and retention and bring differentiated offerings to our existing base of 21 million customers, driving an increase in lifetime value.
We are excited about bringing these new features to our customers, and our teams have been energized to build new experiences powered by generative AI. In November at our investor dinner in Tempe, we look forward to showing you demos of these new capabilities.
As always, I also wanted to briefly touch on our 3 priorities: driving commerce through presence, delivering for Pros and innovating in domains.
On commerce, we continue to drive strong growth in our OmniCommerce solution. Customers in our base continue to convert to GoDaddy Payments at an impressive rate, and attaching to our base was again the strongest component of our year-over-year GPV growth, which is on pace to more than double our last year's exit rate. We'll add to this momentum through our anticipated Q3 launch of GoDaddy Payments in Canada as we deploy our successful U.S. playbook.
Websites + Marketing continues to perform well, and we are driving greater engagement with customers with new product launches. We know that higher engagement is correlated with higher retention rates, and we expect engagement to be a driver of website and commerce performance metrics.
On delivering for Pros, improvements in our Managed WordPress solution have reached an important milestone, driving improvement in retention rates as customers begin to recognize an enhanced solution. We now offer one of the industry's fastest, most secure and easiest Managed WordPress platforms. In a recent third-party performance benchmarking study, sites hosted on GoDaddy's WordPress loaded an impressive 2x faster, which results in improved search engine rankings for our customers.
And domain customers are not the only ones with a Digital Guide. We have launched similar capabilities in the Pro hub and are measuring the time saved for Pros, including generating site content and client communications.
On innovation in domains, while bundling the GoDaddy Digital Guide and its enhanced offerings is the most exciting change we are bringing to domains, I wanted to quickly share an update on Payable Domains as well. Payable Domains made a meaningful contribution to GPV growth this quarter with healthy double-digit month-over-month growth. This is a unique product that only GoDaddy offers. And with GoDaddy's Digital Guide, we expect to continue to make it simpler for customers to understand and adopt it.
In closing, we feel good about our continued progress this quarter and how our organization is positioned to take us into the next phase of our growth with strong applications and commerce momentum. We have also continued to be efficient with our marketing spend, especially with the improvements we have made in search engine marketing, and we are eager to duplicate those results in other channels. We expect growth to accelerate as we exit the year and remain committed to our growth algorithm with increasing margins and expanding free cash flow per share. And we remain eager to continue to deliver value for all GoDaddy stakeholders.
With that, here's Mark.

Mark McCaffrey

Thanks, Aman. In just the last few years, GoDaddy successfully built a growing, competitive and robust set of tools and services, including our Websites + Marketing product and OmniCommerce solution in a one-stop shop, empowering entrepreneurs to build and manage their ventures and accept payments with a dedicated partner by their side. The product innovation and targeted investment over this period has led to a better suite of products. And with our soon-to-be launched GoDaddy Digital Guide, we will provide an even further differentiated experience for our customers, propelling long-term growth for GoDaddy through faster product attachment and stronger retention.
As we consider the many headwinds we faced in the first half of the year, we are thrilled with the continued momentum of our applications and commerce revenue and the acceleration in our Create + Grow solutions. Our durable model continues to generate free cash flow, and we expect to reaccelerate our growth and improve our profitability as we exit the year while delivering on our cash flow targets.
Moving to our financial results. Our applications and commerce revenue grew to $352 million, up 11%, surpassing our guide of 8% to 10% and delivering a segment EBITDA margin of 41%. The strength in our applications and commerce segment is fueled by our Create + Grow solutions, which accelerated to $465 billion in ARR, up 11%.
Additionally, we drove rapid growth in GPV comparable to last quarter, and we are on pace to more than double the 2022 exit rate by the end of the year as we continue to attract and convert customers within our 21 million base to GoDaddy payments.
ARR for applications and commerce grew 10% to more than $1.3 billion with a 20% growth in annualized GMV to over $33 billion. Core platform revenue totaled $696 million, flat year-over-year with a segment EBITDA margin of 27%. ARR for our core platform segment was $2.3 billion. Core platform revenue was supported by 3% growth in domains on stronger customer additions from higher demand and price increases. This was primarily offset by greater-than-expected declines in our aftermarket.
On aftermarket, revenue decreased 5% to $101 million on a tough compare from last year. Over the last 5 years, we've built upwards of a $400 million revenue 2-sided marketplace. As a reminder, this business allows a buyer and seller to transact on our platform at their agreed-upon valuation. This business rapidly grew as we scaled the operations, participants and partnerships. What we see now is a post-COVID normalization of this business as valuations on larger transactions have decreased and volume growth has slowed. With that, we expect steady low to mid-single-digit top line growth for the business on a go-forward basis.
On our core platform restructuring initiative, we completed the migration of Media Temple and Main Street Hub customers to the GoDaddy technology stack, and the 123 Reg migration is planned to be completed by the end of the year. As expected, these migrations produce a slightly elevated churn on these brands this quarter but will deliver further cost efficiencies in the future. The retention rate of customers for the GoDaddy-branded products remains above 85%.
Total revenue grew to $1.05 billion, up 3% on a reported basis and 4% excluding aftermarket. Constant currency revenue increased 4%. Within total revenue, international revenue grew 3% on a reported basis and 6% on a constant currency basis. Our ARPU grew 3% to $199 from $193 last year. And we added 100,000 net new high-quality customers despite the headwinds from our migration efforts.
Normalized EBITDA grew 2% set to $265 million while delivering a margin of 25%.
Bookings totaled $1.1 billion, growing 2% on a reported basis and 4% excluding aftermarket and the impact of the integration of noncore assets. Bookings grew 3% on a constant currency basis. Excluding the impact of aftermarket, the drivers of growth in bookings were strong customer additions and price increases in domains as well as strong attach in applications and commerce. We expect these factors to contribute to accelerated revenue growth next year.
Unlevered free cash flow for the quarter totaled $284 million, growing 3%, while free cash flow was relatively flat at $240 million despite increased interest-related payments. Free cash flow per share rose to $6.44 on a trailing 12-month basis versus the prior year's cash flow per share of $5.67, a 14% increase driven by execution, operating leverage and share repurchases.
Through July 31, we repurchased 10.2 million shares year-to-date, totaling $746 million, of which $632 million was repurchased since the end of Q1. This brings the cumulative share repurchase under the current authorization to $2 billion and 27.1 million shares, reducing shares outstanding since the inception of this authorization by 16%. We remain on target for our commitment to reduce our fully diluted shares outstanding by 15% to 20% over the 3-year period. Additionally, today, we announced an incremental $1 billion share buyback authorization to bring the total authorization to $4 billion and extending the program out to 2025.
On the balance sheet, we finished Q2 with $583 million in cash and total liquidity of $1.6 billion. Net debt stands at $3.3 billion with a 2.9x net leverage, within our targeted range of 2 to 4x.
Lastly, we secured a 75 basis point interest rate reduction on $1.8 billion of outstanding principal through a refinance issued at par. This refinance is expected to save $13 million annually in interest payments for each of the next 7 years.
Moving on to our outlook. We are targeting Q3 total revenue in the range of $1.055 billion to $1.075 billion, representing growth of 3% at the midpoint. With the current momentum, we expect to exit the year at approximately 7% top line growth with a normalized EBITDA of 28%, an increase of 300 basis points from our 2021 exit rate of 25%.
We are increasing our growth expectations for applications and commerce to be between 9% and 11% for Q3 and the full year. In our core platform segment, we expect revenue to be flat in Q3 and reaccelerate in the fourth quarter to deliver 1% growth for the full year.
Q3 normalized EBITDA margin is expected to improve to approximately 26% with continued acceleration over the fourth quarter, resulting in a full year normalized EBITDA margin of approximately 26%. This is a 300 basis point increase from our 2021 rate of 23% on better operating leverage from improved marketing performance, restructuring efforts, benefits from our continued move of workloads to the cloud and the incorporation of AI into our operating model.
On the growth bridge we spoke about last quarter, we remain confident in the path to accelerated revenue growth while expanding margins and improving cash flows. As a reminder, this year's revenue growth rate includes approximately 2 points of FX pressure from last year's bookings, difficult compares in our aftermarket business and the migration and divestiture of certain noncore assets. We expect momentum in bookings in the second half of the year to drive the reacceleration of revenue growth as we exit the year while we remain committed to delivering our margin expansion and free cash flow targets.
We will be hosting our annual investor dinner with product demonstrations in November and are planning an Investor Day in Q1 2024. We consider both a great opportunity to share more about our exciting initiatives in AI and our outlook for the next 3 years.
In closing, we remain confident in our ability to execute in the areas of our business within our control and deliver the full year targets. As always, we remain focused on executing against our strategic priorities, committed to being responsible stewards of capital and strive every day to provide a one-stop shop to microbusinesses along their entrepreneurial journey with an eye towards balanced long-term growth and profitability.
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 Matt Pfau from William Blair.

Matthew Charles Pfau

Great. Two of them. First, wanted to ask on the acceleration of the core business in the fourth quarter implies a healthy sequential increase. Maybe you can just discuss, what are the factors that are driving that increase?

Mark McCaffrey

Yes. Thanks, Matt. When we look at Q2 and bookings and kind of trade-off in the second half of the year, a couple of things to consider. One, we have FX that will be abating. We have pricing increases that we did towards the end of the quarter, which should help with our bookings and somewhat revenue into this year. Obviously, the aftermarket compares get better going into Q4. And now that we've completed some of our migrations to the core GoDaddy stack, we should see start -- some of those start to abate as we get through the half year.
So that gives us the confidence that we will have that accelerating growth rate as we get through the remainder of this year. That, coupled with some of the demand we're seeing at the front of the funnel with customers coming in, attaching new products faster, our retention rates remaining strong and the momentum we have in application and commerce, we feel good about that momentum coming out of Q4 and going into 2024.

Matthew Charles Pfau

Great. And on the Digital Guide, maybe you can just help us understand what that rollout is going to look like. Is it just going to be for new customers? Or do you plan to roll that out to your existing base as well?

Amanpal Singh Bhutani

Thanks, Matt. Yes, we plan to roll it out to the existing base as well. The Digital Guide is about, well, literally a guide that works for the customer even when the customer is sleeping. So even with the base, the guide will be able to offer or create new offerings for them. So it will start with new, just like a lot of other products do, but you'll see us quickly take it to the base as well.

Christie Masoner

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

Vikram Kesavabhotla

Can you hear me now?

Mark McCaffrey

Yes, yes.

Christie Masoner

We can.

Vikram Kesavabhotla

Okay. Great. I wanted to ask about the applications and commerce segment. It looks like you raised the expectation there for fiscal '23. Maybe if you could talk some more about the primary drivers behind that revision.
And then separately, I also wanted to ask about the EBITDA margins. It looks like you posted about 25% in the second quarter. You're guiding to 26% in 3Q and exiting the year at 28%. Could you just talk through some of the main drivers of the expansion there throughout the balance of the year?

Mark McCaffrey

I'll start with the application and commerce. Thanks, Vikram. We continue to -- sorry, we continue to see strong momentum in the front of the funnel and customer bundling payments and choosing payments as they're coming through with Websites + Marketing. So really happy and excited about that attach and that bundling that's happening at the front of the funnel.
Again, I alluded to, we have really strong net -- gross customer adds coming in, and they're getting to that bundled product quicker with that, that gets us to higher retention rates. That, coupled with some pricing increases we're doing at the back half of Q2 or we did at the back half of Q2, should start to show up in applications and commerce as we go. Also seeing great momentum on the conversion. We've talked about it previously, about our existing customers converting over to the GoDaddy Payments. That motion is well and working. We're seeing that AGV grow as we go throughout the year. On the margin expansion, we had about 25%. We're forecasting to get up to 28%. We have a couple of things going on there. We're seeing greater marketing efficiency, which is helping us. We are really starting to see the benefits of moving into the cloud. We're seeing the cost efficiencies that are coming with more workloads. And those are really starting to take hold as we hit certain milestones throughout the year. We also had the restructuring in Q2, and some of that will gain steam as we go into the back half of the year and grow momentum as we go through there.
So we have a lot of, I would say, moving parts that are all pointing in the same direction that make us feel good about expanding our margins while expanding our growth rate as well through applications and commerce.

Christie Masoner

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

Trevor Vincent Young

Great. First, on core platform now expecting around 1% growth for the full year within the main lines there, aftermarket, domains, ex aftermarket and security and hosting, which line or lines are kind of underperforming relative to your prior expectations?
And then second one, on that AI-powered Digital Guide, do you view that as kind of complementary to the higher-touch customer care organization? Or do you see that functionality eventually kind of helping alleviate some of the cost or head count within the care organization?

Mark McCaffrey

Thanks, Trevor. I'll start with the aftermarket and the core platform. We really saw the aftermarket underperform this quarter. We've grown a $400 million business there over a number of years. We saw a lot of growth back half of '21 coming into '22. So no doubt we have compares.
But as we've talked previously, the larger transactions and the valuations on them have abated. We're seeing the volumes slowing growth as well coming out of Q2. And to put it in perspective, we're seeing great demand and gross adds within our funnel, but it seems the valuations on the aftermarket still aren't connecting with the buyers. So we're seeing them lean towards the domain growth.
And we think this is a normalization for now. I think we've taken it out of our back half of the year expectations. And we think this is going to be a low to mid-single-digit growth business going forward. So I would really point to the aftermarket on this as being part.

Amanpal Singh Bhutani

And Trevor, on the Digital Guide, we couldn't be more excited about getting a guide with every domain purchase and letting that Digital Guide guide the customer just like we do in care. We've done a phenomenal job in care over the last few years by sort of creating leverage on the care line item. As revenue grew, we kept costs pretty flat.
And it's a little early to be talking about the impacts of AI. But overall, we do see AI leading to efficiencies in our business overall. And frankly, we've already showed that in marketing where by implementing machine learning, we're able to make our spend more and more efficient. And you've been seeing the results of that over the last year already.

Christie Masoner

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

Naved Ahmad Khan

Just a question on the outlook. So 28% EBITDA margin by Q4. If I have to think about next year, 2024, and I know you're not guiding to that, but is there any reason why 28% shouldn't be the base, to start with? I mean the cost savings will still be layering in because this is not a full year for cost savings, right? So am I thinking about it the right way? Just any comment there would be helpful. And then I have a follow-up.

Mark McCaffrey

Yes. Thanks. We're excited on our Investor Day coming up in the first quarter, and we'll get more into the details of what it will look like. We're really excited about our margin expansion going into Q4, the 28%. If we look back to the Q4 in 2021, we've increased our margins by 300 basis points. Even year-over-year, we get to the same 300 basis points.
So it's something we continue to work on. We continue to find efficiencies in our operation, and we'll continue to push margin growth going into 2024. At the same time, we're accelerating revenue and hitting our cash flow objectives as well.
So I don't want to give you too much of a leading what 2024 is going to look like, but we're really excited about our progress, the work we've done in the first half of the year and how that's going to benefit us in the back half of the year and then ultimately into 2024.

Naved Ahmad Khan

Got it. And then you kind of alluded to the bridge to sort of resumption of growth or healthy growth, right? So -- and the one that you shared last call was, I think, getting you back into the double digits. So if I have to think about when you start to see like the full -- the effect of full anniversarying and kind of getting to that, how should I think about timing? Is it Q1? Is it early next year? At what point would be kind of this would be in the rearview mirror for you?

Mark McCaffrey

Yes. Thanks. And try not to peg a specific timetable here as we're getting into the back half of the year. We'll talk more about it later. But when we look at the full year guide this year and we kind of look at the impact of FX, the difficult aftermarket compares and migrations and divestitures we're doing, they will start to abate into the fourth quarter and continue to abate and turn into tailwinds as we go through 2024. Not trying to pick a quarter on anything right now. We'll talk more about that later in the year. But the momentum has us accelerating revenue as we go throughout the year.

Amanpal Singh Bhutani

And if I could just add, long term, we're excited about the path to accelerating growth because it's based on the simple idea that create products that can lead the customer through the entrepreneur's Wheel, which if you remember is about leading them through identity to presence to commerce, really creates a flywheel for the company.
Our technology has improved in a very significant way. That leads to greater attach, not just for new customers, for our base as well. That involves identifying a customer. That involves connecting and reaching out and engaging the customer and then closing the customer. Of course, you've seen us do it successfully with e-mail over the last 3, 4 years where that business has -- well, our 2 businesses performed very well for us. And now you're seeing it -- us do it with the OmniCommerce solution as well where, a, GPV has grown nicely, and we can clearly see that we have a ton of customers in our base that would love that product from us.
So at the core, our path to -- long-term path to accelerating growth is about innovation in the product. It's about creating value for the customer that leads to monetization opportunities like attach, like pricing and strong retention that come together to sort of give us the confidence we're sharing with you about the positive momentum in our business. And that's what we believe will drive long-term shareholder value for years and years to come.

Mark McCaffrey

And if I could just add to that and to clarify, we -- while we look out to '24, we are reaffirming our guidance for 2023 in the range for revenue, just FYI.

Christie Masoner

Our next question comes from the line of Brent Thill from Jefferies.

Sang-Jin Byun

This is John Byun for Brent Thill. First question is, GMV had pretty good growth, accelerated 20% year-over-year and also up 18% sequentially. Just wondering what might have be some of the drivers. I mean are you seeing sort of improvement in macro and GMV per customer? Or is it just better attach? If you could parse that, that would be great.

Amanpal Singh Bhutani

Yes. GMV growing as a function of sort of the macro to start with, we are seeing more of our existing customers transact more with the solutions they have. To remind you, a lot of our GMV is a function of the relationship we have through the bank. So it's a different financial model for us, but it gives us a great barometer. It gets our product out there. We get to see sort of what's happening in the world. So we are very happy with the growth, and it basically signifies more and more people using the GoDaddy solutions for their businesses, both off-line and in store.

Sang-Jin Byun

Great. And maybe just any update on the FIS Worldpay partnership?

Amanpal Singh Bhutani

The FIS Worldpay partnership is doing great. We have launched the product with them. We have a set of customers that are using our new solutions. Still very early since we're only about a month in, I think, from the launch. So it's still pretty early, but very happy with the progress. I daresay that our partners are pretty excited about the progress, too. And I think they can't wait to get out there and sell it more, and we can't wait to see those customers.

Mark McCaffrey

Yes. And we'd always said the impact on 2024 was going to -- sorry, 2023 was going to be minimal, and we would start to see the momentum of that going into 2024, which again adds to our excitement about that momentum.

Christie Masoner

Our next question comes from the line of Mark Zgutowicz from Benchmark.

Unidentified Analyst

This is [Alex] on for Mark. Just a question on Payable Domains. So last quarter, you characterized contribution as modest, and it sounds like there was meaningful performance in 2Q from Payable Domains. Just curious if you could perhaps discuss what was the most meaningful driver for that -- for the outperformance in applications and commerce or whether or not Payable Domains was a material driver of that.

Amanpal Singh Bhutani

Yes. I'll maybe let Mark talk to apps and commerce and sort of Payable Domains. I'd probably say it's still very early, and apps and commerce is pretty big.
But let me sort of step back and answer your question around what's driving the growth of Payable Domains. Obviously, you're very aware, we have 21 million customers. We have 84 million domains under management. We have a ton of opportunity to attach this new and unique product. That's why you hear the excitement from me on it on a continuous basis. And of course, the math adds up very quickly the more customers we can get on it. The biggest drivers over the last quarter for Payable Domains is we started to really surface Payable Domains in the journey and engagement that customers have with us because it's still a new concept for people. Our customers don't automatically understand that they've brought the domain and, with a couple of clicks, they can start taking payments.
So we found better ways to guide the customer through that path, get them live with the capability. And what we find is once we get them live with that capability, sure enough, they start to transact, right? And you know our overall math in terms of retention rate. We have -- if we have one product with a customer, they tend to retain sort of mid-80s. And if we have 2, it jumps. If we have 3 products with a customer, we pretty much have a customer for life. And the LTV also goes to 80, 83x once they have commerce with us.
So all of that math is working, but it's dependent on us getting more people to adopt this product. And that's what you started to see in Q2. When more people saw the product, they were like, "Oh, I didn't know this was there. Let me add it. Let me start using it." And that's what sort of created the quick, if you will, double-digit month-over-month growth in the GPV. Hopefully, that makes sense.

Mark McCaffrey

Yes. And I'll add on applications and commerce in general, where we're really excited is strong gross customer adds are coming into the funnel stronger than we've seen in a long time. Not only are they coming into the funnel. They are getting to that second product quicker. And whether it's Payable Domains, whether it's Payments, whether it's commerce, whether it's Websites + Marketing, they're bundling those together at the initial stages. We think the Digital Guide will also accelerate that as that starts to engage at a faster rate.
But when that happens, like Aman said, when we get to that second product, that third product, we get to a third product attached, generally, we find we have a customer for life, and that really drives the LTV, all this because the decisions around it are being made faster on the top of the funnel, help us get there faster and drive that LTV equation. Obviously, it helps, too, with our cash flow, and it helps us be more efficient because we're getting greater revenue prices or getting better revenue and a better efficient operating margin as well.
So we feel really good about all that happening in the applications and commerce. It's really driving a lot of momentum. We have that on top of the hardware sales that we are seeing that are driving that momentum as well, a lot of positivity coming there, right? And it all starts with the domain and innovating in the domain.

Christie Masoner

Our next question comes from the line of Ygal Arounian from Citi.

Ygal Arounian

Sorry, I hope I'm not re-asking this, but I want to start on domains. We continue to kind of see some, let's say, challenging growth from Verisign data on .com, .net. I know you guys are involved in other TLDs, too, which if there's interesting things to point out about that, we'd love to hear. But just maybe just some of what you're seeing around that, expectations for when that can start to normalize, how that's impacting the aftermarket.
And then Verisign made really interesting comments about its channel partners who are pushing more on ARPU than they were on new users. And I don't know if there's something to comment around that. Do you think that that's having an impact? You guys have a big hand in both sides. So would love to hear your view on that.

Amanpal Singh Bhutani

Yes. Happy to give a bit of color on domains. Obviously, I think you probably saw already domains under management for GoDaddy grew. So definitely, we're doing well on units as well.
And to sort of explain a little bit, as Mark said, we're seeing better traffic and demand coming to our site. As I mentioned in my prepared remarks, some of that is because of our focus in search engine marketing and us significantly improving our abilities to spend money in search and convert those customers. So we're very happy with that as well.
And one other maybe dimension to mention to you is that we've continued to grow well internationally. As Mark shared, we grew 6% internationally, on a reported basis, 3%, constant currency, 6%. And the product we lead with internationally is domains, right? Domains is the #1 thing we sell in small markets around the world. We have customers in over 100 markets. So it's the combination of those things that I would say that are leading to the best results for us.
And our domains business is broader than any other one particular registry business. You mentioned that yourself, and that's absolutely true. We're the market leader. We have a diverse set of assets within the domains business, and we've continued to innovate in many of those areas.
And the key pieces where we see good returns is be very efficient in marketing and search, grow the DUMs, grow the customers, get customers to the site, convert them well, attach products to them, which obviously isn't what you're asking about, but attach great products to them and do it around the world really well. Hopefully, that's a bit helpful.

Ygal Arounian

Yes. That's really helpful. And so maybe to segue, I think it's similar. I don't know. A lot of the answer might actually be an overlap, but if there's anything incremental to add. So just on the gross -- top of funnel, gross adds commentary, which feels really strong. And I know you have some noise in your -- in the new customer number, I believe, still ongoing with some of the sunsetting of the brands. Is there any way to parse out that?
And then what -- is it -- to your point, when you talk about with the SEM work that you're doing that's driving that strength in the top of funnel, with domains, even if your domains under management grew, domains is kind of like, let's say, collectively still soft, your commentary around really strong top of funnel, I think, stands out. So I wanted to maybe understand that a little bit better.

Amanpal Singh Bhutani

Yes. So gross adds were strong for us, and it was on efficient marketing spend. And I did highlight in the prepared remarks, and I think you repeated that, which is that search was a strong contributor to that. And what I added to that is that it's not just search in the U.S., it's search globally that did a really good job sort of delivering for us.
But it's not search alone. We have been focused on improving our marketing, the targeting of our marketing, the measurement of our marketing over the last couple of years. I think we've talked about it multiple different times as being an important priority for us. And what we're seeing as a result is more people show up to the website, right, and more people going through the funnel better.
I think one of the things I've talked about, and I don't know if this is what you're asking about, but one of the things in the past that I've talked about is that we have shifted as a company and we are very much an experimentation-based culture now. Teams go out, and they try different things and then measure closely whether there's a conversion improvement or not. And that, of course, helps as well, right, where when we land better traffic and conversion is up on the site, that delivers better for us, whereas in the past maybe years ago, we may have relied on a combination of the site and care more. What we find now is that the site performs really well. And that's a great way for us to attract gross adds, and we're pretty happy with that result.

Mark McCaffrey

Yes. And I'll just add to that. What we really like about the gross adds coming in is they are customers that have a higher propensity to want to do business and therefore are attaching a lot faster.
And on the churn, on the other hand, we are losing customers due to migration and end-of-lifing in some of these products. But they're generally what we refer to as low-calorie customers that weren't growing the business or necessarily using the functionality. And therefore, we're trading in a good direction as we get to those net adds.

Ygal Arounian

I have a follow-up, but I don't want to -- I'll jump back in the queue and then just kind of...

Amanpal Singh Bhutani

It's okay. Go ahead.

Ygal Arounian

Yes. Okay. So then -- this is all super helpful. I love this color. So you and your peers on the kind of closed-end platforms seem to be all driving efficient marketing spend that's bringing more share where -- really across the board.
And then going back and tying that back into the kind of, let's just say, flattish domains globally, right, it feels then your space is taking a lot of the share of the web building ecosystem. Is that a fair characterization? And where do you see the share coming from? I think we've talked about WordPress in the past that -- maybe you could just help on that.

Amanpal Singh Bhutani

Yes. And we will provide more color on this at the Investor Day for sure to talk about how website share is shifting. And overall, I think there was -- if we look at the last few quarters, there's more pressure on WordPress, at least from what we saw, than if you go back many years.
But taking a longer-term view, share is still coming from custom HTML sites. That is what is reducing. And there is sort of growing demand. And obviously the new demand goes more towards the newer tools that exist, right? You find that it's easier and easier for customers to build sites themselves and get started. Like our tool, Websites + Marketing, does a fantastic job of that. You see us at GoDaddy with the Digital Guide taking the next step. We're telling you today and we'll show it to you live -- with testing with customers, we'll show you live in November in Tempe.
How -- when a customer buys a domain, how they behave differently instead of just a domain, you give them a website and get them started because the friction for a customer to make another decision and then create content and then do another thing is pretty difficult. But of course, technology has made this easier and easier over time. And now generative AI allows our industry to take the next step in terms of reducing the effort that customers have to do to get started.
So I think you're going to continue to see the momentum. Of course, there are secular trends underneath of entrepreneurship, population, people coming to the Internet. But what -- how quickly they're able to adopt the tools on the Internet and get a presence up and running, I think you'll continue to see good momentum in that because technology and generative AI now are going to make a real difference.

Christie Masoner

Our next question comes from Chris Quintero from Morgan Stanley.

Christopher Quintero

This is Chris Quintero on for Elizabeth Porter. I wanted to ask around the macro and kind of how it's changed Q2 versus Q1.
And then second question would be around the Digital Guide. Are these capabilities kind of like table stakes for the industry? Or how do you think about your ability to drive your differentiation in AI against your web building competitors?

Amanpal Singh Bhutani

God, I can't believe you said table stakes for a Digital Guide, but let me take your first question first. You surprise me with that.
Let's start with the macro. There are a few items that sort of we look at on our dashboard or the leaders in our organization look at when we look at macro, and I'll try to touch on a couple of them to give you a bit of color. One of them that we look at is sort of nonbrand demand that's coming to Google as a representation of demand. And are people going out and searching for things? And they're not searching for a particular company. They're just searching for a website. They're just searching for a domain name. And how is that trending?
And what we saw in that data is that there are a few markets in the world -- and actually the English-speaking markets where we are strong, the U.K. being one of them, we see good lift in nonbrand demand for the terms that we track. And that's a positive sign for those markets. That means we expect better demand. We expect to spend more money there. And generally, the customer, the everyday entrepreneur is feeling better and wants to engage and buy a domain, start a business or build their business or so on.
The second group geographically I'll talk about is the markets that are not big English-speaking markets but what we call the rest of the world. And there, what we see is sort of more timid or flattish behavior in terms of nonbrand searches. Those -- as you can see, the international market does really well for us. So that's been phenomenal, and GoDaddy has done a lot to take share globally on those.
But in terms of raw demand on macro, what we see is much, much more timid sort of behavior. And the U.S. somewhere a little bit in the middle, and I won't comment sort of broad macro on the U.S. I think all of you understand it better than me probably. But broad -- if I talk about demand on the terms that we track to, there's some good news but not as good as a couple of the other markets.
And the second data point to look at is customer -- or consumer confidence, and we track that for all of our main markets. And what we see there, again, is sort of an expectation for many that, that confidence would go down, and it was probably trending down in some of those markets, but over the last 2, 3 months, a little bit of a reversal. So maybe instead of going downwards, we see more flat. But in some markets -- and again, I'll mention the U.K., you actually see it coming off, which I think you didn't expect if you're just sort of a macro person.
And there are other markets that are sort of showing different behavior as well. But hopefully, that gives you a little bit of color on a couple of the core metrics that we look at and a couple of sort of -- a little bit of a geographic lens on it.
In terms of the Digital Guide, which I think was second question, I just want to reiterate, the Digital Guide is a technology built using AI that uses generative AI to generate content, that uses AI for a lot of other purposes. And our goal is to couple that with every domain purchase. So when you buy a domain, a Digital Guide is automatically enabled for that customer. And what it's trying to do is find that best experience and path for that particular customer and get them through that path, whether it's adding new products, whether it's posting something, whether it's reminding them or something.
And it's not trying to do it in a way that says, "Hey, come buy this from me." What it's doing is it's actually doing the work for the customer in advance and then say, "Take a look. If you like this, we can keep it," right?
So I don't think of that as table stakes at all. If I look at -- and I'm not even talking about our industry. If I look at sort of across the technology landscape, of course, there are technologies out there, and a lot of people want to do similar things. But I don't see anyone starting at the point of a domain name.
And we have AI or generative AI-ready capabilities, and we're already testing many of these things. And I think in the past, I've talked about them or last quarter, I mentioned 1 or 2 of them. But we have capabilities that are live today that are being tested with customers. And there isn't anyone else that's going to bring it to millions of domain names and start people off the way we want to start them off, right?
So that's the big thing. And I guess for folks that may have joined just a minute or 2 late, there was a great little video that we started with today, and I assume we'll post it somewhere. I'm pointing to my team now. I assume we'll post it. It's -- that 2-minute video is a great way for you to understand what our -- what we want our customers to experience and how much effort we are taking away from the customer that normally a customer would have to do and letting the Digital Guide do that.
And believe it or not, that happens today in care right now. Customers call us, and what they want is that they want us to give them confidence, and they want us to encourage them. And at the same time, they want us to solve their problems and give them access to more tools. And we do all of that. And we're trying to take the learning that we have in care and enable every customer with it so that we can scale to literally every customer that buys with us.

Mark McCaffrey

I'll add, one of the distinctions we have is from identity to presence to commerce. We have the entire technology stack. So when we use generative AI, we could take it across their entire journey, and we start with the domain. And that makes that journey faster, gets us the bundling faster, gets us to customers for life for us and driving LTV into our financials. So we're really excited about it. But one of the great distinctions is we have the entire technology stack around it to use and to use AI around.

Amanpal Singh Bhutani

Maybe one other quick thing I'll add is that I think we learned last year that having people see and demoing working functionality to them that customers can see is very powerful. So I would invite all of you, and I know many of you joined. So I would invite all of you to Tempe in November so you can do it yourself with us demoing you, with us showing you what that experience is for our customer. And then I think it will sort of illuminate the idea in a much better way.

Mark McCaffrey

And the temperature is much cooler in Tempe.

Christie Masoner

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

Naved Ahmad Khan

Yes. Can you hear me?

Mark McCaffrey

Yes, we can hear you.

Naved Ahmad Khan

Okay. Great. Yes. I had quick follow-ups. So one is, we saw a transaction, Google domains being sold to Squarespace. And wanted to get your thoughts on what it means for the other participants such as yourself in terms of competition.
And then the other question I had was on the price increase on the A&C segment. What was the magnitude of the increase?

Amanpal Singh Bhutani

Yes. Let me take the domains piece first, and then, Mark, if you want to touch on the pricing or I can touch on that, too, if needed.
On the Google domains piece, the way we look at it, Naved, is that anytime there's a transition like this, there's disruption in the customer experience or flow, customers tend to put their head up and they'll look at what other options might exist for them.
And given our brand awareness and leadership position in the world of domains, given the care we provide, given our high transactional NPS and just sort of broad understanding from a very large number of people of what GoDaddy brings to the table and the more we attach to that bundle with that domain, I think we're positioned very well to see if some disruption happens that we're there and it's advantageous to us, right?
In terms of beyond that, I think our goal is to just do a fantastic job delivering, providing customers great products. And we think we're doing a good job at attracting customers, we're growing DUMs. And I mean maybe the way to say it is we were the leader in domains when Google came into the business and we're a leader in domains when Google is leading the business. So we're okay with that.
And then on the A&C pricing, I assume the question is the Websites + Marketing pricing?

Naved Ahmad Khan

Yes.

Mark McCaffrey

Yes. I don't think we've gotten into the magnitude of breaking down pricing by each of the different components of it. I'll give a little directional color. I think last year, we focused mostly on pricing increases and around renewals. This year, we're doing it on new as well as renewals. So I would say bigger than we did last year.
Obviously, our priority is always retention rates, sticking with the 85. But we took those pricing increases at the end of Q2, and we should start to see them materialize as we go throughout the year.

Christie Masoner

I will now turn the call over to Aman for some closing remarks.

Amanpal Singh Bhutani

Thank you, Christie, and I'll just end by thanking all the GoDaddy employees for another good quarter and just to remind all of our analysts and shareholders, we're super excited about the products we're bringing to market. We're super excited about attaching into our base that we've demonstrated with e-mail and are demonstrating with commerce now. We're super excited about the trajectory we have going into Q3 and Q4, ending the year, accelerating growth and strong margin, setting up next year really well.
I look forward to the next call. Thank you very much.