GoDaddy Inc. (GDDY) Earnings Call Transcript & Summary

Good morning, everyone. Ygal Arounian from the Internet team here at Citi. Thanks for joining us today. Pleased to have GoDaddy's CFO, Mark McCaffrey. Thanks for being here today with us. I'm really excited to dig in.

Yes. And thanks, Ygal. Maybe before we start, a few things about our customers and what we're seeing at GoDaddy right now. We always like to talk about our customers as micro businesses. But when you really get down to them, you know them as the family mom-and-pop shops. You know them is the food trucks. You know them as the flea market you might be at. I'd like to refer to them as the underdog because they're the ones competing with other businesses that have a lot more resources. And we have 21 million customers. Nearly 25% of the Internet traffic globally passes through our technology platform now. And we have nearly 14 million interactions with our customers through our care guides. And what we're hearing from them today is they want to reach new customers in new channels faster than ever, and they need to do so at price points that are cost effective for them as well as ease of use and our products provide them the ability to do that. And I say that today because that will be the framework that we will use as we go into the investor dinner and Investor Day later in the year. That will be the framework we talk about as we create shareholder value creation framework. And, I don't want to get too far ahead of myself and what we're going to say at Investor Day and talk about the years out. I do want to leave with 3 points. Number one, we are seeing better demand and faster attached than we ever have. And when we say that, that means our customers and our retention rates are going to be stronger and our LTV will start to approach the 80x we talked about at our last investor day. And we are really excited about the momentum we're seeing in the funnel and the demand we're seeing from our customers today. Now number two, if you look at the efficiency we've been able to create through consolidating our technology stack and just making it a tighter experience, we're doing so using operating leverage that, again, will help us drive our margins into the future. And when we talk about exiting a 28% normalized EBITDA margins at the end of the year, that's the floor, not the ceiling, the floor of where we're going with our margins going forward. And that ability to do so is based on what we're seeing from our customers, the ease of use of our products and the actions we took in the first half of the year. And with that, it just fulfills the model itself, right? And we talk about a durable model, free cash flow that we generate. It allows us to make capital allocation choices, return value to our shareholders. We've authorized another $1 billion in our share buybacks and that's on top of that $3 billion we already had authorized, we're well underway. And we plan on continuing to use that capital allocation strategy going forward as well. So I just wanted to leave everybody with those 3 points out there right now. And happy to answer any questions on that, but I thought it was a good framework to make sure we were talking about our customers.

I think you addressed everything.

All right, good. We haven't been around for 100 years. The previous presentation talked about that, I have to admit. We've been around a long time, but not 100 years.

Yes. It'd be interesting to see where the Internet is in 100 years.

That's right.

All right. So let's dig into all of that. Let's start kind of near term, kind of one of the biggest questions we've got from investors coming out of 2Q earnings, just been understanding the bridge, right? And understand all the excitement, all the things they're throwing out here, growth right now is in low single digits, kind of 3%. You're talking about a 7% exit rate in 4Q, margins are ticking up also between 2Q and 4Q. So just start in the next couple of quarters as we get through the year and how we're bridging from 3% to 7% and the improvement in the margins.

Yes, absolutely. We talked about coming out of Q1, certain actions we're going to take in certain headwinds we were facing. And I'll start with we feel the core GoDaddy business in and of itself, and I'm saying business, not segment. Is operating at a run rate that gives us comfort that we will get to there, right? The way I'd like to reconcile it because everybody, I think, likes to do a little math, I think I've been teased a little bit that I keep saying it's just math. But when you look at FX impacts, the hangover last year that we've talked about. And it's always good to remind people everything starts with bookings for us and then amortizes out into revenue. So the bookings last year, which was impacted by FX is rolling out as we speak. So that's a little bit of a headwind as the year goes on. So we'd like to say a point of FX headwind coming out of last year. We had a point of FX in the quarter in and of itself that impacted us. We had the aftermarket tough compares, which was about a point. So you keep on adding the points of comparison and you get to that run rate as the year goes on, we'll have that acceleration. The comps get better. The actions we took start to kind of roll themselves out, the FX starts to roll themselves out. The pricing actions we took at the end of Q2 will start to have a tailwind for us as we go throughout the year. And that's why we feel really good about the momentum coming out of 2023 and going into 2024.

Okay. Can I ask you for another bridge, probably be less math.

Okay. All right. I like bridges.

And so we're going from 3% to 7%, you're kind of -- you've been striving more for double-digit growth. You talked about, we'll have an Investor Day. I'm sure we'll kind of reset some of those targets. So I'm not expecting 2024 guidance or anything like that. But just a little bit more to where you kind of want to be as we go throughout 2024. What are the factors.

Well, we look at the momentum of the business. And again, we knew at the first half of the year, we're going to have to take some actions. And we were going to have to integrate some platforms when we talked about tightening our core technology stack. That's where we're going to create headwinds in the short term, and we felt this was the right time to do that because our product offering to our customers today is a lot more broad and therefore, the ability to attach and bundle in a core platform becomes a, I would say, an accelerator for us because those platforms now are easy to use, easy to managed, better to price. So that gives us a lot of momentum around acceleration of revenue as we go forward. Now in the short term, definitely hit some headwinds. Anytime you integrate a platform and you're taking customers from one platform to another, you're naturally going to see some wear off of customers they will churn. But those churns are relatively what we call low-value customers. They weren't doing a lot with the platform anyway. And on the flip side, we're seeing gross adds, higher than we've seen in years with our top of the funnel, and this is where I came in the beginning statements, and they're attaching a lot faster. So now that's coming in, you have customers that are doing things with higher intent. And when we go from domain to e-mail, to website, to now payments, that creates a lot of momentum in that operating efficiency we continue to talk about. Now we had to take those actions in the first half of the year. That was just the right thing to do. We had to sell off a couple of small noncore assets. We did that at the end of the quarter. Once you start to take those out of the equation, yes, you have that acceleration of revenue growth and that efficiency in the operating model that we keep talking about. Now, I won't get out ahead of myself into 2024, but we really like the ability to accelerate. And again, it has to come through bookings first. And as our bookings start to show that acceleration, obviously, that will help us with the revenue. Now there are areas like transactions that we're going to be doing through payments, some of that will be transactional. So over time, we'll gain a lot of momentum. We're seeing a lot of activity in converting. But that will take some time and it'll add to that subscription revenue as we go on.

Right. Okay. And then what kind of what you call 100,000 high-quality customers that you added...

Yes. Yes, the 100 -- that's the net number. And I would say, as we go through having more better high-quality customers that are willing to spend and transact is where we get that LTV on a long-term basis.

Got it. You've been pretty positive on the macro, and I'm sure we'll hear about the macro tone over the course of the next few days here. What shifted in the macro for you guys? Do you think it's more kind of of the actions that you've taken? Or is the better environment for SMBs? What are you seeing there?

I think if you look at as our micro businesses, we're seeing a lot of optimism around their ability to do business and they feel more positive than they ever have in their ability to connect with new customers. And I think that is generating a lot of momentum within our customer base. And I always like to use the example, we were out meeting a customer and she has a store, or she just opened a first in-person store. She had been doing business in her living room. She's importing materials and then selling them. Now she is selling them in-store and globally. They opted to rent the storefront to increase their business rather than buy a house and they lived in their business that much in their ability to do it. And that to me speaks to the optimism that the small -- I call them the underdogs, the underdogs are having a lot of optimism that they can get the customers through multiple platforms and multiple channels and do so in a way that is easier, and that's what our products help them do. And that really, I think, is a difference from what we saw in the macro environment, I would say, a year or two ago. And when I say the demand we're seeing, we've seen spikes in demand over the last couple of years. We've gotten excited. Oh, we saw demand it's coming back, right? And then the month later, there's another spike in the pandemic. What we're seeing now is a lot more consistent demand month-to-month of people doing business, wanting to do business and looking for ways to expand their business. Remember, the micro business, it's around 10 people, right? And they feel that they can get to more markets today, better than they ever have.

Right. Okay. That's pretty reassuring. So that's good to hear. I understand on some of the dynamics for these micro businesses that are new kind of digitizing their offerings. So that's pretty interesting, too. I want to stay on this point for a little bit more, just -- we'll dig into the domains specifically a little bit later, but you've got this big Domains business, and now you've got this big kind of Commerce business around it. How do you think about your funnel and how our funnel supports that conversion flow are most people still coming to you first through the Domain side? Are they coming to the web builder side? Are they coming from both.

Yes. We finally connect with the customers across multiple platforms today. Domains is still a big part of that. There's no doubt about it. Domains is a still big entry point when people are thinking about doing something, we like to say, dream. When they're dreaming about something they go to their -- what domain name should I get. What we're seeing though is they're moving to that second stage a lot faster than they used to. And that's where we say they have a higher intent when they're coming in to do business. Now the way our technology stack works, and we've talked about it a lot is you can actually start transacting with the domain now. And that allows people to say, "Hey, I have a dream." I always use the example of myself. I own markbaseballcard.com. And if I want to sell my baseball cards, I don't have to do anything now. I just have to go somewhere. I have a domain name, and I can start transacting and then I'll go right to my account. That creates that atmosphere of seeing the outcome of the actions I'm taking of my dream a lot faster. And then from there, you get into the, okay, now maybe you'll just do a website. So we're seeing, I would say, it's not a linear path, like it used to be. It's more of, hey, where can I transact, how can I transact. Oh, Do I need a website now? Oh, now I want to use social media platforms, how do I incorporate my website into those. So we're seeing a lot more of, I would say, the wheel than the linear funnel that we used to. And that's why we came up with the entrepreneurs' wheel because it's not as linear as it used to be, but Domains continues to be a good point of entry for us.

Okay. All right. My two sons just to the roadside stand right outside of the house this weekend and sold their basketball cards and maybe I need to get them a payable domain.

You need to get them payable domain, you can get them a little device there that they then can accept payments for. You can do that so efficiently now, and it's not a bad thing. I mean, you could -- I've bought all my kids domain names, right? And someday, they may do something. My daughter is in -- she's a lawyer now. She's practices as a firm, but I have all the versions of her law firm in her name. So when she goes into practice, she can start accepting payments immediately.

All right. You've got a few net adds after this. All right. Okay. Just one more on that point. You went to a freemium model few years ago, now.

Yes. Yes.

Has that been a big factor in this conversion drive?

It still works very well. We do a free trial and the freemium model. So free trial. We give people access to some of the functionality we have on a broad base. So they know what our platform is capable of helping them with. And then they can choose the freemium or go up tier and based on what functionality they want to use. So it's working very well and the conversion rate is very good. I would say what we've now done is allowed even in the freemium model for them to attach to payments. So we can make money as they transact even though they're in the freemium model. So again, coming back to this point of entry, this wheel can go in different directions. But at some point for them to get to the value achieved, we get to the value achieved as well.

Okay. Great. So second to the web builders, you've got two main products, right? GoDaddy Website Builder. Are you still calling it Websites + Marketing...

Yes.

But externally it's GoDaddy Website Builder and then your Managed WordPress product. How do these 2 fit together? Because often, those kind of SaaS CMS platforms are competing with WordPress. So how do they work together? Why focus on both?

Yes. So we look at it as two elements. We've had Websites + Marketing for a long time, a very established business for us growing. It's very easy to use, very -- when you talk about the micro business very intuitive to get something set up. And as we've streamlined our technology stack, that even gets easier end users who are using Websites + Marketing. Managed WordPress is what the pros use. So we gear that more towards the more complex pros and allow them to use that, and we want to be able to service them as well because, again, they still need the domain name. They still need the payments. They wanted to use Managed WordPress and we want to be able to service that market as well. So we look at it as one, from a micro business standpoint, Websites + Marketing works very, very well, especially when you're first starting out, very intuitive. But as you get into more complex and pros who want to use Managed WordPress, we have that ability too. And it keeps them all within the entrepreneurs' wheel. So it works very effectively and it's not necessarily a competing customer we're looking at.

Got it. Do people ever switch as they scale?

It will happen sometime. I don't know if we track it how much or how it works very, very efficiently. It will happen, but most of the time, we see once someone sees the functionality they get and they get comfortable with it, they will stay within that product.

Okay. Got it. And I don't know if you're willing to share this, or can -- if you've disclosed it in the past or is one growing faster than the other, the kind of similar move...

Haven't gotten into that. I would say they're both doing very well and especially now with payments and our ability to attach the payments right to both products. We're very happy with the momentum we're making within that.

Okay. Open up with your kind of customer and address where your customers are. You've always talked about micro businesses. Why is that the right place for you? Do you feel like you compete in other places? Or you just want to own that kind of micro business piece?

Being where we came from Domains. The micro businesses has always been what we've known for, what we've had a right plan. It's a natural entry point for us. It's what we're known for. So grabbing customers at that early stage is something we do very well. In the past, when we register domain, to customers we just offer Domains, customers would go elsewhere to get other functionality. And we always believe that if we could keep them within our entrepreneurs' wheel, then we can really get to that value proposition. And that micro business is where we've always targeted and we will continue to target. Now, what we have now also that we never had before is the ability to go upscale. So as we look at power sellers and people are doing more transactions, we are seeing our ability to move up, but when you look at the low-end SKUs of the competitors in the website business and our high-end SKUs, you still have a pretty big gap. So we feel, right now, we are well positioned in the micro businesses. This is some place we've done very well at. We have 21 million customers. Coming back to the -- we have nearly 14 million interactions with them every year. That is a place that we feel very good at. And it also allows us to move upstream without getting too much into some of the other SKUs that other customers -- other competitors.

Got it. Okay. Let's head on the Worldpay partnership for a second. It's still early. Anything you could share on that. And how does that -- or does it change the type of customer that's coming into your platform?

So yes. And yes, it's very early. We're very happy with it. We said when we announced it that we would launch in the second half of the year, minimal impact for '23. We talk about '24 more when we got closer. We're probably not close enough. I'm going to talk about it for the impact on 2024, but with all the milestones for launch are being met. What I love about this partnership is when you think about Worldpay and their customer, it would have taken us a long time to focus on that level of customer and bring them into the funnel. It gives me access using a partnership with a Salesforce that is going to sell our technology out into the market. It allows us to focus on the opportunity in front of us and converting our 21 million customers over to our Payment platform at the same time. So without having to go into changing my sales and marketing engine to address another market, this partnership allows us to do that. And we were both at the right time, at the right place. I always say when we were forming our technology around payments, and they wanted to see what it was doing, we were able to do so on a basis that we didn't have to create multiple platforms and others in order to service their market. So we're -- I feel really good about it. Again, minimal impact on this year as we're going to get launched, but it allows us access to a market at the end of the day that it would have taken us a few years to get there.

Got it. Maybe one of those things that bridges you to that double-digit growth actually.

Yes. Thank you for saying that.

My words, [indiscernible].

But I thought love it. I'll quote it.

Going to the pros for a second because that's been a big area of focus from your kind of peer group collectively. So you guys have GoDaddy Pro, you have the WordPress product for them. How is that roll out that a product is still relatively new, right? 1 year, 1.5 years or so? How is that going? How is it contributing?

So it's contributing, right? To your point, it's a relatively new product that we're building out today. We've talked about a lot, we're gearing it towards pros and making their life easy, making it likely to more self-intuitive. I would say it's early stage in a website builder. We've had websites and marketing a little bit longer. We've seen the progress around that. And we're happy with the momentum we have in the Managed WordPress, our ability to build out that technology. Where we see that technology going. We're getting a lot of positive feedback on what we've done in the last year to make sure that platform is operating to the pros needs, and we'll continue to do that.

Okay. I had a question here on the bundling of the Commerce product. You talked about both at the quarter end and just now coming at kind of a record pace. You're seeing better growth there in the Applications and Commerce segment. I think that's a big part of it. Anything to add on the bundling and the impact where you are and what it could do?

Absolutely. One of the great things about integrating our technology stack more tightly is our ability now to bundle easier, more easily with our customers. When you're on different technology stacks, that becomes a little trickier because you have different SKUs and you have to go to different platforms to combine things. But this allows us now more bundling opportunities as we go forward. When we look at the response that we've talked about and the ability to attach faster what we're seeing, that's what we're seeing in the funnel now, it's just more intuitive. And as we will look at things and what we're starting to put into the domain itself, at the end of the day, we're bundling functionality a lot faster into the domain of the things which -- hey, we're the only one in the world that have the entire technology stack from Domains to payment. We own the pipes for everything. So that allows us to make that a shorter process. And the example I always like to use is, okay, we talked about it. You can take payments now on your domain. That takes a lot of pipes to develop to get there, but that bundling capability is now very powerful. We've talked about, I can't get out of a conversation without generative AI, but the ability -- yes, I know. I'm not a little teaser, but the ability now to offer the website just with the domain name right away by clicking a button. That bundling and that attach just becomes much more efficient, and that's when our LTV starts to go up. Now we talk about pricing a lot and our ability to price and what pricing actions. As this all becomes more intuitive, it gives you more flexibility on pricing, too, because the more value the customer is getting out of the bundle, the more value they're willing to pay. And we're still at that price point where they're getting a lot of value out of what we're giving them today.

Okay. Well, we'll dig into all that. GoDaddy Payments still relatively new. Has that become a driver yet, it's flowing through the numbers, at least a little bit, but in terms of attach and kind of sell-through you're getting great adoption. What are you seeing there?

Yes. Yes. So we are seeing the attach rates when our customers are coming into the funnel, extraordinarily strong choosing GoDaddy Payments over any other option. We still offer other options. So they have a choice, but the one-stop shop, simple to use, intuitive application at a better price point has become really attractive. In our existing customer base, we've talked about it in prior quarters, we are seeing our existing customers convert over. That was always a muscle that we thought was going to take a little longer, especially in the U.S. we're seeing that happen more effectively. So you're seeing that show up in our AGPV numbers because those are customers that are not starting out. They're not -- your kids starting to sell their cards on the block and therefore, it will take 2 years for them to get the quantity. But there are customers that are coming over that are already have big businesses in transacting, and that acceleration has gone very, very well for us. To the point now we're launching in Canada coming up here, and that will be the next step, right? We got the playbook going in the U.S. We got the muscle developed around how do we convert customers, and now we can start applying that to other locations that work very well. So very happy with the progress. It is very early, but it is one of those the more customers you get on, the more momentum you will have over a period of time. And that's what gets us excited as we see the transactions coming in. We see the GPV being very strong. We see people converting and you started a base, and that base just keeps getting bigger for year-to-year.

Okay. Excellent. So payments only in the U.S. right now, coming Canada soon.

Yes.

Rest of the road map.

Yes. So we'll do this. Unfortunately, payments is not one of the things you can just launch globally. Every country has a different regulation, different requirements. So we're trying to go to the ones that are easier, that we can just flip the playbook. Canada is a great market for us. We'll continue to do that one. And then we'll expand out from there. We haven't disclosed what the actual, I would say, country-by-country launch schedule is. And there is a reason for that, too. We will evaluate it depending on what's going on in the macroeconomic environment, and we will make changes based on what we see. And right now, we feel good about, hey, Canada is a good market to launch it right now.

Okay. Great. On pricing a little bit. So you talked about the value that you've given customers. We're seeing pricing across the board from you guys and your peers. Can you talk about the pricing component where you see the opportunity? And for me, kind of -- the businesses have developed so much went from just offering a domain to a website and now you're kind of running your whole website for $30 a month, whatever it is. On average, it's great value for a business. How do you see the pricing.

Boy, that was a great lead by the way. Yes, it is a great value...

If I can answer the question. I think we can move on.

So pricing is definitely something that I think as we've seen in the markets, I won't say we're the only ones doing -- we've taken pricing. We took pricing last year. We're taking pricing this year. I would say the difference between the two is last year, we took it at the end of Q1. This year, we're taking it at the end of Q2. We're also doing it on new and renewals, so it takes time to flow through the system as we do pricing. That's just the mechanics of it. So everybody is aware of that. Retention rate is something we really, really monitor because that 85% mark. We want to stay in that neighborhood because that drives the LTV over time. But when you look at our ARPU and our customer base, we're still -- I come back to what I said at the beginning, we're very cost effective for people wanting to do business. And that's why our retentions are strong. That's why our care organization does this very well. And the more value we start to bundle into that, that to us gives us the opportunity to say, hey, if you're getting more value and you're getting to value achieved, then we have more pricing leverage as we go forward because it's still cost effective for you. And that's why we get excited about the ability to integrate the technology stack and get that to attach going very well. But pricing is a lever. There's no doubt about it. And -- but you have to do so in a manner in our mind that we are really looking at the customer value they're getting, make sure it's in line and that we monitor that retention rate to make sure we are staying within that LTV calculation that we always talk about. At the end of the day, this is a durable model that will drive that lasting long-term value and making sure you have the balance between the pricing and the retention becomes very, very important for us.

Okay. Let's talk about AI.

Yes.

We won't over focus on it. But I think one of the biggest questions that comes from investors is if you're seeing any noticeable impact on your business one way or the other. So that's one thing, I think, we should talk about. And then you guys have launched a number of products, maybe highlight the ones that are the most important and what it's doing for your customers?

So I'll take this back to a customer story, sitting there when we launched some of our AI functionality into our websites, and specifically, the functionality around it would upload a product description automatically based on reviewing all the customers' information, details and types of products. So we're sitting there with the customer, and we said, "Hey, what would be really valuable to you." And he said, "I spend so much time doing product descriptions. I have 1,600." And we said, "Well, are you using our AI functionality?" And remember, we're in a market that micro businesses, these are food trucks. These are little mom-and-pop shops. And he said, "Well, like where is it?" And we say, "Hey, you see that button there that says auto product descriptions, that's actually our AI functionality." And in this case, the daughter who is looking over the shoulder goes mom this will never work. Like we are too particular about our product descriptions. We -- there's no way this can work. We try it, she hits button, auto populates all the descriptions. Exactly the way they wanted it. That is the functionality and the value we're starting to see. And again, it comes back to that value achieved, getting them to be able to reach out to the customers more, and that's the interactions we're starting to see. What we like to talk about AI and generative AI in their mind, it's just easier in getting them to a better answer, right? The other one we're seeing very commonly is coming back to the underdog. They have to connect with their customers a lot faster. And they're dealing with multiple social media platforms now and they get messages coming in. And most of the time, they don't want to wait to respond. They need to engage their customers a lot faster. Our functionality now, we create the response for them. And they can go in and edit, right? But they're starting with a base of a response. And when that happens, they're able anytime at any point in the night, they're able to respond to their customer. For them, that is a value tool because they're competing with, like I said, bigger players with more resources, once they have that customer, they want to establish that relationship. And that's where a lot of the generative AI is starting to take hold within our marketplace. And those are things that are launched, like those are things that are in play right now, and we're seeing more and more engagement within our customer base around it. Now I always laugh because my original question of, hey, have you used our AI functionality? And they look at me like, what are you talking about? They don't necessarily make that connection right away, but that's in essence what they're doing. And then that comes back to -- so they're getting more value out of our tools right now, and that creates that durable model that allows us to drive that LTV.

Okay. So when Gen AI kind of broke onto the scene, the big fear from investors, and I think it's kind of cooled off a little bit but was either something new is going to come out and displace your business or one of the bigger guys, Microsoft is going to create a product with their Gen AI technology that will kind of do the same thing. So fear on both ends of the market. What -- do you see that as a risk? Or if not, why not?

It's funny. Yes, there was a little bit of, I would say, narrative going on there earlier in the year around all this. Creating a landing page versus creating and running a business are two separate things. We help our customers engage with their business. We've talked about that a little bit. While people will make this more efficient. Like we've made our website development more efficient. So now you can just launch it with a domain name and have a website a lot quicker. You still have to attach it to the underlying business to make sure you're getting value out of it. And when we talk about our business in and of itself, and I'll use the statistics, 21 million customers, 25% of -- nearly 25% of the Internet traffic passing through our servers, nearly 14 million interactions with our customer care. That's a lot of data. And that data helps that learning process to get AI more effective, and we have that, right? And that is a valuable tool for us. And again, coming back to why we felt it was so important to integrate our technology stack this year to make sure that was in an easy-to-use, easy to monitor something that we could really drive the value. That's where we see our big opportunity going forward.

Okay. Excellent. We'll open it up to questions in a few minutes. Let me just ask a couple of quick questions on -- time. So just broadly on domains, you guys did largest domain registry, you also operate a registrar business, got the aftermarket business. You grew your Domains under management, 3% in the quarter, I think it was like better than the market in general. How are those businesses working together? And are they giving you an edge?

Yes. So this is a place we've had a right to play for years, and we continue to be I would say, innovative within the domain space, adding functionality to the domain itself creates a big advantage for us. The aftermarket, well we've talked about it a lot. It still is a $400 million plus business for us that allows people to get the names that they couldn't normally get to. So we see a lot of momentum. It's not going to grow at the pace that we see Applications and Commerce growing. But it's still -- once we get to this normalization and the comparables get easier, we're going to be able to see that be at a steady growing business. Now things like Domains, the aftermarket, there's always going to be a little bit of volatility, I would say that .ai is very popular right now. If you can imagine that, right? There will always be little drivers that help the momentum there in that business. And again, we offer, I would say, a differentiated domain name now in that one, you can take payments. Two, you can go to an aftermarket to get a domain name that might not be readily available. Now you can just pop up a website based on functionality we're building and we're talking about. I can't wait to talk about that in our investor dinner in November, a little bit more. And I think that creates that base for that -- our ability to build off that. And just coming back to the technologies platform is all integrated now. So our ability to take the domain all the way to the payment is very, very easy. So again, when I -- we see the demand coming in with higher intent, our belief is they're coming in because they know this functionality exists and starts with the domain name now, and that creates an advantage for us.

Okay. And then just remind us when tough compares that aftermarket fully lap?

So the hard ones for Q1 and Q2 for this year. Q3 is a little bit better, Q4 probably gets more to normalized, which again comes back to the first question of hey, that the acceleration in Q4? How -- what are some of the levers you're seeing that's when it gets easier for comparing that with aftermarket...

Is there a macro dynamic in that? Or does it just kind of depend on what's going on.

So yes, there is a macro dynamic. And this is the only part of our business where we don't set the price. So the price is set by a buyer and a seller coming to a valuation agreement. And whether they do that or not, is -- yes, we try to facilitate it, but they have to make the decisions themselves and then we facilitate the transaction on our platform. We are seeing that have volatility in the market where valuations in and of itself are a little questionable. We think it's going to stabilize and be normalized going forward. But right, in the macroeconomic environment, that is definitely one because we don't control the pricing on it that we saw a big fluctuation, especially at the higher end of the transaction.

All right. Well, let's open it up to investors. I think there's a mic that will go around. I still haven't asked you any of the tough CFO questions, but maybe some of the investors will ask that.

Maybe, I could get my mic back on, before I do anything -- get scared...

First question, can you remind us the take rate on the payment products. So on the volume, what do you take?

I don't -- 2.3%.

Okay. And so for the clients that have payments now, what would be the increase in revenue like in ARPU, what would be the same-store sales growth of those clients? How much more do you earn from those clients?

So I think when we look at going through the stack, and I think the number we've disclosed is when we go from domain to e-mail to website to payments, that becomes 80x LTV for us over a period of time. So that's how we measure it. Still early stage on it, but we believe that will be the driver of the AD -- I'll go with the 80x until we have an Investor Day. And I'll get that number...

Okay. I was trying to bridge from the 3 to the 7 that if the new clients same-store sales revenue were up 3 and now there are 10, with all that those products, now it would be much easier to go from 3 to 7.

Thank you for bridging that gap, that is awesome. But you're hitting the right point is, this is something as time goes on, builds momentum around the payment and the transaction which makes us feel really good about the acceleration of growth. Because once we get into more transacting customers, converting our existing customer base over to our platform and newer customers that we've talked about with higher intent now building businesses, it becomes a bit of a snowball effect. And when you talk about our ability to increase our margins, A&C, our segment is at higher margins. The more that grows, the bigger part of the pie. And again, coming back to -- some of it's just math, but as it gets bigger, it has a bigger impact on our overall margin profile that allows us to feel good about accelerating our operating margins over the long term.

In terms of the payments, is there an effort to migrate people from kind of the retail pricing, the 2.3% to something that's more SMB or institutional eventually?

We feel really good at where our pricing is today. And again, we own the pipe, so we do it based on what we -- the value we're giving our customers and our ability to be profitable. No, 2.3% is our stated price. Will we ever decide to do anything? I don't want to get out into that. But right now, we feel really good about the pace, the GPV we're getting, the 2.3% and the value proposition we're offering our -- remember, I'll come back to the underdog, the micro businesses. Their ability to make a little bit more money because they get a lower fee from us. And that is a big deal in the marketplace right now is when everybody else is calling them and saying, hey, you need to pay more on this. And oh, price of this is going up. We're one of the few that are calling them and saying, hey, we can save you some money here. Let us take care of it, and we'll convert you over and so.

Just on the AI. So the added value is really real for your clients. Would you have a specific pricing line for the AI product? Like not included, like it's included, you will bring more clients but really charge a specific line for AI.

We haven't gotten into how we ultimately put this through our pricing. I would say it comes into our ability to bundle and how do we bundle it as an entire package and functionality to our customers. We've not talked about line item by line item, how it would roll out, but we have acknowledged that the more value they're getting out of it and more value they're driving, the more it gives us the ability to, number one, keep our retention rates and two, get value achieved on our own.

And that's our time. So you're off the hook on the tough CFO questions.

Sure, we got next year.

We can do that next year.

Okay. We'll be here all day. You can come up.

Thanks for being with us, Mark.

All right. Thanks, Ygal. That was great.