Christie Masoner: Our next question comes from the line of Ken Wong from Oppenheimer. Ken, please go ahead.
Ken Wong: Hi, can you guys hear me?
Christie Masoner: We can.
Mark McCaffrey: We can.
Ken Wong: Great. Thanks for taking my question. Just wanted to maybe check in if you guys can give an update on what you’re seeing in the aftermarket. What are the dynamics that played out in the quarter? And how we’re thinking about that trend in Q4?
Mark McCaffrey: Yes. So we tried to add a little more color around the aftermarket and our stated comments this time. We continue to be the global leader in the aftermarket, and it’s driving part of a healthy domain business overall. It’s a $400 million-plus business, and we’re seeing it grow at a lesser rate than we’ve seen before. Now Q3 was still a relatively tough compare to last year for us in that. So we’ve seen less of a dip. We see that trend starting to turn like we talked about. We expect Q4 to be an easier compare. And obviously, we expect going into 2024, those comparisons get broadly more easy. But from a volume perspective, overall, we’re still seeing a healthy $400 million-plus business on an annual basis. We continue to see the momentum. Like we stated earlier, in the year, we’re not seeing the large transactions like we used to, but we continue to see on a volume basis aftermarket being healthy.
Ken Wong: Got it. And then maybe just a quick follow-up on the kind of spend management, I think definitely positive development, see some focus there. I guess what’s the — what areas are you looking to potentially peel back on from R&D? Any concerns that, that might potentially hurt product innovation?
Aman Bhutani: Yes. Thanks for that question. When we look at our tech and debt spend, the way we have it allocated is the — it’s divided between the platform investments and our product innovation. On the platform side, there is a set of investment made, which Mark shared with some slides around cyber, around core data platform improvements, and those have tended to help all our products. And what we found there is as we integrate more and more platforms, as we’ve integrated the brands that we talked about this year, some of those costs peak and it started to come down. So we’re seeing leverage on the platform side, and that’s great. On the product innovation side, our approach has very much been about attacking a few areas and driving improvement in them.
And as those areas improve, shifting our spend into other areas — or our investment, I should say, into other areas and improving them. And we’re very careful about how those investments. And as an example, we invested — and I talked about the investment in Managed WordPress over a couple of years. And I’m very happy to have a great product today that is now showing great growth as well. But that does mean that we have team and a size of investment there that we no longer need to continue to invest in it. So hopefully, that gives you a bit of color on how we go about sort of getting leverage on the whole on the platform side but also on the core product side, where we are able to move people around and get to things and sort of drive growth without necessarily always adding more.
Ken Wong: Got it. Appreciate the insights. Thank you very much.
Christie Masoner: Our next question comes from the line of Deepak Mathivanan from Wolfe. Deepak, please go ahead.
Deepak Mathivanan: Hey guys. Thanks for taking the questions. Just wanted to ask about the headwinds from the hosting business, from all the divestitures and some of the other moving pieces. When should we expect some of this to normalize? And what do you generally think kind of the long-term growth outlook for these businesses? And then sort of I wanted to follow-up on the answer for the question below. How much is the margin expansion targets for potentially ’24 and then ’25 and ’26 and beyond? Sort of dependent on the top line growth. Are there any specific ranges that you can kind of give us to expect on the top line side to achieve this margin targets? Thanks so much.
Mark McCaffrey: Yes. Thanks, Deepak. I’ll start with the divestitures and the headwinds related to it. A lot of those activities we’ve completed in the first half of the year. So it will be a little bit of time before the comparables around them start to normalize. They will take to the second half of next year. So it will create a little bit of a headwind going into the year for us. We do have some of those activities still happening in the second half of the year. So it will continue to be something we will point out, call out and talk about the impact. That’s why we called out the 150 basis point headwinds related to that going forward. From a stabilization point of view, once we get through the actions that we’ve taken when you look at the core GoDaddy platform in and of itself, we think this is going to be a low single digit to flat growing business over time.
It’s got huge high retention rates compared to our normal business, generates a lot of cash flow. And we’re seeing them convert over to other areas of the GoDaddy platform when they leave. So they’re staying within the technology stack, which is great for us. But we’re not looking at that as driving any significant growth in our core platform going forward. So hopefully, that’s helpful. On the margin expansion, our model doesn’t require double-digit growth going forward. We acknowledge we’re living in a dynamic environment and the headwinds in their sales wins are continuing to present themselves. But if you look at the momentum around our A&C business in and of itself, its ability to generate higher normalized EBITDA becoming a bigger part of the picture as we move forward.
If you look at our demand, our retention rates, our APRU all of those are pointing to more efficient and our ability to drive that operating margin. That’s why we’re comfortable and confident about the 31% exit rate and being approximately there when we exit next year. That’s why we’re confident in saying we’re going to grow from there going into ’25 and ’26 as well. So again, takeaway, not premised on double-digit growth and is looking to continue to expand as we get away from the actions we’ve taken. We grow A&C. We’re on the same technology stack now. And we’re seeing the momentum in the business that we think is really going to drive profitable growth moving forward.
Aman Bhutani: Yes. And just very quickly, I did mention in my prepared remarks some of the areas where we have initiatives to continue to drive more efficiency in the line items, and I want to repeat them again, but we did share some items there. And ultimately, it drives a better combination of growth and profitability.
Christie Masoner: Great. Thank you. That concludes our Q&A session. I’ll turn it back over to Aman for some closing remarks.
Aman Bhutani: Thank you, Christie, and thank you for joining us. As always, just a quick mention to all the GoDaddy employees who have been working super hard and a great quarter for us. And I’m excited looking forward into Q4 and 2024. Thank you.
