GoDaddy Inc (GDDY) 2015 Q3 法說會逐字稿

Good afternoon, my name is Dan and I will be your conference operator today. At this time I would like to welcome everyone to the GoDaddy third-quarter earnings conference call.

(Operator Instructions)

I will now turn the call over to the VP of Investor Relations, Marta Nichols. Please go ahead.

Thanks Dan. Good afternoon and thank you for joining us for GoDaddy's third-quarter 2015 earnings call. With me today are Blake Irving, Chief Executive Officer; and Scott Wagner, Chief Operating Officer and Chief Financial Officer. Blake and Scott have some prepared remarks, which we will follow with a Q&A session.

At today's call will be referencing both GAAP and non-GAAP financial results such as total books, adjusted EBITDA, unlevered free cash flow, net debt and ARPU. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalent may be found in the presentation posted to our IR site at www.investors.godaddy.net, or on our form 8-K filed with the SEC with today's earnings release.

The matters we'll be discussing include forward-looking statements which are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. Actual results may differ materially from those contained in the forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, November 4, 2015, and we undertake no obligation to update these statements as a result of new information or future events. With that, I will turn the call over to Blake.

Hi everyone, good afternoon and thanks for joining us today. We're pleased to report we put up our third quarter of solid results as a public company, with strong contributions from all of our major product lines. As we delivered for customers and our shareholders each quarter, our vision remains unchanged. Radically shift the global economy toward small business by helping individuals easily start confidently growing successfully run own ventures.

Organizations of all sizes trust GoDaddy in their quest to build a successful online presence. In our recent survey of global small businesses shows that our global opportunity is still significant. We found that 59% of small businesses still don't have a web presence. We offer millions of global customers a growing suite of elegant, easy-to-use and increasingly integrated cloud-based products, built and a single global technology platform and supported by outcome driven, personalized customer care. These are real people that are here to talk with and help our customers every single day.

Our strategy and model have yielded a large, high growth business with strong cash flow, serving a massive global market with growing needs. At the end of Q3 we've grown to serve nearly 13.6 million customers, an increase of more than 1 million customers versus a year ago. Our annual average revenue per user, or ARPU, rose almost 7% to $119.

Q3 bookings grew 14% to $476 million and our strong customer and ARPU growth together drove our revenue up 15% to $411 million. Our adjusted EBITDA jumped 22% to almost $88 million in Q3, producing a solid margin of over 21%. And we converted 90%, over 90% of adjusted EBITDA into unlevered free cash flow. I would like to share three big themes in our recent progress and accomplishments in Q3 results with everyone today.

First, we are continuing to expand our product portfolio and deliver innovative services. Second, we are consistently posting strong financial performance and growth. Third, our efforts to evolve and grow our brand are changing the way people think about GoDaddy. Let me spend a bit of time on each of those briefly.

On my first point about expanding our product portfolio, we've been innovating in all three of our major revenue lines. In domains we continue to grow faster than the industry due to our expanding demand inventory, our industry-leading proprietary domain search and our efforts to expand the domain aftermarket. We recently passed more than 61 million domains under management, and that's over 20% of the world's total domains that we manage.

In hosting and presence we're expanding our penetration of the hosting market with a unique understanding of the needs of small businesses, offering both hosting products and tools targeted at the professional, like our industry leading managed WordPress offering, and simple tools that allow this a business owner to build a site on their own. Like our website builder and online store builder tools.

We also introduced a new search engine visibility technology that allows any website using GoDaddy DNS to place higher and search results without requiring the customer to manually update their website's code. The service has been previously offered on our website builder and managed WordPress products, but now it's available for any website regardless of who hosts it. Our innovative SEV technology has delivered a product that's simple for small businesses to use and most importantly, it really works and it is super effective.

In business applications, we've seamlessly integrated GoDaddy email marketing, or GEM as we like to call it, a Shippo shipping solutions and McAfee's security solutions into our online store offering. This is enabling customers to purchase and activate these products from inside the site builder experience. This is important, so I don't want you to miss this.

We're making it possible for customers to discover and use other GoDaddy products like email that meet an immediate need, while they're using other GoDaddy products. Not through a separate marketing message. This is something we call in-app discovery and purchase capability is a big benefit to our customers. It allows them to find, try, and use the right next product super easily and makes our full portfolio products more valuable together than apart. For GoDaddy, for us, this is one of several growth levers that can help drive ARPU.

Also in business apps we're seeing strong renewals of our proprietary workspace email product, as well as continued growth of Office 365. And our O365 offer just keep getting better. We brought our O365 provisioning to a median of 90 seconds for a customer's first mailbox purchase. And that's an awesome user experience that's improving both activation and usage.

Our progress in all these area demonstrates our focus on delivering truly distinctive products on a single technology platform, all wrapped with world-class customer care. We see our differentiated combination of products, technology and care as a unique advantage for us in serving our customers.

On my second point about our financial performance, we delivered consistently strong financial results prior to and since our IPO, growing revenue across all three of our business lines. While continuing to invest in innovation and growth. All while delivering increasing cash flow and margins. Scott is going to spend more time on this in a minute.

Third, the investments we're making globally in the GoDaddy brand are showing promising results. And there's much more planned. Let me say a little bit about that.

Along with all the product, tech and scale work that Scott and I have talked with all of you about, we've also been taking very deliberate steps to align our brand with our global customer value proposition, our culture and our technology investments around the world. And we are doing that in several ways. First, our global advertising is increasing aligned with our products, our technology and our customers, increasing awareness. For instance, in India over the last three years we have seen our aided brand awareness more than double to almost 80%.

Second, we've been focusing on our employment brand with an emphasis on technology, transparency and diversity. For example, we recently published our gender diversity and salary parity research, highlighted the challenges we and all tech companies face in building a gender balanced workforce. From salary parity to promotion trajectory.

We've also invested a relationship with the MIT media lab to further the science behind bringing customers to small businesses through their community. And third, yesterday we announced we've engaged GoDaddy's first global brand agency TBWA, to help us further refine our story and bring a unified message to our increasingly global audience. Small business customers need a dedicated partner to help them start, run and grow their business online around the world, and that is GoDaddy.

With the help of a clear message about who we are, what we do and who we do it for, we believe our intense focus on our customers and their needs will continue to differentiate GoDaddy and produce strong financial results. Now I'm going to turn the call over to Scott to talk about the financial results in more detail. Scott?

Thanks Blake, and thanks from me for joining us as well. As Blake said, we feel great about what we delivered in the third quarter. Overall, I would like to highlight three key financial points.

First, we continued to deliver strong, consistent revenue growth with a nice balance between customer and ARPU increases. Second, we're consistently delivering even faster growth in free cash flow, with over 22% growth in adjusted EBITDA and an increase of more than 40% in unlevered free cash flow in Q3. Those are great gains in our two key profitability measures. Third, we are well positioned to deliver the solid combination of top and bottom line growth into 2016 and beyond.

Touching on each of the three things in more detail and starting with the top line, we grew bookings 14% and revenue 15% in Q3. In terms of the drivers of revenue, customers grew 9% over last year and we ended Q3 with approximately 13.6 million paying customers. Our annual average revenue per user, or ARPU, grew nearly 7% to $119, up from $112 a year ago. Our product lines all grew at double-digit rates in the quarter.

Touching on our product lines briefly, domains revenue finished the quarter at $215 million, up 10% year over year. Our domain business continues to be fueled by one, international growth, two, share gain in the markets in which we compete, three, successful attachment and renewals of domains driven by our proprietary search and merchandising. And fourth, growth in the sale.

Hosting and presence revenue was $151 million in Q3, up about 15% year over year. We currently reach nearly 5 million aggregate customers with our hosting and presence products, including those customers who use either our easy and effective website builder products and for more sophisticated audiences, those customers to build a site with open source tools and host it on our hosting infrastructure.

Unlike many point solutions we address a full range of online presence needs, serving our customers from those who want to build a site on their own to web professionals who need more capability to build sites for others. Just as important, we believe that a successful online presence requires not just a website, but tools and capabilities to extend the sites content everywhere it needs to be online. A great example of this strategy in action is our search engine visibility tool, which Blake mentioned in his introductory comments.

We're also having success combining our hosting and presence tools with those in our business applications offerings, such as email, productivity, and email marketing. In Q3 our business applications revenue was $45 million, up 47% year over year. This product category continues to be driven by strong growth in both productivity and email marketing.

In Q3 we reached 2 million paying customers for business applications products. Blake and I get asked a lot about what's next in our product roadmap for business apps. Importantly, we see plenty of growth opportunity just in our existing product categories. We also know there's value in many adjacent product areas where our customers spend a lot of money and there's ample room for innovation, whether it be an online presence, marketing solutions, or technical infrastructure.

We have proven we can extend our model into other areas, but it's also very clear to us that doing a few things really well and with distinction is the winning approach. That's what we've done over the last couple of years and it is served our customers and GoDaddy well.

In addition to innovating and extending our product portfolio, we're increasingly bundling our products. Bringing domains, basic presence and email and productivity products together in introductory offers. We have learned that we when we make it easy for customers to attach and use our core products like site builder or email, they renew at very healthy rates and have attractive long-term economics.

One example of this bundling and merchandising strategy is our offer of a free email with a website builder purchase. Attaching a domain specific email like blake@blakesblog.com creates a more professional appearance it makes a domain and website that much more valuable to our customers.

Now an important point on bundling is that when we sell products at a package price, payment is allocated among the product types being sold in the bundle based on the list price of the individual product. As a result, our bundling strategy may shift revenue recognition across product lines in the short term, however, our focus is on lifetime spend of our customers in aggregate.

When you look at the growth rates of our three business lines, these allocations shifted a bit of growth from hosting a presence line to business applications in the third quarter. We are 100% focused on maximizing the aggregate lifetime value of our customers and we'll continue to explore pricing and bundling strategies to grow total spend and lifetime value at the customer level.

We should also mention the impact of the stronger dollar on our top line growth. In recent quarters I said our bookings growth would have been roughly 200 basis points higher if measured in constant currency. As bookings translate into revenue over time, that currency impact shows up in our GAAP numbers. Given the lag between bookings and revenue, we are now seeing the currency impact that effected bookings in the first half of the year show up in GAAP revenue.

International revenue, which represents close to 26% of our total now, grew 17% on a reported basis in Q3. But keep in mind that the currency impact that I just mentioned in total really applies directly to this portion of the revenue base. Our underlying international business remains strong across all our key markets and we feel good about the underlying growth trajectory and health of our overseas offerings. In fact, we just topped 14 million, excuse me, we just topped 4 million international customers during the quarter and that's double the number of international customers we had just four years ago.

Turning to my second overall point on our growing profitability, we continue to deliver strong cash flow. Adjusted EBITDA grew over 22% in Q3 to $88 million, yielding a margin of over 21%. A gain of 120 basis points versus Q3 of last year. Unlevered free cash flow grew over 40% in Q3 to $80 million, roughly in line with our nine month growth of 42%.

So far in 2015 we've converted over 90% of our adjusted EBITDA into unlevered free cash flow, at the high end of our long term target of 70% to 90% conversion. We finished Q3 with approximately $333 million in cash and short-term investments, and net debt of $753 million, or about 2.4 times our 2015 adjusted EBITDA outlook. We're delivering these levels of strong bottom line performance while continuing to invest in the business.

We have been and will continue to hire engineers across all our applications, and are investing in marketing care in our ongoing international expansion. Our strong cash and balance sheet position also allows us to pursue value creating acquisitions, where and if, buying businesses technology or customers complement our strategy and provide distinctive return above our organic opportunities.

Our performance both in the third quarter and year to date clearly reflect the leverage on our financial and operating model as, one, our product innovation continues to drive better attachment of high margin products beyond domains, two, our global technology platform creates scale in our infrastructure spend, and three, we scale G&A. We feel well positioned to deliver this solid combination of top and bottom line growth into the future.

Turning to our outlook. We're raising our 2015 guidance ranges for both revenue and adjusted EBITDA. For revenue we expect full-year 2015 to be $1.603 billion to $1.606 billion, implying approximately 16% growth versus 2014. This translates into Q4 revenues of $421 million to $424 million, implying approximately 14% growth versus prior year, in line with long-term revenue expectations that we've shared before, even while absorbing the currency impact mentioned earlier on the call.

For cash flow we're raising our full-year adjusted EBITDA range to $334 million to $337 million, implying a Q4 range of $70 million to $73 million. The midpoint of our full-year adjusted EBITDA range implies nearly 24% growth year over year. We also expect unlevered free cash flow in excess of $280 million in 2015. Implying approximately 83% to 84% conversion of adjusted EBITDA into unlevered free cash flow and year-over-year growth of over 46%.

More importantly, looking forward, we're well positioned for continued growth of scale in 2016 and beyond. We serve a huge market of small businesses, organizations and individuals who are looking to build an online presence. We deliver a true life cycle experience to these customers that combine product, tech and care in a distinctive way. And the products and services that we offer grow with our customers over time.

This value proposition translates into a proven financial model with great customer unit economics, and strong and consistent revenue and cash flow growth. For those of you who are building models, we would like to reinforce our long term targets of low to mid-teens organic top line growth, coupled with 20% plus adjusted EBITDA growth and unlevered free cash flow growth in the mid 20s. As we continue our growth trajectory, not just in the coming quarter or two, but through 2016 and beyond.

Given our strong cash flow and balance sheet position, we're also well positioned to pursue additional growth turning inorganic activity into adjacent and complementary products and geographies. So to wrap up, we feel great about Q3 and our continued execution, and we're focused on delivering for our customers and our shareholders over time. We believe GoDaddy's unique combination of products, technology and care will continue to differentiate us in the market and produce strong future financial results. With that, let's open it up for questions.

(Operator Instructions)

Deepak Madhubani, Deutsche bank.

Thanks guys. Congrats on a good quarter. Two questions for me. First question on international, we saw you launched online store in India during Q3, can you elaborate on what big markets do you currently offer the site builder and business apps fully customized for local languages? How should we think about the focus for international next year with respect to entering into new market, selling existing ones and then I have a follow up about bundling.

Hi Deepak, it's Scott. In the international, I guess your second question first. So first and foremost, we're going to continue to expand in the markets in which we're in. Which are primarily the European and Latin American markets. And then second, we will in 2016 enter a variety of the Asian markets. To address your first point on online store and site builder, each of those are primarily localized in tier 1 markets now and there's a roadmap to get them into tier 2 markets and the geographies I just mentioned and obviously then following in the Asian launch.

Deepak, this is Blake. Just to pile in on Scott's comments. Next year, more specifically just to drill into Asia a little bit, first quarter we'll enter with a core set a products which will include website builder and not necessarily online store. Some key markets with online store because payment types are a little more tricky.

But we will enter Singapore, Hong Kong, Taiwan, Vietnam, Indonesia, Malaysia, Philippines, Thailand, South Korea and Japan, and of course China as well, with a core set of products that we offer domains hosting, website builder, email productivity. So you should think of those as being the core on online store in select markets where we think there is good opportunity for us and we have payment types that are appropriate for the marketplace.

Got it, that's helpful. And then second on product bundling, I think the integrated email marketing app being offered into the site builder and the online store it makes a lot of sense, it requires no incremental marketing spend. But now that you've had it for two quarters roughly, can you qualitatively talk about the adoption rates that you are seeing for these apps from the initiatives in the last two quarters? And then what other the opportunities would you characterize are left still untapped with respect to such cross selling? Thanks.

This is Blake. So qualitatively, we're seeing pretty good uptick. And the way if you have actually used the site builder, you will note that when we surface these things we are actually using data science to determine when the appropriate time to surface that capability is. So in the case of email marketing, when we see that somebody has had 25 people sign up on a website to get feedback, we will surface email marketing for them in the time of need. And we are also doing similar things with mail, so surfacing the ability to go buy mail, so when you show up in some of these inboxes you show up with a very, a very personalized domain name that says blake@blakeirving.com, versus blake1535@gmail.com. And that matters a lot.

And I will just say we're really early in this still, a couple of quarters we are learning. And there's machine learning involved in this as well, so it's both people in machine learning. And we are continuing to iterate and if you think about the offer that we've got, we have folks that are in a lifecycle. And small businesses re generally a lifecycle type of business.

And as they move from, I get a domain to I set up a website, now I'm actually having some success, I want to surface the capability that's going to allow me to go retain or acquire more customers or get more business, and that continuum of entering new product capability as somebody is growing with us, really makes a difference to our customers. And I think we're seeing some of that lift and you are certainly seeing it in the biz apps number.

That makes sense. Thanks Blake. Congrats in a good quarter.

Thanks.

Jason Holstein, Oppenheimer.

Thanks. I'm going to do my best. I am not sure if you commented yet on what drove the lower CPA in the quarter, it just seems like we're seeing really good marketing leverage. And then you know we saw clearly good margin in the quarter. You're expecting uptrend in the fourth quarter. Can you comment on kind of initial expectations for next year's margin trends? Thanks.

Hi Jason, it's Scott. To your last question first on margin trends. As we look into next year we are well positioned for 20% growth in adjusted EBITDA. And I think that's the playbook really that's been propelling us throughout this year, which is really nice growth across our product lines with faster growth in the non-domain products that are carrying higher gross margins.

And then we're getting real scale that's starting to show up, you've seen it over the last quarters but in our tech and dev, particularly in our infrastructure and G&A. And that's going to continue, frankly, into next year with continuing and ongoing spend in marketing and care to support our growth. But the nice balance, you know kind of creates the algorithm that you've been seeing which is nice top line growth and even more flow through the bottom line.

And then on the CPA in the quarter?

Yes, I think on the quarter it's again, it's tough to sort of look at CPA one quarter or the other. And so, the marketing spend, some of it obviously does show up in the quarter but some of it has some drag and so I am not sure we're going to jump up and down and take great credit for that one in the quarter, necessarily. But again, we just feel good about the ongoing marketing return that we're getting and having that show up in a very consistent cohort level of spend over time.

Maybe just one follow-up. Following Endurance's announced intention to acquire Constant Contact, do you guys think this signals consolidation generally in the space and overall thoughts?

This is Blake. So, you know I think if you take Constant Contact acquisition by itself it's interesting, it's a logical move for them, the proximity of the businesses make sense, they are both Boston locals. We have examined the email market for a couple of years. And a need the customers clearly have. And we're more than organic grower than we are a acquirer of customers revenue. And we've been growing organically.

We did acquire a very small company and I will tell you we did an exhaustive research around the space over the last couple of years and found on a variety of different qualitative measures and quantitative measures, and found one that we loved that had incredibly high and the best product experience in Mad Mimi. And we purchased a small company and frankly integrated a product called GoDaddy email marketing, that's what we were just talking to Deepak about in his question. And have integrated that into our product suite in a way that is surfaced when somebody would most need it. And we think that's the key.

So it's less about consolidation and more about customer need, and we think that there's logical extensions that customers that are a little, tiny business customers or small business customers really want to do next to make their business important. And Scott, I don't know if you have any comments on top of that.

Yes, I think what you are seeing is online presence is a category really being created for the small businesses and organizations that all are all using cloud software and there's a variety of point solutions across a broad set of categories. And from our standpoint, having those products work very well together is real advantage for our customers and obviously for us too. And it's a very big market that's expanding and there's a bunch of different ways for things to happen and play out.

I think overall the fact that you do see consolidation in certain parts of it, kind of validates the value proposition that we're providing and frankly reinforces I think some of our unique strengths around being able to create a bunch of neat states across things and the tie them together that creates real value.

Thank you, that's helpful.

Mark Mahaney, RBC Capital Markets.

Thank you, this is Andrew on for Mark. I just had one question on ARPU. As we think about you expanding into Asia, kind of the continued FX headwinds and the bundling, should we think about ARPU growth as slowing down here or how do we think about it in the medium, short term? Thank you.

Thanks Andrew, it's Scott. It's good. First, I think at an overall level we are balancing our ads in growth of customers which certainly drives long-term value, and the monetization of our existing customers which more shows up in ARPU. And in ARPU there's three things happening.

Number one, is really now and in the second half we're lapping a number of pretty big ARPU enhancing move from last year, such as WordPress and our big aggressive ramp on Office 365. Second, is the FX impact which you just brought forward and that is going to continue and that as you rightly point out is some tempering of ARPU. And then third is the bundling in merchandising. And I think to look at our ARPU and a shade under 7% for the quarter, in the quarters ahead you will probably see it in that mid single-digits line, again, factoring in all three of these different things.

Thank you.

James.

At the end of the prepared remarks you made some comments about potential opportunities to explore in organic growth through adjacencies, I was hoping you could expand on that a little bit?

Yes, hi James, this is Blake. I won't go into specifics about what categories we are looking at, but what I would say is that very small business customers have needs that are adjacencies that they are spending what I would consider to be IT and tech dollars on, with other providers. Whether that's in marketing or communications or things that they are doing that are -- that they're not pleased with the situation that they are in, where they either don't get the results that they want from the marketing dollars they are spending, or they feel like they are not being served the same type of customer care that they get when they are dealing with us.

So we think there are opportunities because we have that unique set of products, technology and care that allow us to go into adjacencies that are potentially very strong for us. And we are exploring quite a few different areas that we think are potential interesting growth areas for us. Scott--

I would just add two things quickly. The first is, look, our trajectory is one of great organic growth right now. And the second point is, we throw off a lot of cash. We've got very strong cash flow position and a nice position on our balance sheet, and exciting that we've been a great organic growth story and obviously our balance sheet position gives us the flexibility to add something in organic, if and so we choose, and that it's additive to already what we're doing on the organic side.

Got it thanks. And then on the marketing side, one of the goals was to tackle the web professional market, and so with all of the marketing initiatives you have in place and I guess as we look forward, can you talk about on a cohort basis you know, the traction that you're seeing with the higher value, higher type of client? Thanks a lot.

Yes, James, this is Blake. We are super early. We're just two quarters into this web professional push. We have slightly under 60,000 web pros that are now in that program, and frankly web professionals do spend more than small businesses because they are usually managing more than one small business. So on a quarter basis we expect to see some -- a good trend.

But we're really early in this process, it's still rolling out features in fact rolling out features as we speak that matter to these guys and allow them to manage their small business clients in a way that they haven't been able to do at scale before. And we've rolled that out internationally. In fact, 50% of the folks that are in the web pro program are coming from international markets. And cohort spend internationally is the same as it is in the US. So we are optimistic, but we are really early innings on this one.

Thank you.

You bet.

Mark May with Citi.

We saw a lot of leverage in your customer care line in the quarter, just wondering if you could shed a little light on kind of what drove that in the period and kind of how to think about it going forward? And then, in terms of the ARPU growth in the quarter, sorry if I missed this, maybe if you can walk through a little bit some of the good drivers of the ARPU growth during the quarter. And then I guess a subset of that is in terms of the international customer growth, what impact if any does that have on sort of the average ARPU metric that you provide? Thanks.

Thanks Mark, it's Scott. So first, care, you're right, we saw some leverage in the care line in Q3, and ongoing care it's a balance for us between having time, energy with our customers and then getting them into products, and that's something that we continue to invest in and we see that time as distinctive and valuable to us.

But also adding, whether it's technology and CRM or call routing that helps us balance our staff more effectively or adding things like chat which is becoming much more prevalent on our site. And I think in the quarter you are saying, frankly, a bunch of investments that we've been making around using technology to both balance our people and the customer interactions in a way that are still giving us high value touch, but are also helping us scale the cost structure.

Going forward, we're going to continue to manage this balance and should think about care being roughly in line with growth, possibly with a little bit of scale, but as we expand around the world obviously we want it be quarter over quarter, but we feel like we're on a nice trajectory there. So I think that's one.

Number two, on ARPU growth, I think at a very simple level you are just seeing the faster growth in non-domain products, in both hosting and presence and business apps in particular, all of those products carry higher relative price points and so as more customers adopt those, and those continue to grow faster, that's going to translate into ARPU. That's got a bunch of little sub segments to it, but at the end of the day it's faster growth and adoption in hosting and presence in business apps.

And I think the third question on the international impact and how it will impact ARPU, that's part of how we've been balancing customer growth and ARPU as we're growing outside the United States. Some of those new customers are coming in at lower ARPUs and then they spend over time. Right now we're managing that balance, and it is showing up in our results.

And if we continue to expand in other markets at the economics that exist today, then it's going to be great. And I think just to point the call to the FX impact, absolutely does show up in not only ARPU, but particularly the international line, the international ARPU as well. We're going to be dealing with that for the next several quarters.

Thanks.

(Operator Instructions)

Brent Thill, UBS.

This is actually Michael on for Brent, thanks for taking my questions. Just on the business application segment, I know you talked about already having already lapped 365 and the growth rate there is still very strong and you also spoke to the aggregate between hosting and that segment, just wondering if we could dig a bit more to the expected trajectory of that business, and what you are seeing the most success with there?

This is Blake. Michael, sorry. The overall business we think will continue to grow at approximately the same rate you are seeing now, so that 47% growth we feel very good about. And there will be some, as we talked about the way that this bundle bundling works, there will be some fluidity between the web hosting, the web hosting and presence line and business apps line. But overall, we feel like the non-domain businesses, which are higher margin businesses for us, will continue to do well and continue to pace with a pretty strong.

Great. And then we've talked a bit about international on the Q&A. I think that at one point I saw a goal of over 60 countries in 2016, can you just talk about are you still on track for that particular clip and how that figures into the next year on expansion?

Yes, we are on track right now to be very, very close to that number. Frankly, we have, we will focus on Asia. You heard me rattle off the countries, I think there's 11 of them that will roll in the first quarter, which will bring our overall market count to 53. So that's getting pretty darn close to 60 and there is a lot of a year left.

For some other markets and frankly for us, it's focusing not just on country expansion but performance in country. And making sure that the tier 1 countries that we identify as our biggest opportunities are performing well and that we are actually making sure that we are balancing our spend in those countries. As you know, in a software product you could go into countries with very, very little cost and it's almost all marketing. So the way that we're going to work the marketing levers over the course of 2016 will be incredibly important for us as we roll these things out.

And we are -- by the end of 2016 we'll be in most of the markets that really make a difference for the business and that's, if you just get away from the 60 number and think about what's really going to make a difference for the business we're going to be there, which is a really important thing. And when you think about companies that are providing a platform for very small businesses, there will be nothing close. That is targeting a very small business in that many marketplaces today.

Great, thanks for taking my questions.

Pleasure.

Mitch Gottlieb, Craig Hallum Capital Group.

Hi, this is George on for Mitch. Just one question, you mentioned in your prepared remarks a product you're launching that helps with in-app discovery, and a totally clear on that, so I'm wondering if you could just explain that a bit further?

Yes, it's, it is not a product charge as much as it is a capability. So if you think about a scenario where I have a website builder product and I'm going to go in to make a quick change or a view, just viewing my website. And I have had 25 individuals sign up for -- to be contacted by me at some point, well we know that they've reached a critical mass, a critical number, we can toggle that number up or down depending on market, we can introduce just a button that says, hey, try email marketing right now.

And introduce that at that incredibly important point in that small businesses lifecycle that surface the building for them to discover and then use and then try, you know free trial, try that product out and then when they get to a certain scale, then they're start paying for it. But it's a great way for discovery of a product to be within another product. Think of it that way. And frankly, we are doing this with email, we're doing it with email marketing and there are other places you can imagine us doing this over time that will make a lot of sense for the small business customers. That make sense?

It does, thanks.

You bet.

Brian Essex, Morgan Stanley.

Good afternoon and thank you for taking the question. I was wondering if you could talk a little bit about hosting and presence? I think you guys have already kind of touched on tax rates, but what are you seeing in that segment? I think while business applications certainly beat our expectations, I think hosting was kind of more in line, just what you're seeing in terms of initiatives, performance or expectations and then how we might anticipate kind of growth going forward, given the initiatives that you have in the pipeline right now?

Thanks Brian, it's Scott. I guess as mentioned and what we talked about, our bundling and merchandising approach where we are increasingly bringing business applications, both email and email marketing into our hosting products, is actually moving some of the growth from hosting and presence into business apps. And so, I think when you look at those two in totality and we look at it and think about it, the growth is really strong and healthy, and we just, we think that this bundling approach is really impactful because it's, number one, contractual, and number two, it reduces a lot of friction.

And so, and what we've learnt and see is that when people are using our products, they don't go anywhere. And so we continue to experiment, not just with the offer, but how we can make it really easy for customers in the right contextually relevant way to sample, try, begin to use our different products at the right time in their life cycle. And what we know when they do that, it works out for them and it works out for us. So punch-line on hosting and presence and apps is, either you're just seeing a little bit of shift of the dollar growth from hosting and presence go over to business apps, because of some of this bundling.

Got it, that's helpful. Follow-up on the domain side. As we see more c and DTLDS kind of enter the markets, what kind of tools do you use to gauge your penetration of the market, maybe relative to your peers? One of the things that platform to have a nice scale to management layer whereas some of your peers are smaller don't have as many registry relationships. So with all the choice that you have, one of the questions I guess, the source of this question is investors are often asked, how do we know about who is gaining more share and who is positioned in different ways in the domain market. And curious to hear how you look at it, given the platform that you have and the visibility that you have in the market?

Brian, it's Scott. Let me try the share gain one first. So, think about share certainly there's dot com and the GTLDs and then there's the different ccTLD's. Files from VeriSign are both published an easily accessible and we have a regular, frankly automated dashboard, where we can swizzle dot com in any country, situation around the world and track and measure our share.

Over the last couple of years, as we have been entering our countries in localized form, one little execution part of that has been to establish data feeds with the registries in each of those countries to also track and measure ccTLDs. So in our tier 1 markets, we also are measuring and tracking our ccTLD share, and frankly in all of our tier 1 markets, it's going up.

So we look at both in their individual component parts but more importantly, overall, because I think this gets to the more interesting thing and is what you lead in it to, which is our platform. Is now in a position where in a geography or in a market, we can surface certain kinds of products. In some markets it may be a ccTLD and others it's dot com, individually with different price points, sometimes together and have automated the, frankly, the infrastructure in the platform to be able to do that kind of market price product independent.

And again, that's one of those things that is just starting to rollout and we think is going to be a big help and is just one of the many ways that a platform plays out into making things very localized and relevant and good business for us.

Just to follow on Brian, so a couple of things that I think are important to note. I think the way that we've done our proprietary search algorithm it's insanely fast and it also allows us to surface any TLD that is appropriate based on the word breaking that we've done in the search query. So it actually be very advanced word breaking across the search surface ccTLDs on any registry that are appropriate for that particular, that particular search query.

And it's delivered, frankly, a 10% growth rate for us in am industry that's not going up 10%. So we continue to basically double the growth rate. So we are continuing to take share in the TLDs that we play in today. Which are the big ones as well as the dot com and dot net.

Frankly having 20% of the world's domains under management and 61 million domains under management is important. So leadership here is incredibly important to us, and we're going to continue to innovate and put great engineers on these -- great engineers and great UX people on these problems.

And we know that when you own that domains on-ramp, it is the first thing that people, that people do when they have an idea. They go buy a domain and the next thing they do is attach something to it. It's a key driver not just for the domains business but for the rest of our business as well, and you will see us continuing to work there and make really good investments.

Great, very helpful, thank you very much.

Thank you.

There are no further questions on the lines at this time. I will now turn the call back to the presenters.

Everyone this is Blake. I just wanted to thank you all for standing on the phone for -- standing or sitting on the phone for the last hour, hearing our comments and asking questions. We've got a great third quarter, we feel good about it. And we look forward to talking with you next quarter.

This concludes today's conference call. You may now disconnect. [ End of transcript ]