Wix.Com Ltd (WIX) 2024 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Wix Q3 2024 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to Emily Liu, Head of Investor Relations. Please go ahead.

Thanks, and good morning, everyone. Welcome to Wix's third-quarter 2024 earnings call. Joining me today to discuss our results are Avishai Abrahami, CEO and Co-Founder; Nir Zohar, our President and COO; and Lior Shemesh, our CFO.

During this call, we may make forward-looking statements, and these statements are based on current expectations and assumptions. Please consider the risk factors included in our press release and most recent Form 20-F that could cause our actual results to differ materially from these forward-looking statements. We do not undertake any obligation to update these forward-looking statements.

In addition, we will comment on non-GAAP financial results and key operating metrics. You can find all reconciliations between our GAAP and non-GAAP results in the earnings materials and in our Interactive Analyst Center on the Investor Relations section of our website, investors.wix.com.

With that, I'll turn the call over to Avishai.

Thanks, Emily, and good morning, everyone. We are happy to report another consecutive quarter of accelerating growth through focused execution of our key strategic initiatives and improved business fundamentals. We were able to deliver impressive year-over-year bookings growth of 16% in the third quarter. The success we've achieved this year is underpinned by our best-in-class innovation particularly our AI-powered solutions and Wix Studio.

Almost one year ago, we launched our AI website Builder, which is now available in 20 languages and has been a game changer in our user onboarding strategy. Today, more than 50% of new users are choosing to create their online presence through our AI-powered onboarding process. The tool is resonating particularly well with small businesses and entrepreneurs as paid subscriptions originated from this AI-powered onboarding are 50% more likely to have a business vertical attached and significantly more likely to start selling on Wix by streamlining the website building process while offering a powerful and tailored commerce-enablement solution. Our AI technology is providing incredible value for merchants whose priority is getting online efficiently and selling successfully.

All of this is translating into top line benefit. Cash in our most recent self-created cohort showed a 13% uplift in conversion rate from our AI onboarding tool. We anticipate the platform to continue to resonate, resulting in faster and easier website creation. Earlier this year, we spoke about our plan to embed AI assistance across our platform and we're continuing to push that initiative forward. We now have a total of 29 assistants, spanning a wide range of use cases to support users and to service guys throughout their online journeys.

Big AI solutions are streamlining more processes, building stronger relationships between users and their customers and empowering users to make better informed decisions. Although these assistance are still in the early days, we're excited to already see a positive, though modest impact. This includes better conversion and improved care efficiency. I'm proud of the incredible AI technology we've already built and inspired by what's still on the horizon.

We have a number of AI products coming in the next few months that are unlike anything in the market today. These products will transform the way merchants manage their businesses, redefine how users interact with their customers and enhance the content creation experience. Importantly, these will also be the first AI products we plan to monetize directly. We are on the edge of unforeseen innovation, and I'm looking forward to the positive impact it will have on our users.

Moving on to Studio. We are continuing to see exceptional results, which Nir will discuss in more detail shortly. We continue to launch new features to support agencies and designers at every phase of creation, development and management.

In Q3, we rolled out 74 updates within the platform, including new feature introductions and enhancement of existing tools for Studio users. Yesterday, we introduced a visual site map and wire frame generator within the Studio tool kit.

This AI-powered tool enables designers and agencies to quickly draft wire frames and website content for clients, accelerating the conceptualization and iteration process. And we see this as a powerful way to jump start their workflow as well as acquire and collaborate with new clients more efficiently.

It has been an incredibly rewarding journey building our presence and trust with professionals over the past few years. It required meaningful investments in infrastructure, focused engagement with the community and unmatched innovation to not just meet but exceed and anticipate the needs of professional users. All of this has culminated in what you see today with the early success of our Studio platform and strong sustained partners revenue growth over the last couple of years.

While our product road map includes new tools and features for professionals, I am confident that we have the right strategy and core product offering in place to sustain partners momentum in 2025 and beyond. We're incredibly proud of the success of Studio and the partners business trajectory today. Now with significant foundational investments in partners behind us, we are approaching investments in our self-created business with renewed vigor.

As a core pillar of Wix' success and vision, self-creators have always been a strategic focus for us, but is now firmly in the front seat of our overall growth strategy. We are working on a number of incredible initiatives and differentiated products that will completely transform the way sales creators build on the Internet. Much like we did for partners, we are reimagining the way sales creators find success online. I am incredibly excited about what is to come.

This transformative new products, along with continued AI tailwinds and strong business fundamentals will drive more meaningful growth acceleration for self-creators in the coming years. Thank you, as always, to all of our teammates for your dedication to making Wix a best-in-class platform. And thank you to our users for trusting us to help you achieve your goals.

Okay, Nir, over to you.

Thank you, Avishai. I'd like to start with a quick update on our user cohorts. Q3 was another great quarter of accelerating growth and I'd like to break down the business drivers that helped us reach these results.

Starting with our newest cohort, we added nearly 5 million users in Q3. Excitingly, this marks the first time since 2020 that our new cohort has grown in size compared to the cohort of the previous quarter as well as that of the year ago quarter. Notably, we saw this improved quarter over quarter and year over year trend among both organic and acquired users, reflecting moderately improved demand levels and continued strength of the Wix brand.

Importantly, we did not deviate from our focused marketing strategy this quarter. While we capitalize on slightly better top of funnel demand, we still maintained our focus on high-intent users and our TROI guardrails. Additionally, the Q1 '24 user cohort continues to outperform all non-COVID cohorts despite having a smaller user base. This is a testament to the strength of our platform and the value of our offering.

We are seeing continued conversion of users into paid subscriptions at a healthy clip as they build more and more on Wix. ARPS also increased as users continue to purchase higher-priced packages, especially Studio, attach more business solutions and generate compounding GPV.

iWe also continued to benefit from the price increase implemented earlier this year. Our other existing cohorts are also showing strength as we're seeing better-than-expected renewal activity in terms of bookings dollars. Again, this underscores the unmatched value of our platform. The strong cohort behavior illustrates the shift that occurred in our user base over the past couple of years.

As a result of focused marketing and innovation targeting high-intent users, the overall quality of our base is much better compared to that of just two years ago. With this higher quality though slower growing base, we have seen an improvement in business fundamentals. Conversion ARPS and dollar retention have all steadily trended higher over this time frame and we expect this to continue as we onboard more high-intent cohorts.

In both our new and existing cohorts, we're continuing to reap the rewards of our ongoing strategic initiatives, primarily Studio, AI and our commerce offering. This quarter marked one year since the release of Studio which has become the core product for partners to create and manage their projects on Wix.

We're seeing excellent results as this platform increasingly resonates with both new and existing partners. Bookings growth attributable to Studio subscriptions accelerated meaningfully quarter over quarter, highlighting new purchase strength and robust renewal activity. Importantly, Studio is becoming an increasingly more meaningful driver of bookings.

In Q3, 75% of bookings from new partners were driven from Studio accounts. This is an increase compared to previous quarters as more and larger agencies build on Studio.

These excellent results of our cornerstone professional offering as well as successful execution of our broader partner strategy resulted in partners' revenue growth accelerating to 30% year-over-year. Additionally, as Avishai explained, both new and existing cohorts are benefiting from our comprehensive AI capabilities.

The numerous products launched over the last two years has shown significant impacts on our cohorts, especially self-creators. Our AI-powered onboarding process, which includes the AI Website Builder, has enabled users to build the websites of their dreams more efficiently than ever before, resulting in better conversion as Avishai discussed.

We anticipate the AI Website Builder along with our suite of AI-powered tools will be a meaningful driver of self-creator growth in the coming years. Finally, we continue to see healthy growth of our commerce platform.

In the third quarter, GPV growth accelerated to 14% year-over-year and increased quarter-over-quarter. This unseasonably strong GPV was driven by continued execution of our commerce initiatives, including driving adoption of new verticals and commerce products, onboarding larger merchants and enabling the success of existing Wix merchants.

GPV outperformance, coupled with strong take rate drove transaction revenue growth to accelerate to 23% year-over-year. Payoff from these key strategic initiatives and strong cohort fundamentals will continue to be the building blocks of growth in years to come.

With that, I will now hand it over to Lior to walk through our financials and outlook. Lior?

Thanks, Nir. Our continued focus in delivering the best-in-class products, particularly innovations within our AI suite and Studio platform as well as solid business fundamentals resulted in accelerated growth this quarter.

With Rule of 40 now well within reach this year, I'm even more excited about the growth opportunities and continued momentum expected in 2025 and beyond. I will share more about our updated full-year outlook and general thinking around our go-forward financial algorithm shortly.

First, turning to results. In the third quarter, Bookings grew to $450 million or 16% growth year-over-year. This marks our third consecutive quarter of bookings growth acceleration driven by increased Studio adoption, early tailwinds from our AI offering and stronger-than-expected commerce growth. Additionally, we witnessed better-than-expected renewal bookings from our high-intent users, higher trending ARPS and solid conversion.

Q3 revenue growth also accelerated, finishing at $445 million, up 13% year over year. Total revenue was driven by accelerating growth across both sales creators and partners businesses. Partners growth accelerated to 30% year over year this quarter, finishing at $155 million.

Growth was primarily driven by ramping Studio contribution as new agencies adopted the platform and partners already on Studio renewed and increasingly built more projects. As a result, bookings attributable to Studio subscriptions accelerated sequentially this quarter with 75% of bookings from new partners deriving from Studio accounts.

We also saw early benefits from Studio templates which boosted utilization and subscription purchases, we expect Studio strength to continue to translate into partners' momentum and greater lifetime value. Our self-creators business saw a second consecutive quarter of revenue acceleration.

Momentum in the business is growing as expected, driven by the AI tailwinds Avishai mentioned earlier, strong cohort behavior with better-than-anticipated absorption of the earlier implemented price increase and slowly encouraging demand trends also contributed to this quarter's growth. We expect self-creators revenue to continue to pick up momentum through the next couple of years. Growth will be driven by the transformative product initiatives we're working on now.

More meaningful benefits from AI as key offerings, mature and adoption ramps and our reinvigorated strategic focus on this business now that our foundational partners investments are complete. Importantly, we anticipate self-creators growth to accelerate while the robust profitability profile of this business continues to improve.

Growth across self-creators and partners was underpinned by the strong commerce performance you heard about from Nir. Better GPV growth, coupled with a stable sequential take rate resulted in transaction revenue growth accelerating to 23% year over year, finishing at $54 million. Notably, partners contributed to more than 50% of GPV in the third quarter.

While growth continued to ramp across our business, margins also improved. Total non-GAAP gross margin in Q3 was 69%, up slightly compared to the previous quarter. This was a result of better non-GAAP Business Solutions gross margin driven by improving payments, gross margin, and strength in our higher-margin business applications.

We now anticipate non-GAAP gross margin of approximately 69% for the full year, up from 68% to 69% previously. Non-GAAP operating costs increased slightly quarter-over-quarter primarily due to a planned step-up in sales and marketing expenses.

Higher spend was largely around branding activities related to Studio and, to a lesser extent, greater acquisition spend in response to the slowly encouraging demand trends we saw as we progressed through the quarter.

Outside of this particular sales and marketing buckets our operating expense base was stable compared to the previous quarter. Non-GAAP operating margin remained strong at 20% of revenue. Q3 free cash flow totaled $128 million or 29% of revenue due to continued strong top line growth and an efficient operating cost base. These results allowed us to surpass the Rule of 40 this quarter the first time since early 2021. Now let's turn to expectations as we exit 2024 and my thoughts gearing up for 2025 and beyond.

For the full year, we are increasing the outlook in our bookings, revenue and free cash flow to reflect impressive year-to-date performance. Importantly, we expect accelerating momentum across both self-creators and partners as well as contribution from growth initiatives and strong business fundamentals to continue through the rest of the year.

We now expect total bookings for the full year to be $1,822 to $1,832 million or 14% to 15% year-over-year growth. This is an increase from the 13% to 14% growth we had previously anticipated. This new outlook now reflects 2H bookings growth, accelerating to 17% year-over-year at the high end of expectations, up from the 16% previously anticipated.

This also indicates an impressive exit rate of 18% for the year. For full-year revenue, we are revising outlook upwards to $1,757 million to $1,764 million, or 13% year-over-year growth. On the cost side, we expect non-GAAP total gross margin of approximately 69% for the full year and non-GAAP operating expenses to be 49% of revenue, a slight improvement from our previous guidance of 50%.

As a result of these increased growth expectations and anticipated stable operating costs, we now expect to generate free cash flow, excluding headquarter cost of $483 million to $488 million or approximately 28% of revenue. This is an increase from the $460 million to $470 million or 26% to 27% of revenue previously expected.

Finally, we anticipate ending 2024 with approximately 63 million of fully diluted shares. Stronger cash flow generation in conjunction with this share count expectation translates to a higher free cash flow per share trajectory for the full year than previously anticipated. The high end of our increased expectations puts us on track to exceed the Rule of 40 for the full year.

This is a target that has guided us for the past few years as we balance growth and profitability at Wix. Achieving this milestone 1 year earlier than anticipated showcases the tremendous efforts of our team and successful execution of our lofty growth initiatives without sacrificing margin.

However, we are not laying off the gas. We remain committed to continuing to make progress over and above this milestone. I believe there is still much room for further growth acceleration and ample margin expansion in 2025 and beyond.

The sustained bookings acceleration we've seen this year, along with ramping tailwinds from Studio AI and our expanding commerce platform are expected to directly translate into revenue growth in 2025. We also anticipate to continue to benefit from improving business fundamentals and the higher quality user base we've built over the past few years.

Additionally, soon-to-come AI tools as well as the transformative product initiatives we are currently working on for self-creators are expected to create incremental layers of growth in the outer years. Importantly, we have the right employee base and cost structure currently in place to support a variety of growth scenarios.

As a result, we expect to continue to maintain a stable operating cost trajectory even as we sustained growth momentum in the coming years, allowing incremental top-line dollars to flow directly to the bottom line and margins to continue to expand healthily. There is a lot to be excited about, and I look forward to sharing more details in a few months.

Operator, we are now ready for questions.

(Operator Instructions) Our first question will be coming from Trevor Young of Barclays.

Great. Thanks. First question, just on free cash flow margin. Can you remind us where we are in terms of margin mix between self-creator and partner? Is self-creator holding steady in the mid-30s percent implying partners in high-teens territory? And then second question, keying in on your comments on investing a bit more in self-creator for better growth in the coming years.

Lior if I heard you correctly, you expect to continue margin expansion in self-creator while also investing for that growth. Can you just expand upon that a little bit? And what areas of investment should we expect?

So with regard to the free cash flow margin, we do not provide the breakdown between partners and self-creators. But what I can tell you, obviously, at this point of time, self-creators is super profitable in terms of free cash flow. And partners just getting better and better. I believe that long term, you should expect partners in terms of profitability actually to be higher than self-creators. But the fact is that we are almost at 30% free cash flow for the entire business.

I believe indicates to you that self-creators is more than 30% already. With regard to the investment that we are planning for the self-creators. Look, at the end of the day, self-creator is a combination, I believe that there will be a better demand next year, but also more new products and Avishai spoke about it.

I believe that the combination between demand and innovation for next year, certainly would drive higher growth for self-creators. We feel very, very excited about it. With regard to the expansion -- yes, with regard to the margin expansion. So definitely margin expansion, you should expect to have more expansion of our margin next year.

Great. Thank you.

Ygal Arounian.

Hey. Good morning, good afternoon, guys. Maybe just to start with Studio. And can you frame at this point and how much contribution you're getting from Studio in terms of overall bookings and revenue? And with the share gain you're seeing in a lot of the news recently around WordPress and what's going on there. Have you seen any impact from that? Is that an opportunity for you guys? Let me just start with that and then a follow-up.

So I will start with the revenue and the contribution of product revenue. And I believe that Avishai will continue to the next one. We mentioned 75% of new partners bookings is a Studio. Meaning that Studio already has become a significant portion of our revenue and bookings. And we feel very excited about it.

Obviously, we see the acceleration of it since we see more and more agencies joining Studio and using Studio, but we also see existing agencies building more and more websites on Wix, the second, the third and the fourth. So we feel very good about it.

As for WordPress and Automattic, I think that the conflict they have there and a lot of other historical things are obviously contributing to the fact that the level of trust and innovation continues to reduce. And over the years, mostly, we've seen the trend of, of course, agencies moving to different platforms. So we are benefiting from that.

We do see a positive TOF trend this quarter. But I think that overall, the trend of what is losing market share is something that we've seen historically for quite some time. And we hope for them that they actually managed to solve the conflict and start focusing again on delivering value.

Okay. That's helpful. Thanks. And then just on the exit rate and 18% bookings growth and the acceleration we're seeing, if you look at the numbers, the 4Q comp from last year, it's a little bit easier. I know we're not going to get guidance right now for next year.

But just as we think about the trajectory of that of what you're seeing here as we flow through into next year. Any commentary to help us think through how that continues and what that means for the revenue growth acceleration? Thanks.

So definitely the 18% exit rate will translate into revenue for next year. We are very excited about it because when you look at the third quarter compared to the second quarter, the entire acceleration of the growth is due to product, due to increase in conversion, due to increasing demand. So those are things that, obviously, we believe that will continue into next year and will drive further growth. As you know, as for revenue, obviously, there is an impact in the following year usually after we see the increase in bookings.

Okay. Thank you, guys. Great quarter.

Andrew Boone, JMP Securities.

Thanks so much for taking my questions. Marketing step up a little bit sequentially in terms of this last quarter, can you guys talk about the marketing efficiencies that you guys think you can sustain in terms of 4Q and into 2025? And then you talked about adoption of new verticals and commerce products earlier as we think about transaction revenue. Can you impact the success that you're seeing with Commerce products over the last quarter? Thanks so much.

Hey. It's Nir. I'm going to start with the marketing step-up. So you have to remember the marketing step-up is actually directly connected to an increase in demand and a stronger top of funnel behavior that we've seen which allows us, by the way, to expand and extend the acquisition marketing while maintaining the same TROI guardrails that you always have. So from that standpoint, it really depends on the top of the funnel behavior. I can say that at least for now, we're seeing, I would say, similar trends in Q4 to what we've seen in Q3.

And I think beyond that, it's too early to call, obviously, what's going to happen in 2025. So I think that's from the standpoint of marketing, and it all goes down the same strategic path in terms of how we do marketing that we enacted two years ago and has been extremely successful. Can you repeat the second question for a second?

In the prepared comments, you guys talked about the adoption of new verticals and commerce products. As we think about transaction revenue. I'd love for you just to unpack which you guys are seeing with Commerce products more broadly.

So we don't do the -- we don't break and separate. I would want to point out that one of the strengths that we have here at Wix is the fact that our commerce is a horizontal offering. So it's not only around stores. It's also called combination of selling events and ticket for events, invoicing, scheduling and selling time. So it's a very wide array of different commerce offerings, which allows us, obviously, more balance and deeper penetration.

I can say, by the way, that a big contribution to this is the partner segment as it is growing naturally even faster in terms of contribution to commerce, than the self-creators, and this is something we are very happy about.

Thank you.

Ken Wong, Oppenheimer & Company.

Great. Thank you for taking my question. I just wanted to just touch on the bookings acceleration. What changed between Q2 and Q3 that gave you the confidence to raise that exit rate to 18%? Would you characterize it as more of a partner dynamic, self-creator because it does feel like something flip from 90 days ago?

Ken, yeah. See, it's a combination of many, many things. I will try to explain because obviously, there is an acceleration between the second and the third quarter. And we do see this acceleration continue into the fourth quarter and this is what gives us the -- we feel very comfortable about raising the guidance. We did mention that Studio subscription bookings growth is accelerating compared to the second quarter.

We did mention the 75% of booking of new partners coming from Studio. We obviously see this trend continue into the fourth quarter and actually getting better and better. Think about it this way. As agencies build more and more websites on Wix, even existing agencies, it just increased the growth on a quarter-over-quarter basis. So we feel very, very happy about it because it means that the adoption of Studio is just getting better.

We do see strong retention of Studio partners. We spoke about it a little bit, but they are very, very happy with Studio. They are very, very happy with the performance, and it has a positive impact on retention of those partners. We do see the benefit of AI, especially around self-creators to talk about partners, but we do see this progress also on self-creators. We see the impact of AI.

We see the impact of conversion. Remember that conversion is always has an impact on the existing court. So obviously, when you come and go into the next quarters, we see that the increase of growth is actually getting better also on the existing core or the impact of the exiting core getting better and better.

We do see improvement in top of funnel, Nir mentioned that, and we see that continue into the fourth quarter. So all of those signs including the acceleration of the commerce growth makes us feel very comfortable about raising the guidance for the full year, but we do see the acceleration also in the fourth quarter.

Okay. Fantastic. I appreciate the detailed answer there. And then just second, quickly on directly monetizing AI. Is this an area that will focus primarily on agency partners? Is this an area where you think you can extract monetization from self-creators? And any color on where you might be able to capture incremental dollars with AI?

Well, so -- we are launching a few products that we're going to monetize next year in relation to AI. The value, I think, is generated both to agencies and self-creators. So you're going to see that affects both of them.

Some of the products are directly related to how people -- the self-creators or the customers of the agency manage the business on how they communicate with their customers. So we think that, that is a value that agency will have to offer to their customers. And of course, we would love to offer to self-creators. So I believe it will affect both.

Okay, perfect. Thank you, guys.

Elizabeth Porter, Morgan Stanley.

Great. Thank you so much. I wanted to follow up on the self-creators and your ability to just hone in on this segment to improve growth, particularly with AI over the next couple of years. I was wondering if you could double-click on any early views we could expect on the types of innovations in AI we could see -- it's also encouraging to see some of the improvement in self-creators growth already. So just as you execute to some of your goals on this business, where do you think self-creators could ultimately know after being in the 5%-ish range for the last couple of years?

The last part is hard to predict because it's influenced by so many different things, including, of course, the economy, but the growth rate. But I do think that there's a lot of innovation that we are coming with for self-creators, the innovation, influence, I think both sides of the equation, our ability to acquire new self-creators and the ability to help them finish website that are very happy with.

In addition, we also look at some of our technology as a way to attract new people to Wix to do new self-creator things that before they couldn't. So that's how we increased, of course, our ability to grow the number of self-creators.

But on the other hand, we also have a few products that we are about to release AI products that actually will be monetized, meaning that we believe we can see better revenues also coming from self-creators by giving them new functionality.

Great. And then just as a follow-up, it sounds like the top of funnel is doing better with also benefits from organic search. Is that just better macro? Is there something that you're doing differently as it relates to marketing or strategic relationships or any factors to call out that may be driving that improvement in organic growth in top of funnel, particularly in the quarter?

Well, we do see some small changes in the macro improvements. So this is something that I think is very good news for everybody. But we also, as we mentioned, did a lot to improve conversion on Wix. And so I think that is the other contributor. And then we mentioned 13% improvement of conversion for free to paying users on the new cohort.

So we do see that AI influenced there. In the next year, we, of course, hope to see that continue with new products that we're releasing and a lot of improvements.

Thank you.

Bernie McTernan, Needham & Company.

Great. Thanks for taking the questions. Just -- so guidance for revenue growth this year is about 12%. Would love to just get some color in terms of how much of this growth is driven by the price increase? And then as you speak to -- as you spoke to new products coming to the market with discrete revenue tied to it, how should we think about the potential benefit of that next year? Thank you.

Hey, Bernie, so price increase it has a positive impact on revenue. We do not break down. I think that revenue growth, by the way, also booking it's a combination of not just the price increase, but also the innovation of new products and mostly coming from Studio. Remember that most of the increase that we've seen in Studio, it was all incremental to our model and this is why it has a significant impact. Actually, partners has no impact on the revenue growth and booking growth than the price increase.

And this is something that we should expect to happen also next year. With regard to the new product that we mentioned about -- that we are going to launch next year, it's really hard to tell what will be the impact. But you can assume that if we didn't think that it should be significant we wouldn't do it. We believe that the combination of innovation and also the improvement in demand for next year will drive further growth in the next few years, especially with regard to the self-creators that we do intend to invest.

Understood. Thank you.

Robert Coolbrith, Evercore ISI.

Great. Thank you for taking our questions. On Partners, you called out larger agencies as a driver. I wanted to ask if there's been any inflection in your engagement with large agencies either in terms of the number of partners or your ability to increase project penetration rate with those large agency partners. Any key unlocks there? And I have a follow-up as well. Thank you.

So obviously, we don't break specific numbers here. I would give some more color saying that we already have a number of very large agencies using Wix. And much like other agencies, we continue to pursue and win more of those just by marketing to them, building the Studio brand, doing education sessions and then working with them on product and getting more and more exposure.

Our belief is that we will continue expanding in that specific section of the market next year. We also do believe that some of our innovation that Avishai alluded to before, will be a contributor to our ability to gain even more ground there in 2025 and beyond.

Great. Thanks. And we also wanted to ask on business solutions bookings. It looks like you maybe saw a bit more seasonality in Q3. Any changes to attach rates or any other factors to call out there? Thank you.

No. So no change. I think that the change that you see compared to the second quarter was mostly around the Google Workspace, mostly coming from incentive that we are getting from them not every quarter. We did mention that in the second quarter, and we do believe that it will be repeated also next year.

But when you look at the transaction revenue, it actually accelerated on a quarter-to-quarter basis. So it's mostly noises around the Google Workspace, nothing really special that was indicating.

Got it. Thank you so much.

Clarke Jeffries, Piper Sandler.

Hello. Thank you for taking the question. I wanted to follow back up on the monetization of AI products. It sounds like some of the monetization that's coming down the pipe is going to be maybe beyond the scope of the web building environment, managing the business and communicating with customers. And so -- and a lot of the commentary seems that today, AI Website Builder is helping on conversion.

I wanted to ask about specifically, is there an opportunity to directly monetize the AI products within the core website design funnel? And specifically, within the lower end of that market and maybe that the higher intent and more complex users of the market?

And then as a follow-up, Lior, just in terms of free cash flow margin progression from here, would you say that the comfort level and being able to make incremental investments come with the confidence in the free cash flow progression happening in both self-creators and in partners trying to understand a couple of years of significant free cash flow margin progress and how to think about 2025?

As for the first question, if I understand correctly, first of all, your observation is correct, which is saying that a lot of what we do is monetization beyond the website building and actually in the line -- in the later part of the life cycle of the website. So that is true. As for interim way to monetize AI website building, during the -- you mean during the building process itself. Was that the meaning of the question? Or you mentioned?

You put the shareholder letter, a lot of the testing you're doing is helping on converge. And so that to me means you're helping on the conversion of the lower end or the mid part of the market. I'm trying to think about ARPU benefit to the core website business as a result of AI.

Well, yeah, of course. So I think that the way we monetize, of course, during the buildup phase of the website, is by making it easier. And our customers are happy with their websites, of course, we convert better. So I don't think there is any better way to monetize than that, right? The more users finish the website, the better the website, the higher conversion and the high monetization.

The rest of it, of course, is what happened later on. And there, we believe there is a lot of opportunity to take that second part of the life cycle of building the website and to monetize that, and we are now building the product to capture that part.

With regard to the margin progression, let's first understand why we believe that margin will improve actually next year, and what are the reasons for that. We do believe that the cost structure right now of the company is enough to generate more growth in the next couple of years. It means that the fixed cost more or less remain the same.

We are going to see increase in cost, but it would be less than the increase in top line. It means that we are going to see more leverage from our cost structure also next year. So with regard to the question between partners and self-creators, so the more the gap between the growth and the cost structure, so there you see more increase in or more leverage.

So by definition, the leverage in part of the next year are going to be higher than self-creators. But remember that we are going to see leverage in both cases in partners going to be actually higher. So this is why we believe that we are going to see further leverage for our margins also next year.

Thank you very much.

And this concludes today's conference call. I thank you all for participating. You may now disconnect.