IONOS Group SE

XETRA:IOS

Earnings Call Analysis

IONOS Reports Strong Q3 Growth and Reaffirms Full-Year Guidance

IONOS achieved a notable 11.4% revenue growth in Q3 2024, totaling EUR 390 million, driven mainly by an 11.6% rise in its core Web Presence & Productivity segment. The company added 170,000 customers year-to-date, bringing the total to 6.3 million. Cloud Solutions saw solid growth, with year-over-year revenues up 7.6%. Adjusted EBITDA stood at EUR 116.4 million for Q3, maintaining an adjusted margin of 29.9%. For the full year, IONOS expects revenue growth of about 9% and aims for an adjusted EBITDA margin of around 29%, projecting EUR 450 million in adjusted EBITDA. The aftermarket segment is forecasted to recover further, aligning with 2023 levels.

Strong Year-to-Date Performance

IONOS has reported solid performance for the first nine months of 2024, achieving total revenues of EUR 1.1416 billion, representing a year-over-year growth of 7.8%. When excluding the aftermarket segment, the revenue growth rate increases to 11.3%. This positive momentum is largely driven by the company's strong Web Presence & Productivity and Cloud Solutions sectors, where continued investment in customer engagement is prominent.

Core Business Resilience

The Web Presence & Productivity business, excluding the aftermarket, remains the cornerstone of IONOS, contributing approximately 69% of total revenues and growing by over 11% year-over-year. This segment operates with high margins (in the high 30s) and substantial cash flow, underscoring its robust business model. Moreover, the average revenue per user (ARPU) increased to EUR 15.80, highlighting successful cross-sell and up-sell strategies.

Cloud Solutions Growth Modelling

For the Cloud Solutions division, revenues are projected to grow by 13% for 2024, a slight moderation from earlier forecasts of 15%-17%. Despite this, the division has seen some underlying strength, particularly with the successful bid to serve the German federal government. The business reported 7.6% revenue growth in Q3 alone and total revenue of EUR 122.2 million for the first nine months, which indicates ongoing market traction.

Aftermarket Segment Recovery

The aftermarket business, traditionally more volatile and lower-margin, demonstrated resilience with an 11.5% revenue increase in Q3. While the year-to-date revenue has faced declines, outcomes from new initiatives point toward a sustainable recovery going forward. IONOS anticipates that full-year aftermarket revenue will align with last year's totals, showing adaptability amidst market transitions.

Managing Costs and Margins

Despite slight decreases in adjusted EBITDA margins, IONOS reaffirmed its commitment to maintain a margin of around 29% for 2024, up from 27.4% in 2023. This forecast indicates anticipated operational improvements and margin expansion opportunities, facilitated by higher gross margins resulting from economies of scale and an improved product mix.

Strategic Focus on Capital Expenditure

Capital expenditures for the year are now expected to be between EUR 80 million to EUR 90 million, slightly below prior estimates, reflecting efficiency gains within maintenance and growth CapEx. The company continues to prioritize investments that align with its future revenue growth strategies while maintaining financial prudence.

Balancing Price Adjustments and Customer Retention

Customer churn increased to about 14%, attributed mainly to recent price adjustments rather than broader economic pressures. IONOS's pricing strategy aims at maintaining a balance between competitive positioning and revenue growth, projecting that price increases will be an ongoing component of their revenue strategy, ideally sourced from one-third price hikes, one-third upselling, and one-third new customer acquisition.

Outlook and Future Considerations

Looking ahead, IONOS expresses optimism regarding its ability to achieve approximately 9% currency-adjusted revenue growth for 2024, with targeted growth rates of 11%-12% in the core Web Presence & Productivity business (excluding aftermarket). The company anticipates further normalized churn rates and steady customer additions as it stabilizes its pricing adjustments. As a result, the strategic positioning for continued expansion and resilience against market challenges remains strong.

Earnings Call Transcript 2024-Q3

[Stephan Gramkow, executive]

Hello and good morning, everyone. Welcome to the IONOS analyst and investor call for our Q3 2024 results. Thank you all for joining us today.

Britta Schmidt, CFO of IONOS, will guide you through the operational developments of the business over the first 9 months of 2024 and share the financial details for the third quarter. We will also look at our guidance and expectations for each business area going forward. Afterward, Britta will be available to answer any questions.

Let's get started. Britta, over to you.

[Britta Schmidt, executive]

Thank you very much, Stephan. Good morning, ladies and gentlemen, and welcome to our Q3 2024 Webcast.

I'm Britta Schmidt, CFO of IONOS. And it's a pleasure to have you with us today as we dive into the performance of the first 9 months and operational trends.

As a reminder: IONOS stands as the leading digitalization partner for European SMBs and a trusted cloud enabler.

First, as you can see on the slide, at the foundation of our business is our Web Presence & Productivity business, excluding aftermarket which is our largest pillar, generating EUR 667 million (sic) [ EUR 767 million ] or about 69% of our total revenues in the first 9 months of '24. This business continues to show remarkable resilience and steady growth supported by strong underlying margins and outstanding cash conversion. Through a subscription-based revenue model, we meet the full range of digitalization needs for SMBs, including solopreneurs. We lead the market in Europe and maintain a strong footprint in North America as well.

Next, we have our Cloud Solutions business, representing around 11% of total revenues for the first 9 months. IONOS is gaining traction as a trusted cloud partner for small and medium-sized businesses. A milestone this year was winning the German federal government as a customer, underscoring our progress and reputation in this sector. This business is actively managed on a self-sustaining basis, which means it operates sustainably, with profits being reinvested into growth and buildup.

Finally, our aftermarket business, focused on buying, selling and parking of domains, accounts for roughly 20% of revenues in the first 9 months. This comparably lower-margin business rebounded from early year softness, achieving significant year-over-year growth in the third quarter of 2024. We'll explore this in a more detail shortly.

Let's now review our overall performance for the first 9 months of 2024. We achieved a revenue increase of 7.8% driven by effective cross- and up-selling, the ability to adjust prices as well as winning new customers. The IONOS platform model combined with substantial economies of scale and solid growth has enabled us to maintain high profitability levels. As a result, our adjusted EBITDA margin stands at a robust 29.3%.

Our customer base grew by 170,000 compared to the same period in 2023, bringing us to 6.3 million customers. Despite challenging economic conditions and general macroeconomic uncertainties, the IONOS business model has proven extremely resilient and predictable. Our mission-critical products, supported by the dedicated efforts of our personal consultants, have helped us to build and sustain a loyal, stable customer base. Additionally, we have been able to increase our ARPU, the average revenue per customer, by approximately 8.5% year-over-year.

[Audio Gap]

look at our operational performance and key drivers, as shown on Page 6. Looking at our customer growth: We've consistently expanded our base over the recent years. In the third quarter, we added 20,000 customers, which is slightly lower than the previous year. This was largely influenced by several major events, including the European elections, U.S. elections and the European football championships, over the summer months. In response, we adjusted our brand marketing campaign to emphasize the second and third quarters. However, it's important to note that brand marketing investments often take time to impact customer growth directly. Nevertheless, we saw an uptick in customer growth in September, with continued strong growth in October, positioning us for stronger customer acquisition in Q4 compared to prior quarters.

Our pricing approach remains balanced and strategic, aiming to attract new customers, maintain competitive positioning, enhance customer satisfaction and minimize churn. The economic environment has given us some flexibility in our pricing strategy, enabling us to explore modest adjustments. Our strong brand presence and the critical role our products play in the customer's digital transformation journeys have cultivated high customer loyalty, which has in turn led to greater acceptance of price adjustments, strengthening our pricing power. In Q3 last year, we began a careful phased refinement of our pricing model. This gradual process is guided by clear principles aimed at preserving customer satisfaction and keeping impact on churn now. While this adjustment temporarily increased churn slightly, we expect churn to normalize to previous levels as the new pricing structure stabilizes. Over the last 12 months, our annual churn rate was approximately 14%, which is in line with our expectations.

Our new pricing structure, with -- which applies to both new and existing web presence and productivity customers, is designed with a long-term perspective. For existing customers, price adjustments have taken effect upon contract renewal, resulting in a phased revenue impact. With the start of price adjustments in the third quarter of 2023, all existing customers have now also received corresponding price increases over the 12 following months. Meanwhile, we've successfully increased the average monthly revenue per customer or ARPU to EUR 15.80 in Q3, supported by our enhanced cross- and up-selling strategies. This growth highlights our ability to deliver value and deepen customer engagement through innovative product offerings. The expansion of our cloud solution business has also contributed to ARPU growth given that average ARPUs in cloud are generally higher. Looking ahead, we expect solid customer growth in Q4 as well as continued increase in ARPU.

Let's take a look at -- a closer look at our various business areas. Our high-margin core Web Presence & Productivity business excluding aftermarket achieved impressive growth of 12.3% year-over-year in the third quarter and 11.7% year-over-year for the first 9 months. This strong performance is driven by sustained customer growth, the successful increase in ARPU through cross- and up-selling and the gradual impact of our new pricing structures. This business area delivers exceptionally high margins in the high 30s paired with substantial cash flow and steady growth rates in the high single to low double digits.

Our Cloud Solutions business, the smallest segment within our group, as said, operates on a self-sustaining EBITDA basis and experienced 7.6% revenue growth in Q3 2024. We remain confident in the continued expansion of this business and are optimistic about the future opportunities it offers. Looking forward, we are focused on enhancing our product portfolio and services to strengthen our position as a competitive player in the market. For the first 9 months of '24, Cloud Solutions revenue reached EUR 122.2 million, marking an 11% year-over-year increase.

Looking a bit deeper into Cloud Solutions and its composition. The business is made up of public cloud, private cloud and managed services. Looking at the individual growth rates: The area of public cloud, under the IONOS Cloud brand, is growing the strongest, still slightly behind our expectations. This was also partially influenced by price reductions for entry products to facilitate stronger product adoption and thus indirectly investing in growth in a rapidly expanding market. Digital sovereignty is getting more and more important, yet demand is somewhat lagging behind in our target customer audience. However, we expect revenue growth in public cloud to accelerate in Q4 with the first-time contribution from the ITZBund contract. The managed services business, with lower market growth, is additionally seeing lower-than-expected growth rates, as we decided to adjust the product portfolio, certain products phasing out, with full focus now on helping our customers to adopt our cloud solutions.

Our aftermarket business has experienced strong growth in the recent years. Through various initiatives, especially in domain parking, such as optimizing parking pages, improving traffic quality and the integrating of professional partners, we have elevated revenue to a new level. As discussed in our previous webcast, revenue growth in the first half of '24 was below expectation [ entirely ] due to temporary effects in connection with the launch of the new RSOC product from Google. RSOC stands for related search on content -- as the market is currently in a transformative process.

We are pleased to report that the recovery trend we observed at the end of H1 continued into the third quarter. Revenue grew 11.5% year-over-year in Q3, narrowing our year-to-date revenue decline to minus 4.6%. Although this business will continue to be more volatile than the rest of the business, we expect this positive trend to continue and anticipate that full year revenues will be in line with last year. From a profitability perspective, the aftermarket business operates at lower margin than our other segments, with a trailing 12 months average EBITDA margin of around 14%. This margin was slightly lower at the end of Q3 compared to 15% in H1, mainly due to some increase in payouts to domain owners as part of the RSOC product transition.

As a result, the lower revenue levels in aftermarket have impacted our EBITDA by approximately EUR 10 million compared to the previous year, affecting our overall EBITDA performance. However, in line with our full year 2024 guidance, we expect to offset this impact and uphold our profitability forecasts, in fact slightly increasing our margin compared to our initial guidance.

Combined statement. We are on the right track with aftermarket business showing significant recovery and the strong performance of our Web Presence & Productivity and Cloud Solutions businesses in the third quarter. Total revenues in Q3 2024 reached EUR 390 million, reflecting 11.4% year-on-year growth. Our core business Web Presence & Productivity, excluding aftermarket; and Cloud Solutions posted solid 11.6% to the -- compared to the previous year.

Adjusted EBITDA for Q3 '24 came in at EUR 116.4 million, with an adjusted EBITDA margin of 29.9% slightly down from Q3 2023. This slight decrease was primarily due to different phasing of marketing expenses and the temporary higher costs in connection with the changing license model, which we are mitigating by product migration as far as sensible.

As noted before, major events like the European football championship and the Olympics led to a different distribution of marketing spend this year, with more emphasis on the middle quarters. This resulted in EUR 2.8 million higher marketing expenses in Q3 this year compared to Q3 last year, primarily dedicated to brand building. To reiterate: Brand marketing investments do not have an immediate impact on customer growth but are expected to yield results over the medium to long term. If we adjust for the additional EUR 2.8 million in marketing spend, our adjusted EBITDA margin would have been 13.6% (sic) [ 30.6% ].

If we see the combined results for the first 9 months. Total revenue for the first 9 months reached EUR 1.1416 billion, reflecting a year-over-year growth of 7.8%. Excluding aftermarket, revenue growth was 11.3%. Adjusted EBITDA for the first 9 months was EUR 334.5 million. When adjusting for the shift in marketing expenses compared to the first 9 months of '23, adjusted EBITDA increases to EUR 346.1 million. This gives us an adjusted EBITDA margin of 29.3%, or a like-for-like 33.3% (sic) [ 30.3% ] when accounting for the different timing of the marketing spend.

As mentioned, we are still working on the mitigation of temporarily higher licensing cost which is negatively impacting our cost of goods sold and therefore EBITDA. The like-for-like increase in margin, despite all offsetting effects, of 1.4 percentage points is largely due to higher gross margins driven by an improved product mix and the realization of economies of scale, showing the strong operational leverage in the business.

To Page 13, let's focus on capital expenditure. Our maintenance CapEx requirements are highly predictable, thanks to favorable server economics, economies of scale and our advanced technological platform. This stability allows us to efficiently manage and plan for ongoing maintenance and upgrades, ensuring reliable service for our customers. Growth CapEx is directly tied to our future revenue and customer growth potential, particularly in Cloud Solutions and AI, providing a clear path to return on investment.

In the first 9 months of '24, total CapEx represented 4.9% of total revenue, consistent with last year. Maintenance CapEx was 1.1% of revenue, while growth CapEx was EUR 43.4 million or 3.8% of revenue. Although maintenance investment appears low, we are benefiting from efficiency gains, including a onetime effect from platform consolidation, due to improved packing density of the servers utilized. For the full year, we expect total CapEx between EUR 80 million to EUR 90 million or around 5% to 6% of revenue, slightly below the EUR 100 million previously anticipated. By maintaining a balanced CapEx strategy, we remain well positioned to capitalize on growth opportunities, enhance our capabilities and drive sustainable profitable revenue growth.

Our leverage and debt position is summarized on the next page. At the end of September 2024, we successfully reduced our net debt to EUR 917 million. Our debt comprises an external bank loan and the shareholder loan from United Internet. As you might remember, in December last year, we partially refinanced the shareholder loan with an external bank loan. This strategic move allowed us to secure more favorable terms and reduce our overall interest expenses. Fixed annual interest rate is at 5.16%. And our leverage ratio improved to approximately 2.2x net debt-to-LTM adjusted EBITDA.

By maintaining a disciplined approach to debt management and leveraging favorable refinancing opportunities, we are well positioned to further reduce our leverage and strengthen our financial stability. This strategy supports our commitment to sustainable growth and delivering value to stakeholders and shareholders. By focusing on reducing net debt and managing leverage, we aim to enhance our financial flexibility and support our long-term growth objectives.

On Page 15, you can see the reconciliation from adjusted EBITDA to free cash flow. For the first 9 months of 2024, adjusted EBITDA stands at EUR 334 million. We subtract adjustment totaling EUR 14 million, primarily stand-alone costs and expenses related to the long-term incentive program, arriving at the reported EBITDA. Next, we deduct EUR 56 million in CapEx and EUR 31 million in tax payments. Tax payments were slightly lower due to phasing of payments, which we expect to balance out going forward. We also add back EUR 5 million for the long-term incentive program, as this is a noncash item. Working capital was slightly negative at EUR 7 million, which again we anticipate will level out by the year-end.

This results in a free cash flow, before leasing, of EUR 230 million. After accounting for EUR 11 million in leasing costs, free cash flow after leasing is EUR 219 million. It was worth noting that last year's figure included a nearly EUR 14 million payout for the long-term incentive program, which we have settled with treasury shares this year. After considering EUR 38 million in interest payments, comparatively low due to the semiannual schedule of our bank loan interest payments, with the first payment in Q3; and a EUR 22 million share buyback as of June, dedicated to fully serve -- dedicated fully to serve the long-term incentive programs, our comparable free cash flow for the first 9 months of 2024 stands at approximately EUR 158 million. This compares to around EUR 104 million for the same period in last year.

[Audio Gap]

business is performing as expected. We continue to drive effective up- and cross-selling with existing customers. Brand perception is steadily rising. And we are enthusiastic about launching product enhancements and new AI offerings such as the AI Model Hub introduced in recent periods. Additionally, the new pricing structures in Web Presence & Productivity introduced in Q3 last year have now fully rolled out across our customer base, reinforcing our confidence in our financial outlook.

With a strong recovery in the aftermarket business, we are reaffirming our 2024 outlook for currency-adjusted revenue growth of 9%. For the Web Presence & Productivity business excluding aftermarket, we are targeting a growth rate of around 11% to 12%, reflecting the robust performance of this core area. As earlier noted, we expect aftermarket revenue to recover further and to reach last year's level. For our Cloud Solutions business, revenue growth is projected at 13% for this year, slightly below the previously anticipated 15% to 17%. However, we remain confident in growth opportunities in all sectors.

Furthermore, we also reaffirm our outlook for the full year '24 adjusted EBITDA margin at approximately 29%, up from 27.4% in 2023, leading to an adjusted EBITDA of around EUR 450 million in this year. Looking forward, we anticipate the adjusted EBITDA margin to improve further, reaching around 30% by 2025.

As you may already know, on September 16, our second largest shareholder, Warburg Pincus, sold approximately 7 million IONOS shares through an accelerated book-building process. This sale represents around 5% of IONOS Group's share capital. As a result, according to our latest information, Warburg Pincus now holds roughly 16.2% of IONOS Group SE. The free float has increased by 5 percentage points to approximately 20%, while United Internet continues to hold around 64%.

To summarize the key highlights from today's presentation on Page 18. First, our business is built on a robust foundation of sustainability and resilience, with the majority of revenues generating from recurring sources. This ensures a stable base for ongoing growth. Looking forward, we have a clear understanding of our CapEx requirements, supported by our well-capitalized asset base, particularly in our expanding core business. The expected slowdown in aftermarket growth, something we have anticipated despite the temporary lower revenue growth in the first half of this year, will ultimately lead to reduced dilution of the adjusted EBITDA margin going forward.

Brand investment, which peaked last year, will remain at this absolute level going forward. These investments are essential to support our revenue and margin expansion as we move forward. Many of the investments in the Cloud Solutions business, such as those for developing infrastructure as a service features, have already been made, creating a significant opportunity for future growth. Our product portfolio has been successfully redesigned to facilitate cross-selling and up-selling opportunities and seamless expansion. Regarding AI integration, we are leveraging significant opportunities both in our product suites and internal operations, promising a more efficient and enhanced customer experience.

With our growing market presence and strong reputation, we are capturing an increased share of the market. Overall, we are well positioned for future growth.

With this, let me hand over back to the operator to open the webcast for any questions you might have.

[Operator]

[Operator Instructions] [indiscernible] comes from George Webb from Morgan Stanley.

[George Webb, analyst]

Britta, a couple of questions, please, away from the core business. But good to see the core performing well. Just on Cloud Solutions: So the 13 -- around 13% guide full year does suggest kind of, well, high-teens growth in Q4. Can you talk through some of the assumptions you're making there? How much is a bounce back of the normal run rate of business in cloud versus how much is the ramp-up of ITZBund? And actually, just an operational progress update you can give around ITZBund would be helpful. And then just secondly, on the domain parking business, good to see that the overall performance there is back to growth again in Q3. I've kind of noted your prepared remarks, but can you talk to your confidence now that aftermarket could sustainably be on the right track as you look into Q4 and FY '25?

[Britta Schmidt, executive]

Okay, let me start with the aftermarket business. So yes, good to see it being back on track, which we anticipated, yet it's still good to see it's coming out like expected. Looking forward, as we said, there is still the product transformation going on in the market. We are confident we can keep aftermarket growing as well going forward. I think time will tell at which growth rate. Nevertheless, it should be growing going forward. And we will give more insights into '25 with our guidance for 2025, but we are confident overall on the business. In terms of Cloud Solutions and an operational update around ITZBund. We are building up the first blocks, in close connection with our customer, obviously. We expect to build them within the fourth quarter, as I said, which will be a driver of the fourth quarter results basically. And maybe back to aftermarket: As well in October, we already see good trajectory, which gives us -- confident that we will be actually flat year-over-year.

[George Webb, analyst]

Just 1 or 2 more on Cloud Solutions while I'm at it. I mean, when you think about the Q3 performance, obviously it's a deceleration. Is there anything on [ comp base ]? Or is that a weakening of the market? Is there anything that's in particular driven that deceleration...

[Britta Schmidt, executive]

Yes. It's a combination. So we have seen demand being slightly slower, I think, which is something we have seen the peers experiencing as well, especially the German peers. And then if you look then, as I mentioned during the call, we decided to streamline the product portfolio in managed services, which kicked in during Q3. So we decided to no longer pursue one specific product area with has -- which has a "low single digit million" impact on the full year basis. And then -- but it makes a lot in a relatively small business area. And then additionally, as I said, we adjusted our prices in Cloud Solutions in order to drive adoption into entry products, as we believe we need to invest in a growing market as well, giving the political landscape we are seeing and digital sovereignty becoming more and more important. And yet, we see that demand in our target -- or adoption rates in our target customer base still remained, remain partially reluctant, so actually we want to drive this and help our customers to get into cloud in order to drive their digital sovereignty going forward. And meaning -- cloud, I mean a German, a European cloud.

[Operator]

The next question comes from Ines Mao from BNP Paribas.

[Ines Mao, analyst]

I just have 2 question. One is a follow-up to the previous one. So I see that you're taking your full year CapEx guidance slightly lower on a full year basis. Have your growth targets on the cloud business changed? In other words, are you actually resizing investments to meet potentially slower demand? And my second question is on the German political environment. Are you expecting any impact on your likelihood to win any further federal contracts in the cloud business?

[Britta Schmidt, executive]

So in terms of CapEx, I think the majority is basically driven through efficiencies which we've been able to lever throughout the whole business, be it in maintenance CapEx but as well growth CapEx, so we remain a very strong approach to using our CapEx. And primarily this is maintenance and the core business, so it's not that we are taking down CapEx in Cloud Solutions. We still want to grow there, and we are able and we will continue to fund this with CapEx if needed.

Looking into the German political environment, that's a hard question actually, so let me comment a little bit on the ITZBund contract, where we remain confident as well in 2024 that we will be able to continue to build up our services. And we will continue to be able to build those services. Still there's a slight uncertainty. And it's really a slight one in terms of the federal budget, which we yet don't know at which point in time it will be signed and done. So we are confident about the ITZBund, but nevertheless, I think it will slightly slow down any other federal investments just because federal budget yet is not sure at which point in time it will be signed and officially confirmed.

[Operator]

The next question comes from Stéphane Beyazian from ODDO.

[Stéphane Beyazian, analyst]

Would like just to follow up on Cloud Solutions with 2 questions. The first one is do you see any risk that, that sort of macro weakness we are seeing could have some impact perhaps or continue in 2025 and potentially offset the benefit of the ITZBund contract, so that cloud solution could possibly continue to further slow down into 2025. And my second question: Do you have any plan of pursuing the business with start-ups, with the AI start-ups, that are looking for NVIDIA GPUs? Is that a market that you're looking after at all?

[Britta Schmidt, executive]

Yes. So for Cloud Solutions: So we remain confident on our product portfolio and our product offerings, so I wouldn't expect any significant impact or a significant slowdown in Cloud Solutions as compared to this year. Actually our aim and target is to grow Cloud Solutions, especially in the small, medium business area. And we are confident that we started the right measures now to be well prepared for 2025.

In terms of offering AI for start-ups. So we do offer NVIDIA chips in our cloud solutions. Obviously, and this was stated by Achim before, our business is not around training of AIs or anything like that. We are offering the right products to use this kind of stuff, like with our AI Model Hub which I was mentioning before. And as I said, yes, you are able to buy chips like that. And start-ups are part of the small, medium business environment, so they are on our map as well. And maybe let me comment again on the confidence which we have on the -- general on the SMBs in the Cloud Solutions business: So we have seen -- with the price adjustment we've done into our entry products, aiming for getting more of those small, medium businesses into our ecosystem, we have seen that new customers are joining us. And we are really confident to see them growing with us throughout the next year.

[Operator]

The next question comes from Usman Ghazi from Berenberg.

[Usman Ghazi, analyst]

I've got 2 questions, please. Going back to cloud again, sorry about that. Just the managed services that you are deprioritizing, is that -- does that generate any margin? And I'm asking because obviously the growth rate in the cloud segment might be a little bit weaker than what you had anticipated in -- at the beginning of the year. And you have this ambition to be breakeven in the cloud business around the second half of next year. And I just wanted to understand if that time line has moved at all or whether it stays in place because the step down in cloud is driven by managed services. And that's either -- that's a low-margin business. So that was the first question.

The second question was just going back to your comments on churn. You mentioned it was around 14%, where it -- whereas in the past, I think you mentioned a number of around 13%, so I just wanted to confirm if there has been a slight step up. Is that driven by macro or kind of a late reaction from customers on the price increases? And if it is the latter, if it is a result of the price increases, then how are you thinking about price increases going forward given you will be lapping these price increases and -- starting in Q4?

[Britta Schmidt, executive]

Yes. So let me start with the managed services part. So this was a business -- or a business area which we historically served. It is a very personnel-intensive business with a relatively -- or more or less nonexisting margin, so it's not harming our Cloud Solutions margin target -- that we decided not to pursue that. In terms of churn, 14%, correct; and we mentioned 13% before. And the majority is actually driven by price increases. And keep in mind 14% is still a good churn number, to be honest. And we do not see anything from macro. We see, as I said, churn through our price adjustments. And keep in mind that, if you're getting a lot of inflow, which we had during the last couple of quarters, you might see slightly higher churn, as customers tend to churn in the early years or in -- so this -- there's a slight mix effect, but we are confident to get back on track, especially as the price increase adjustments are actually going out of the range [ and the equation ], yes. So churn impacts from price increases are trailing off now. And then going forward, we are confident to -- with our existing retention measures and [ safe desks ], et cetera, anything which we have in place to keep churn at the low levels we had in the past.

[Usman Ghazi, analyst]

Got it. And just a follow-up, please, on that. So has this influenced your thinking on price increases going forward, especially given the German kind of political/macro backdrop? I mean, are you thinking differently about price increases? And how much are those needed to get to your -- this target of 10% revenue growth in 2025?

[Britta Schmidt, executive]

Yes. So we mentioned before that, in an ideal world, price increases will be a part of the game. And in an ideal world, it should be 1/3 coming from price increases; 1/3 coming from cross- and up-sell; and 1/3 coming from new customers, new customers which we won 6 to 12 months before, obviously, so that's how we steer the business or we want our business to be steered. And we believe that price adjustments in the range of inflation are fair. And we are offering more products, so it's not just a flat price increase, but we intend to offer more features and products so that our customers understand the value we deliver, so it will be part of the game going forward. And our confidence in price increases didn't decrease based on the numbers which we have seen here. As I said, a slightly higher churn was definitely anticipated and it's in line with the expectations.

[Operator]

[Operator Instructions] The next question comes from Nizla Naizer from Deutsche Bank.

[Fathima-Nizla Naizer, analyst]

I hope you could hear me. My question goes back to the Cloud Solutions segment, just trying to understand. With the revised guidance that you've given for 13% for the full year and what you've done in 9 months so far, is my math correct when I think Q4 should then be sort of a "19% type of growth" quarter for Cloud Solutions? And linked to that, could you then maybe tell us how much of an incremental impact the ITZ contract would be in that broad number? That's question one, Britta.

And question two is on the political uncertainty in Germany. I think the previous question asked about the impact maybe that will have on cloud, but could you also maybe give us some color on how these political events have affected your customer additions on the WP&P business, be it in Germany and also in the U.S.? Has that had any bearing at all? Or are you still confident that you could do more than the 20,000 net adds you've already done in Q3 again in Q4?

[Britta Schmidt, executive]

So as I said, the ITZBund will drive the fourth quarter results towards -- and I think your math is correct, Nizla. So we should see a strong acceleration, and the majority is definitely driven by ITZ. The remainder of the business remains growing steadily but not accelerating. On the political landscape, we -- so obviously we haven't seen any first signs of our customers. We are in a recurring business model, so this would take time, but nevertheless, I wouldn't expect anything in the small, medium solopreneur operator -- in the solopreneur landscape.

As we've seen in the past, if you look into the different macroeconomic uncertainties, our customer base has been extremely resilient. And they do their business whatever political regime is there. Obviously, I think, the European political landscape understanding more and more the importance of digitalization, this is something which we think will help our customer base to digitize their businesses. And we do see some first signs with, for example, Spain [ presuming ] a digital strategy, et cetera. So I think this will drive more than the overall impact. And same applies basically to the U.S., so if first signs are correct, the U.S. economy should behave all right, yes, which obviously will have a slight impact, but nevertheless, as I said, small, medium businesses are super resilient. They do their business. They offer services to their customers which are needed in the daily lives. And we help them to help their customers and to be more efficient in serving the customer base, so I actually think there's not -- we do not expect any huge impact from the changing political landscape, on the Web Presence & Productivity, except for, as I said, digital sovereignty might get more and more important, especially in Europe.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stephan Gramkow for any closing remarks.

[Stephan Gramkow, executive]

Thank you, operator. And thank you all for joining today's call. Please feel free to reach out with any follow-up questions. Have a great day. Stay safe, and goodbye.

[Britta Schmidt, executive]

Goodbye. And thank you.