GoDaddy Inc. (GDDY) Q2 2020 Earnings Call Transcript

Good afternoon, and thank you for joining us for GoDaddy's Second Quarter 2020 Earnings Call. With me today are Aman Bhutani, Chief Executive Officer; Ray Winborne, Chief Financial Officer; and Andrew Low Ah Kee, Chief Operating Officer. Aman and Ray will share some prepared remarks, and then we'll open up the call for your questions. On today's call, we'll be referencing both GAAP and non-GAAP financial results and operating metrics such as total bookings, unlevered free cash flow, normalized EBITDA and net debt. A discussion of why we use non-GAAP financial measures and reconciliations of our non-GAAP financial measures to their GAAP equivalents may be found in the presentation posted to our Investor Relations website. The matters we'll be discussing today include forward-looking statements, which include those related to our future financial results, new product introductions and innovation, our ability to integrate recent acquisitions and proposed acquisitions and achieve desired synergies, potential tax and cash flow implications of the settlement and related leverage considerations of our TRAs, the expected impact of our recent restructuring as well as the impact of the COVID-19 pandemic on our business, customers and employees. These forward-looking statements 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, August 5, 2020, and we undertake no obligation to update these statements as a result of new information or future events unless required by law.

Thank you, Mark, and thank you all for joining us today. Since March, there has been a massive acceleration in the shift to digital for small businesses around the world. Again and again, we hear from customers how vital it is in this time of global economic uncertainty for them to have both a dedicated website for their business and the tools to help them reach their customers. We consider it a privilege to serve millions of everyday entrepreneurs worldwide as we strive to help them build their businesses and refashion the economics of their communities. As many companies benefit from the digital acceleration, I am excited that GoDaddy has continued to gain share. I want to start today by acknowledging GoDaddy team members. The level of activity in our business and our operations are at their highest, unmatched by the personal challenges all of us face in the current environment. In June, we announced a restructuring of our outbound sales team. And while it is always difficult to part ways with team members, we are grateful for their contribution over the years. Our team members are working hard and have adapted quickly to address the rapidly changing landscape. The strong financial results for Q2 speak for themselves. We are pleased with the results and more importantly, with our position to grow with our customers well into the future. We are seeing strength across many parts of our business, and I want to highlight 3 items in particular. First, GoDaddy surpassed the significant milestone of 20 million paying customers. In Q2, we added more than 400,000 customers, delivering the strongest quarter of net customer growth in our 20-year history, aside from when we acquired HEG. This was driven by favorable trends, including stable retention rates and record gross customer adds in the quarter. Both of these trends were impacted positively by the strong market demand coupled with investments in marketing. We will continue to invest in marketing for as long as the returns stay within our threshold. Second, we continue to create demonstrable value for existing and new customers by adding features and functionality to our products, such as marketing tools, video streaming, security options and bulk purchase experiences. We also made it easier for our customers to use and experiment with our products. We added a freemium experience for Websites + Marketing in Q1. And in Q2, we added Sellbrite e-commerce offering to the freemium lineup. Third, we took a set of decisive actions from a position of strength to further optimize our business for long-term growth and cash flow generation. As mentioned, in June, we restructured our U.S. outbound sales team as its sales motion had become unsustainable due to COVID-19. And today, we fully settled the TRA at an attractive return profile while preserving both our liquidity and our ability to further invest going forward. Lastly, we are happy to announce that we have closed on the acquisition of Neustar's registry business, and we look forward to unlocking value through vertical integration in the domain space. Let's dig into customer growth and creating value for customers. Wow, second quarter of 2020, net new customers growing over 200% year-over-year getting us to 20 million paying customers. Lots of fantastic 2s and 0s in that sentence. It demonstrates just how much GoDaddy has grown since becoming a public company 5 years ago. In fact, in those short 5 years, we added nearly 7 million customers. GoDaddy continues to attract new customers to the ecosystem at a rapid pace, and those customers are seeing real value. Our retention rates are consistently high and continually stable, an ongoing testament to both the value and the criticality of our products and services to the small businesses we serve. We continue to be the global leader in the green phase where customers name their ideas. In recent months, we brought together the greatest strength and capabilities of GoDaddy and the Uniregistry business, forming the GoDaddy Corporate Domains team. We added best-in-class new functionality for bulk purchasers, and our sales teams signed their first deals together. We also continue to see strength in primary domain sales, domain add-on and aftermarket transactions. How a business shows up online matters more now than ever before. And this is one of the reasons you continue to see our Domains segment growing more than double the industry growth. While we love our outsized growth in the green phase with its $5 billion TAM, we are most excited about how Websites + Marketing and Managed WordPress allow us to pursue the $175 billion TAM within the create and grow phases where everyday entrepreneurs build their ventures. Our customers want to do more with us. And we continue to invest in features and functionality that will let them accomplish this, especially in marketing and commerce. In Q2, annualized recurring revenue in Websites + Marketing grew approximately 60% year-over-year. The common tier of our Websites + Marketing product accelerated even more quickly over the last few months, with net adds for our commerce tier growing 60% quarter-over-quarter and almost 90% year-over-year. In fact, 25% of new Websites + Marketing subscribers are opting for the commerce tier at nearly double the historical adoption rate, making it a bigger part of our offering. With our commerce tier of Websites + Marketing for $25 per month, everyday entrepreneurs get a strong set of simple, easy-to-use tools to build their ventures online. Bundled with that is search engine optimization, best-in-class platform integrations with unlimited posting and tools for selling, including fees listings on Google, enhanced local delivery options and 1 year of branded e-mail. All of that backed with our award-winning guidance delivered 24/7 by our Care Guides worth hundreds of dollars all included. For our customers, beautiful, engaging content is at the heart of their marketing. The GoDaddy offering with Over lets them do just that. In June alone, more than 14 million pieces of content were created and exported. That doubled year-over-year. The pace of user growth also accelerated. That doubled quarter-over-quarter with more than 1.7 million users engaging with Over every month. We are very excited to get the full functionality embedded in Websites + Marketing. GoDaddy is the only company whose strength in create and grow transcends both captive CMS and WordPress. As a global champion for WordPress and the largest WordPress host, we are excited to bring new capabilities to the WordPress ecosystem. Already, our efforts in improving ease-of-use for WordPress are showing strong results. There are nearly 8,000 themes available in WordPress, and our Go Theme has quickly risen into the top 8. We are proud to be part of the open source WordPress community and the continued growth we see in Managed WordPress is great encouragement for us to continue to invest in the product. We also saw Business Applications growth reaccelerate to 18% year-over-year, and that goes back to the frequently changing circumstances in which our customers find themselves today. Many of our customers relied on in-person interactions or inbound phone calls to brick-and-mortar stores as the means for their customers to engage with them. With many of those storefronts closed, customers have been adopting branded e-mail as an additional means to communicate with their customers. This is yet another way GoDaddy can help everyday entrepreneurs thrive while driving growth in our business as well. Our focus on adding customer value in a strong demand environment powered a strong second quarter and sets us up well for the rest of the year. We are poised for sustainable, profitable growth for the long term and continue to be confident in our ability to hit our 4-1-1 goal, $4 billion in revenue, $1.1 billion in unlevered free cash flow organically in 2022.

Thanks, Aman. I'll touch on the financial results for what was a great quarter for GoDaddy and then provide our outlook for Q3 and the full year. Q2 reflected better-than-expected results on every key metric from top to bottom, as the business performed very well, setting us up for continued success through the remainder of the year and beyond. Aman mentioned customer growth, but we've also seen flat customer churn rates and resiliency in subscription renewals, proof points to the durability of the business model. Total revenue came in at $806 million, growing over 10% on a constant currency basis, with 140 basis points of currency headwind, and we're seeing the strength globally with U.S. and international both growing at a 10% clip in constant currency. Looking at product categories, we delivered 11% growth in Domains on strength in new registrations, renewals and aftermarket sales. Hosting and Presence grew 4%. Inside that, we saw terrific growth in subscriptions of Websites + Marketing, along with the e-commerce solutions Aman talked about earlier. This line item also reflects the headwinds from our higher-priced GoDaddy social product, which was disproportionately impacted by COVID-19. And finally, Business Applications growth deaccelerated to 18% year-over-year on higher demand for domain-based e-mail and productivity solutions. Total bookings grew to $936 million, rising 12% on a constant currency basis, with roughly 1.5 points of currency headwinds. The strength was broad-based across products and geographies. We were well positioned to capture demand as businesses adapted their models, establishing an online presence in response to the COVID pandemic. And we've seen incredible response to our Websites + Marketing offering as we introduced the freemium option early on in Q2. Gross margin was 64% in the quarter, down slightly sequentially as we saw a mix shift towards the Domains and Business Applications product lines. For modeling purposes, we anticipate the product mix and in turn, the gross margin, to look similar in the second half of the year. We delivered approximately 3 points of operating leverage year-over-year with G&A continuing to benefit from both scale and lower discretionary expenses. Leverage in G&A and care were slightly offset by the investment in marketing that we started to ramp in the second quarter. The net sum resulted in normalized EBITDA of $162 million in Q2 or approximately 2 points of margin expansion over last year. Moving to cash flow. Unlevered free cash flow for the quarter was $186 million, growing 11% year-over-year with unlevered free cash flow margin up about 30 bps year-over-year. Trailing 12-month unlevered free cash flow was nearly $790 million, and margin topped 25%, illustrating both the size and scale of this business. Now I want to take a moment to discuss the specific financial impacts of the restructuring to our U.S. outbound sales team we announced at the end of June. We recorded a $39 million restructuring charge in Q2. None of those impacted had accepted other roles. 582 team members ultimately received the transition package with a combined dollar value of approximately $15 million, $10 million of which was recorded as a charge in Q2, while the remainder will hit in Q3. We also exited leased office space in Austin, and as a result, recognized an impairment charge of approximately $29 million of our right-to-use assets. Actual cash outlays for the restructuring will be excluded from future presentations of our unlevered free cash flow metric. And you can see in the full year guide, we plan to reallocate these go-to-market savings to other marketing activities. Now on to the balance sheet. We finished Q2 with $773 million in cash and total liquidity of nearly $1.4 billion. Net debt landed at $1.6 billion or about 2x net leverage on a trailing 12-month basis, the low end of our targeted range. And we have no significant debt maturities until 2024. Earlier this week, we closed the previously announced acquisition of Neustar's registry business, our third completed acquisition this year. We look forward to welcoming Nicolai and team as we extend the value chain in the dream phase of the customer journey. We've completed the preliminary purchase accounting work and due to the magnitude of the adjustment to the deferred revenue balance, we expect the rebranded GoDaddy Registry to contribute minimal revenue in 2020. Our estimate of the contributions to unlevered free cash flow remains at less than $10 million for this year. As announced today, we reached an agreement to settle our TRAs, eliminating $1.8 billion in future cash payments for a one-time payment of $850 million. This is a terrific outcome for GoDaddy. We feel great about this transaction because, one, at current tax rates, the implied rate of return exceeds our borrowing cost by 6 percentage points; and two, we believe it's likely that tax rates will go up in the future, so the actual savings will be much greater, further enhancing our returns. We'll fund this transaction with a combination of cash on hand and new debt. Post-transaction, while the net leverage of roughly 3x, leaves us at the midpoint of our targeted leverage range with ample liquidity to fund the business, execute strategy and pursue our stated capital allocation priorities. The strength and resilience of our recurring business model has fueled a strong balance sheet. And when unique and attractive opportunities like the TRA arise, we have the flexibility to take advantage and create long-term value for our shareholders. Before I get to the outlook, I want to take a moment and reflect on the financial progress GoDaddy has made in the last 5 years since our IPO in Q2 of 2015. Quite simply, our focus has been creating customer value, sharing in the economics of that value creation and being good stewards of the business. The proof points of the outcomes: since Q2 2015, we've increased customers by approximately 50%; we have increased revenue over 100%; and we've increased unlevered free cash flow by more than 200%. Pretty impressive growth statistics. And we're well positioned for the next 5 years. We will continue to be prudent allocators of capital in the pursuit of long-term growth and levered free cash flow per share. With that, let's turn to our outlook for Q3 and the full year. In the third quarter, we expect total revenue of approximately $835 million or 10% growth year-over-year. For Q3, you should expect double-digit growth in Domains, mid-single-digit growth in Hosting and Presence and high-teens growth in Business Applications. Remember, those products that relied on the outbound calling motion like GoDaddy Social disproportionately impact the Hosting and Presence line. For the full year, we expect revenue growth of approximately 10%, with bookings growth outpacing revenue by about 1 point. On unlevered free cash flow, we expect 2020 to land in a range of $815 million to $825 million, as go-to-market savings from the restructuring are reinvested to drive long-term growth. As you can see in the Q2 numbers and the forward guidance, the current demand environment merits incremental investment so you should expect us to delever in marketing and tech and dev in the back half of 2020. As a reminder, Q4 has a highly anomalous 27th pay period, without which our unlevered free cash flow guide would have been $18 million higher. In closing, we're playing offense as GoDaddy continues to gain share in an industry experiencing an acceleration and an ongoing secular shift to online commerce. We are more confident than ever that our strong and predictable cash flow will allow us to take advantage of opportunities and create significant value for our customers, employees, communities and shareholders for years to come.

Thank you, Ray. It has been 1 year since my first GoDaddy earnings call. In that year, I have talked to many everyday entrepreneurs and fallen in love with their story. I have seen an employee base that deeply cares about the mission of the company and has risen to unprecedented challenges. While there is still uncertainty ahead and no one has a crystal ball, I am inspired by the opportunity in front of us, and our path forward is clear. Our focus on customer success drives our continued development of world-class products. That, in turn, empowers everyday entrepreneurs to sell and thrive online. We have an incredible brand that is only getting stronger. We have a resilient, recurring business model, and we will continue to be prudent stewards of the significant cash that GoDaddy generates, pursuing growth organically and inorganically for years to come. GoDaddy is an amazing success story. We have a TAM of $180 billion and 20 million paying customers. And I feel like we're just getting started. Operator, let's open up the call for questions.

Operator, can we have the first question, please?

Our question comes from Deepak Mathivanan from Barclays.

Great. Congrats on a good quarter. I wanted to ask about a couple of things. So first is can you give us some color on the customer profile that you're seeing? The net adds of 400,000 was very strong. And like said, it's nearly 3x last year. How much of that on-ramp is coming from Domains? And how much of that would you say you can attribute to Websites + Marketing and then also some of the e-commerce products? And then the second question is on the Hosting and Presence. Obviously, you're seeing nice tailwinds on the e-commerce and also websites. But the overall growth is 4%. I know it's impacted by the social offering and then also the do-it-for-me cleanup. But can you give some color on the size and growth of each bucket so we can think about the confidence inside this correctly?

Thanks, Deepak. This is Aman. I can take the first part, and Ray can probably take the second. We're seeing customer growth across all the product categories. We saw growth in Domains. We saw growth in the biz apps and Websites + Marketing, and Managed WordPress continue to grow at a healthy rate. So it's not really about one product or the other. We're seeing growth across all products, and it's a function of the demand environment and the marketing spend and the value that our products bring to our customers on an everyday basis. We're excited about the acceleration. And the quarter continues to improve for us, and we're excited about that. Ray, do you want to take the question?

The only thing I might tack on to that, Deepak, you may have heard Aman reference to it. We are super excited about the growth we're seeing in Websites + Marketing, 60% growth year-over-year in ARR. That is a fantastic growth rate, and so you could see the adoption and are more excited about even the mix of SKUs within that adoption. So we've seen a nice uptake in e-commerce SKU takes, let's say, I think, 25% of folks taking that SKU now. So really excited about the progress we've seen there in that product.

Okay. Ray, if I can just follow-up on that. How much would you say the impact from the restructuring efforts is on the 3Q revenues? I mean, I know previously, you quantified it for 2Q. How should we think about that for 3Q?

Yes, if you think about 3Q and the rest of the year, you saw the impact of the headwinds in the second quarter; it's baked into that guidance for the rest of the year as well.

And our next question comes from Matthew Pfau from William Blair.

Just wanted to hit on the premium offers that you've been providing on the websites business. Maybe you can just discuss how those have been performing relative to your expectations, both in terms of interest and conversion. And then what are your thoughts on using the strategy longer term, both for the existing products that you're offering it for or perhaps expanding the two additional ones?

Yes. Thanks, Matt. The freemium offering is a quarter in, and we continue to be excited about how it's performing, both in terms of attracting registered users to come in and try the product and the conversion rates we're seeing. And so it's meeting our expectations, and we continue to drive improvements in it. In terms of freemium as a model, we really feel that our customers more and more people need to be able to use our products. So the freemium model allows us to do that in a successful way. And one of the things you saw this quarter is that we added the freemium offering for Sellbrite, which is a product that allows micro small businesses to connect to many of the large platforms out there and get their products out there. So it's really a model that we're using for more and more products. And one last thing to keep in mind is that when we talk about the 20 million customers, we're talking about paying customers. That does not include freemium customers in that number.

Matt, it's Andrew. I'll just tack on one other thing. Ray mentioned we're leaning into marketing. And obviously, we've got the convictions to lean into marketing based on what we're seeing in their early.

Got it. Just one quick follow-up. It's good based on the growth that you're seeing in the websites business. But what about visibility into the future quarters? Are you able to get any idea in terms of predictability of what the conversion of some of those freemium users will be? And how does that perhaps help you in terms of the visibility in your business?

Yes. I think it's a bit too early to be able to sort of set the quarterly cohorts up. We're still, like I said, only a quarter in. But over the next few quarters, we'll definitely have a clearer idea of how those cohorts perform. Early indications, they continue to meet our expectations. So we're excited to continue to move forward on it.

And our next question comes from Ron Josey from JMP.

Aman, you began the call discussing the significant acceleration of digital, which is evident in your subscriber growth numbers, the increase in freemium services, and the adoption of e-commerce. I would like to hear your perspective on our current position in the shift to digital, particularly regarding the growing freemium base with 20 million subscribers. I'm interested in your thoughts on the overall adoption of this digital transformation and GoDaddy's role in it.

Yes. I do think that COVID-19 has pushed a number of people past the point of inertia where they were not adopting digital. Another way to say that is pull forward the TAM. So because people have no choice but to go digital to support their businesses, we're seeing people experimenting with ideas. We're seeing people come online, even though they had hesitated to do it in the past. When you look at that TAM of $180 billion, and it's just huge. This is a space with so many players there. And when I look at GoDaddy, I think we're really positioned well. And when I talked in the script about I feel like we're on the start line, I look back at GoDaddy and see a leader in the dream phase, doing so well in the create phase over the last 2, 3 years. And now as we put more and more attention into the growth phase, customers want to do marketing tools with us, they want to do commerce with us, and we have good offerings for them. So the more we get our name out there related to those offerings, the more we improve those offerings, I expect GoDaddy to play a very significant role in that moving forward.

And our next question comes from Nick Jones from Citi.

I guess just two. First on strategic acquisitions. I mean, how do you feel about the pipeline today given kind of market multiples? And any kind of thoughts kind of how you view the environment? And then the second question would be on kind of customer acquisition and increasing investment in advertising. How do you feel about kind of the, I guess, the advertising window? Are CPM lower today and you're able to be more aggressive? How long do you think that will last from kind of where we stand today? Any color there would be helpful.

Yes. As you know, we've been quite active in the acquisition space over the last few months, just talking about closing Neustar today and super excited about that. Our pipeline continues to be healthy. And of course, valuations are what they are. But we continue to look for opportunities, which can add value to our customers and become part of the GoDaddy ecosystem. And broadly speaking, we are looking for opportunities where customers get nonlinear value, and our brand extends to be able to offer that value to customers. That's kind of the lens we're looking things at. And there's a healthy pipeline. In terms of customer acquisition, our customer acquisition costs actually went down quarter-over-quarter and year-over-year. And part of that is the CPMs, but a big part of that is just demand and intent from customers. So as we look forward, our commitment is that we'll continue to invest in marketing, looking at this demand, taking share within this demand as long as it meets our thresholds.

Our next question comes from Brent Thill from Jefferies.

Aman, it's great to see the Business Apps gaining momentum. I’m interested in your perspective on the upcoming opportunities, which appear substantial. How are you enhancing your awareness? Where are you identifying the most promising areas for adoption? Ray, some of the companies we analyze have mentioned their performance in July and August. Do you have any insights on how you finished the quarter? Was there a decline in momentum, or are you still experiencing the robust performance observed at the end of Q2?

Yes. On the business apps, the focus for the teams there is to continually improve, not just sort of awareness of that product when people come to our site or through our marketing channels, but really, really reduce the friction in terms of activation, the friction in terms of fulfillment. So that adds a customer step into that product. They're able to really get value very, very quickly. And some of those efforts that we've been making over the last few quarters have started to show value. Now clearly, part of the re-acceleration here is the overall environment where customers are looking for avenues to contact their customers, and we've been telling them for years that if you use branded e-mail, you have many multiples more likely to get the attention of your customers than a regular e-mail address. And in a time like COVID, where our micro businesses, small businesses are looking to reach their customers, they're sort of thinking about all the things that we've been telling them. And we think we see that acceleration coming in Business Apps through that. And I'll turn it to Ray for sort of July and so on.

Yes, Brent, we are seeing positive trends. As we approach the quarter, there has been a nice progression with a continued increase right up through June. If I remember correctly, Andrew mentioned in the last call that the April cohort was the strongest we've seen in a decade. May improved, and June was even better. Additionally, there was no slowdown in the July cohort, which should give you an idea of what we're experiencing in the business.

And our next question comes from Jian Li from RBC.

Congratulations on the quarter. Building on the previous answer, with the increasing trend observed in Q2 and continuing into July, what are your assumptions for new user growth in your Q3 guidance? What macroeconomic factors are you considering? Given your expectations for the full year and Q3, are you anticipating an improvement in the macro environment by Q4, which might ease the price pressures currently affecting H&P? I'd like to hear your thoughts on this.

Yes. It's Ray. I'll take that one. Look, there's a lot of uncertainties at play right now. We're trying to call it like we see it, not being overly aggressive or conservative in the guide. It just reflects what we know right now and our sense of trajectory. If you look at the guide we're giving, it does imply some acceleration from the pre-COVID Q1 number. Keep in mind, the back half of the year gets a little tougher on year-over-year comps. In the demand environment, it's obviously been great. Aman talked about some of the stats and metrics we're seeing. But we don't have perfect insight into how long or at what strength that's going to continue. We're always going to strive to do more, be better every day. But the guide is what we see happening, plus or minus.

Great. And if I may, a follow-up on the Neustar acquisition. I know it's early days, but have you looked at maybe medium term, the size of the opportunity there? And how should we think about kind of the margin accretion potential from Neustar?

Yes, we're just starting to close it, so it's a bit too early to discuss the medium-term returns on Neustar. However, we are very excited about the potential for vertical integration in the Domains space. This opens up many opportunities for us to develop new offerings for customers at a pace and scale that we believe the registry business hasn't experienced in a long time. That's the opportunity we are pursuing, and we'll provide more details in the next quarter or so.

And our next question comes from Ygal Arounian from Wedbush Securities.

I want to ask Ron's question maybe slightly differently and how to think about the sort of pull forward and runway of increased need for digital presence relative to the 400,000 net new customers this quarter. As we look forward, is that a number that we should kind of continue to expect to be at that level? Are we at a new run rate for new customers for the time being too held back off a little bit? Is the mix of growth coming a little bit more from new customers or ARPU? Just how to think about and frame this discussion in terms of new customers going forward. And then the second question, when you guys announced the restructuring without a lot of questions from investors around trying to understand exactly what the outbound sales team was versus the inbound sales team. So can you help just make sure to clarify and help investors understand what the outbound sales team was. Was it all related to GoDaddy Social? And then at the same time, what are you seeing from the inbound sales team in terms of productivity as we're continuing to work from home?

Yes. There are three parts to your question: first, net customer growth; second, the revenue breakdown between subscribers and ARPU; and third, outbound sales. I'll start, and then Andrew and Ray can add their insights. We're really excited about the 400,000 net customer growth, which is our best quarter ever excluding the HEG acquisition. This growth reflects the strong demand environment and the efforts of GoDaddy. Looking ahead, we don't provide guidance on net customer growth, but we do share updates over time, especially when we reach significant milestones. Since this is a major milestone, we thought it was important for you to see what's happening in the business. Regarding the breakdown of subscribers and ARPU, we're maintaining a healthy balance. While subscriber growth is substantial, we also see stable ARPU growth that has characterized our business for many years. Overall, this has been very positive. Concerning outbound sales, it's a specific strategy we've developed over the years. Although COVID-19 had a significant impact on it, I'll let Andrew provide more details.

Our outbound sales team represented a small segment of our overall care operations. We have a history of selling both through inbound and outbound approaches. The outbound approach has been discretionary, while inbound sales involve responding to incoming customer calls, which is an obligation. Considering the productivity challenges we faced and our expectations for the future, we decided to discontinue the outbound efforts and reallocate that investment into other marketing activities, as Ray mentioned. The outbound team did focus on social media, along with a variety of other premium products and services. Productivity-wise, we took a hit, but we have made steady progress in improving it, which is reflected in the guidance Ray provided. Additionally, we have noticed shifts in consumer behavior post-COVID regarding how they engage with care. There is an increasing preference for asynchronous chat and other digital channels, which we discussed during our Investor Day, and we are observing these various modes of engagement becoming more prominent in the current environment.

And our next question comes from Lloyd Walmsley from Deutsche Bank.

First, are there any key product holes you guys would flag in Websites + Marketing, where if you kind of either add a product or improve a part of it a lot, you feel like you can unlock meaningful new TAM or growth acceleration? And secondly, when you guys announced your deal with AWS, there was talk of kind of working together, maybe AWS selling some of GoDaddy services. Wondering if there's been any movement on that side of the relationship. Is that something we should think about for the future?

When we consider Websites and Marketing, the opportunities align with our discussions about the growth phase for our customers. We are focusing our investments on marketing and commerce. To give you an idea, marketing encompasses content and messaging. With the acquisition of Over, we are integrating its features into Websites and Marketing very quickly. This means that all our Websites and Marketing customers will soon benefit from Over's excellent functionality. These marketing capabilities are essential for our micro businesses to connect with their customers. Additionally, commerce plays a significant role as well. We have a solid base offering in commerce, and as our customers continue to use our services, we are consistently adding more features and functionality in this area. Regarding our relationship with AWS, we have achieved some important milestones, but overall, it remains relatively small. We view it as a good example of what GoDaddy can offer to a large partner, but in terms of our overall revenues, it constitutes a minor aspect.

And our final question today comes from Naved Khan from SunTrust Robinson.

We are now known as Truist Securities, so there has been a name change. I have a couple of questions. In your April update, you mentioned some weaknesses in the Domains aftermarket. I'm curious if that issue still exists, as the results seem to suggest it might have improved. Additionally, I would like to know about your onboarding processes for new customer acquisition. With the introduction of the freemium offering and the updates in the Websites + Marketing product, is it reasonable to assume that these changes are significantly contributing to new customer acquisition compared to about a year ago?

Yes, thank you for your question. In the aftermarket, we're experiencing significant growth in primary and secondary Domains sales. Overall, this segment is growing at 10%, which is much faster than the industry average. We're very pleased with these results. In April, we mentioned some weaknesses in this area, and we are noticing varying experiences across different countries. However, we are overall satisfied with the segment's performance. Regarding freemium and Websites + Marketing, the 60% ARR number speaks for itself. We continue to see strong growth in that business both in terms of units and revenue, and we are very optimistic about its future potential. The lifetime value of a Website + Marketing customer is significantly higher, approximately 10 to 25 times that of a Domains customer. Being a major player and gaining market share in this space has been very advantageous for us.

And that concludes our questions today. I'll now turn the call back over to Aman Bhutani, CEO, for closing remarks.

Thank you, and thank you all for joining the call today. A big thanks to all GoDaddy team members all over the world for a great quarter, and look forward to talking to you next quarter.

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