• Brett Schafer

Deep Dive: Global-E Online

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Show Notes

(Ryan) What they do: Their mission is to make global e-commerce border agnostic — Go global. Be local. Honestly, nice to see a decent mission statement. Basically what they offer is a range of solutions for merchants that help them increase their international sales. Merchants sign-up for one of two offerings, either Global-E Enterprise or Global-E Pro and then pay Global-E various fees based on their transaction volume. So revenue, should grow in line with GMV assuming steady rates.

For context, some of the solutions that are included are native website languages. So marketing messages and checkout in the preferred language of the shopper. Localized currency pricing. So adjusting prices based on the shoppers geography (over 100 different currencies). Differing payment methods, over 150. Pre-calculating import duties and tax remittances for 170 different destination markets (as we know from looking at Avalara cross border e-commerce has complex tax implications for merchants). Then there’s delivery services and native language return processes.

Example: An Italian based shoe seller has setup an online store using Shopify and signed up to use Global-E. A shopper from the US then stumbles across their shoes online and goes to the website and the website language is converted to English, the prices are displayed in dollars and the overall shopping experience is much more frictionless. Logically, this is going to result in a greater amount of sales for merchants using the service.

(Ryan) History: Global-E was founded in 2013 by Amir Schlachet, Shahar Tamari, and Nir Debbi in Israel. Within 3 years they reached $50M in GMV and launched in the US in 2017. The history of the company is somewhat limited, but they do have financial backing from several Israeli based VC firms as well as warrants held by Shopify.

A month before going public Shopify and Global-e initiated a partnership, where the two entered into a warrant agreement which would allow Shopify to purchase up to 19.6M shares. 7 days later shopify partially exercised that option and bought almost 8 million shares. Fully executed, it would make them one of the largest shareholders, but not the largest. And they went public in May.

(Brett) Industry/Landscape/Competition:

  1. Company estimates cross-border e-commerce opportunity to be $736 billion in 2023

  2. Instinctually, this niche of the e-commerce industry feels like it will grow rapidly over the next decade

  3. Competitors outlined by the company: Other platforms (frenemy in Shopify), social networks (partnered with Facebook), and in house solutions. Someone like Amazon doesn’t need Global-E they will just do it themselves

(Ryan) Management and Ownership:

  1. Each founder is an executive. Amir Schlachet is the CEO.

  2. Shahar is COO and Nir is Chief marketing officer. Each of them owns about 4.5% of the shares outstanding

  3. Aggregate compensation to directors was around $2.4M in 2020. Not too crazy. No need for drastic compensation given the ownership from most of the executives.

  4. They had several funding rounds prior to going public (series E), with global VC firms participating. So they’ve amassed a huge chunk of ownership and most have representatives serving on the BoD.

  5. But the lock-up agreement with the underwriters states they can’t sell until 180 days after the offering, so looks like that starts in November.

  6. The CEO passes my gut check. Seems competent and focused. He also holds a masters in electrical engineering from Tel-Aviv University and bachelors degrees in mathematics, physics, and computer science.

(Brett) Valuation:

  1. Market cap of $8.8 billion, ticker GLBE

  2. Trailing P/GP of 202 (not a typo)

  3. If they can keep up Q1 GP growth, forward P/GP of 76. Company’s full-year revenue outlook implies it won’t keep up this growth

  4. On top of this, Shopify owns warrants that should continue to dilute shareholders

  5. Options outstanding equate close to $1 billion in further dilution at current share price. These will be exercised unless the stock falls like 90%

(Ryan) Earnings:

  1. GMV in the first quarter was up 133% to $267M

  2. Revenue was $46.2M, up 134% YoY (most of that came from fulfillment services revenue)

  3. Gross margin was 33.3%

  4. Net loss of $1.7M

  5. Had -$20M in OCF for the quarter, but for 2020 they had 21% OCF margins

  6. Net dollar retention rate of 172% (taken by GMV/preceding GMV from existing cohorts)

  7. Gross retention, which is basically giving a churn figure, was 98%. So really sticky.

CY guidance:

  1. Expecting just over $1.2B in GMV

  2. And around $210M in revenue

  3. A little under 10% adj. EBITDA margins

(Brett) Balance sheet and liquidity:

  1. Raised $375 million in IPO, would give them $425 million taking cash balance from Q1

  2. Light balance sheet, no big liabilities outside of funds payable, operating leases, all the standard stuff

  3. No large assets that shareholders need to worry about

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Product Experience/Anecdotal Evidence:

  1. (Ryan) Checked out some reviews and they were good. Only had 440 merchants on the platform in 2020, so probably not going to be too many testimonials. But the gross retention number and sales conversion statistics should speak for themselves.

  2. (Ian)

  3. (Brett) none.

Future growth opportunities:

  1. (Ryan). Obviously expanding on their product offering is important, but it’s above my pay grade to guess what the next merchant solution should be, so I’m going to go with building additional partnerships. Shopify is definitely the most popular e-commerce hosting platform, but there are others as well (Wix and Squarespace). Widening the top of the funnel this way makes sense to me, since these platforms are where merchants spend most of their time.

  2. (Brett) partnership with Shopify. Just announced this spring and is possibly why Shopify owns the warrants now. This opens up Global-E to tons of smaller customers. THe question is: Was this deal better for Shopify, Global-E, or both? Global-E giving up some margin to Shopify for all dollars flowing through here

  3. (Ian)

Highlights and lowlights:

  1. (Ryan) Highlights: The customer value prop seems really high. Reducing friction for merchants, and helping boost sales conversion. Cross border e-commerce has grown at twice the rate of domestic, and it’s expected to continue outpacing domestic for years to come. Lowlights: There are alternatives, particularly in certain offerings. Seems like its’ offering could be replicated by the website building and hosting platforms. Overall not a lot of lowlights.

  2. (Brett) Highlights: Solving a complicated problem that apparently not even Shopify or Facebook wants to tackle itself. Large market opportunity ahead of it. Seeing decent operating leverage Lowlights: low margin, an “arbitrage” play in a sense that is relying on other things being complicated, and has major customer/partner concentration worries (not Shopify rn, but in the future)

  3. (Ian)

Bull case:

  1. (Brett) Not exaggerating here when I say you need to be underwriting 20x sales growth from 2020 levels for this to make any sense at all.

  2. (Ryan) Growth continues. The new partnerships dramatically accelerate adoption of the platform. And the product is vastly superior to any other offerings, leading to serious pricing power. Or Shopify buys them.

Bear case:

  1. (Brett) Purely multiple. This feels like a dotcom bubble stock. The multiple is so absurd I can’t focus on anything else.

  2. (Ryan) Slowed growth and multiple compression. Merchants go with individual alternatives instead. That would lead to a pretty crappy rate of return over the next 5 to 10 years.

*Chit Chat Money is sponsored by 7investing. Use our link or enter promo code “CCM” at check-out to get $10 off your first month of the service.

Disclosure: The authors and podcast guests are not financial advisors. Brett Schafer and Ryan Henderson are portfolio managers at Arch Capital. Clients of Arch Capital may hold securities discussed on this podcast.

#GLBE #GlobalEOnline

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