Global-E Online Ltd. (GLBE) Earnings Call Transcript & Summary

Well, good morning, everybody. Thanks for joining us for this session of the Morgan Stanley Fintech Conference. Very pleased to have both the CEO and Co-Founder as well as CFO of Global-e. Here, we have Amir, CEO and Co-Founder; and Ofer, CFO. Before we get started, I do have an important disclosure to read. Please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep.

Amir, we were just talking before we even walked up here is that a lot of people aren't familiar with the Global-e story. I mean it seems like me and my team, we spend a lot of time talking about the company and kind of your differentiation. And then as a result, we're always surprised and people like why I have no idea what Global-e does. So maybe for the benefit of everybody, can you give us an overview of the business and the value prop you're providing to merchants.

Absolutely. First of all, thank you for coming and thank you for having us, James. And it's always great to be back. And you're right, we have seen, I would say, maybe even more so over the last couple of quarters more and more kind of new interest because I agree, it's -- we have a fairly unique business model, and it takes time and effort to understand it. But I think once you dive in as an investor, you probably realize the strengths of it and the future potential. But just as a quick overview for the sake of those that are new to the story. In a nutshell, what we do it Global-e is provide a full end-to-end service to brands, merchants in general from all around the world that helps them to sell internationally, direct-to-consumer, cross-border. And we do that by providing essentially 4 layers of service. One is just a full set of capabilities that integrate straight into their existing website, into their domestic website. And think of it as a plug into the website, it all of a sudden makes the experience fully localized for shoppers irrespective of where they're coming from. We translate the currency, the payment -- we provide all the payment methods, shipping options, duties and taxes, guarantee for full landed costs and so on and so forth. So it becomes a highly localized experience for all shoppers from all markets around the world. The second layer is the operational piece because we don't just localize the transaction, we -- for the shopper, we also localize it for the merchants, so we take care of the cross-border delivery. We guarantee the duties and taxes. We collect the taxes. We remit them to the authorities around the world as needed. We take over fraud. So fraud -- it's a guaranteed no fraud for the merchant and so on and so forth. So we also -- we localize it to the merchant in the sense that it's as easy and as risk-free to operate as a domestic transaction. The third piece is actually a data-driven business, which is kind of optimizing the offering or helping the merchants to optimize the offering to all these markets because we have a very big and diverse and unique data asset that comes out of transacting with more than 1,000 merchants across all geographies in the world, all different verticals, price points, et cetera, that gives us unparalleled data that enables us to help these merchants not just -- we don't just tell them what they can do with all this asset of capabilities, but we tell them what they should do in order to optimize the conversion rates from each and every market that they focus on. And maybe the last piece, which is currently just starting, but we are putting a lot of effort into building is the demand generation piece, which is kind of the next frontier, which is helping them to generate more traffic from -- high-quality traffic from international shoppers and then convert them rather than our current offering, which is just taking their existing traffic and helping them to convert that on a much grander scale.

So it's interesting, and like I remember having gone through my own thought process on this as well. But when you look at all the pieces that you're providing in terms of like whether it be the website localization, or with everything that goes along with that, whether it be taxes, duties, et cetera; or tying into and helping provide logistics support and for delivery and the customer support component; or even just as you're saying, the -- making the merchant aware of, like, hey, here are some suggestions as to like the types of offers that you want to pursue, et cetera; or as you said, looking forward to demand generation. We often get the question, and I remember having this question myself, which was, okay, so you're doing a lot of things, but what really matters? How do you really win? And I remember talking to you and you're saying, well, actually, you can't really not do any of them, like you have to do all of them well. So maybe you can talk through like that cycle or what you're providing to the merchants and the like? And why you can't just focus on one thing?

Sure. So I'll answer that from 2 different directions that at the end converge. One is that, of course, there are different weights or different levels of importance for each of the elements that we provide, let it be the payments or the currencies or the logistics, the duties and taxes, et cetera. But -- and that's, I think, one of the most important piece is that those relative ways differ tremendously from market to market. So -- and again, it's easiest to use an example if I -- if you look at a European merchant that wants to sell to the U.S., let's say. . So here in the U.S., if we offer the shoppers -- obviously, it's always nice if we offer kind of Apple Pay and Amazon Pay. But these are honestly not entirely important. If you can just offer Visa, MasterCard, American Express and PayPal and do it in a kind of in a local way, local acquiring, you'll probably do fine. There is not any real marginal impact to adding more payment method. It's not critical. It's -- all these will help conversion, but at the margin. Having said that, you need a very, very good, low-priced and quick shipping offering because you're competing with domestic merchants that are going to ship overnight and probably for free. You need to price it correctly in U.S. dollars and make the prices look marketing friendly. And you need to be able to calculate sales tax correctly, because if you don't show the sales tax separately at checkout, you're going to give an uneasy feeling to the shoppers here in the U.S. So these are the elements that are critical. If on the other side, you're looking at the same European merchant, let's say, a U.S. merchant that wants to sell to pick a market in Europe, let's say, the Netherlands, you're going to need -- so honestly, they're shipping, of course, it's always important, but the Dutch are okay with waiting a few days for their package and maybe even paying a few euros to get it if they want to get it in a speedy delivery. But what you really have to make sure is that you account for VAT, the right percentage of VAT and do it as part of the product price in the browsing phase unlike here in the U.S. If you add VAT at the checkout, you're both not really compliant with local regulations and you're giving it a terrible experience to the shoppers. You're surprising them with a cost that they would never think would come up at checkout in the domestic side. And you have to support iDEAL and Klarna, which together just these 2 payment methods command more than 2/3 of the consumer payment. So this really -- and every market, especially the more exotic markets, if you want, will have a different set of priorities. So that is key to remember. The other element you have to remember is that it's a conversion gain at the end of the day because the shopper has already entered the site. They have an intent, an inherent intent to buy the product. Now it's a matter of giving them a great experience across all these different domains. And it's -- at the end of the day, it's a compounded game. So if you take all these -- let's say the -- even for the sake of simplicity, there are only 5 or 6 major elements that you need to get right across payments and shipping, et cetera. If you do -- even if you do each one of them 80% right for that market, you're still going to get very bad overview or conversion because it's going to be 0.8 to the power of 6. You need to get each and every one of these elements 99% right, if you want to get an overall conversion rate, which is I would say, comparable to what you get in the domestic side.

Got it. Got it. Got it. So I think building on that, from our perspective, Global-e helps brands generate volume growth in international conversion, albeit a lot of times at a higher final price point giving shipping and Global-e take rates, et cetera. So with that being the case, can you talk about how your merchant partners typically think about collaborating or working with Global-e, especially in the current market environment? Has there been any change in usage or interest on the part of the merchants? And what's the priority for them right now?

So I would say, no, there hasn't been any notable change in the interest levels that we see from merchants. They were high and they remain high. I think the main difference that we've seen over the last few quarters with the kind of, I would say, more economic pressures, the more macroeconomic inflationary pressures, et cetera, that not only consumers are seeing but also merchants are seeing around the world. What we have seen is maybe a bit of a shift in the focus in -- and we -- honestly, we've even changed our -- the focus of our sales pitch a little bit because if 2 years ago or 3 years ago most of our discussions with the merchants were around growth and their ability to generate more business internationally through the use of our service and leveraging their existing international traffic. Nowadays, we put more weight, I would say, in the discussion around also the cost savings that, that can generate for them. It's still obviously the main goal for them -- for most, if not all of them, is to continue growing their revenues and growing their business without making any significant CapEx investments, but we are also helping them more and more to build a business case of also how this can costs -- generate cost savings from them. These can be direct cost savings in many cases -- especially if it's a small or midsized brand, they will save actual dollars per shipment because we work at such high scale with the different carriers. We have a network of more than 30 different carriers. Most of them, we are major, major clients of theirs. Just as an example, we are today, one of DHL Express's top 3 B2C customers worldwide. And so we are able to secure shipping prices that are very hard to compete with. And even though we put a margin on them, still, even with that margin for many of these merchants, definitely the small and midsized ones, we can generate real dollar savings on their shipping plus a higher -- in combination with a higher level of performance and service to their end consumers. And also indirectly because we streamline all of their international activity, they don't need to manage that. They don't need to manage fraud. They don't need to manage the logistics part, et cetera. We make it, as I said earlier, as easy to manage as a domestic transaction, they can typically also save headcount on the operational side and kind of streamline their own operations.

So your answer there leads me to kind of one of the conundrum questions that we even ask ourselves. And when we think about your customers or the merchants and kind of as they go through the decision process, what's the biggest reason not to use Global-e at point of sale? I mean, I guess, why aren't all merchants, especially those that are looking to pursue international signing up with the -- because tell us the value proposition is a slam dunk. But what are the impediments that you typically run into as you're selling?

So first of all, we just -- we need more time, obviously, we need to cover more of the market, and I agree. At the end of the day, not all of the merchants, we need to be realistic, because first of all, there are not many, but there are a few verticals that are less relevant for this model. And...

What would be examples of verticals where...

An example maybe would be -- take the vertical of food supplements, which domestically works quite well when it comes to online. But it is a little harder, I would say, from a compliance point of view when it comes to importing food supply to different markets in the world. There are severe regulations in some of the markets. Now as a merchant, you can decide that you're willing to take that compliance risk. But because we operate as the merchant of record as part of our service, we -- in order to provide all the -- all these services in a seamless way for these merchants, we actually become the merchant of record. So technically, it is us selling the goods to the end consumers throughout the world. We obviously need to and want to comply with all these requirements around the world. So some of the verticals, which are a little bit more problematic, we will refrain or we actually do serve some food supplement merchants, not only those that are 100% kosher, so to speak. So there are a few verticals that we need to rule out. And also, you need to take into account that when we talk about -- and I've repeatedly made the distinction between kind of small and midsized merchants to large ones, one of the other kind of angles in which they are distinct is that when it comes to very large merchants, the global mega brands, kind of historical brands, the adidas of the world, the Disneys of the world, YUGO BOSS, et cetera. Obviously, we serve these as well and all of the ones that I mentioned and many more our clients, but these brands typically already have some infrastructure in specific markets, so they may have their top kind of 2, 3, maybe even 5 markets that are so big for the international market, I mean that are so big for them that they almost serve as a second and third and a fourth home market where they already have the full setup, they have the local website. They have the local payments method, even sometimes local inventory. So they don't really need us to help them with that, we take the rest of the world if you want. So -- but I would put it this way, to answer your question directly, we almost get -- we almost never get a no as an answer. Nobody in his right mind says, nah, this is not interesting for us. We will sometimes hear not now answer, which may come from strategic priorities. It may come from the merchant understanding the value, but saying, okay, we first need to replatform because we are -- we want to move to a different more modern platform than the one we're on. And then we'll take -- we'll integrate you guys. It can be that they have -- they're moving to a new ERP system and older tech resources are tied in that. So there are timing issues with that. And obviously, as always, this is a complicated kind of consultative sale. We need -- we do change the way they do business into actually, so a lot of stakeholders in the organization need to be aligned and need to be onboard, and that too sometimes takes time. But -- we have cases even of merchants where we've approached them. They said, okay, we're not sure this is not the right time. Maybe we'll go -- we'll check out a different way. And 3 years later, we revisit them, maybe it's a new team in place. There's a new refocusing of the business on growing international -- growing direct to consumer, and then it's the right timing for us to come in. But we think, in general, that there's still a huge potential. This is a market that is in its early innings in terms of penetration. And we are, I think, more and more in the leading position to lead the charge. So we do believe we have, I would say, a very long runway of high growth ahead of us for quite a few years.

So let's talk about more immediate demand trends. We saw U.S. outbound revenue growth of around 100% year-over-year in the most recent quarter. And it seems like the European inbound consumer demand is recovering quite well. So is there anything you can or incremental color you can give out in terms of demand trends across different geographies? Where has been better or where it's been more muted?

Sure. So we have seen a certain recovery in Europe. Europe is not doing great, but it has been doing better than feared. Last year in 2022, we had the war, which is still ongoing, unfortunately, but people got used to it. We had bad macro, and we also had a lot of concerns around energy prices, and if they can even go through the winter. A lot of this has been moved away, and we have seen an upward trend in consumption in Europe. So this has contributed. And I think it's not only us, I think it's a common theme. While the U.S. has been sort of at the same level -- similar level to previous years. And most of the markets are doing okay. I think that what we have been witnessing since the beginning of the year is that certain level of normality in terms of the long-term trends. So the last 3 years have been a little crazy with COVID, and then the reopening of physical retail and sort of the rebalancing there. This year, we see what we would expect to see in a normal year. E-commerce is outgrowing the brick-and-mortar. And within that, we have seen cross-border and direct-to-consumer taking share and outgrowing other channels or segments, and that has been very positive for us.

Got it. Got it. And then can you talk a little bit about how same-store sales has been progressing and how that fits within your broader growth algorithm, especially if we're thinking about where you have merchants and geos that are relatively mature?

So yes, that's a good question, especially as a follow-up to the previous one. So the trends that I've described are exactly sort of impacting same-store sales. So there is a positive impact after the reopening of physical retail in 2022 and we are seeing better same-store sales. Generally speaking, when we look at our NDR, which was approximately 130% last year, and we've communicated that we expect to see similar rates this year. It's compounded of those 3 different components. The first one is same-store sales, which, again, up till now has been very solid this year. The second one is the land and expand motion. So those are the large merchants that Amir has mentioned that over time, tend to add additional markets once they gain confidence. And the third one is the uplift with new merchants in the first few months. So all of these are contributing. And going forward, we think that this could continue at a similar pace or similar cadence.

Got it. Got it. So let's talk about Shopify. And we get a lot of questions around the relationship between Global-e and Shopify. And I think for a lot of people, particularly they're first becoming familiar with Global-e. They look at Shopify as a big potentially nasty competitor without really realizing that you guys are actually partnered for much of at least their international potential commerce. How should we think about new merchant additions in '24 post the expected Shopify Markets Pro launch later this summer? Like what's that relationship look like? And how do you think that's going to change your growth trajectory?

Yes. I think it's going to change it. And whenever we think about our relationship with Shopify, it's always important to kind of understand it. We've had a strategic relationship with Shopify for more than 2 years now, even before we went public, we already have -- we already had an exclusivity agreement them that concentrated more in the enterprise side of things because it was for our third-party integration that is more relevant for enterprise merchants with the full end-to-end service that I previously described at the beginning. So that has been going on for a couple of years now, and it has contributed to our continued and even accelerated growth with Shopify-based merchant. But as part of our acquisition of Flow Commerce at the beginning of last year, that was really intended to serve the, I would say, the other half of enterprise or about half of the cross-border GMV on Shopify. The other half is with true kind of SMB. And we knew that we needed a different offering, a different type of platform in order to really tap into that much more of a self-serve productized platform than our kind of enterprise, our customizable enterprise one. And that's what you -- rightly referred to as, now it's called Shopify Markets Pro, but it's basically a white label solution that we provide behind the scenes to support an offering by Shopify that is currently in early access mode, but even this early access mode is still, which we've been in over the last few months is that we've already onboarded a few hundred merchants. So it is progressing. But obviously, and to get to the kind of gist of your question, we do believe that once the Shopify Markets Pro goes general availability, which is expected in this summer, we think that there is a good potential for this to grow quite rapidly. So it's going to have still minimal impact even if it's highly successful as we hope it will be, it will have minimal impact on 2023 because it's -- I mean, obviously, it's going to be open to any Shopify-based merchants, even large ones can offer to select that. But it is safe to assume that these will be the relatively smaller merchants on average, so it will take time to ramp up the number of merchants, but we believe that this could already have a meaningful impact on 2024 onwards.

So how should we think about the potential with Shopify in the long run? I mean is this something where you could envision it getting to be a multibillion-dollar opportunity down the line. I mean that's clearly years away. But like how do you think about that opportunity set?

Yes. I mean in terms of GMV, then, I would say, even just on the enterprise side, we think, over the next few years, we can win -- it can be a multibillion-dollar business. But definitely, if again, touchwood, all goes well with Shopify Markets Pro, we think that can compound that growth and grow into an overall highly interesting business on the Shopify platform. And I think it's -- I think another way to look at it is to also see that Shopify themselves are putting this pretty high up on their agenda. If any of you are following kind of Shopify's own earnings releases and priorities, you can see that this gets a prominent place in their -- I'm sorry, in their communications and we feel that in a partnership with them, they're amazing partners to have this great collaboration on all levels from the top down, also on the technical side, this has been a major kind of collaboration effort over the last couple of years, and it continues to be a very kind of close and productive relationship. So we have reason to believe that this is of strategic importance for them as well, and hence, could be -- could have a large kind of potential to be realized over the next few years.

Got it. Got it. So just have about 5 minutes left here. I want to talk about profitability and it's interesting because you guys are obviously growing very rapidly. Right now, we have -- for this year, we have revenue growth forecast to be in the kind of the mid-40s for -- in our estimates. And you are profitable already, but you've set out a target, a long-term target of 20% plus adjusted EBITDA margins. What are -- what's the right time frame and cadence to get to that level? And what are the primary drivers to really drive that margin structure to where you've targeted?

Yes. So yes, we have communicated that this is our long-term target. To be honest, it's not a very long-term target. We expect to achieve that within the next 3 to 5 years. And basically, if you look at the trends in the previous years, we have been able to improve our gross margin significantly. And we had some operational leverage. I think that going forward, it will be the other way around. We still have some leverage on the gross margin side, but we don't expect it to improve at the same pace that we've seen previously. However, on the operational leverage, we have a significant. In the last 12 months, we have one, sort of integrated the acquired companies, which weighed a bit on us, and we have been able to realize many synergies. And two, we have been investing in Shopify Markets Pro, and in -- we had significant efforts around the Shopify native integration. Going forward, we expect to see nice operational leverage and that should enable us to get there within the time frame that I have mentioned.

And I can just tie that into my -- one of my previous answers. We do think there's a huge potential ahead of us. So we will continue to prioritize kind of growth and additional opportunities and additional segments and additional value-added services. So we're not targeting cash generation per se. We are -- on the other side, we believe it's a philosophy and whereby we would -- we believed in that even before being a public company that the right way to build the foundations of a long-standing successful company is to start generating cash at some point. We've done that. And even from as early as late 2019 way before it was considered cool. But we just believe that this is the right way to build a sustainable business and be able to provide to our merchants the right level of service that they deserve. So we intend to continue emphasizing that in parallel to seizing the potential growth.

So I want to follow up just in the last minute or 2 here on one of those potential drivers is that I know for us, we are pleased to hear about the potential for take rate -- further take rate improvement, specifically in services and associated gross margin expansion due to the integration of Borderfree demand generation solutions. You talked about that earlier. But how should we be thinking about that in terms of magnitude? Is this something where the incremental could be 50 to 100 basis points? Or is it more to 200 to 300 basis points? Like how do we think about that potential and what you're ultimately targeting in terms of uplift there?

I think it is a bit early today because we have been putting many efforts since the acquisition of Borderfree of one, integrating the Borderfree capabilities into the Global-e platform, but also building the right organizational infrastructure and starting to think of the right initiatives to enhance those capabilities that we've acquired. So it is still early days. We expect to see some contribution already in 2024, but it's hard for me to estimate what exactly would be the cadence of the take rate expansion.

But you do think you can start to see some contribution next year?

Yes.

Got it.

Yes, it is going to be a ramp up as well because we are -- at the beginning, our goal would be not necessarily to just realize all the additional take rate uplift but more to get the ball rolling, if you want to get merchants onboard is improve what we believe is going to be a great benefit to these merchants. Once this snowball effect or flywheel, whatever metaphor you want to use, will get rolling, then we believe we can leverage more and more also to generate additional take rate.

Great. Well, Amir, Ofer, that's all the time we have. Thanks to everybody for joining us here to chat about Global-e. I appreciate it.

Pleasure.

Thank you.

Thank you very much.