The Weekly DD - Global-E Online (GLBE): The Uncut Diamond

Overview What is exactly is Global-E? They are a company that integrates with e-commerce platforms to remove complexity with international transactions and provide localized solutions that improve the online shopping experience. The core of the services revolve around the following (from the S-1): ​ “The vast capabilities of our end-to-end platform include interaction with shoppers in their native languages, market-adjusted pricing, payment options tailored to local market preferences, compliance with local consumer regulations and requirements such as customs duties and taxes, shipping services, after-sales support and returns management. These elements are unified under the Global-e platform to enhance the shopper experience and enable merchants to capture the cross-border opportunity.” ​ They are the “plug and play” of making e-commerce international. Their vast network of APIs allow a customer to simply integrate their platform and seamlessly begin selling across different borders and languages. Here’s what they do. https://preview.redd.it/iu033n8ylzb71.png?width=1446&format=png&auto=webp&s=80b6e7ff09081d8ec26559daaba269f34c0a742e Currently, Global-E supports: Local messaging in over 25 languages Purchases in over 100 currencies Accepts over 150 payment methods A multitude of competitively-priced shipping options ​ Business Model Global-E generates revenues by charging a fee (“service fee”) for the integration of their platform into a merchant’s services. Service fees are highly variable based on transaction volume, destination markets, level of customer service provided, etc, and are generated as a percentage of the Gross Merchandise Value (“GMV”) that flows through the platform. Global-E mandatorily bundles certain components of their integrated platform solutions that they believe are essential for achieving improved sales conversions from international traffic. However, their fulfillment services are offered on an optional basis and merchants can choose to utilize those services or cancel at any time. Think of it as bundling service A and B to have the greatest effect, while offering service C as an add-on component. Service fees make up for approximately 35% of revenue while fulfillment services are currently accounting for roughly 65%. ​ Partnerships & why they use Global-E Global-E has formed many key technological as well as service partnerships. These third-party e-commerce platforms include: Salesforce Commerce Cloud, Shopify, BigCommerce, Magento Commerce, SAP, WooCommerce, PrestaShop, and others. ​ What they do for merchants? Some of the key benefits they provide for merchants are: increased sales conversions: converting international traffic offloading complexities: handling local pricing, payment collection, import duties, fraud, etc reduction of risk: reduce legal complexity, manage import duties and taxes, handle compliance enabling growth to new markets: allowing merchants flexibility to expand to cross-border opportunities All while emphasizing merchant branding. The customer always faces the digital store-front and never leaves the brand page to check-out. ​ What they do for shoppers? Global-E’s goal is to offer a frictionless shopping journey, regardless of the origin of the customer. This means: Localized languages Re-pricing in local currencies Handling cross-border payments Accurately pre-price import duties and taxes and include them in the final cost of the product Delivery: using an extensive network of over 20 shipping carriers they are able to offer multiple shipping modes at attractive rates. After-sale support and returns Merchants integrating Global-E into their platform generally experience a significantly higher international traffic conversion rate (often exceeding 60%). The Global-E platform removes many complexities involved with international expansion. They already have more than 400 merchants, from small companies to globally-recognized retailers, on the platform across various diversified verticals. ​ Shopify Deal As mentioned above, one of Global-E most lucrative partners lies with Shopify making them the exclusive third-party and cross-border solution across the large network of Shopify merchants. Shopify knows what kind of business that will bring for Global-E and thus Shopify has bought 7.75 million shares and acquired a 6.5% stake in the company. As Shopify grows Global-E grows and Shopify knows this, hence the stake in a company that reflects their own revenues by proxy. ​ TAM, & CAGR First came the transition to domestic e-commerce as well as sourcing and reselling products from China (aka Dropshipping). Next is going to be the transition of global e-commerce and cross-border sales. According to this 225 page research by GlobeNewsWire, the global cross-border B2C e-commerce market was 780 billion in 2019 and expected to grow at a CAGR of 27% through 2026 where it will become a 4.82 trillion market. https://preview.redd.it/96veafozlzb71.png?width=1680&format=png&auto=webp&s=6d3fc8afcb51b413dbdbb3deb95b24fadf89d313 ​ Global-E’s Smart Insights One of the company’s strengths lies within sophisticated “Smart Insights” they use to scale their applications. Smart Insights is a “big data” network that uses various metrics such as country, price-point, and shopper behaviors allowing Global-E to provide highly-optimized experience for shoppers. This ends up driving increased conversion rates and revenues for the merchant and a better overall experience for the shopper. The company has noted by integrating big-data into their platform they can experience “economies of scale” as well as “economies of skill” enabling them to optimize merchants’ cross-border sales. These insights are continuously expanding as they collect additional data points along the purchasing journey. ​ Competitive Advantage & Growth Opportunities What seems to be becoming more of a trend since 2020 and even more so now in 2021 are corporation’s use of big data. I’m not talking about basic user data such as age, gender, location, but more on the lines of vastly large information networks. These networks can utilize things such as time spent on page, scrolls, and clicks all in one massive database. Global-E differentiates themselves through their main data asset (“Smart Insights”) that informs them on certain decisions and is able to optimize how merchants sell their product across different borders. They integrate this data network into a flywheel effect, for example: their current analytics drives more sales to merchants, which then feeds new data back into the system, which then allows for higher optimization and better conversions. They feed into each other back and forth getting smarter with each website visitor and purchase. This aligns perfectly for their products “Net Dollar Retention Rate” of 134% and 172% in 2019 and 2020, respectively. ​ Global-E attributes much of their growth to being a first mover (and doing it right) in the cross-border e-commerce space. Their success has been accelerated by several key factors, such as: Accelerated shift towards e-commerce outpacing traditional retail Cross-border e-commerce growing faster than domestic e-commerce Their merchant’s strategic focus on D2C sales, maintaining relationship with shoppers globally The complexity and limitations of leaving the merchant responsible for implementing what Global-E offers. This doesn’t come down to just a cost, but also time-intensive as well as being difficult to maintain and scale Covid-19 tailwinds ​ As a result of the above and other market factors, the cross-borders e-commerce market is expected to continue the surge in growth. I previously mentioned the forecast in TAM however, Forrester, a research company, also expects the cross-border e-commerce markets to reach $736 billion by 2023. Global-E has several opportunities to expand on existing channels and capture new markets. This can be done with: Growth through existing portfolio of merchants and strengthening relationships Acquiring new merchants in existing geographies Expanding in new geographies that they don’t have exposure to Continue to expand and innovate their platform Continue to develop strategic partnerships (with key brands and players) ​ Risks Many of Global-E’s risks fall under the category of general business risks. Some of these include: retaining old merchants and attracting new ones, failing to enhance the platform as well as successfully competing against new and existing competition, failing to manage growth, pricing pressures from competition, and being highly dependent on cross-border regulations, sales, and operations. ​ Revenues, Scale, & Profitability In FY 2020 Global-E helped process 4.6 million orders for their merchants generating $136.4 million. Their Gross Merchandise Value (GMV) also grew to 774 million for the same period. Other impressive metrics were their net dollar retention rate and gross profit as % of revenue both of which continue to climb at 172% and 31.9%, respectively. Stellar! https://preview.redd.it/2quy1ct0mzb71.png?width=1074&format=png&auto=webp&s=cf2d87fbd8f20317fe7d69d27c639fcf6132c5f9 Some key growth metrics the company has seen in 2019 and 2020. https://preview.redd.it/o25hb862mzb71.png?width=1184&format=png&auto=webp&s=acb11f768d6c2f19dae64fdbaa43d4be321e92bb Although the company has recently turned a profit while growing top-line revenue and GMV at a high pace. The company suggested that short-term profitability might be sacrificed due to the expansions they are making to cover larger markets. As noted from the S-1: ​ “We expect our operating expenses to significantly increase over the next several years as we hire additional personnel, expand into new geographies, expand our partnerships, operations, and infrastructure, continue to enhance our platform, develop and expand its features, integrations and capabilities, expand and improve our service offering and increase our spending on sales and marketing. We intend to continue to build and enhance our platform through internal research and development and we may also selectively pursue acquisitions.” ​ Let’s take a quick peak at their consolidated statement of operations. Note the revenue growth and total operating expenses that decrease, as a percentage of total revenue, as revenues increase (almost doubles YoY). https://preview.redd.it/tsq4hmx3mzb71.png?width=1656&format=png&auto=webp&s=caa3a9af7e659b3e3721817a5dad8e06495dba72 Valuation Looking at GLBE’s valuation it is clear that you pay a premium when owning this company. ​ The Good GLBE is growing revenue at 134% YoY. Gross margins are improving while the company continues to scale. Many tech and services partnerships they can piggy back on. ​ The Bad Consistent profitability could be years away as the company is investing heavily into their own expansion of current and new markets. GLBE is currently trading at roughly 50x price to sales and 260 forward P/E. ​ Up for Debate Global-E has almost no long-term debt, but current liabilities are stacking up while the company is not generating much FCF. I wouldn’t expect them to be generating this much FCF this early in the game after their IPO. Lock-up expiration on August 11, 2021. ​ Final Thoughts In my opinion Global-E is top of the class when it comes to their business. They are growing extremely fast while improving margins and this is the premium you would pay versus investing in a “stable” company generating tons of FCF, but not much growth. Due to the nature of being a high-growth stock there will naturally be more volatility around the trade. While it’s currently trading at 50x price/sales I am more likely to shy away from entering a new position. We could see this stock swing to 40x p/s and potentially enter on the dips. This is somewhat of a chicken or the egg situation because there might not be any dips to buy with this kind of growth. For example, at current growth rates (100-135% YoY) if stock price is maintained it would only be trading at less than half it’s price/sales valuation only one year from now. This is definitely a stock to monitor closely if you are wanting to find the right entry point for a long-term hold. ​ TLDR; Global-E is an “enabler” that allows e-commerce and digital stores to seamlessly integrate international transactions. They deal with tasks from translations, currency re-pricing, international shipping & returns, compliance & tax regulations, etc. GLBE integrates their proprietary “Smart Insights” application that analyses customer shopping and transaction data to continuously improve on sales conversions. The feedback loop is always learning as it collects more and more data along each customer’s purchase journey. GLBE is trading at a rich valuation given their total revenue was $136 million in 2020. However, they are growing top-line revenues and Gross Merchandise Value (GMV) over 130% Y.o.Y. Shopify holds a 6.5% stake in Global-E as GLBE facilitates a large amount of transactions on the Shopify network. As Shopify grows, GLBE grows. GLBE is growing through many tailwinds such as those from covid lockdowns and accelerated shift toward e-commerce outpacing traditional retail. They’ve got an opportunity to expand into more international regions, strengthen relationships with existing merchants, while continuing to expand and improve their platform.

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TheStonksHub

Jul 19, 2021

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Change % Since Posting

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GLBE

Global E Online Ltd

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The Weekly DD - Global-E Online (GLBE): The Uncut Diamond

bullish

Overview

What is exactly is Global-E? They are a company that integrates with e-commerce platforms to remove complexity with international transactions and provide localized solutions that improve the online shopping experience. The core of the services revolve around the following (from the S-1):

“The vast capabilities of our end-to-end platform include interaction with shoppers in their native languages, market-adjusted pricing, payment options tailored to local market preferences, compliance with local consumer regulations and requirements such as customs duties and taxes, shipping services, after-sales support and returns management. These elements are unified under the Global-e platform to enhance the shopper experience and enable merchants to capture the cross-border opportunity.”

They are the “plug and play” of making e-commerce international. Their vast network of APIs allow a customer to simply integrate their platform and seamlessly begin selling across different borders and languages. Here’s what they do.



Currently, Global-E supports:

  • Local messaging in over 25 languages
  • Purchases in over 100 currencies
  • Accepts over 150 payment methods
  • A multitude of competitively-priced shipping options

Business Model

Global-E generates revenues by charging a fee (“service fee”) for the integration of their platform into a merchant’s services. Service fees are highly variable based on transaction volume, destination markets, level of customer service provided, etc, and are generated as a percentage of the Gross Merchandise Value (“GMV”) that flows through the platform. Global-E mandatorily bundles certain components of their integrated platform solutions that they believe are essential for achieving improved sales conversions from international traffic. However, their fulfillment services are offered on an optional basis and merchants can choose to utilize those services or cancel at any time. Think of it as bundling service A and B to have the greatest effect, while offering service C as an add-on component. Service fees make up for approximately 35% of revenue while fulfillment services are currently accounting for roughly 65%.

Partnerships & why they use Global-E

Global-E has formed many key technological as well as service partnerships. These third-party e-commerce platforms include: Salesforce Commerce Cloud, Shopify, BigCommerce, Magento Commerce, SAP, WooCommerce, PrestaShop, and others.

What they do for merchants?

Some of the key benefits they provide for merchants are:

  • increased sales conversions: converting international traffic
  • offloading complexities: handling local pricing, payment collection, import duties, fraud, etc
  • reduction of risk: reduce legal complexity, manage import duties and taxes, handle compliance
  • enabling growth to new markets: allowing merchants flexibility to expand to cross-border opportunities

All while emphasizing merchant branding. The customer always faces the digital store-front and never leaves the brand page to check-out.

What they do for shoppers?

Global-E’s goal is to offer a frictionless shopping journey, regardless of the origin of the customer. This means:

  • Localized languages
  • Re-pricing in local currencies
  • Handling cross-border payments
  • Accurately pre-price import duties and taxes and include them in the final cost of the product
  • Delivery: using an extensive network of over 20 shipping carriers they are able to offer multiple shipping modes at attractive rates.
  • After-sale support and returns

Merchants integrating Global-E into their platform generally experience a significantly higher international traffic conversion rate (often exceeding 60%). The Global-E platform removes many complexities involved with international expansion. They already have more than 400 merchants, from small companies to globally-recognized retailers, on the platform across various diversified verticals.

Shopify Deal

As mentioned above, one of Global-E most lucrative partners lies with Shopify making them the exclusive third-party and cross-border solution across the large network of Shopify merchants. Shopify knows what kind of business that will bring for Global-E and thus Shopify has bought 7.75 million shares and acquired a 6.5% stake in the company. As Shopify grows Global-E grows and Shopify knows this, hence the stake in a company that reflects their own revenues by proxy.

TAM, & CAGR

First came the transition to domestic e-commerce as well as sourcing and reselling products from China (aka Dropshipping). Next is going to be the transition of global e-commerce and cross-border sales. According to this 225 page research by GlobeNewsWire, the global cross-border B2C e-commerce market was 780 billion in 2019 and expected to grow at a CAGR of 27% through 2026 where it will become a 4.82 trillion market.



Global-E’s Smart Insights

One of the company’s strengths lies within sophisticated “Smart Insights” they use to scale their applications. Smart Insights is a “big data” network that uses various metrics such as country, price-point, and shopper behaviors allowing Global-E to provide highly-optimized experience for shoppers. This ends up driving increased conversion rates and revenues for the merchant and a better overall experience for the shopper. The company has noted by integrating big-data into their platform they can experience “economies of scale” as well as “economies of skill” enabling them to optimize merchants’ cross-border sales. These insights are continuously expanding as they collect additional data points along the purchasing journey.

Competitive Advantage & Growth Opportunities

What seems to be becoming more of a trend since 2020 and even more so now in 2021 are corporation’s use of big data. I’m not talking about basic user data such as age, gender, location, but more on the lines of vastly large information networks. These networks can utilize things such as time spent on page, scrolls, and clicks all in one massive database. Global-E differentiates themselves through their main data asset (“Smart Insights”) that informs them on certain decisions and is able to optimize how merchants sell their product across different borders. They integrate this data network into a flywheel effect, for example: their current analytics drives more sales to merchants, which then feeds new data back into the system, which then allows for higher optimization and better conversions. They feed into each other back and forth getting smarter with each website visitor and purchase. This aligns perfectly for their products “Net Dollar Retention Rate” of 134% and 172% in 2019 and 2020, respectively.

Global-E attributes much of their growth to being a first mover (and doing it right) in the cross-border e-commerce space. Their success has been accelerated by several key factors, such as:

  • Accelerated shift towards e-commerce outpacing traditional retail
  • Cross-border e-commerce growing faster than domestic e-commerce
  • Their merchant’s strategic focus on D2C sales, maintaining relationship with shoppers globally
  • The complexity and limitations of leaving the merchant responsible for implementing what Global-E offers. This doesn’t come down to just a cost, but also time-intensive as well as being difficult to maintain and scale
  • Covid-19 tailwinds

As a result of the above and other market factors, the cross-borders e-commerce market is expected to continue the surge in growth. I previously mentioned the forecast in TAM however, Forrester, a research company, also expects the cross-border e-commerce markets to reach $736 billion by 2023.

Global-E has several opportunities to expand on existing channels and capture new markets. This can be done with:

  • Growth through existing portfolio of merchants and strengthening relationships
  • Acquiring new merchants in existing geographies
  • Expanding in new geographies that they don’t have exposure to
  • Continue to expand and innovate their platform
  • Continue to develop strategic partnerships (with key brands and players)

Risks

Many of Global-E’s risks fall under the category of general business risks. Some of these include: retaining old merchants and attracting new ones, failing to enhance the platform as well as successfully competing against new and existing competition, failing to manage growth, pricing pressures from competition, and being highly dependent on cross-border regulations, sales, and operations.

Revenues, Scale, & Profitability

In FY 2020 Global-E helped process 4.6 million orders for their merchants generating $136.4 million. Their Gross Merchandise Value (GMV) also grew to 774 million for the same period. Other impressive metrics were their net dollar retention rate and gross profit as % of revenue both of which continue to climb at 172% and 31.9%, respectively. Stellar!



Some key growth metrics the company has seen in 2019 and 2020.



Although the company has recently turned a profit while growing top-line revenue and GMV at a high pace. The company suggested that short-term profitability might be sacrificed due to the expansions they are making to cover larger markets. As noted from the S-1:

“We expect our operating expenses to significantly increase over the next several years as we hire additional personnel, expand into new geographies, expand our partnerships, operations, and infrastructure, continue to enhance our platform, develop and expand its features, integrations and capabilities, expand and improve our service offering and increase our spending on sales and marketing. We intend to continue to build and enhance our platform through internal research and development and we may also selectively pursue acquisitions.”

Let’s take a quick peak at their consolidated statement of operations. Note the revenue growth and total operating expenses that decrease, as a percentage of total revenue, as revenues increase (almost doubles YoY).



Valuation

Looking at GLBE’s valuation it is clear that you pay a premium when owning this company.

The Good

GLBE is growing revenue at 134% YoY.

Gross margins are improving while the company continues to scale.

Many tech and services partnerships they can piggy back on.

The Bad

Consistent profitability could be years away as the company is investing heavily into their own expansion of current and new markets.

GLBE is currently trading at roughly 50x price to sales and 260 forward P/E.

Up for Debate

Global-E has almost no long-term debt, but current liabilities are stacking up while the company is not generating much FCF. I wouldn’t expect them to be generating this much FCF this early in the game after their IPO.

Lock-up expiration on August 11, 2021.

Final Thoughts

In my opinion Global-E is top of the class when it comes to their business. They are growing extremely fast while improving margins and this is the premium you would pay versus investing in a “stable” company generating tons of FCF, but not much growth. Due to the nature of being a high-growth stock there will naturally be more volatility around the trade. While it’s currently trading at 50x price/sales I am more likely to shy away from entering a new position. We could see this stock swing to 40x p/s and potentially enter on the dips.

This is somewhat of a chicken or the egg situation because there might not be any dips to buy with this kind of growth. For example, at current growth rates (100-135% YoY) if stock price is maintained it would only be trading at less than half it’s price/sales valuation only one year from now. This is definitely a stock to monitor closely if you are wanting to find the right entry point for a long-term hold.

TLDR;

  1. Global-E is an “enabler” that allows e-commerce and digital stores to seamlessly integrate international transactions. They deal with tasks from translations, currency re-pricing, international shipping & returns, compliance & tax regulations, etc.
  2. GLBE integrates their proprietary “Smart Insights” application that analyses customer shopping and transaction data to continuously improve on sales conversions. The feedback loop is always learning as it collects more and more data along each customer’s purchase journey.
  3. GLBE is trading at a rich valuation given their total revenue was $136 million in 2020. However, they are growing top-line revenues and Gross Merchandise Value (GMV) over 130% Y.o.Y. Shopify holds a 6.5% stake in Global-E as GLBE facilitates a large amount of transactions on the Shopify network. As Shopify grows, GLBE grows.
  4. GLBE is growing through many tailwinds such as those from covid lockdowns and accelerated shift toward e-commerce outpacing traditional retail. They’ve got an opportunity to expand into more international regions, strengthen relationships with existing merchants, while continuing to expand and improve their platform.
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read-time
8 min

70.00

Target Price

9/ 10

Confidence

2-6 Months

Timeframe
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Earnings Release
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News
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SEC Filing
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