Redefining & Enabling Global E-Commerce
Ecommerce has been one of the biggest growth stories of the 21st century. But its latest chapter hasn’t been going as smooth as either sellers or buyers would like. Global, cross-border e-commerce allows shoppers to buy from anywhere in the world, find lowest prices on products, and access goods not available in their own local markets. On the other hand, merchants are able to tap into larger markets, increase sales, and bring their brand to a global stage.
In theory, it’s the golden age of ecommerce providers. Unfortunately, there are still a number of snags around cross-border e-commerce that make it difficult to turn theory to reality for most merchants. Building and maintaining infrastructure and logistics for direct-to-consumer services in other countries is prohibitively expensive and requires wide networks of partnerships, payment and shipping options, and developers that most retailers simply can’t afford. The effect is that, despite the potential benefits for building a global brand, it simply isn’t a strategic or viable option for most retailers.
That’s where Global-e Online - GLBE 0.00%↑ - comes in. Its platform enables effortless scaling and revenue growth for online retailers, improves shopping experiences for customers no matter where they are, and allows e-commerce to take a step closer to allowing truly global online trade.
*Disclaimer: I am not a financial advisor, planner, analyst, or any other certification related to finance. This article, and everything else from Hourglass Investing, is intended for research and entertainment purposes only. Please don’t make any investment decisions based solely on what you read.*
**Disclaimer: I do not currently own shares in Global-e**
Snapshot (as of Writing):
Market Cap: USD $6.6bn
Enterprise Value: USD $6.4bn
Gross Margins: 40.6%
P/E: Not Profitable
Only Got 5 Minutes?
Here’s What You Need to Know:
Global-e is the leading provider of cross-border ecommerce solutions with its platform that enables merchants to tap into international markets and improve traffic conversion rates by as much as 180% with low investment.
The business is centered around a percentage-based revenue-share model that aligns Global-e with its customer base and drives a strategic capital allocation strategy designed to benefit its customers, and ultimately Global-e in the long term.
High switching costs and a data flywheel that strengthens Global-e’s value proposition to clients help to give Global-e a competitive advantage over other providers in the space.
Partnerships with Meta & Shopify add a significant number of merchants and gross merchandise value to Global-e’s platform, and are only just beginning to work their way into Global-e’s results, with significant growth expected over the coming quarters and years.
Global-e is founder-led with management and shareholder alignment, and operates in the fastest-growing cross-border segment of the wider ecommerce market, with plenty of growth runway as ecommerce grows its 20% market share in the total retail space.
While still in growth mode and negative on a GAAP profitability basis, revenues, EBITDA, and free cash flows have grown at impressive clips, while capital efficiency metrics and bottom-line results are expanding and trending positively.
There’s a lot to love about Global-e. Unfortunately, this has led to a lot of love from institutional funds and larger investors, which have driven the stock to expensive prices. Can Global-e’s business model justify the cost?
Global-e was founded in 2013 with the mission of allowing retailers to bring their online operations global while remaining local - that is, to offer their products across the globe while providing a localized experience to their shoppers. It’s a value proposition that allows online merchants to scale their operations without the normal hassle of global ecommerce: different languages, pricing in native currencies, payment processing with a variety of different dominant providers, duties and taxes, international delivery infrastructure, and multi-lingual after-sale support and returns.
That’s a lot of hassle for a merchant - so much so that it’s nearly impossible for smaller retailers or lower-margin businesses to pull off, limiting the revenue and branding potential that merchants can gain from going international.
Unlocking that potential was the mission that founders Amir Schlachet, Shahar Tamari, and Nir Debbi set out to deliver on. Since 2013, Global-e has itself expanded globally from its headquarters in Israel, launching first in the UK and later into Europe, North America, and beyond.
Global-e IPO’d in May 2021 and closed its first day as a public company at $25.5. It ended up being a very great time for a company like Global-e to go public - the Covid-19 pandemic was still in full effect and had driven a lot of traffic to online shopping, boosting global ecommerce significantly and forcing a lot of merchants to consider their online retail strategies sooner than they might have otherwise needed to.
These tailwinds and the growth they provided to Global-e, along with the general hype-craze of the 2021 stock market, drove shares in GLBE 0.00%↑ up to $81/share with a more than 50x P/S ratio. That’s when the company first caught my attention, but I can’t stomach those kinds of sales multiples on any business, no matter how interesting.
Shares have since come down ~50% from the peak while revenues have more than doubled, giving the company a still pricey but significantly more palatable ~12x P/S ratio. More importantly than revenues, however, Global-e has also significantly expanded its network of merchants, demonstrated proven successes with customers, and built partnerships with leading e-commerce, logistics, and payment providers.
The underlying business has grown in all the ways you’d want a young growth-oriented company to, and so I deemed the time was ripe for a re-evaluation of the business.
Company Grade: A
“The big problem is that you really need to take care of the whole consumer experience, there are no quick wins here … there is not a single thing or two that you can do and solve most of the problems. You really have to cater to every need and every preference of that international consumer, wherever they come from, from the moment they step on the website, to the actual purchase and post-purchase experience.”
-Amir Schlachet, Global-e CEO & Co-Founder
Global-e is the leading provider of cross-border ecommerce solutions through its end-to-end platform, which effectively serves as a plug-in for the native websites of its customers. The platform essentially allows Global-e to serve as an extension of its customers’ businesses, wherein Global-e works to handle the operational side of sales to make global ecommerce sales as simple as domestic sales for its customers. Global-e works to simplify, optimize, and de-risk their customers’ international businesses by providing customer support and localized shopping experiences, while merchants are able to sell products across more than 200 locations while retaining their branding and customer relationships.
Now, when I first started looking at this business, I didn’t think this ‘localized shopping experience’ was a very important value prop. I was very wrong. But in case you’re thinking the same thing, allow me to expand on just what this means. Localized shopping allows:
Merchant website UI in native languages.
Payment infrastructure based on local preference.
For example, Chinese customers prefer to use WeChatPay, while the UK and North America mostly use Visa/Mastercard. Other markets prefer Paypal or smaller local providers.
Compliance with local selling regulations like duties, taxes, and product restrictions.
Shipping through local providers.
After-sales support and returns management in local languages.
All of these options are integrated with the merchant website, rather than requiring additional online infrastructure. For example, let’s say a Chinese shopper is browsing on Hugo Boss, a Global-e customer and Germany-domiciled company - they can shop through the normal Hugo Boss website, which will display prices in Chinese Yuan and give local shipping options. When they make the purchase, they will have the option to pay duties and taxes during checkout with AliPay or WeChatPay, and then the order will go through Global-e’s platform - without the customer ever knowing.
This is all hugely additive to the shopper’s experience and helps to combat an estimated 70% abandonment rate on online shopping carts. Merchants, in turn, are able to grow international revenues - without the extremely capital-intensive process of building out and managing a network of online & physical infrastructure, logistics, and partnerships. But more importantly than upfront revenues and cost-savings, merchants are able to fully cater to their customers, which helps to create returning and loyal customers. Take duties and taxes as a simple example of this - most online merchants don’t provide local calculations on duties and taxes and aren’t upfront about the extra cost involved. Global-e calculates the extra cost and provides it upfront for the consumer so that they’re not caught by surprise. The extra cost is still there, but providing it upfront and not surprising consumers with an extra $100 at the door for a duty tax they didn’t know they had to pay - that creates a more positive shopping experience, and in turn, shoppers are more likely to become repeat customers.
Within that value prop is the reason I find the Global-e so interesting - it’s a two-way value proposition, enhancing both the merchant and the shopper experiences.
Merchants are able to scale globally without anywhere near the same resource strain required to build these capacities in-house - they can tap into a much larger market while maintaining margins and keeping CapEx focused on their normal operations. As an example, think about the fact that most clothing companies don’t employ a particularly robust team of developers or engineers that would be required to develop a different UI for each country. This task alone, without any of the logistics or partnerships, is a hugely inefficient and time-consuming process. Said clothing company may have to hire developers specifically for this purpose, not to mention allocating resources to build out all the other functions that Global-e offers for a seamless customer experience.
The entire process, from the decision to sell globally to actually doing so, would be a huge drag on a company’s margins, resources, and time - it could take years to fully build out or may be a wholly impossible proposition, depending on the size and resource pool available to the company. Meanwhile, the company is limited in its ability to make other investments and grow its core business. By the time it’s actually built, if it even can be, the company has diverted huge amounts of cash and company time towards it, and has a long period before they begin realizing real returns on their investment - a period made even longer by the ongoing costs of continuing to manage this network.
The fiscal cost aside, the opportunity cost of not having grown other parts of the business over that period is massive. It’s for these reasons that many retailers choose not to go global in the first place - despite the massive opportunity it can present, the cost is so prohibitive that international expansion actually ends up being a non-strategic business move.
However, there’s also an opportunity cost associated with not going international. Approximately 1/3 of traffic to online shops comes from international sources. Merchant’s inability to provide a good shopping experience for these potential customers drives down traffic conversion rates and limits revenue potential.
Partnering with Global-e limits the upfront fiscal and underlying opportunity costs by bringing merchants to global markets in far less time (3-4 months on average) with minimal investment, all while providing the tools to take advantage of the significant international traffic. Once the merchant’s online store is integrated with Global-e’s platform, they get access to data-driven insights that allow them to make location-specific optimizations for increasing sales. This, along with the localized shopping, payment, and shipping features for shoppers, raises traffic conversion by figures that range from 40-180%. You can find about a bajillion customer success stories here, with most sporting really strong YoY growth and some even boosting traffic conversion by 48% in as little as three months.
Global-e also handles the calculation of import duties and collection, sales taxes on foreign income (and recovery if products are returned), currency fluctuations, local regulation compliance, hedges the foreign exchange rate, and protects against potential payment frauds, removing the grunt work for merchants while minimizing risk.
In essence, the benefits to merchants can be summed up as follows: faster, simplified, and low investment; low risk expansion into larger markets; higher revenues; increased brand awareness; and improved conversion rates.
While merchants definitely have the most to gain from Global-e’s value prop, the benefits for shoppers shouldn’t be ignored either. Customers have access to customer support and return services in more than 30 languages, prices can be displayed in local currencies (with 100+ options), and payment options are available across 150 different methods. They’re also provided with upfront costs for shipping, duties, and taxes, with the ability to pay for all at checkout so that there are no surprises after payment has taken place.
All of this combines to create the feeling for shoppers of dealing with a local brand rather than one from an entirely different country. On this front, the shipping options in particular are a big value add for shoppers. Many international shoppers abandon their carts when they discover a lack of viable shipping options or the exorbitant cost of doing so. Global-e’s network of shipping partners allows merchants to connect shoppers with multiple local shipping options and ensure these carts aren’t abandoned (I have abandoned more carts than I care to count because they didn’t ship to Canada, so I can attest to the beauty of this).
Global-e’s business model is structured around gross merchandise value - rather than offering their platform on a SaaS basis, Global-e charges service fees determined as a percentage of the gross merchandise value (GMV) that merchants sell through the platform, though the percentage varies based on transaction volumes, outbound countries being sold to, and the level of customer service provided. They also offer fulfillment services through shipping with Global-e’s network of shipment providers, though merchants can choose whether they want this offering and may choose just to get the platform as a standalone.
The plans are offered on Pro & Enterprise levels - Pro is for SME’s with lower GMV, and can be integrated within a matter of days. The Enterprise plans are designed for larger businesses and require more time to fully integrate with the merchant’s online store. In turn, they receive an onboarding technician to help in this process, as well as ongoing reporting and market insights for different geographies that help to increase traffic conversion. If customers are large enough, they get dedicated ‘Success Managers’ that help deliver these insights and optimize international operations with their customers.
I like this business model a lot - firstly, it aligns Global-e with its customers’ interests and allows the company to grow alongside its customers. Secondly, this model aligns capital-allocation interests. If Global-e is committed to driving customer success in order to drive their own success, they will make capital allocation decisions that improve the platform and/or capabilities for customers. As their value prop improves, their customer base will grow. With more customers comes more capital to further the value prop, and so on and so forth. Ultimately, it creates an attractive flywheel that ensures Global-e’s capital allocation strategy is always aligned with improving customer experience and growth.
Capital allocation isn’t the only flywheel that’s helping to grow Global-e’s platform, either. Data is a big part of Global-e’s value prop as well. As items are purchased, Global-e is able to collect data on traffic conversions and shopper habits across different prices, verticals, and geographies. They are then able to deliver this data to their customers to help decide granular best practices and ultimately optimize traffic conversion.
As their customers improve sales, they collect more data (& revenues) and deliver more accurate data on market trends. Global-e refers to this data as Smart Insights, and they are the primary driver of the improved traffic conversion and revenues that Global-e’s customers get from signing on to the platform.
Global-e has two very valuable partnerships that need highlighting, as they vindicate Global-e’s growing brand and the success of its platform, not to mention the scale of its network - Meta & Shopify.
Shopify partnered with Global-e to make them the exclusive provider of cross-border tools for its merchants. This partnership will give Shopify’s 1.75m merchants access to Global-e’s suite of tools and data, significantly improving Shopify’s value prop to merchants. Shopify also took an equity stake in Global-e as part of the partnership, with Global-e issuing warrants for Shopify to vest to increase their ownership down the line**. In exchange, Global-e receives access to a huge number of merchants, a significant boost in GMV, and an endorsement from a leading ecommerce provider to grow brand awareness.
This partnership is still in its very early stages - after two years of development between Shopify and Global-e, the integration of Global-e’s tools on Shopify’s native app, called Shopify Markets Pro, only just came live earlier in Q3 ‘23. Given the very recent release, the revenue contribution from Shopify’s merchants has yet to really take full effect in Global-e’s results, with management expecting more growth over the coming years as more merchants adopt the Shopify Markets Pro platform.
Very similar to the Shopify partnership, Global-e’s partnership with Meta allows merchants using Meta Shops to sell on the Meta Family of Apps access to Global-e’s tools for cross-border ecommerce. Global-e gets exclusive access to a huge customer base of approximately 250m active stores and a boatload of GMV alongside that. This retail channel has become a focus of Meta to reignite advertising on the platform and compete with TikTok’s marketplace, so I expect more merchants and shoppers will be funnelled on as Meta prioritizes the growth of shops on its platforms.
On top of the Shopify and Meta partnerships, Global-e also has a number of channel partnerships with different payment providers like PayPal and logistics providers like DHL, as well as other big names like IBM, SalesForce, and SAP. There are also technology-oriented partnerships with companies that provide the tools or support necessary to Global-e’s value prop, such as driving the data insights on Global-e’s platform or helping clients adapt their physical stores to the digital realm, for example.
**A quick note on the warrants: There’s some accounting skullduggery going on here that writes these warrants down as a non-cash expense that somewhat skews Global-e’s profitability metrics, and because they were issued prior to Global-e’s IPO, the warrants are also not dilutive to current shareholders. Accounting is a fickle and arcane art.
The customers that Global-e has signed on are a huge endorsement of the platform and include well-known brands like Hugo Boss, Kylie Cosmestics (as in Kylie Jenner), luxury brand Paul & Shark, and Lulus, just to name a few. Customers are typically signed on for a minimum of 12 months with stipulations for a minimum of $50K in annual sales. After signing, many of these brands are able to realize YoY traffic conversion growth between 40-200%
Beyond the endorsement, the customer base serves as a nice form of diversification - though definitely still oriented towards consumer discretionary brands, Global-e’s revenue base is driven across different brand sizes, from brick-and-mortar retailers just starting to include digital offerings, as well as across vertical markets, regions and countries, and across price points. This last one is of particular note, as a number of luxury brands have integrated Global-e’s platform, including several of the ‘maisons’ under LVMH. Not only are luxury goods largely resistant to recessions, but these brands also offer a higher-margin product base for Global-e to profit from. All in all, the diversified customer base should offer Global-e some nice downside protection against market downturns or regional geopolitical conflicts.
I’d like to take a second to discuss LVMH as a customer, specifically. Beyond just providing higher-margin products and a nice chunk of revenue, LVMH is also a huge indicator of the effectiveness of Global-e’s platform - firstly, LVMH is a huge brand. They have lots of resources. If they are finding it more strategic from a cost- and time-perspective to partner with Global-e, that is indicative of both the difficulty of international expansion and the value add that Global-e offers. Secondly, Global-e has consistently onboarded 2-4 more LVMH brands every quarter for more than a year, which tells me that LVMH has got a lot of value from the platform to continue integrating it into more of its brands. I think having LVMH as a customer is a huge win for Global-e, not just for its topline contributions but more so as an indicator of the value that it and other brands can get from Global-e.
Global-e’s expansion strategy is fairly simple - grow with existing customers and land new customers.
Expansion with existing customers has been going exceedingly well, with net dollar retention rates consistently above 100% and clocking in at 120% as of year-end 2022. LVMH has been an excellent existing customer expansion story, but Global-e is also expanding in existing geographies and verticals in addition to existing customers. For example, continuing to build out the number of EU or UK clients that it has on board. This is the #1 expansion strategy for Global-e, and while it may seem strange that they’re not focusing primarily on acquiring merchants in new geographies instead, it makes a lot of sense - with a broader range of verticals, price points, and business sizes in one region, Global-e can strengthen its data advantage and provide even better region-specific market insights for its customers, in turn driving better results for customers and themselves.
That isn’t to say that Global-e isn’t also trying to grow into new geographies with new merchants, though. Beyond strengthening its position in existing markets, the second growth strategy is to land new customers in different geographies and verticals, not only to increase revenues but also to further diversify the business. The growth that Global-e has had in new customers already is significant, growing from just 442 merchants at year-end 2020 to 657 by 2021 and 1036 in December 2022.
Global-e is particularly targeting the APAC region (specifically Japan) and the UAE for near-term future growth markets and has accordingly increased its headcount in Australia and Japan to service this growth. Over the last 12 months, Global-e has added customers in new geographies like Greece and Korea.
Global-e’s business model is not centred around acquisitions, seeing as it’s only made two since coming public, but management was able to scoop up a nice value add from both of those acquisitions.
The first acquisition that Global-e ever made was a $500m stock and cash deal for Flow Commerce, which helped to grow Global-e’s value prop and offerings to the small- and medium-enterprise customers Flow catered towards.
Global-e’s second acquisition was the all-cash purchase of BorderFree from Pitney Bowes for $400m, roughly 2.5x BorderFree’s sales figures. BorderFree was another cross-border ecommerce brand oriented towards larger enterprise brands and helped to grow Global-e’s traffic generation tools for its clients while providing access to the Global-e platform for BorderFree’s customers. It also entered Global-e into a partnership with Pitney Bowes to provide logistics and shipping infrastructure to further enable its fulfillment services.
More important than the acquisitions themselves, I think it’s a great sign of Global-e’s leadership in the space that they’re able to start eating up smaller players in the cross-border market to build on and improve their own offerings while cementing their leading advantage.
Global-e is the leading provider of cross-border e-commerce solutions, and while market dominance doesn’t provide a moat by itself, the scale provided therein gives Global-e a number of advantages over its competitors. Firstly, it provides more capital with which to improve the platform and add additional capacities and tools over its competitors.
Secondly, scale provides the data advantage that drives traffic conversion and revenue growth for customers. Data on country-, price-, and vertical-specific shopper behaviours provide Global-e customers with more insight into international markets, and these insights are only strengthened as more purchases are made and the data flywheel I mentioned above is strengthened. This network effect can potentially be a huge growth driver - if competitor ‘A’ has data-driven insights that increase conversions and revenues by 5%, but Global-e has more data to drive more insights and increase conversions and revenues by even just 1-2% more, then competitors are likely going to go with Global-e. As the flywheel continues to operate with more customers and more verticals providing a more diverse dataset, the network effects will strengthen and likely become a very strong moat.
The second and much stronger (for now) moat that Global-e has is extremely high switching costs. The platform is incredibly sticky, though it doesn’t seem to be something they advertise much to investors (which is a good sign! Companies with powerful moats don’t shout it out to the world for fear of regulatory crackdown). Global-e’s platform is so tightly integrated with its customers’ international business processes that switching to another provider would be extremely costly in terms of lost revenues as they make the conversion to another provider, as well as in lost time - specifically for larger enterprises that require longer onboarding processes.
Furthermore, the benefits that Global-e provides its customers through access to larger markets, data insights, increased revenues, and improved traffic conversion make the reward/cost ratio so high that there is very little incentive to switch in the first place. If they were to do so, lower traffic conversions and revenues would be a significant switching cost.
These are both incredibly attractive competitive advantages, and they will only get stronger as Global-e grows, creating a flywheel wherein offense strengthens the defense and defense fuels the offense. Global-e has the potential to create a very strong moat with this circular growth model.
What Will Widen This Competitive Advantage?
Global-e is allocating their capital very strategically towards enhancing their competitive advantages (think back to the incentive they have to do so) - namely, growing their presence in existing markets and verticals to drive region-specific datasets and strengthen the existing data flywheel, in turn making the switching costs higher.
This all sounded a little too good to be true, so I did some digging into the user experience on the Global-e platform. This blog explores some of the pros and cons with the actual use of the platform - with the main drawbacks being cost for the Pro plan in particular, control over merchant branding throughout the entire process, compatibility issues with social media feeds causing price mismatches, and somewhat janky checkout processes and backend platform capabilities. While these are all valid concerns, the reassuring part is that they are all fixable concerns, and with Global-e investing heavily in R&D, I don’t see them as long-term concerns. Compatibility issues on Meta's family of apps have at least been solved since the writing of that blog (through the Meta partnership).
More concerning to me is the pricing issues that the author claims forces some smaller customers away from the platform - though with 98% Gross Dollar Retention rates (dollar retention excluding upsells), I think I’d lean more towards this data point leaning more towards anecdotal - particularly in light of the increased revenue potential in international markets and the GMV-based business model outweighing cost concerns.
Business Grade: A
As always, we’ll start ‘The Team’ section off with a quick glance at Global-e’s Glassdoor rating. It’s always hard to get a read on companies that operate globally - Global-e had 385 employees in Israel and 382 globally as of the December 2022 headcount - because management will differ across locations. Still, a 3.7/5 star rating is pretty fantastic, though for some reason Glassdoor didn’t provide the CEO approval rating for Global-e, so the 3.8/5 star rating on senior management will have to serve as a decent proxy.
Most of the negative reviews stemmed from the nature of a young and growing company - lack of benefits and work/life balance being the main two. It’s to be expected from a company of this size, and not too worrisome (at least for me - I’m sure the employees wouldn’t mind some time off). Nothing stands out to me in either the positive or negative direction off the Glassdoor surface scratch, so let’s get into the management team.
Bank Hoalim is one of the largest banks in Israel, and it’s really from Bank Hoalim that Global-e’s story starts. All three founders held major roles at the bank - Amir Schlachet, Global-e’s CEO, served as SVP and advisor to the CEO at Bank Hapoalim, and prior to his roles there, he was a consultant at McKinsey. He holds an MBA and M.Sc in electrical engineering.
Shahar Tamari serves as the COO of Global-e, and was the head of e-banking and business development with Bank Hapoalim. He has a M.Sc in tech management and information systems with a business undergraduate degree.
Nir Debbi is now the President and Director of Global-e, though formerly held the role of Chief Marketing Officer. He was another SVP and head of strategy and business development at Bank Hapoalim, and also holds an MBA with a B.Sc in economics.
All three of the founders had significant and managerial roles at one of the largest banks in Israel, which pulled in nearly USD $11bn in 2021, which isn’t saying nothing. I also love to see a founder-led business, and they’ve grown Global-e literally from the ground up, overseeing the growth of the business across the globe and through its IPO on the Nasdaq.
As a final bonus, I really liked what I heard from Amir Schlachet in interviews - he is very obviously a smart guy and is super knowledgeable about his business, the industry, and where he’d like this company to go. You can check out a fantastic interview he did with Seeking Alpha here.
The final note I’ll make here on an individual team member is CFO Ofer Koren, who joined the team in 2020 just before the company’s IPO after serving as the CFO of - you guessed it - Bank Hapoalim since 2013. Over that time, the bank nearly doubled its market cap and delivered total returns to shareholders of ~11%, so I’d say the CFO role is in safe hands here.
The cumulative executive compensation is worth just $10.7m, with CEO Schlachet making $2.2m, COO Tamari $2.2m, and FCO Koren $1.6m. The base salary of all the executive officers is $327K, with the vast majority of their total compensation paid out in equity. I prefer the equity-weighted compensation to maintain management alignment with shareholders, and the size of the salary is exceptionally low for the size and growth of the company.
All equity is paid out based on hitting pre-set business targets throughout the year, set at a topline cap of 500% of base salary, and executives are required to hold it for a period of time to ensure long-term incentives: twenty-five percent (25%) can be sold a year after issuance, and a further 6.25% at the end of each quarter for the three years following that. Unfortunately, Global-e doesn’t seem to provide any specifics on the exact business targets that inform the incentive structure.
Here’s where we get to the part of things that’s a little less enticing - between VC and hedge & institutional funds, Global-e is more than 61% owned by huge investors, as well as a further 25.6% from large public companies. The outsized ownership from these sources adds a significant amount of interest in the stock and makes it more difficult for retail investors to get a more attractive valuation on the name.
It’s not all bad, though. Insider ownership is sitting at a fairly attractive level with 12.65m shares accounting for 7.7% total insider ownership, though this does seem to be down slightly from the roughly 18.2m shares owned by insiders by the end of 2022.
Team Grade: A-
What COVID seemed to do was hit the fast forward button for a lot of merchants during that period, and no merchant has gone back to saying ‘okay, now that Covid is over, I’m going to ditch my plans to grow my direct to consumer, or to grow my online business … it’s just not a conversation that’s happening.”
-Amir Schlachet, Global-e CEO & Co-Founder
Total Addressable Market (TAM)
Estimates on the size of the global ecommerce market vary, with some estimates putting it at $3.1tn in 2023, others at $6.3tn, and another claiming it already cleared the $14tn mark in 2021. No matter which way you swing it, it’s f**n big, and it’s growing fast - anywhere from 10-26% CAGR on the entire market.
It’s not unreasonable to think the market could sustain higher growth figures for years to come, either. Only 21% of total retail sales are expected to come from online sources in 2024, giving ecommerce plenty of room to continue growing and stealing market share from physical retail.
And the fastest-growing part of this huge and growthy market? Cross-border ecommerce, of course, which Global-e’s platform is helping to enable. Growing at approximately double the pace of domestic ecommerce, cross-border ecommerce is benefitting from innovations (like Global-e’s) in the international marketplace that allows shoppers to more easily access cheaper products or items not available in their local markets.
Similar to the wider ecommerce market, cross-border has plenty of runway for growing its market share with only a ~20% share of total ecommerce sales. The cross-border market was estimated at $627bn in 2022 with a 10x expected growth through to 2030 to put it at ~$6tn. The Covid-19 gave the entire industry a significant boost, and though the re-opening of physical stores has provided some near-term barriers to Global-e and the rest of the ecommerce industry, it’s by no means game over for ecommerce - this is a long-term trend with staying power, and Global-e, as a significant player in enabling one of the growthier parts of that industry, should benefit from a decade-long tailwind.
Tailwinds / Headwinds
Mostly, this is a story of tailwinds. Ecommerce is growing fast, cross-border ecommerce even faster. Shoppers want options from across the world translated into a local experience with shipping and payment options that benefit their preferences, regardless of where they are. Merchants are still in the early stages of recognizing the opportunity that international markets represent and building out direct-to-consumer capabilities to supply the need, but it is increasingly becoming a strategic priority as these trends take shape (particularly since the pandemic). However, the tools available to make this shift efficient and effortless for both merchants and shoppers are still limited.
Global-e will almost certainly benefit from this shift as the provider of those tools, and as the wider market, merchants, and shoppers increasingly favour international options. The first-mover advantage and significant scale that Global-e has already achieved should further help Global-e grow over competitors and stave off newer entrants to the market.
However, there are some headwinds involved - geopolitical conflict will always be something of an issue for a globally diversified business, and while Global-e doesn’t generate significant revenues from either Russia or China (two “hot” zones for geopolitical conflict over the last 5+ years), the business is still at risk from the conflicts of tomorrow.
On this same line of thought, Global-e is reliant on the continued interdependence of countries on one another in a global trade system. That’s central to its thesis and future growth - yet in the last number of years, we’ve seen the restriction of trade goods between countries. From semi-conductors restrictions to trade embargoes, some nations have begun to shift somewhat towards isolationist tactics.
While this hasn’t extended to the consumer discretionary products that Global-e is mostly oriented towards, this is a trend that could provide headwinds in the future if it continues and introduces an element of risk to Global-e that’s fully outside the company’s ability to control. Geographic diversification across various regions does help to mitigate this risk, and ultimately, I remain optimistic on the interdependent global trade system, but it’s something to keep in mind.
As the leading player with the widest scale, network, and suite of tools, as well as its competitive advantages (switching costs, data flywheel), Global-e doesn’t face a ton of risk from other platforms at this point. The bigger risk for now comes from consumer brands building out their own capabilities rather than partnering with Global-e to provide international sales. Given the prohibitive cost even for larger players with plenty of resources, such as LVMH, I think the fiscal and opportunity value obtained from using Global-e is evident and will only become more so as Global-e builds out its network of tools and partnerships, and expands its brand and value prop within the industry.
Industry Grade: A+
Revenues (TTM): $524.4m (+49%)
Gross Profit (TTM): $213.1m (+57.9%)
EBITDA (TTM): $45.7m (+366%)
Total Shares Outstanding: 164.9m (+3.8%)
Free Cash Flow (TTM): $63m (+82.6%)
Interest Coverage Ratio: 355.6%*
Balance Sheet: The Good
Growing Returns on Capital Metrics
Global-e is still in full growth mode, so it’s not surprising to see its return on capital metrics in the red. However, I always look to see these trending in a positive direction to see if investments are starting to slowly pay off, even if the full scale isn’t quite there yet. Global-e’s returns on capital metrics from 2022 to TTM figures have grown across the board:
ROIC: -27.8% → -14.7%
ROE: -24.1% → 15.4%
ROTC: -12.7% → -8.6%
ROCE: -20.2% → -13.8%
While margins are overall low for a software provider (mostly because they do more than just provide software, but more on this in a second), Global-e has started to achieve operating leverage as more merchants use the platform and gross merchandise value expands.
Since coming public, gross margins have expanded from 37.3% to 40.6% (+5% CAGR), EBITDA margins from 7.7% to 8.7% (+7% CAGR), and FCF margins from 5.2% to 12% (+60% CAGR). Net and operating margins remain negative, but losses on these fronts have narrow, with net margins growing from -30.6% → -26.7% and operating margins from -26.8% → -24.5%.
As more merchants join the platform and the GMV metric expands, Global-e will have stronger operating leverage that will continue to expand margins. I don’t think we can ever expect to see 80%+ gross margins on Global-e, given some of the tools that they offer customers and the nature of the business, but I expect this figure to trend upwards fairly consistently over time.
Global-e is nicely diversified across different regions and not wholly dependent on any one market for its revenues, which gives it some nice downside protection to complement its vertical and price diversification. The growth of the U.S. market has been significant and it’s become Global-e’s largest revenue contributor at ~43% of revenues, which is unsurprising given that it’s the second-largest ecommerce market.
Inbound sales, which represent the buyer’s country, are mostly dominated by Canada and the U.S., which both accounted for 11% of inbound sales in 2022. No other country accounted for more than 10%, so the business is even more diversified in terms of the shopper’s location.
As for merchant diversity, 51% of Global-e’s customers are in North America, 34% in the UK, and 13% in the EU. No other country represents an outsized percentage of merchants, with the last 2% simply being labelled as ‘Other’, though Israel is very likely a large chunk of this final 2%.
The leading ecommerce market, China, doesn’t represent any significant revenues for Global-e, but I expect this will change. The ecommerce market in China is larger than the North American and Western European ecommerce markets combined, and Global-e has subsidiaries operating in Shanghai and Beijing, presumably to service the potential in this market. Global-e’s management hasn’t provided any commentary on the Chinese market or business operations, so it’s unclear whether growth in China is even part of Global-e’s strategic priorities at the moment.
Rising R&D Spend
Research and development spending is vital to maintaining a competitive advantage, so I always love to see growing R&D allocation. Since 2020, the percentage of revenues put towards R&D has grown from 11.3% (‘20) to 12.3% (‘21) and 19.9% in 2022.
Global-e capital structure isn’t oriented towards debt at all, with a D/E of just 2.4%. Total debt sits at just $21.5m, well covered by a cash position that gives it a net debt figure of -$231.4m. With free cash flows growing as well, Global-e should have a stable financial position as it continues to grow, without being very vulnerable to interest rates.
Free Cash Flow
FCF has grown from just $12.9m in 2021 to $63m in TTM figures, good for a 148% CAGR and a solid cash position that should help to further Global-e’s growth into the future. Furthermore, for a company that’s in a period of significant investment, free cash flows are a great way to measure how sustainable the business is and it’s ability to drive some measure of bottom-line growth. Cash is king, as they say, and Global-e’s positive and growing free cash flow figures are a great indicator to investors of the effectiveness of the business and Global-e’s ability to break even.
Tolerable Share Dilution
Total shares outstanding have grown from 150.5m in 2020 to 164.9m - while shareholder dilution is never ideal, it’s seemingly the name of the game to attract and retain the talent necessary to succeed in the tech industry. The 5% CAGR in total shares outstanding is actually fairly reasonable for a tech company that’s undergoing the growth and capital appreciation that Global-e is, and doesn’t represent unpalatable dilution for shareholders.
Along with free cash flows, Global-e has grown revenues and EBITDA at impressive and fairly consistent clips:
Balance Sheet: The Bad & The Ugly
As I briefly mentioned, Global-e’s gross margin isn’t necessarily what you’d expect out of your average software provider, but there’s lots of potential for the margin profile to expand as GMV expands. Still, Global-e operates a fairly capital-intensive business model - building and maintaining the infrastructure for payment services, software, logistics & shipping, and call centers has kept gross margins roughly around 40%.
This will grow with operating leverage, but there will be a limit on the margin growth while providing services like Global-e’s ‘Success Managers’, employees that work directly with clients to optimize their international sales. This is critical to Global-e’s value proposition and long-term growth, so it’s money well-spent, but still places an upper limit on margin potential.
Rising Sales & Marketing Spend
Sales and marketing expenses have grown from just 6.9% of total revenues to 13% in December 2022 - unsurprising for a company trying to grow awareness towards its brand and value prop while penetrating a growing market. The lengthier sales cycle to onboard clients will play a big part in this as well - as Global-e signs on larger merchants these expenses as a percentage of revenues will very likely continue to grow. I’m not too concerned about this in the near-term, as it’s necessary for Global-e’s growth, but as the company starts to gain stronger operating leverage, I’ll be keeping an eye on it to see if it starts to come down relative to total revenues.
This is one of those Christmas-time stocks that simply does better in the fourth quarter, in this case because a lot of international shoppers are turning to ecommerce to provide Christmas gifts. Q4 accounts for approximately 1/3 of Global-e’s annual revenues, and this figure is unlikely to change - meaning the stock may experience some volatility in the other quarters, particularly Q1 & Q2 as the sequential results decline somewhat. For long-term investors, this isn’t a worry at all and may actually provide a decent entry point in the shares.
Key Performance Indicators (KPIs)
These are the key metrics I’m watching to determine Global-e’s growth and success with customers:
Gross Merchandise Value (GMV)
Gross Merchandise Value signifies the total value of goods being processed through Global-e’s platform. If an international shopper buys a $2000 Hugo Boss jacket, that’s $2000 of GMV contribution. It’s this figure that Global-e uses to calculate the revenues they receive from customers. Higher GMV means higher revenues, as well as stronger operating leverage necessary to grow the margin profile.
GMV is the single-greatest indicator of Global-e’s success, not only because it determines topline revenues from customers, but also because it helps to indicate expansions with existing customers (which # of merchants doesn’t) and the size of the customers using the platform. This last one is particularly important, as bigger customers sell more products, which increases GMV and revenues for Global-e.
Global-e had $2.45bn in GMV for year-end 2022, with $839 in Q3 ‘23 and $2.4bn over the first three quarters of 2023. YoY growth rang in at 55%, 54%, and 35% in Q1, Q2, and Q3 respectively. Management commented on macro-economic pressures on the consumer accounting for the slowdown in demand during Q3 (though 35% YoY in a slower environment is pretty damn impressive).
There’s also a little side-note metric to watch within GMV, which is the growth in GMV for Global-e’s customers. As mentioned, Global-e’s tools provides better shopping experiences that help to increase traffic conversion from the roughly 1/3 of online shop visitors that are international shoppers. This increases sales for merchants and subsequently GMV, so monitoring the growth of GMV for merchants demonstrates the effectiveness of Global-e’s platform and data insights. Growth rates in customer’s GMV have hovered between 3x and 5x for each year of customers that signs on to the platform, which is a pretty significant value prop for merchants.
Net & Gross Dollar Retention Rate
Gross dollar retention rates are a more accurate metric to follow to analyze the actual retention of customers, while net dollar retention rates are more useful to see Global-e’s growth with existing customers.
GDRR has consistently been above 98% since 2018, which is an incredible retention rate, while NDRR was 152% in 2021, 130% in 2022, and expected to maintain the 130% level in 2023, showing Global-e’s pretty fantastic success with not only keeping customers but also expanding operations with them. It’s impossible to fill a bucket if it’s leaking, so these are great signs that Global-e can continue growing, not to mention fantastic indicators of the platform effectiveness and value prop.
Number of Merchants
While not as good as GMV, since it doesn’t account for customer expansions or the size of merchants, the actual number of merchants is still good to keep an eye on to see how Global-e is continuing to grow the brand and the effectiveness of its marketing expenses.
Global-e had 1036 merchants across 28 countries as of December 2022, and has only continued to grow this number since. Though I couldn’t find an updated customer count, they have announced an additional 46 customers added on through the first 3 quarters of 2023 for a total count of at least 1082. I suspect that the company only announced its major customer acquisitions during the quarterly earnings reports, and that the total customer count is actually higher than this.
Defense & Offense
Data flywheel - Defense & Offense
Switching costs - Defense & Offense
Expand with existing customers, and in existing geographies & verticals - Offense & Defense
Onboard more merchants, grow into new geographies & verticals - Offense
Ride the wave - Offense
Fundamentals Grade: A
FCF Yield: 2.1%
At more than 12x sales and ridiculous multiples on EBITDA and FCF fronts, Global-e doesn’t come cheap. This is partly due to a hot IPO and strong institutional interest that drives the shares up.
But this is still a high-quality company with the potential to become even more high-quality as operating leverage and margin improvements set in, bigger merchants sign on to the platform, and Global-e continues to grow around the globe. Furthermore, the FCF yield for such a young company is fairly strong and the growth has been significant, with still plenty of runway to grow as the leading provider in a nascent cross-border ecommerce market.
So, for long-term investors willing to swallow some shorter-term volatility risk, could the name still be a strong portfolio pick over the next 10 years? My feeling is yes, the company has all the makings of the sort of business you look back on in a number of years and kick yourself for worrying about the valuation, but let’s run some (very) rough, back-of-the-napkin forward valuation numbers and see how it’s looking.
For a 5-year holding period ending December 2028:
The data flywheel isn’t strong enough to provide really strong competitive advantage. Revenues slow down significantly from the 54.5% CAGR from ‘21-’22 as more competitors enter the market and Global-e isn’t able to stave them off. I estimate Global-e will pull in $1.5bn in revenues, good for a 23.4% sales CAGR.
I assume the P/S ratio compresses from 12.6x to 7.3x as revenue growth slows and competitors force margin compression and raise concerns on the business, though it remains relatively richly valued based off the continued growth in the ecommerce market.
Total shares outstanding continue to grow at a 5% annual clip to reach 210m shares.
Based off the revenues and sales multiple, Global-e sits at a roughly $11bn market cap by 2028.
With 210m total shares outstanding, the 2028 share price would sit at ~$46. At the current price of $40.22/share, Global-e shares would offer a 14.4% upside (2.65% CAGR). A pretty crap investment overall.
For a 5-year holding period ending December 2028:
Global-e’s data advantage and switching costs give it a significant lead in the industry and allow it to drive high growth for several years. The company pulls in $2bn in revenues, good for a 30.7% sales CAGR - still a slowdown from the 54.5% clip, but strong growth nonetheless.
I assume the P/S ratio compresses from 12.6x to 8.3x as revenue growth slows down a bit, though it remains quite richly valued based off the growth in the ecommerce market and margin expansion
Total shares outstanding continue to grow at a 5% annual clip to reach 210m shares.
Based off the revenues and sales multiple, Global-e sits at a roughly $16.6bn market cap by 2028.
With 210m total shares outstanding, the 2028 share price would sit at ~$69. At the current price of $40.22/share, Global-e shares would offer a 72% upside (11.4% CAGR). A decent investment overall - it beats the S&P 500 average CAGR of 10%, though it’s not anything mind-melting.
Very Bull Thesis
For a 5-year holding period ending December 2028:
Global-e’s data advantage and switching costs give it a significant lead in the industry and allow it to drive high growth for several years. The company pulls in $2bn in revenues, good for a 30.7% sales CAGR - still a slowdown from the 54.5% clip, but strong growth nonetheless.
I assume the P/S ratio compresses stays the same (12.6x), as the company is rewarded for consistent strong double-digit growth, as well as a turn to profitability, significant margin improvement, and strong positive capital efficiency metrics.
Total shares outstanding continue to grow at a 5% annual clip to reach 210m shares.
Based off the revenues and sales multiple, Global-e sits at a roughly $25.2bn market cap by 2028.
With 210m total shares outstanding, the 2028 share price would sit at ~$105. At the current price of $40.22/share, Global-e shares would offer a 261% upside (21.2% CAGR). A very, very attractive investment that smashes the market’s 30-yr average 10% CAGR.
At the current prices, Global-e only really makes sense if it does incredibly well and is rewarded incredibly well by the market for it. It has to sustain very strong revenue growth and turn into a very high-quality, capital-returning, and cash-flowing machine to justify continued rich valuations, and only then will it really generate outsized returns. Some slightly less bullish model of the ‘Super Bull’ thesis would still makes sense, too - either some multiple compression or lower revenue growth. But the case remains that Global-e would have to do very well.
Now normally, I leave these at a bear and bull thesis and call it a day (it’s a very rough valuation after all), but I added in a very bullish thesis this time because I was reminded very strongly of a young Trade Desk as I dove into this business. By 2028, it will be roughly the same age as The Trade Desk is now. They both are leading players of a new way of doing things in a massive industry - and Global-e may even have a slight advantage in its industry, given that it isn’t trying to disrupt industry behemoths. The Trade Desk even sported pretty similar growth numbers when it was 2 years old as Global-e does as a 2 year old company.
And The Trade Desk was awarded strongly for it. It’s turned profitable, and has strong capital efficiency metrics and margins, is continuing to grow at a roughly 35% 3-yr CAGR, and is valued accordingly at 19x sales. The comparisons were striking enough that I decided to include the Super Bull thesis to model Global-e’s growth potential if it follows a similar trajectory. Obviously, it’s not an apples-to-apples comparison, and the advertising industry is much larger than the ecommerce market is at this point, so take this with the biggest grain of salt you can find.
Either way you swing it, investing in Global-e is not for the faint of heart. For the shares to deliver strong enough returns to compensate for the associated valuation risk potential, both the company and stock would have to perform really, really exceptionally.
Despite limited near-term growth (+6.4%), analysts are clearly optimistic on about Global-e’s stock, with 9 Strong Buy ratings and 1 Hold rating, even after lowered guidance on the latest earnings call.
Obligatory warning about analysts being human and therefore likely wrong, often short-term oriented, and to not base your investment decisions exclusively off analyst ratings, etc. etc.
Risks to Share Performance
Rich valuation may diminish return potential
Potential for value prop to lessen as technology improves, global expansion may become easier in terms of infrastructure required
Data advantage may not prove to be as strong as I think it is
Macro-economic environments that hurt the consumer’s discretionary spending ability
Global foreign exchange rates
High institutional ownership
Shopify Partnership & Investment
Industry tailwinds and significant growth runway
Growth in KPIs
More or Less Interested
I’m definitely more interested in this name - I think Global-e has the potential to be a very high-quality growth company with its leading platform and value prop that enables merchants to tap into international markets and expand sales growth. Its competitive advantages have all the signs of a strong moat in the making, and the company’s business model is aligned with its customers. The management team seems to be quite strong and aligned with shareholders.
The main drawback is the valuation - though definitely expensive, I see a world where this valuation can still drive impressive returns for shareholders willing to stomach the (significant) risk and hold for a long period. I have a very long investment horizon and lots of stomach for volatility over that time, so I’m willing to take the risk for the growth and quality potential that Global-e offers.
I can compromise on my normal valuation hurdles and general preference for smaller-cap companies when businesses warrant the compromise, and Global-e has so far been doing that not only through top-line growth, but also with its expanded margin profile, improving capital efficiency metrics, and strong free cash flows.
Investment Grade: C+
The Short Story
Global-e is a founder-led and mission-driven company working to enable global ecommerce with its platform of tools that allows merchants to tap into global markets, drive improved conversion rates, and grow sales figures. The value proposition for both merchants and shoppers is strong, and Global-e’s alignment with its customers ensures strategic capital allocation that will drive long-term success for both parties.
The company operates in a massive and growing ecommerce industry, as well as the fastest-growing segment of that market. It’s got plenty of growth runway and is led by experienced business professionals that should be well-positioned to continue growing the company. As a bonus to investors, they are aligned with shareholders in terms of salary, equity incentives, and insider ownership.
It’s also well positioned to stave off competitors within that industry - its first-mover advantage has allowed it to become the leading provider of D2C enabling tools, offering it a scale and data advantage that attracts customers and further expands its data flywheel, which in turn creates a beautiful “offense → defense→ offense” circular growth model. High switching costs further strengthen its competitive advantages, with have the potential to become a strong moat as Global-e executes on its global growth strategies.
Global-e is more than a nice story, too - topline revenue, EBITDA, and FCF growth compliments expanding margins and a trend towards bottom-line profitability and improving capital efficiency metrics. It has consistently grown its KPIs, albeit over a short operating history as a public company, and maintains very high retention rates with an impressive list of customers.
All this, of course, has led to a lot of attention from institutional investors and subsequently a rich valuation. Investors have to be willing to take on serious risk potential with this name, but if they are suited to the risk & volatility and Global-e continues to deliver steady improvements while maintaining alignment with its shareholders and its customers, they may be well-rewarded for it.
I’m incredibly optimistic on the company, and in light of my own risk appetite and investment horizon, it’s a buy for me. (NOT financial advice - do your own due diligence and back up my research with some digging of your own, as always!).
Now, let’s hand out Global-e’s final report card.
Final Grade: A-
Hope you all enjoyed this deep dive on Global-e! See you back in a couple weeks for another deep dive into a company I haven’t yet decided on, so stay tuned!
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