Lede

Global-e (GLBE) reported earnings in August, and it again shared strong results.

Please enjoy our one-on-one conversation with the CEO of Global-e (GLBE) after the Q2 2023 earnings report.

As a reminder, all our CEO and CFO interviews for all companies are available on the Interviews Tab.

 

One-on-One with the CEO of Global-e (GLBE)

Ophir Gottlieb:
On the earnings call you discussed how Global-e continues to consolidate and streamline the platform stack post-acquisition, the two big acquisitions, Flow and Borderfree.

And you continued to say, “When it’s time there’ll be significant growth coming out of those integrations.”

I think now is the time to break down … We’ve talked about Borderfree a lot.

But to break down the progress on Borderfree and Flow, and what should investors be thinking about in 2024 from these two integrations? As many steps as you feel comfortable providing, what has to happen?

Amir Schlachet (CEO, Global-e):
Sure. So, you want to talk about both Flow and Borderfree?

 

OG:
Let’s start with Flow. We’ve done a lot with Borderfree.

AS:
That’s exactly what I wanted to suggest. Flow is easier because Flow was planned to remain an independent platform as you know.

And basically, the story of Flow is now basically converged with the story of Shopify Markets Pro, at least for now.

So, on that, as I think we even discussed last time, we are already seeing the growth coming.

It’s not that we are on the launchpad just waiting for the launch. This has been launched.

It’s still in early access mode but we are seeing, especially over the last couple of weeks, I would say larger and larger cohorts of merchants that Shopify is outreaching to. We’re happy with the growth trajectory that we’re seeing there.

As we discussed on Shopify Markets Pro, that’s exactly the plan for the Flow platform, which is to have already, I would say, some impact on our Q4 this year, but mainly we’re looking at a 2024 onwards impact.

We have, I would say, every reason to believe right now that this is going to be, I would say, a massive boost over time to our growth potential. So, this is Flow.
In terms of the integration itself, it’s pretty much done.

The company integration, as planned, we kept the tech team as a team.

We’ve augmented it a little bit with resources from the Global-e side but it’s main base is what used to be the Flow technological team.

We’ve just been laser-focused on developing the support for Shopify Markets Pro, and we’ve added … As I said, some of our teams have added some resources on the product side, some product knowledge, and experience from our end.

We’ve added service providers and facilitated the integration of some of our enterprise service providers onto the Flow platform like our fraud provider and so on and so forth.

But all the rest of the functions, we basically distributed into Global-e so it’s laser-focused. Nowadays, it’s become our SMB division.

So that’s basically Flow.

 

OG:
Borderfree we’ve done so many times I don’t want to make you do it again.

AS:
The reason why I thought Flow is actually easier is because on Borderfree it’s actually bifurcated.

There is the demand generation piece which we talked about quite a lot.

For the sake of completeness, it is important to mention that there is still the Borderfree platform which has some legacy merchants that are already on it.

That is planned to be deprecated at some point.

Honestly, we wanted to do it quicker but at the same time we don’t want to alienate the merchants that are on it.

There are some pretty big and potentially big merchants that are still on the Borderfree platform.

We didn’t want to push them too hard. We had discussions with them, and basically, a lot of them told us, “Listen, we are interested” … “We understand the benefits of moving, i.e. re-platforming to the Global-e platform, but it’s just going to be too quick for us to do it on a very short timeframe. Give us some time. We’ll be happy to look into it.”

And we’ve already had some successful discussions there.

But basically, the other alternative was to just say, “Okay, we’re shutting it down.”

And they would say, “Listen, with all our best intentions we’re going to have to just disconnect because we don’t have capacity for it right now.”
And we didn’t see any reason to do that because we put the platform, and they know it, in maintenance mode so we don’t invest too much resources into keeping the lights on.

We’re not developing any new features we’re just maintaining it. And in due time we’ll take the lights out.

 

OG:
Okay. That’s interesting.

Customers worth keeping but you have to be mindful of the speed at which they’re going to do things. That’s fair.

AS:
Exactly. We have the incentive to do that because we have already taken off merchants from Borderfree before we acquired them, we won some clients off the Borderfree platform.

And we have a few good case studies on, I would say, a pretty meaningful jump in conversion rates just by switching from the Borderfree product, which was not really up to speed, it wasn’t cutting-edge, to the cutting-edge Global-e product.

And to be honest, when we did the business case for the acquisition we took into account the fact that we may end up with some churn, we’re not going to be able to transfer the entire Borderfree merchant base onto Global-e, but that should be compensated for and then some by the fact that every dollar of GMV that flows through the Borderfree platform is worth considerably more when they switch.

 

OG:
Really interesting.

Amir, I want to talk to you about macro and I’ll tell you why.

What Global-e is experiencing is quite different than virtually every other CEO I speak with.

On the earnings call, the commentary was essentially what you’ve been saying; solid businesses are being open and are growing and you see that reflected in the demand for those brands worldwide.

Global-e reiterated that there were no notable delays in adding new merchants per se.

We’ve talked about this before, but I get the sense that this world for Global-e, you’re experiencing it because as a sales pitch, Global-e is a low cost, nearly immediately net present value positive proposition for enterprises.

That’s a thing that will never really, per se, get hit as hard in a bad macro environment as anything else.

Would you agree that that’s why Global-e has been roughly unimpacted by macro?

I’m saying roughly, of course, things have slowed down? Or is something else happening?

AS:
My opinion is that it’s a combination of two things. One is exactly what you said.

At the end of the day, the proposition for the merchants is that of both revenue growth without a big investment, sometimes with zero upfront investment, and very, very low risk. They don’t need to risk capital, they don’t need to risk a lot of time or a lot of people, and they could potentially get a lot more revenues.

And they can understand where this will be coming from. It’s not magic.

We’re not telling them that we’re inventing some magical new revenue source we’re just going to be solving a pain point for them where they look at their traffic statistics and they look at their sales statistics and there is a big disparity there because the people are not converting. So that’s one.

Combined with, I would say, mostly for small and medium-sized merchants, also, immediate savings on their shipping cost so our preferential shipping rates in our economies of scale.

They can, in many cases, just save dollars per shipments immediately just by switching to using our carrier services.
So that’s one in terms of the proposition.

And I agree, this is something that it’s great in good times but it’s also great in bad times.

Because even in bad times, companies need to grow, they need to find an avenue to grow.

You could even almost argue that it’s even more important in bad times because options are limited.

In great times a VP of e-commerce will come to a CEO and easily get funding and CapEx budgets for new projects so they can generate more growth.

Now they need to make a very, very solid business case if they want to get any cash, and they need to prove very quick return, especially when you’re talking about brands like fashion brands and fashion retailers that are typically working on not the highest margins, I would say, and are usually strapped for cash because of working capital needs, et cetera.

So that’s one element.

The other element which, I think again, is structural is that we’re not sitting on just the GDP trend.

We’re surfing on three waves that are amplifying each other and they’re all pointing in the same direction.

One is the move from offline to online so the growth of e-commerce.

Within that, it’s the growth and importance of international e-commerce, cross broader e-commerce, based on the new marketing channels that all these brands are embracing with social marketing, et cetera which is international by nature.

So that is the part of their business that is growing the fastest.

And within that, we are sitting on the third wave which is the move to direct to consumer.

All of these are longstanding trends in the market and we are right at the cross-section of all these three.

If you are a brand you’re bound to be moving to online or be online only, and you are seeing more and more international traffic.

If you have some brand equity, you receive more and more international traffic from your TikTok channel and your Instagram channel, et cetera, and you want to go direct to consumer you don’t want to go through all the customary wholesale channels.

And we are serving exactly that.

So, we’re enjoying the benefit of sitting on a macro curve that is to begin with, is steeper than the quote-unquote general one.

 

OG:
When I write about Global-e, by the way, I’ve named Global-e the single best investment available to equity investors in the world.

AS:
No stress.

 

OG:
That’s right. I hope you don’t feel burdened.

AS:
Not a high bar (laughs)… No, thank you. Appreciate the trust and support.
I, obviously, believe in it as I’m deeply invested in it but that goes without saying.

 

OG:
I call it growth on top of growth.

That’s just the trend irrespective of how well the company’s being run; just on that.

Has the rollout of Shopify Markets Pro and the press surrounding it … I understand the directly attributable revenue and GMV. I’m talking about, is the press surrounding it driving more inbound traffic for the Global-e platform outside of Shopify.

Is there some sort of tailwind with improved brand visibility? Or it does not work that way, a different group of companies?

AS:
It’s hard, obviously, to put a finger on it.

I believe that generally speaking it should have an effect; I would say from two angles.

Shopify-based merchants that are, I would say, not interested in Pro because maybe they’re very big and they don’t think that Pro is the right choice for them, but it increases their overall interest in cross-border and they will be more susceptible to our enterprise offering.

But even outside of Shopify … At the end of the day, Shopify is definitely one of the most important voices in e-commerce today, and they’re also one of the only large cap pure players in e-commerce.

So, when they “say cross border is important, cross border is the next frontier, but it’s really, really complicated, you need somebody to help you do it,” everybody listens.

It’s going to be hard for me to quantify the impact.

But when a market player that is so well respected and so dominant such as Shopify, is putting it on a pedestal, it should have a positive effect on everybody who is listening, not just on Shopify Markets Pro.

 

OG:
It’s a really notable imprimatur; validation I would say.

So, I’m going to ask you a weird question, and I don’t even know what you can say about this. Here’s the question.
What is the blind spot in the business trajectory?

And what I mean is, as you assess the future, what are you most focused on as a potential disruptor to your multi-year plans?
What keeps you up at night?

The second I get this bullish on a company, that’s the second I start to get worried because I’m like “oh no, it’s cognitive bias, it’s a thought trap.”
Every scientist is the same way.

You think you found something and then you start to question everything. I don’t know. What would you say to that?

AS:
It’s a good question. I mean, obviously, by it being a blind spot it’s by definition, I can’t answer that.
I can say what keeps me up at night.

The main thing that keeps me up at night or that I think is the … I wouldn’t say it’s a blind spot it’s just something we need to always be cognizant of and never take our eyes off the ball is that at the end of the day, as great our an offering is, as successful as we are, as much value we add to our merchants, it is at the end of the day very much a reputation-based business.

We’ve worked very hard for more than a decade to build that reputation.

As you know, it’s not just a saying, it’s real – it takes a lot of time to build a reputation but it’s very, very easy to lose it.

To be honest, it’s something we live with, and we do these mental exercises all the time because we need to balance the fact that we always want to run faster, we want to accomplish more, we want to get more merchants onto the platform, we want to develop and deploy more features that will further support the business and our clients.

But at the same time, we need to make sure that we don’t break the car as we rev up the engine.

Unlike direct B2C companies … Like the famous Mark Zuckerberg saying that you’ve got to move fast and break things, we have to move fast but we can’t break things, we can’t have things break.

And we need to keep that balance always.

We’re going to be at maximum growth that we can achieve without endangering our reputation with our existing merchants and also not endangering our reputation with the new merchants that are coming on board that will have the same onboarding experience that they deserve.

So that’s the constant thing that I always … Not just me, our entire leadership team always has to balance that it’s such a growing market that is so untapped, there’s always more we can do.

There are always more ideas, there are always more avenues, there are always the next big client that we can get if we just change the way the system works and this or that area, and we always need to make that calculation to see how much of a risk it is, how fast should we push this, but make sure that we don’t disappoint any of our existing merchants.

It’s not just the big ones. That’s going to be the challenge that even if it’s a relatively small merchant, if we disappoint them that can be so harmful to our reputation and can impact even larger deals.

Because as I said, it’s a reputation-based business and it’s very easy to enter into a reputational spiral of death. That’s what keeps me up at night.

 

OG:
That’s a great answer. Thank you, Amir.

On the earnings call Global-e consistently notes that longer term there is the ability to expand margins; so let’s try to dive into that.
In two, three years, is this a matter of economies of scale or is this more about the parts of the business that are yet to come online like demand generation or full integrations?

Where is that margin expansion coming from?

AS:
It’s both, to be honest.

In the shorter term, it’s more and more economies of scale. We already have pretty good scale across the business in terms of payments, in terms of shipping the main expense buckets on both sides of the P&L but there’s still more room to expand these margins as we grow and scale.
So that’s part of it.

And more just being able to run the business more efficiently. Again, as part of being a growth company, you focus on the big things but there’s always optimizations that you can do that are shoved over to second or third priority.

As time goes by we get to do more and more of these and be able to squeeze more margin out of existing activities.

A major part of it, especially in the shorter and midterm, would be from further economies of scale both on the gross-profitability side and on the EBITDA or operational leverage.

On the operational leverage, it’s also eventually going to come from consolidating or deprecating the Borderfree platform, although there’s not that much there but it will have some contribution, and just general operational leverage that you gain as you grow in scale.

In the longer term, I think there are some value-added services like demand generation, for example, and there are other value-added services, that we are experimenting with and planning that can have, I would say, an effect over time on expanding our gross margins even further.

These are typically very high gross profitability.

But that’s more longer term.

Because even with demand-gen, that we talked about a lot last time, initially we’re going to be more focused in the first periods on getting the ball rolling, and getting merchants excited, and gaining the first case studies on the new and improved offer before we focus on fully monetizing it to the maximum that we can.

It’s going to take longer but I think in the long term there is additional margin expansion that look up from these value-added services.

 

OG:
And long-term as gross margins increase, is Global-e planning on spending that margin to reinvest in the business, or will that flow all the way down?

AS:
I would say probably in the next, I would say, two or three years we’ll probably continue to reinvest in the business.

It still makes most sense for our shareholders and for the company, in general.

At the same time, we do see a clear path in the longer term, the three, four-year horizon to reach the customary 20% EBITDA margin that we think it’s very doable.
We think that at the point that we are in the market, our capturing of the market, we think it makes more sense to continue reinvesting.

 

OG:
Time to grow. All right.

The last one. Same question as always.

Is there anything I didn’t ask that I should’ve asked? Or is there anything that you wanted to say but I didn’t give you a chance to say because I didn’t ask the right questions?

AS:
No.

You are always very thorough and I appreciate the time you spent to also go over the previous conversation and not reiterate stuff that we’ve already discussed.

That’s very considerate, I appreciate that.

It’s not always the case in these types of conversations.

No, I think we’ve covered the main points. Obviously, demand generation is something that we spent some time discussing in recent calls.
But we’ve done that on the previous ones, so we’ve covered that pretty thoroughly.

And the other one is Shopify Markets Pro which we’ve discussed the progress already. I don’t think there’s anything I would say super material that stood out in our conversations that we’ve missed.

 

OG:
Okay. Amir, thank you so much. I will see you in about three months.

Conclusion

Thanks for reading, friends.

The author is long GLBE at the time of this writing. 

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