Global E Online Ltd

NASDAQ:GLBE  
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One-on-One with the CEO of Global-e (GLBE): It’s the supply-side equation that matters





Date Published:
Author: Tiernan Ray

 

Almost every company currently reporting earnings is trimming its expectations for this year thanks to macroeconomic factors ranging from Russia’s war in Ukraine to the looming prospect of a U.S. recession.

Most of the time, the comments from companies are general and vague, a not-very-particular desire to be conservative, as they say. Which is why it’s somewhat refreshing to have something of a structure to think about what is going to change and what’s not.

Some clarity was brought to the matter recently by Amir Schlachet, co-founder and CEO of nine-year-old Global-E (NASDAQ:GLBE), a maker of tools for merchants.

Schlachet’s firm focuses on the complexity of cross-border commerce, where retail giants such as Adidas need to price and ship and bill in numerous local markets, and need help with all the ways those local markets vary.

Schlachet sat down with Capital Market Labs following the company’s earnings report on May 16th, in which the company beat revenue expectations for the fourth quarter in a row since coming public a year ago. However, Schlachet also cut the company’s sales outlook for this year below consensus.

Digging into that cut in forecast is instructive. It’s a matter of both supply and demand, but there’s an important difference between the two in Global-e’s case: Demand is a risk from macroeconomic factors, but supply, in Schlachet’s view, is not, he says, because no merchant wants to stop building international e-commerce.

“We did see, and do see still, some effects of COVID relief on the demand side, but on the supply side,” he says.

“We haven’t seen a single merchant that said, ‘Okay, you know what? Now that COVID is done, we’re just going to go back to opening physical stores internationally, and we’re going to put on ice our plans to go direct to consumer’ — it doesn’t happen.”

“We have onboarded twice the number of merchants than we have onboarded at the same period of last year,” he adds. That includes gigantic customers such as Adidas. “They’re strategically focused on going direct to consumer around the world,” he says of the apparel maker. “They, too, realize that they need an expert at their side.”

The market for cross-border commerce, says Schlachet, is the best of both worlds, both big and fast-growing. “It’s a very big market already, north of $700 billion, in just B2C online e-commerce, but at the same time, it’s growing super-fast,” he says. The software he sells, he says, is “in the heart of basically every brand strategy today.”

In Addition, Schlachet reflected on future free cash flow, and the health of the Asia-Pacific Market, a big growth area for Global-e.

 

Capital Market Labs: First of all, to open things, give me a sense of what you think are… before we get to results and stuff like that, what are the most important things for investors to know about what you do and what the opportunity is?

 

Amir Schlachet (CEO of GLBE): Absolutely. So, basically, I think the few key things I think to understand about Global-E, I think first and foremost is the market from my perspective, because it always has to begin with the market.

And it’s not just a very big market that we are addressing, it’s also a very unique market.

I have a history of McKinsey and Company, so I occasionally put my McKinsey hat on, and when you look top down at markets, typically you either see a market that is very, very big, but it’s stagnant or even maybe retracting a bit and it’s crowded, but it’s a fight for market share basically.

Stuff like insurance or banking, places like that, where it’s just trying to be, “Let’s just capture a small fraction of this market and we’ll be fine.”

The other option you see are small markets, but they are growing extremely fast and if you make the right bet and you can command a decent size of that market, you’re on a role.

But it’s a bet because that market could grow to be huge, but it could also grow to be irrelevant.

If you look at the… I don’t know, VR [virtual reality] 10 years ago, it was supposed to be a huge market by now, but it’s not yet. Maybe it will, maybe it won’t, nobody knows.

One of the things that drew us to the cross-border e-commerce market is to begin with, is that it’s actually a bit of both. It’s a very big market already. The estimates are north of $700 billion already, in just B2C online e-commerce, but at the same time, it’s growing super-fast.

So, it’s the fastest growing section of the e-commerce world, and it’s estimated to grow twice as fast as e-commerce itself, which is growing very fast, much faster than traditional retail and gaining share.

So, it’s a very interesting market to be in, and the thing is that it’s also a very, very much a structural problem that needs to be solved.

You asked about what investors should know?

I think one of the very interesting and fundamental things that investors should know, is the fact that the service that we provide to the brands are end-to-end, specifically to enable them to sell internationally, is very much a strategic service at the core of their business, because if you look at it from the outside in, you might say, “Okay, it makes sense that merchants will have a few very big markets that they will serve by themselves, and maybe this is a solution for the long term, or maybe even they’ll take something like Global-E onboard, and then once the business starts growing, it will probably make sense for them to internalize it and do it in-house.”

And you need to do some diving in, and to fully understand, and to talk to a few merchants, to understand that, actually, the answer is “no.”

There is a structural problem here, because what you need to understand with this market, is that if you look at an average merchant, they’ll have about 30% of their traffic coming from international. Which means, that is a sizable chunk of their potential as a brand, which they cannot disregard, but that 30% — and that is critical — it’s super fragmented.

So, you’re talking a few percentage points from — even if it’s a big international market, you’re looking at a few percentage points coming from each individual market. So that’s fact number one.

The other fact is that if you really want to achieve high conversion rates, and capitalize on that traffic, there are a bunch of elements that you need to solve, and solve them at the highest level possible, in order to give the consumers from that market a localized feeling or a localized experience, which will actually induce conversion.

And because it’s a conversion phase, you actually need to get all of these right.

There’s no kind of slacking here. It’s not like you can say, “Okay, I’ll just get, let’s say, the payment bit right. Or the pricing right.”

But if you do that, but you don’t have a valid shipping offering and you don’t know how to calculate duties and taxes, then you don’t have a valid returns offering, and you don’t offer the specialized shipping methods, that they won’t like cash on delivery, et cetera, you’re going to be dead in the water.

And to make things worse, the relative importance of all these factors varies dramatically between destination markets.

So, if you’re on the east coast and you want to show up on one of our, let’s say, one of our UK brands or one of our French brands, you’ll probably agree with me that even if I just offer you to pay with Visa, Mastercard and PayPal, that’s fine.

I’m absolutely certain that you have at least one of those, if not all of them.

And the fact that I offered you also to pay with Apple Pay and Amazon Pay, that’s nice to have, but even if I don’t, it’s not going to lower your chance of converting.

But if I offer you an expensive five-day shipping as a baseline offering, and if I don’t calculate and charge sales tax correctly at the checkout, you’re probably going to look at it a little bit with an awkward eye.

And you may say, “Ah, you know what? I maybe try to find this on Amazon, or on the local side, because this is not how I’m used to buying online.”

But at the same time, if the same brand would try to sell to your Dutch Rubber that you don’t know you have, with living currently in the Netherlands, then it’s going to be not that critical actually to have a super-fast, super cheap shipping, because Dutch people are actually — our data, our statistics show that they’re quite okay to pay somewhat for shipping.

But if you don’t offer them to pay with Klarna and/or iDEAL, which is the local payment method that commands more than half of the online market in the Netherlands, then basically you shut them out.

Because you didn’t offer them to pay the way they’re used to paying online for transactions.

And also, if you only include the Dutch VAT [value added tax] at checkout, or apply it at checkout, then again, you gave them a very uneasy experience, because that’s not how they’re used to seeing prices.

And by the way, it’s also not compliant with local VAT rules in the Netherlands. VAT works completely differently than sales tax.

So, all these nuances are super critical in order to reach those high conversion rates, and there’s absolutely no way that you, as a brand, will be able to a) know even what you need to do, in order to maximize conversion in each and every market, let alone be able to do that also in an ever-changing regulatory environment, consumer preferences change over time, et cetera, et cetera.

So that is I think, the other element that the investors need to understand about our offering, that it’s a critical building block in our merchants’ ability to transact internationally.

And I think the proof of that, you see it in the numbers, because we have less than two percent churn over the years, so merchants do view it as a strategic element and never go off the platform, that’s one.

And two, they grow with us dramatically. So as time goes by, they run more and more business. Our NDR in a typical year is — our net dollar retention rate is over 130%, because merchants grow their business, they invest in their business internationally and they pass more and more of their international business through us, because again, they use us as their international channel, if you want.

And third and last, and then I’ll shut up and let you ask some more questions, is the fact that we are actually serving the, I would say, the channel or the strategic direction that is in the heart of basically every brand strategy today, you could say.

If you look at brands like the trendsetter, like the Nike and Adidas, we just announced that they’re a client of ours now.

Adidas has laid out a five-year strategy, a strategic plan last year, that says direct-to-consumer is our way to go. We want to have more than 50% of our business coming from direct-to-consumer in five years’ time, and most of it should come from online direct to consumer.

And Adidas are unique in going public with it, but it’s basically the underlying trend, even before COVID.

COVID accelerated that, but even before COVID, that was the trend that the brands were going to, because it has all the benefits for them.

It gives them direct access and direct control, direct relationship with the shoppers.

It gives them access to all the data and understanding shopper preferences, shopper behaviors, instead of donating all of that to intermediary, like marketplaces.

And, of course, they also get better margin, but they can enjoy the retail margin and not the wholesale margin.

So, we are in a way sitting on exactly the right trend that basically all the world of retail, especially in the verticals like consumer goods, where we specialized in, that’s where the retail world is going.

So, this is, kind of, high level thinking, the rationale behind why we do what we’re doing, and why we are successful in what we do, and why there’s a huge runway ahead of us that we plan to take off from.

 

CML: Okay. I love that. Moving to current news, you recently reported earnings. What things would you say are most important for investors to take away from the results and outlook?

 

AS: Yes, so, the results, I think there are, again, two main messages and that we’ve been discussing with investors ever since the earnings release.

Yes, there is some softness in the market.

We see softness in demand level, like many other e-commerce companies have seen.

We’ve seen a slow-down in consumer demand, especially from Europe, from mostly central and eastern Europe, where the war is going.

When there is a war near your border or on your border, you tend to spend, I would say, more time on news sites and less time on shopping sites.

Obviously, it differs between Russia, Ukraine, Belarus, we just had to shut down, because no option to keep them going, but that’s under 2% of our GMV [gross merchandise value], it’s there, but it’s not huge.

The main effect was in central and eastern European countries, like in Poland, Czech Republic, countries that are really close to the action, so to speak.

And we’ve also seen some softness in other European markets that were affected, like Spain and France, Germany to some extent, not that much.

And we have seen, I would say, February, March, April, were definitely affected.

We shared with the market that in May, we’ve actually seen some level of bounce-back. It’s a little bit too early to tell whether it’s a real bounce back or just some two strong weeks of trading, but we think that we are seeing some evidence of consumers — it’s unfortunate that the consumer is getting used to the situation, and just going back to normal, as sad as it is.

What we haven’t seen are any visible effects on markets like the US or Australia or even the UK, which is a little bit further afield, trading patterns in there seem to be quite normal.

So that’s what we are seeing, I would say, from the demand side.

And that’s also what led us to err on the cautious side and lower our guidance for the rest of the year, because we factor that in, and we had, for the sake of being conservative, we had to assume that the world is not going to get any better down the year, or maybe it will even get a little bit worse.

So, we didn’t factor in nuclear war in Europe obviously, but we did factor in the situation deteriorating a little bit more, including maybe some effects of the talks of looming recession in the US, et cetera, et cetera.

But and I think that’s the really interesting part, this is, I would say, short term effects, the way we view it.

The more important things for us, as we look at the long-term of building our business for the coming years, is actually the supply side. Is the merchant side.

And on that, not only have we not seen any slowdown, we’ve actually seen an acceleration of the business, because if you look Q1 over Q1, our bookings of new merchant signings have doubled.

If you look at our merchants going live, actually committing the resources, undergoing the onboarding and going live, if you look year to date even, not just Q1, we’ve shared with the market that year to date, we have onboarded twice the number of merchants than we have onboarded at the same period of last year.

And if you look at our pipeline, it’s never been stronger, and it’s also growing in terms of the, I would say, average size of the opportunities.

So, we have larger and larger merchants, and I would say more and more meaningful-size deals advancing through the pipeline.

So, from the supply side, we’re actually seeing no effect of what’s happening in the world, and also no real effect of COVID relief.

Because again a lot of investors, a lot of companies, have talked about the effect of COVID relief, going to back to shopping in store, going back to travel, et cetera, et cetera.

So, just like with the war in Ukraine, yes, we did see and do see still some effects of COVID relief on the demand side, but on the supply side, we haven’t seen a single merchant that said, “Okay, you know what? Now that COVID is done hopefully and assuming monkey pox doesn’t become the next COVID, we’re just going to go back to opening physical stores internationally, and we’re going to put on ice our plans to go direct to consumer.”

It doesn’t happen.

No merchants in their right mind will retract on this thing that, as I said earlier, is front and center in everybody’s strategy.

And the understanding, if there’s anything that COVID did, was to emphasize and underscore the fact that this has to be front and center in their strategy.

So, we are seeing a stronger-than-ever demand for our services, and that’s in our view, and should also be in investors’ focus.

And I must say that in our talks with investors, that actually what they’re focusing on, is the long term, and take that together with our super low churn rate, and these two together means this will be those… that accelerated pace of getting merchants onboard and building the pipeline, is going to serve the basis for our growth in the year to come.

So, these are certainly the two, I think, key takeaways from our earnings, so from our latest results.

I think the last important one is, I mentioned earlier, Adidas, which went onto the platform and that’s also, it’s important.

But besides of course it being a very big client and one of the most well-known and respected consumer brands in the world, it also, I think, again, underscores what I’ve said earlier about this being a strategic solution and a strategic service for any size brand, even for an Adidas, which has no shortage of resources.

And it has really focused, as I said earlier, and they’re strategic, even now.

So, they’re strategically focused on going direct to consumer around the world.

They too realize that they need an expert at their side, basically for them.

And Adidas is also an interesting example, because they are on what we call a multi-local offering.

The offering is very, very configurable and adaptable, because like Adidas, we’re actually able to set up multiple, kind-of, hybrid solutions, because there are markets where they have local infrastructure, they have inventory, like the UAE, the first one that they implemented with us that has that infrastructure.

So there, we’re supporting them with a fully localized offering and localized fulfillment, so it’s a full local experience for the UAE consumer.

But at the same time, and concurrently with going live with the UAE, they also went live with 15 other markets around the UAE that are being served cross border from the UAE, based on our technology.

And they have a roadmap of rolling out additional markets like that, and of course, we’re not aiming for the US.

For example, as the market for Adidas, the US, is a really structured market that we can actually add very little value there.

They already have all the infrastructure needed in order to do that well by themselves.

And honestly, we’re not going to pitch for that even. So, we only want to work with brands where we feel that we add considerable value.

But for all the, call it, tier-two brands — it’s not how they call it, but let’s call them tier-two brands and onwards — this is the only viable way for them to support these markets and make sure that they capitalize on the opportunity there, because it’s a combination.

And just, probably, augmented with my answer to your first question, another thing that is important to realize about the cross-border online market, because it’s so complicated, because there are so many elements that you need to take care of, and if you don’t, like I said, if you don’t take care of each and every one of them, at 98%, 99% level, you’re not going to see the conversion come in.

You really need a combination of three things.

You need the broad set of capability, you need to be able to build for all the cards, and all the payment, and all the shipping options, and all the duties and taxes, ways of calculating duties and taxes and customer service, and returns et cetera, et cetera.

On top of that you need to be able to implement them. And you basically need someone to care for the operational side for you.

You need somebody to take care of fraud liability for that, and take the associated risks, the ship risks, the duties and taxes, all the risks that are typically involved in a transaction like that, you need somebody to operate that, because it’s impractical for a brand to even try to do it themselves.

And on top of all of that, and not less important, you need the know-how, and you need the data-driven insights, or data-driven recommendations as to how exactly you should use and need to build all those different options for each individual market.

And, basically, the only way to get that know-how is from somebody like us. Because every other player, even if they’re really big and really professional, they are only sitting on a fraction of the user experience or the value chain.

The only ones that are sitting on top of the entire value chain, start to finish, from the moment you enter the site of the consumer, all the way to the actual fulfillment of the order, and even the customer service in return, are us.

And because we do that across more than 600 merchants, selling from, I think, currently, whatever 1,200, 1,300, I don’t even remember how many countries we’re selling from, to 200 countries in various verticals and price points and so on and so forth, we are able to slice and dice the data, and come up with very, very unique and actionable, and granular recommendations that really enable these brands to not just have the option to do all these things when it comes to being professional, but know exactly what they should do with all these options in order to maximize the conversion rate.

 

CML: Okay, thank you.

 

AS: That is really, I think, the big themes that also we’ve been discussing with our investors just after our results.

 

CML: Okay. To dig into a little bit of the details, Amir.

We have, first, a question about free cash flow.

On the call, it seemed that you were discussing with analysts Global-E’s free cash flow margin, long term, in the sense of a non-GAAP EBITDA margin as a proxy for free cash flow.

With what you’re doing now, it looks to us that there is a 23% EBITDA margin for this full year.

And so, the question becomes, can we model long term free cash flow margin for you as being in that same 20% to 25% range out many years?

Because currently it looks like the terminal free cashflow margin that the street likes to think of is way lower, like 15%.

 

AS: Yeah, I think you’re right, and I think, long term, that’s also what we are aiming for, because as you said, first of all, our free cash flow margin should, in the long term, be very close to our adjusted EBITDA, because we only adjust for non-cash items in the adjusted EBITDA.

So, stock-based compensation, the value of the warrants that we gave to Shopify, which, due to — I hope you’re not an accountant, but, stupid accounting rules that even the accountants admit are stupid, it has to be kept like the accounting treatment for these warrants.

Despite the fact that we gave them to Shopify before the IPO, we basically diluted the previous shareholders.

Nonetheless, the accounting treatment is basically creating an asset and amortizing it over the life of the contract. So, we have this non-cash expense, which is almost double counting, but that’s just me venting on stupid accounting rules.

But anyhow, these are the things that we adjust for, so they’re all non-cash, so they don’t affect the free cash flow.

And in addition, we have very, very low levels of CapEx on an ongoing basis. We don’t capitalize any of our development costs, they’re all expensed directly, and the only notable CapEx that we had, it’s some investment in the new offices that we renovated in Israel for our headquarters in our R&D center. So that’s capitalized and amortized.

But we’re talking almost insignificant amounts on a long-term basis.

And add to that the fact that we are pretty much neutral from a working capital perspective, so basically, these all together come to a pretty much aligned free cashflow with adjusted EBITDA margins.

And basically, we’ve been able to take our adjusted EBITDA margins up over time.

Honestly, they would’ve been higher now if it wasn’t for the Flow acquisition, which is — we knew when we modeled, to begin with, that it’s going to put a drag on our adjusted EBITDA for a year or for a little more, until we get Flow to break even, because we bought it at an earlier-stage business, and it was still burning cash.

And we are making good progress in that, I would say even quicker progress than we anticipated.

Hence why we were able to keep our adjusted EBITDA targets for the rest of the year, despite the fact that we lower the revenue forecast a little bit.

And we think our long-term target, as we said, that it’s going to be 20-plus percent adjusted EBITDA, which as I said, should be close to our free cashflow.

 

CML: Great. Okay. Thank you. Secondly, 2% of GMV in revenue looks like in the neighborhood coming from Ukraine and Russia and four to 5%, maybe, from central, eastern Europe.

So, to your earlier points, you took down guidance by just 5%. It looks like, if not for those impacts, substantial beat to prior guidance, if you didn’t have those factors.

That, ex-war impact, unfortunately, to use an ugly phrase, ex-war impact the business was outperforming. Does sound accurate?

 

AS: Yeah, yeah, yeah, exactly. If we had continued the — so, I would say even though the war started the end of February, so that March was already affected quite a bit, we still managed to reach the top of the range of our estimates for our Q1 target, and that’s — look, we’ve got a third of the quarter already impacted, January, February, we’re pretty much on track.

So, yes, I think your math is correct.

And that’s also why we — and I think we mentioned it on the call as well — it was almost an internal debate, if you want, because we thought and still think, that there is a reasonable, a non-zero chance that we will actually meet our original target.

Yes, you need to be slightly optimistic for that, but it’s not that we need a miracle to happen.

But again, we want to be always transparent with the market, and we want to put out a realistic forecast that we believe is what is realistic to expect.

And these are the numbers we came up with.

 

CML: Okay, fair enough. It looks like between Flow and your core product, you could serve both SMB, small, medium business and enterprise in cross border commerce.

How should we think about how that breaks down to the impact on SMB on the one hand, and enterprise on the other side, between those two offerings?

 

AS: You mean the impact of the market conditions, the macro impact?

 

CML: Oh, no, more like, what are the prospects for how you cover both SMB and enterprise, and in this partnership with Shopify, how do you span both SMB and enterprise?

 

AS: Got you, yes. So, I’ll go chronologically, maybe.

So, we — originally, the Global-E platform was built as an enterprise platform, and we started out by serving and building our offering, our capabilities, and our service levels and all of that, around the needs of enterprise merchants.

But throughout the years, we have seen more and more demand, and we got more and more convinced that there’s also a lot of value to unlock in SMBs.

But, at the same time we also knew and realized that — and we found ways to package our enterprise offering in a way that is more digestible, if you want, for smaller merchants and wizard-based and stuff like that — but at the end of the day, when we looked ourselves in the eye, and we said, “Okay, there is at the end of the day, a lower limit to how small can a merchant go, with you still being able to serve them well on a platform that originally behind the scenes was built for enterprise.”

And we realized if we really want to be serious about giving a solution to that full range of merchants, we need a different type of solution, a different approach to address the needs of SMBs.

It has to be a platform that was built from the get go with SMBs in mind, with self-service and self-configuration and self-onboarding as much as possible.

It has to be very standardized, very productized, very API-driven, much less customizable and heavier to implement than our current platform.

And, basically, the question was, do we build such a platform? Or do we buy something and use our know-how in our scale, and super impose them on this platform and make it better and more efficient and more successful than it could ever be by itself?

Thanks to everything that we know in order to scale what we have from serving these enterprise merchants.

And, basically, that was the rationale for the Flow acquisition, because that’s exactly what Flow have built.

They’ve built from the ground up a system that is very much what we were looking for, very much built with the needs of SMBs in mind.

And that is where it ties to the second part of your question, because the other thing that Flow did, was, basically, they had already a contract with Shopify, to provide their service, their SMB-oriented service, in white label form, so that Shopify could offer that to the merchant of regular service to SMB merchants on Shopify, under the Shopify brand.

And that was, again, a pretty nice fit with the fact that at that point in time, we already had a similar partnership with Shopify on the enterprise side, by which we are the exclusive — for a year and something now, we’ve been the exclusive provider of fraud order services for enterprise merchants on Shopify.

So, again, it was a very, very tight and synergetic match, because now, under the Global-E roof, we can provide the solutions for enterprises on Shopify, and if it’s an SMB, we’ll again be serving — once the solution is live — we’ll be serving them in white-label form behind the scenes, through that white-label solution for Shopify.

So specifically for our relationship with Shopify, that was, again, there was a lot of rationale in putting these two companies together.

 

CML: Okay, the perspective, I think, that we have is, the international e-commerce business is split between the core product of Global-E being a very comprehensive suite to which I think you’ve alluded, and Flow being something maybe that is — you can take parts, you can elect to take parts.

And so, how do you see those evolving together over time for you, those two offerings?

Do they affect one another? Do they remain distinct in that respect, that the core business is very much a comprehensive offering for these enterprises, and Flow remains a la carte or menu based?

 

AS: So, what we viewed in a slightly different manner, but I think it followed a similar logic, but essentially the way we segment it based on market needs basically, or merchant needs.

And that’s where this whole structure actually started, because what we figured was that, if you look at the enterprise merchants, they very much need, I think, as you alluded to, they need the full suite of services, not just the capabilities, but they need all the support and they need that know-how, they need the hand-holding.

It’s basically, as someone put it, they need somebody to step in and do it for them.

They don’t want to do anything by themselves, they just want to take, maybe, decisions, business decisions.

But they really need an expert to come in and do it for them because they don’t have the bandwidth, they don’t have the know-how, they don’t have the capacity, and at the same time, they don’t have the luxury to get it wrong because they are a big brand.

They have a loyal crowd of followers around the world that are expecting of them nothing but the best customer experience, regardless of where they’re browsing from.

Then, when you look at the SMB, they need something else.

They don’t need somebody to do it for them, they need somebody to enable them to do it by themselves.

And they don’t have the bandwidth or the capacity to interact with such a broad service, they need more of that, kind-of, à la carte.

But it’s not à la carte in the sense that these are just, they say, Okay, we just want the payments, or, We just need duties and taxes calculation.

That is not something that we’re in the business of, neither through the Flow offering, nor through the Global-E offering.

Because we believe that, Okay, we think you’re wrong. But if you think that it’s all that you need, there are great providers in the market.

We work with a lot of these providers.

You think you only need duties and taxes, sales tax calculations in the US? Great, you don’t need us for that. Go and use Avalara.

If you only think you need whatever, alternative payment, go contract with Adyen directly. You don’t need to do it through us.

But I think what merchants that dive in realize — and, by the way, what even these providers realize, and if you look at Adyen, they’re a great partner of ours. We do a lot of our inquiries through Adyen.

They even refer clients to us, which is almost — if you look at it, it almost seems to not make sense from their perspective.

Obviously, we are in a much better pricing level than any of these merchants, thanks to our size, but those providers in our ecosystem, they realize that it’s that holistic approach, it’s that taking care of, as I said, of all the elements of the experience.

This is what generates conversion, plus knowing exactly what you’re doing and how to tackle each and every market.

And it means that if it goes through us, at the end, everybody’s going to have more pie.

And it’s true for the shippers, it’s true for payment providers, it’s true even for the fraud providers, duties and taxes.

And all of these providers that are part of our ecosystem, are also in a way partners of ours, and provide leads to us, and generate more business, because they get to enjoy that along the way.

So, I think the main difference to the SMB is that on the SMB side, it’s going to be, I would say, much less optional and in terms of different ways of tweaking and configuring the system.

It is also much more lightweight on the services component; I would say, it’s going to be much more SaaS-like.

Okay, here is what it does, you can either check boxes or not check boxes, and it’s going to do the best that we can provide you, but in such a self-service, productized way.

And, essentially, there’s going to be, and there already is, some kind of borderline, in terms of typically size of the merchant, where we say, Okay, this is a merchant that is already sizable enough, and we see the potential for a lot of growth, we’re actually going to put them already on the Global-E platform because we don’t want to transition them from one platform to the other, once they grow.

But on the other hand, the much smaller brands are going to start off directly on the SMB platform and probably stay on there for quite a while.

Maybe graduate at some point, but we do plan — to your question, we do plan to run them as two distinct platforms, because they serve very different needs of merchants and very different ways of working.

 

CML: Very well explained. Do you have time for one more?

 

AS: Yeah, absolutely.

 

CML: You had highlighted Asia-Pacific before, as a large growth opportunity. Has anything now with lockdowns in China, for example, changed your view of Asia Pacific specifically?

 

AS: It’s a great question and the answer’s actually no, because contrary to intuition, even though China is the biggest e-commerce market in the world, it is actually not a very big market for us, because when we talk about Asia-Pacific, we talk in general, when we talk about markets, we typically refer to the outbound directions.

So, when we talk about developing our business in APAC, we are mainly talking about getting merchants that are based in APAC to sell through our service, to the entire world.

So, on that, we’re actually making great progress. One of my co-founders and our CRO are apparently in Japan, doing a big client event in Japan with our local partner there, transcosmos, and there’s a lot of potential.

There are a lot of Japanese brands that some of them are very well known around the world, some of them should be well known around the world, but they need help in being able to sell from Japan or wherever they fulfill from, to the entire world.

Same goes for Australia, which is a very brand-rich country, but with a lot of, I would say, a lot of challenges to have a true global reach.

And there are additional markets in APAC that we are already serving from, by the way, Singapore, Hong Kong.

We have live merchants trading from these places.

So, this is what we are mostly referring to when we talk about APAC in that context.

Currently, at least, there are not that many Chinese consumer brands that if I asked you, name your favorite, or ask your partner to name her favorite Chinese fashion brands, she’s going to have a hard time.

It’s not true in consumer electronics. In consumer electronics there are already quite a few Chinese well-branded products, but that is just a single niche.

When you talk about the verticals, China is not there yet, and at the same time, if you look at an inbound market, China is actually notoriously difficult to sell cross-border to.

There are a lot of regulatory barriers, there’s a lot of the e-commerce — again, as I said, China is the biggest e-commerce market in the world, but most of it is domestic e-commerce.

And so, China, even as an inbound market, is not a very significant market for us.

So, hence, the lockdowns haven’t really affected tremendously as also again, going back towards what is on the investors’ minds, we feel that quite a few questions, especially with the last quarter, but also a little bit this quarter, about supply chain challenges and whether that has any effect on the business, and the answer there again is no, because there is no downside effect on us whatsoever, because all the supply chain challenges have to do with sea freight, and really none with air freight, and everything that we sell, at least currently, flies.

So, we don’t really have any disruptions in our own supply chains.

The only potential effect is in the supply chains of our merchants and whether they can get the needed level of inventory in time for their sales, et cetera. And on that I must say that we have seen very little, if any, issues, because a lot of these brands, that’s what they do, that’s their business, so they need to know how to prepare in advance and pre-order stuff and preempt that.

And again, going full circle to what we started with, because we serve their most important and most strategic channel, which is direct-to-consumer, even if they have inventory challenges, they will typically divert stock from other channels like marketplaces, or franchisees or distributors, and make sure that, first and foremost, their direct-to-consumer channels have enough inventory still.

Even with that, bottom line, we haven’t seen any real challenges with neither the lockdowns now or the ongoing supply-chain challenges that the world is seeing with regards to, especially, to China outbound supply.

 

CML: Okay, excellent. I appreciate you for taking the time here.

 

AS: Many thank you for the great discussion and I’d love to stay in touch.

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The author has no position in GLBE at the time of this writing. 

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