Lede

Following earnings results, we spoke with the CEO of Global-e Online (NASDAQ:GLBE) and have included the transcription in the dossier to follow.

 

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

Amir Schlachet (GLBE CEO)
How are things on your end?

Ophir Gottlieb:
It’s a tough market.

I’m talking to institutional investors, fund managers, and you know, I’ve been through this before, back 1998, 2000.

But you’re asking what the temperature is like in the institutional world and roughly speaking I’m talking about the technology focused institutional world; it's dire.

Somehow Amir, I think the world will go on.

AS:
I think so too. There’s a tendency to overestimate the situation while you were in it.

And then hindsight, we should have learned from history that things will get better.

It’s not pretty right now.

There’s tough macro. We see softness in the market, but then again, you know, we still grew, almost 80%.

We, we still guided for 60% growth in q4.

When we say softness, that’s what we mean.

It’s not that we see people all of a sudden stop buying and just hoard toilet paper again.

It’s not the beginning of COVID all over again.

Yes, there is impact and there will be impact on the edges, but it doesn’t seem like a looming catastrophe.

And it’s gonna take a few quarters, I don’t know, a year, whatever, before it gets better.

OG:
That’s right. That’s a good segue.

Last quarter, I’m talking about now q2, so two quarters ago. Global-e said pretty clearly that the European e-commerce market had softened a bit from last year due to the war, but it was one of those where it wasn’t quite as bad as was expected.

Okay. So now we have Q3 in the books and a little bit of the beginning of q4.

I think you roughly answered this, but can you talk about what you’re seeing in regard to macro in general?

It doesn’t just have to be Europe, but how, how it compares to what you thought you were seeing in q2?

Like, how do you feel about it now?

AS:
So I think end of Q2 or mid Q3 when we guided for Q3, I think we were more optimistic than… And again, we commented on it back then that things seemed to be improving and that was our view. And on the back of that, we took our guidance up and things did look…

I would say mid-May onwards, they were improving and they were, I would say, on that track, kind of June, July.

The back end of August, we started seeing some, not red lights, but some green lights started to flicker if you want.

And then I would say mid-September probably, we started seeing again a kind of softness in the market. All of it I would say is, and I think we talked about it last time, all of that is from the perspective of end consumers, I would say.

OG:
Yes.

AS:
We don’t continue to see kind of resilience on the merchant side. We don’t have any notable cases or merchants say, “Hey, the situation is so dire, we’re going to stop investing in a business. We don’t want to go live. We don’t want to sign.”

The interest of merchants in our business, in our offering remains very strong. I would argue that, and I think you can see that in reality, that especially at these times of need, they need us more than before.

OG:
Yes.

AS:
Because there are very few offerings I think in the market that can give them the ability to tap into revenue sources that they’re currently not utilizing. And they’re immediate because they’ve already made the investment.

People always ask me about, what is the ROI for the merchants?

And I tell them, “Listen, it’s a unique situation because they’ve already done the I. The I is written off because they’ve put money into online marketing, they put money into brand building, they got the traffic into the site. Those people are coming into the site, so they just need the R part.”

But on the other hand, we are pretty much the only play that can give them R on that I almost immediately with little to no CapEx, depending on their exact setup with a relatively short timeframe and in a way that doesn’t increase their risk profile, in a way it decreases their risk profile.

So we’re almost a more important play in these times than ever before. And that’s putting aside the fact that if I’m a CFO or a CEO of a brand, I’m coming to my VP of eCommerce or whoever and telling them, “Listen, I need more revenues, and also on a corporate level, I need to reduce costs.”

And we are very unique play because we give them both. For anyone but the biggest of brands, we don’t just generate more uplift and more revenues. We can also reduce their cost on shipping thanks to our scale.

So in that sense, what we are seeing. And again, I think we talked about it last time. Our view is that macro conditions, ups and downs in the markets, the temperature in the market mainly affects the demand side, the consumer side, but in the longer term…

And that’s obviously going to affect our results in the short term. There’s no denying it. And it is affecting it.

It’s enough to look at our results and how the guidance showed that it does have an effect.

But having said that, two I think interesting points.

One, I already mentioned that we don’t see a real impact on merchants.

And the second is that even with all the crap that was piled onto the current situation with currency exchange rate is going berserk with a macro weighing in, the war in Ukraine, inflation, China, whatever, pile it all altogether. Still net retention is around the historical averages.

We talked back in the IPO about 130-140% being what we believe is a sustainable number. We are still above 130% now. We are still in there, in the historical range.

So yes, if you just look at same store sales, they are not as strong as they were before.

Merchants are still growing. They’re still positive if you look here and here, but not as positive as they were historically in regular times. But still on an overall level, NDR is still on an overall level, NDR is still at historical level and gross retention is as high as it’s ever been.

We’re less than 2% churned, that continues. So in that sense, we think that these are better indicators of our long term growth and they remain quite healthy.

Long answer to a short question.

OG:
Yeah.

I have a hypothesis almost that we wouldn’t want to go through this, but this could actually accelerate Global-e’s adoption by vendors.

Because like you said, they have this international traffic.

Now more than ever, they need a lever to pull revenue where, as you said, the I is already done.

AS:
Yeah. I think it mainly depends on the type of organization that they are.

Because the way I look at it, the more new age brands, all the ones that were born in the recent years, born on Instagram, et cetera, they don’t have a legacy.

They don’t have a very heavy corporate structure, et cetera.

That’s probably true and we’re seeing a bit of that. We’re seeing them take decisions faster, move faster.

The more legacy brands, those that started as brick and mortar and went through a digital transformation a few years back and now are going through another transformation, making themselves direct to consumer, these organizations are typically more, I would say, they take a more prudent approach.

They take a more step by step approach.

And we’ve had cases with such merchants where they say, oh listen, we’re going to need to maybe postpone the opening of a few additional markets because we don’t have the budget now to invest whatever marketing budget that we need to invest in every new market.

We’re like, okay, but just open these markets. We don’t need to necessarily invest in marketing, but it’s still going to be better than what you ever done.

They’re like, no, no, no. That’s not how we do this.

We take it market by market.

So I think it differs a little bit between the types, but theoretically, on the general case, I think you’re right.

OG:
Okay. All right. So I want to talk about two partnerships.

First is, it was just a bullet point. No one really asked about it on the call, but the partnership with Google is there.

Can you explain it? Is this something that investors should be really be focusing on? Is it just the beginning? Is it multi piece? What was it?

AS:
It’s more at the beginning. So it’s not a huge missed point I think on the side of the investors.

But in a way it’s similar to the partnership we struck with other organizations such as Facebook and others, where it’s essentially, if you want, almost a lead generation.

So it’s a mutually beneficial lead generation partnership.

At least for now, we’re not talking about any kind of deep integration with Google.

It’s more kind of, Google being an advertising company, they want to make more money from international eCommerce related advertising.

But their clients, the brands are not going to advertise, they’re not going to spend money, are not going to place ads if they can’t generate revenue in the back of it, going back to our previous conversation.

So it is in Google’s best interest to recommend us to relevant brands and have their sales teams and account management teams and so recommend Global-e if they see that [opportunity].

Obviously, by definition they have access to their Google analytics.

OG:
Yes, they do.

AS:
Exactly. So they can slice and dice together with our guidelines and say, okay, these and these and these brands, we should introduce them to Global-e.

They could put Global-e in place and then they’ll spend more on international eCommerce related ads, which is one of the most highly lucrative type of ads because it’s revenue generating, the brands are more likely to spend money on that, more serious money on that than on just brand awareness and other related ads.

So that’s the nature, but it’s still early days, but I think it has very good potential.

OG:
Okay, nice. Then I wanted to talk about Shopify.

Let’s talk about the pieces of it and the difference between the white label and the non-white label.

I think the white label solution will be in GA by 2023, but the one non-white label is now the default integration on Shopify. Is that right or can you straighten me out?

AS:
Yeah. We’ve noticed in a few calls that we’ve probably made a bit of a mess. I mean, it’s clear to us but probably made a little bit of a mess explaining it, so we needed to put things in order for a lot of folks so I’ll try to do that.

Basically, if you look at our work with Shopify, the top down, you should divide it into two.

There’s the direct integration, which is globally as a third party, and there’s the white label solution.

So the direct integration, think of it as Global-e’s integration. It’s the way we’ve historically worked with Shopify based merchants, way before our partnership with Shopify, almost from day one.

So that is by definition, live, operational.

We are growing, we are actually, ever since we signed the exclusivity agreement with Shopify on that, we’ve accelerated our onboarding of Shopify based merchants.

OG:
Good.

AS:
Shopify is slowly gaining share in our portfolio because I would say for our teams, it’s obviously much easier now to sell to Shopify based merchants cause they only have two options, either use us or not do anything.

It makes that discussion a little bit easier.

By the way, as a side note, we don’t take advantage of that. We do think ourselves as long-term partners of these brands, so we don’t want appropriate them, but it does naturally make it easier.

And on that front, the news is that we’ve gone from a third party app like integration to a native integration that basically takes Global-e’s services and incorporates them into Shopify’s checkout instead of hijacking the checkout and using our own checkout.

And it also integrates much better into Shopify’s backend.

So it’s now almost an integral part of Shopify’s code base, if you want, but it is still a third party still. Global-e is in front. It’s a direct relationship between us and the merchant.

Shopify is not a side to that.

They’re just a provider of the platform and we get a technological access from them in order to integrate deeply into the platform. So on that part, the news is that the native integration is now, as you said, the default integration.

About a quarter-ish of the volume has already either transitioned from the old integration to the new native integration or started off on an integration because there are new merchants that are constantly going live and we have a plan to migrate the rest, the remainder that is still running on the old third party app.

That’s on that running smoothly, as I said, accelerating thanks to the exclusivity. All good.

We had some teething issues at the beginning, like all new integrations, but we are working through that and I think with every brand that goes live, it becomes easier and more seamless.

The other half of our relationship with Shopify is concentrated more on the SMB side.

The direct integration is for the enterprises for the bigger, the more sophisticated merchants.

On the SMB side, we have the white label solution, which is based off the flow technology that we’ve acquired. That went from very, very limited alpha testing to more extensive, call it, better testing.

Shopify has given early access to this product for a select number of merchants that, again, is going well according to plan.

And we already have a few dozen merchants that are live on that and a few hundreds that have applied out of the early access outreach, and are waiting to go through the process on Shopify’s side.

And the plan here is, assuming all goes well, again, teething issues, yada, yada yada, assuming that all goes well, it is planned to get to GA, in the first market it’s going to be the US, most probably, call it, mid-next year to start then to collect applications and onboard merchants at a higher pace, but that’s the part that we also commented on the call that we think 2023 is going to be a ramp up year for that, but we’re going to start to see real impact, financial impact 2024 onwards.

OG:
Okay. Excellent. That was very clear. I appreciate that.

AS:
That’s the holistic relationship with Shopify and also why we are very bluish about the relationship with Shopify, because essentially, if you think about it, we have exclusivity across the board.

If you’re an enterprise merchant, your only option really is to use Global-e as a direct integration on the enterprise side.

If you’re an SMB and you want to do something more than just multicurrency and stuff, if you’re very small, if you’re on the small side of the SMB, you’re probably better off just ticking the box on Shopify markets, not even having any part of Global-e, and just doing some multicurrency or stuff that’s better than nothing.

If you are slightly more sophisticated, slightly bigger, you’re going to sign up for Shopify Markets Pro, which is essentially Global-e’s white-label solution, and that’s us as well. So either way we get the business.

OG:
Okay. So that was great. Some buy-siders have been talking to the CMO of ESW, oddly, and he noted that for now that his company, ESW, is losing deals to Global-e due to two things.

One is Global-e’s demand generation capabilities, I guess that’s within your smart insights, and the other is more aggressive.

AS:
No, not only. There’s more.

OG:
Okay. And the other part is more aggressive pricing.

I don’t care about the more aggressive pricing.

I care about the demand generation piece of Global-e’s business, the offering would be a major moat and a huge competitive advantage. We actually touched on that a little bit and I don’t think I gave you enough time to talk about it.

I didn’t realize how important it was.

Now a major competitor’s saying, “That’s the differentiator.” Can you talk about that piece of the ecosystem, the demand generation piece?

AS:
Yeah, absolutely.

First of all, just as a side comment, it’s funny that they say that more aggressive pricing because it’s actually the other way around.

It’s actually ESW, because they’re a bit desperate, we believe because they find it extremely difficult to win deals against us, definitely in Europe, but also in the US, which is their home turf.

We are actually seeing them drive prices down and try to win deals, even at a loss making prices, which to us doesn’t make any sense, and we don’t ever do that.

We would rather lose a deal to them and let them bleed money than to go even close to our cost, because we don’t think it’s sustainable and we don’t think it’s also good service to our clients, and we tell that to the clients, we tell them, “Listen, you don’t want to sign with us if we are at or below our cost, because it gives us a disincentive to grow your business, and over time we’re not going to be able to give you the level of service that you deserve as a growing business.”

That’s just a side note.

OG:
Just for the record, when an executive from another company talks about a competitor and they talk about pricing, I stop listening. Just so you know, I’ve been doing it long enough. That’s why I told you I don’t really care about the pricing part. Let’s talk about demand generation.

AS:
It was just funny to me because I live these things day in and day out, and I hear from our sales team, “They’re pricing so aggressively.

We don’t understand how they can…” It’s like, “Listen, they’re in the desperate mode, they need to show something.”

So they’re bleeding money, but putting that aside, demand generations, so it’s beyond insights. Insights is really important and it’s putting the aggregate data that we have into work, and that’s, by itself by the way, a very important differentiating factor for us, even against somebody like ESW, by the way, I didn’t mean to derogate them at all, they’re a worthy opponent, but one of their issues is that they have…

By the way, their volume is not too far from ours. It will be next year, because they’re not growing and we are.

But even let’s even put us on the same page and have similar volumes, their volume comes predominantly out of two clients, 75% or even 80% of their business comes from Nike and Victoria’s Secret.

So good brands, notable brands, obviously awesome clients to have, but, and we talked about is at length, part of the benefit that we give merchants is that if you are a shoe brand, we don’t just give you all the capabilities.

We also tell you, listen, based on the dozens of brands that we have, and out of which there are similar price point, similar vertical, to your similar destination markets, here is what our aggregate data says that you should be doing in each and every market in order to optimize conversion.

And that’s based on statistically significant mountain of data. Even if they can mount the same volume of data, it’s going to come from Nike, and you’re going to need to press me very hard to believe that Nike sells well in Germany because of what ESW told them to do.

No, Nike sells well in Germany because they are Nike.

And nobody else, it’s almost like trying to take best practices from how Amazon runs their checkout.

No, their checkout goes against every single best practice in the market. On paper, it’s a horrible checkout, it’s a seven step convoluted checkout with lots of distractions.

It literally goes against what every e-commerce consultant will tell you on how to build your checkout, and yet they can do whatever the hell they want because they’re Amazon.

And if anybody else tries to do that, they’ll fail. So that’s on the insights front.

But to your question, the event generation is more than that, because right now what we focus on, what we have focused on historically is if you’re a brand and you have, whatever, 100 shoppers or 1000 potential shoppers going on to your site and you currently convert two out of them, we will help you convert three, or whatever, or four.

What we increasingly want to focus on is not just that, but also make the 100 into 150, or 200.

And the way to do that, and the reason why it’s important, it’s not just because we think it’s a great business to go into, and it’s definitely not because we have a shortage of things to do or a runway in our current business, it’s because that’s what the merchants are asking us.

They’re basically telling us, “Listen, with iOS 15 and the Google no cookie policy that is coming in Q1, it is becoming increasingly hard to acquire high quality traffic.”

Definitely internationally, it’s very hard to attribute the success of this online marketing to the actual results, and they need better ways, and cheaper ways to acquire high quality traffic.

And they come to us and say, “Listen, you are our international experts.

Can you help us to generate more traffic out of these international markets? We don’t know the first thing about generating traffic from these markets.”

So we’ve actually started already a while ago to build demand generation capabilities.

We started off more as an educational exercise to build a… Think of it as an internal marketing agency, but it’s not because we think an agency is a good business. It’s actually a crappy business. We don’t want to be in that business.

But it’s the way to create corporate knowhow and to start to create the knowledge and the understanding and the marketing language within Global-e the real goal is to build our own kind of unique ways of traffic generation.

That was the main rationale behind our acquisition of Borderfree actually, because what Borderfree have created is, there are multiple pieces of that rationale, like kind of a partnership with Pitney Bowes on client interactions, access to their standard shipping rates from US to Canada, which is an important name for us and access to Newgistics, a few more.

But the real main kind of jewel that we wanted to acquire was the marketing asset because what they have built over the years were two things that were very interesting for us as part of the grand scheme of building that demand generation capability.

One is a big database of more than 1.5 million shoppers internationally that have given them consent to be marketed to. And we believe that we can take not just whatever a hundred brands that Borderfree have, but the thousand brands that we have and use that asset to their advantage and run basically campaigns to them and tell them, “Listen, as part of going live with Global-e, we can include you in our next kind of email campaign.”

Or if it’s a big brand, “We can have a dedicated outreach to those 1.5 million shoppers and get you started in a much better way than just letting it grow organically.”

The other piece of the puzzle is an asset called borderfree.com, which is essentially a portal that they have built that you can connect that to the brands that work with you. Think of it as kind of a showcase or a virtual mall that shows all the…

It categorizes and it shows all the products that various brands have.

And if you’re interested in a dress, you click on the dress, it redirects you already to the merchant site, but you know that you can buy with the same great experience and you can also open an account, a Borderfree account on that.

And then we get your details and we can effectively market to you and grow that 1.5 million user base forever and basically use that and, again, connect our 1000 merchants to that, make it much more interesting for shoppers, invest money in promoting that and generating our own traffic into that portal.

And then, again, initially we can offer that as a benefit and say, “Hey, we can list you on this and if you give us access to your clients, we’ll even do that for free. And later on we can charge an affiliation fee if you want to be promoted in your category.” Like a marketplace would do.

And because we also earn money on the back of the GMV that’s coming in, we don’t need to charge a lot.

We can be very reasonable and create a big benefit for the brands.

And also, because we’re going to have all the details of the shopper, down the line, the idea is to basically create almost a one step kind of an express checkout experience using your Borderfree account. So that’s the plan, the grand plan behind demand generation.

We’re going to unfold that over the next few quarters and start to build that as both a business on its own and an important add-on for our existing and our new merchants.

OG:
It’s a great services business and it impacts GMV and it will also impact retention and it will impact Global-e’s outreach selling. It’s all parts of the business.

So Amir, you’re out of time. I have one more question, but you’re out of time, so I don’t have to ask. It’s up to you.

AS:
No, I think I do need a few minutes to switch to, I do need to go to another room, but I can spare a few more minutes and answer that last question and then…

OG:
Okay. You can answer this simply as quickly as you like. I’m trying to say this nicely. Borderfree wasn’t going great for Pitney Bowes –

AS:
That’s an understatement.

OG:
Right. But then Global-e takes over, acquires the Borderfree asset.

And I’m not talking now about the partnership with Pitney Bowes. I got it.

I’m talking about the asset, the Borderfree asset and now, as you’ve said on the earnings calls, it’s already working better than you thought relative to some expectations.

This is a very weird question. What is the secret sauce?

Because it’s happened with Flow as well, it’s just working better than you thought and at this point we can’t call it luck.

Something’s working very, very well. I don’t know if you have a short answer for that.

AS:
I think the short answer to that, it’s made out of two parts.

One is on our side and one is on Pitney Bowes’s side.

And they’re both, I would say, they’re probably opposite sides of the same answer.

The problem on Pitney Bowes’s side is, by the way, the same problem that FedEx had when they bought Bongo International and thought that they’re going to rebrand it FedEx Crossborder and compete with us.

And when UPS bought i-parcel and said, “Okay, we don’t need all these third parties out there, we can do it on our own.” Both of them eventually threw the towel in and understood that they made a mistake because a logistics company cares about packages.

All the ancillary stuff, including the tech business is aimed at generating more packages. And eCommerce in general and international eCommerce in particular is not about generating that.

You need to first generate conversion and to understand the eCommerce game and be on top of whatever is needed to develop and run and be agile enough in order to put that in place and continuously improve. And then the packages arrive.

But a logistics company is not a good home, if you want, for a high tech business, a software business that needs to be agile, that needs to move fast and it needs to get ahead of the trends in a fast moving, fast changing eCommerce world, let alone be led by it.

So the flip side of that is that I think Borderfree, they have great people, obviously, they like the people that were within the Borderfree unit.

They understand cross border and it was great for them to come to a home where, very simply speaking, the CEO cares about their business.

Its the epicenter of his business, it’s a whole different ball game and I think it completely re-energized them and enabled us to move much faster with the integration, with starting to get things moving than what we even thought before.

So I think the secret sauce is just focus. It’s our focus.

OG:
Excellent. Okay, Amir, thank you for so much for the time. I know you have to go. I’ll speak to you in the next year. So happy New Year prematurely.

AS:
Same here.

OG:
Bye.

AS:
Thanks a lot. Very good to connect again. Bye-bye.

 

Conclusion

Thanks for reading, friends.

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

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