All right. Good morning, everybody. Thanks for joining us here on the fourth and final day of the Morgan Stanley TMT Conference.
Saving the best for last.
Saving the best for last. Certainly, Global-e is you guys have generated a lot of conversation in the dinners that I've been in this week and in just hallways, et cetera. A lot of people becoming familiar with the name or at least exposed to the company for the first time. Before we start with Global-e's CEO and co-founder, Amir, my name is James Faucette. I'm one of the senior analysts here at Morgan Stanley, I do have a disclosure to read. For important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/research disclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.
You know, maybe, Amir, because at least so many of the people I've spoken to this week have said, "Oh, Global-e, I've heard about them, but what do they do again?" Why don't you give us the explanation instead of just hearing me go through it?
Sure thing. I'll give you the gist of it. The gist of it is that we handle, we help brands from all around the world to sell internationally direct to consumer online. That's kind of the tagline. What that means, if I go kind of, try to explain it one layer further, we basically give the brands three layers of service. One is a full set of end-to-end capabilities which enable us to fully localize the customer experience on their side. It's kind of, think of it as a plug-in to their whichever website, whichever platform they're running on, Shopify, Salesforce, whatever.
Once it's installed, it fully localizes the customer experience, including local currency, local pricing, local payment methods, various shipping offerings, duties and taxes calculation, you name it. Full end-to-end localization. It makes it very easy for the shopper to shop regardless of where they're coming from. What that generates, basically is a 60% uplift on average, proven 60% uplift in international conversion rates. That's one. It doesn't stop there because once the transaction is done, we actually handle the transaction behind the scenes for the merchant. We become the merchant on record, and we bear the risk and the complexity that is involved with an international transaction. We take the fraud risk upon ourselves. We take the foreign exchange exposure on returns.
We handle the actual logistics, so it becomes a true domestic localized transaction for the merchant itself, but at the same time, they enjoy all the benefits of selling directly to the end consumer cause they have all the details of the consumer, they have a relationship with him or her, et cetera. Last but not least, we tie it all together with our data because we don't just provide them the capabilities and the service around it, we also use the vast amount of data that we have. We work with more than 1,000 brands selling out of 28 countries currently. Last year, we did more than 10 million transactions and literally more than 1 billion user interactions.
We have a vast and diverse data asset that we can use to recommendations for each brand, depending on their vertical, their price point, their size, et cetera, and tell them not just what they can do with all our capabilities, but what we think they should do in order to fully optimize the conversion rate from each market. Well, it's not really a gist, but that's the high level what we do.
So, let's step from there just into maybe giving a quick overview of how things progressed in 2022.
Mm-hmm.
What, you know, you were able to achieve last year and then what you're seeing so far in 2023.
Well, I don't know.
A lot, yeah.
Yeah. It's probably gonna take the... A lot has happened in 2022. If I try to take it to kind of the more 30,000 feet level, we made progress on pretty much all the elements of our strategic plan. First, we grew very aggressively in the territories that we're already active in. We generated close to 70% growth in 2022. We also kind of saw first real activity coming out of our new areas of business development, geographically speaking, especially APAC, started...
We just early in 2022, we started our business going out of Japan and going out of Australia, and within the year, we already saw great progress with live merchants coming online and very large deals already being signed and a very big pipeline. We made two acquisitions, one in January, where we acquired Flow Commerce, which is a similar type of service but built for SMBs with SMBs in mind, kind of a fully automated productized offering.
With that, we basically enter or we, adding a fourth layer that will come even earlier upstream and not just help merchants to convert the traffic, the international traffic that they have, but actually, help them to generate more high-quality cross-border traffic using proprietary assets and capabilities that the basis of which we acquired from Borderfree, and we are now, in the phase of, kind of augmenting them with our scale, with our know-how, and kind of turbocharging them in order to develop our own proprietary demand generation capabilities.
Got it.
Lots more.
Yeah, lots more. I know you have signed some big brands and-.
Right
... like adidas and.
adidas and Disney and many other world-known brands that have joined the platform. Also built kind of bookings.
The biggest we've ever had. On that, look, I think from our seat, we see a massive opportunity for cross-border e-commerce. You know, when we think about the direct to consumer and the ability to even for, you know, the examples I give is like, hey, I can build a global brand if I'm doing custom-painted motorcycle helmets, and I'm putting them on Instagram.
We have a couple of those.
Yeah, yeah. Suddenly they take off in Indonesia, right?
Yeah.
That kind of thing. Like, the ability for people to build global brands that are direct to consumer, we see as a massive opportunity. One of the big questions we often get is like, "Well, how big is the market?" I'm like, "Well, I don't know," because there's so much friction that it's really hard to assess, like how big the market could be once you start to reduce that friction. You know, so it's easy to dream big dreams, but, you know, and you talked about you grew roughly 70% last year. Our forecasts right now are for low 40s this year on kind of an assumption of same-store sales growth of roughly flat.
Mm-hmm.
you know, but what's stopping you from growing even faster? What are the limiters there, and how can you lean in to take advantage of the opportunity set that is massive right now?
I think the main limitation is actually ourselves. We could theoretically grow faster.
Okay.
We are pacing ourselves. And I can say that as, you know, as CEO and as a management team, most of our effort goes into managing that growth because, at the end of the day, it's a reputation-based business.
Okay.
We are only as good as our reputation is. Of course, we aim to grow and capture as much of this opportunity as we can and as quickly as we can. We also know, and we have seen occasions in the past where companies in our field have got under eyes of the ball, if you want.
Yeah.
The minute you start to, kind of not perform at 100% for your existing merchants, and you don't give your new merchants the same, onboarding experience that they expect from a partner, a cross-border partner like us, it's a, it's a very quick death spiral.
Right.
We are focused on growing as fast as we can, and growing our resources and headcount as fast as we can without kind of risking a degraded service level to our merchants.
Got it. Got it. Let's talk about, like, that client life cycle. First to the point of sale, what's the biggest reason not to use Global-e? Like, I mean, the sales pitch and the benefit, et cetera, seems pretty apparent to me, particularly even if you're a large global brand, you may have a lot of capabilities, but like running websites in foreign countries isn't probably part of your core competency or your brand development or product development, et cetera. You know, what are the pushbacks, if any, that your team receives from potential clients?
I would say the most kind of common pushback. Well, we have to bifurcate it because from small and mid-size merchants, there's very little pushback because they realize very, you know, very well that they cannot do this by themselves, and there's absolutely no chance. It's just a matter of kind of getting to them, you know, putting this in front of them and taking them through, you know, hand-in-hand through the process. We never get an answer that like, "No, this is not interesting for us.
Right. Right.
With the larger opportunities, there are, I would say, two types of hurdles. One is, I would say, a misunderstanding of just how complicated this is. If you are now, whatever, the, you know, the CIO or a Chief Marketing Officer, or VP of e-commerce of a large brand, you may actually look at this and say, "Hey, I actually have lots of resources, lots of capabilities. I, you know, this doesn't seem that, like, that complicated. All I need is to add maybe another payment processor and maybe another international carrier, and maybe connect like a duties and taxes calculator, and I can do it myself. There's no reason for me to pay whatever these guys are taking, you know, if it's, whatever, 6%, 7% out of my GMV.
It's not worth it. It's basically our job to educate them and to show them that, A, it is not that simple to do it themselves.
Right. Right. Right.
And we are very, I would say, because we pride ourselves on being real partners with them, we show them, we break down their business, and we say, "Okay, listen, here, if you talk about," you know, you mentioned adidas. We will never pitch for adidas, to give us their business in the U.S. or to give us their business in Germany, because these are true home markets for them. There's no reason for them to trade cross-border into these markets.
Right. Right.
But there's always, even for these brands, there's always market number 8, 9, 10 onwards, where they're still meaningful in terms of volume on an aggregate level, but there's absolutely no chance they can devote the necessary resources to build the expertise in order to trade in those. Doing that kind of education is part of it. The other pushback is sometimes, and they say, "Okay, this is great, but this is not the right timing because we are replatforming now, or we are in the process of changing our, you know, OMS or ERP or whatever three-letter acronym you wanna, you wanna choose. After we do that, we'll have the resources and then-
Right. Right. Right.
... come back to you to onboard us." Even with the largest of brands, we very rarely get the answer like, "Nah, this is, this is not for us.
Right. Then let's take the opposite side of that. Let's say I'm a merchant or brand. I'm ramping on the platform. What does that process look like? What keeps a brand like adidas from saying, "Okay, Global-e, we want you to do Geographies 7 through 35-
Mm-hmm
... immediately. Like what kind of is the limitation in ramping?
First of all, in terms of the implementation for a typical, I would say, enterprise merchant, it will run from, call it, 12-16 weeks for like the adidas' of the world. That's obviously assuming nothing, you know, there's.
Right.
... no roadblocks and it's smooth-running process. By the way, just an anecdote, the tech side of the integration is very rarely on the critical path.
Okay.
The tech side is typically done way before they are ready to launch. Most of the time goes into them as a merchant taking all those decisions, all those business decisions that they now have to take. Now that they have all these capabilities.
Right. Right. Right.
... and all this knowhow, they need to decide exactly what the experience is gonna be in each market, and that takes time. In terms of the actual kind of processes, it's obviously well, it's a field-proven process. We have our own implementation teams. We come with all the like the logistics side and the and the tech, and there's project managers from our side that specialize exactly in tailoring these integrations for the large merchants. In terms of rolling out geographies, that really differs between kind of call it the new age brands-
Uh-huh
... that were kind of, you know, born on the internet, born on Instagram like SKIMS from Kim Kardashian or Kylie Cosmetics, which we recently launched with. These brands, they don't have any legacy. They don't have any kind of local infrastructure. And they run very lean operations. Typically, we just go live with a big bang for all the markets.
Right. Right.
The more traditional brands, the adidas' of the world, the Disney's of the world, they take a much more kind of gradual approach. It's almost, kind of, in their DNA because that's the way they think about global expansion.
Right. Right. Right. Right. Right
... like market by market. We try to persuade them, think, "Listen, there's no downside to just opening the rest of the world. Even if it's not optimized yet and you haven't really run marketing in those markets, still there are shoppers coming into our site. Why not give them a good experience?
Yeah. Yeah. Yeah.
you know, we don't fight it too hard, and typically these brands come out with even a multiyear rollout plan. Like adidas' is the rollout plan and Disney's rollout plan are they span more than a year.
Mm.
That's fine because we truly look at it as a long-term relationship. Our churn rates historically have been less than 2% per annum. We have merchants running on the platform already for more than 8 to 9 years, so and they're still running strong. We don't mind if the ramp-up takes more time.
Right. Right. Right.
... as long as the relationship is there.
If that's the geographic ramp or, you know, as you bring, take a brand to a new country and launch them, you know, if we think back to last year's cohort of geographies and brands.
Mm-hmm
... or the prior years, how long until the average merchant reaches actual transaction scale within those corridors? If I launch in, you know, let's say, the example I always use is Michael Kors in Paraguay, right?
Mm-hmm.
Like, let's say I launch that corridor. How long before it reaches kind of what you would assume to be like a normalized run rate of retail activity?
on that it typically, it does take, I would say several weeks probably.
Okay
... on average to ramp up. Not that there's, from a technical perspective from day one.
Yeah. Immediately or whatever.
... once you're live, everybody can buy. At the end of the day, it's, there's a natural process of, you need, if you want the turnover of the consumers. Because the consumer that went into the Michael Kors website from Paraguay, just a minute before we launched, got a very bad customer experience. It was, you know, in U.S. dollars. You know, she couldn't pay with our Paraguayan Guaraní.
Right.
... payment method, et cetera, et cetera.
Right. Right.
She's not coming back, not anytime soon. Once we go live, we need to give it time for the new cohort of consumers, if you want, to start and kind of get into the site, understand that, hey, this is now fully localized. That's a great experience. I'm gonna purchase. Typically it takes, call it a few weeks to a month. We actually recommend to most of our brands, not all of them listen to us, but we do recommend for them to not increase their kind of marketing activities immediately, but rather wait. You know.
Right. Right. Right.
give it that couple of weeks until it settles down and they see what the new kind of baseline is and then take.
Right.
... informed decision on, you know, starting to run, demand generation campaign.
Got it. Got it. I've been kind of dominating conversation here with Amir. If there are any questions, please, we'll ask, raise your hand. Let's start here with Alex. Let's get a mic. Or Alex, why don't you just pose the question and I'll repeat it?
Yeah. You've got your Shopify
Hello.
... which now does Shopify Pro. Describe how that works. What's the most
Not overrated, just small.
Yeah. Just for the benefit of those on the webcast, the question was can you just describe, quickly like how Shopify Markets Pro works, your role in that, and how that's different from, you know, maybe what you would do for a bigger brand?
Sure thing. Basically, you can the way kind of it works on Shopify is you'll have the kind of the enterprise brands. Think of them generally speaking as the plus brands. Those that are bigger, that are really more enterprise. They will typically require and kind of can benefit-From our kind of full enterprise offering, which is what I described earlier, they will have a direct relationship with Global-e. We will We do have a strategic partnership with Shopify on that as well, which we signed just prior to our IPO in May 2021. That gives us exclusivity for basically any such enterprise brand on Shopify. What we do there is we.
They install the, we have a native app that we built together with Shopify that takes all these cross-border capabilities that I talked about and embeds them natively into the Shopify backend, into the Shopify checkout. Basically they get the full service directly from Global-e, including all the customer success, and, all the services envelope around it, just like any other merchant on any other platform would get. That in terms of kind of quantifying it, that's about half of the cross-border GMV on potential on Shopify is concentrated in those kind of call it 15, 20 thousand+ merchants. The other half, and in numbers, we're talking about Shopify. Shopify has been public with about $28 billion or $30 billion of cross-border GMV that is currently running on Shopify.
About 15 of that is on the kind of direct side, on the enterprise side. The other half is spread across literally hundreds of thousands of merchants, each of them relatively small, but in aggregate they have a lot of potential. Each one of them is way too small in order to justify the full end-to-end enterprise treatment that we give. As I said, we have in our decade of operation, we've onboarded 1,000 merchants. Here, we're talking about hundreds of thousands that are potential. We understood from the get-go that if we want to address that, we need a completely different approach. We need a platform that is geared, that is self-serve, geared from the get-go for SMBs. That is the Flow technology that we acquired.
We basically retooled it and augmented it with our know-how, our expertise, our scale, and that is exactly what's powering behind the scenes, Shopify Markets Pro. If it's now... Well, currently it's still in early access mode, so it's currently by invitation only. Once it goes general availability, which is planned for sometime mid-Q2, what will happen is that if you are one of those small merchants and you, and you believe you have potential, you will, I would say, figuratively speaking, just tick a box, say, "Okay, I want to use Shopify Markets Pro." That will automatically kick in the technical part of the integration and kind of onboard you.
There is a very small KYC process that we will need to run because even in that solution, we become the merchant on record. We take all that liability that I described. We run a very short and simple KYC and boom, you're online. The goal is to be able to do it, I would say, almost instantaneously, definitely within a day. You get all those capabilities that you need in order to sell cross-border, minus the really kind of, you know, sophisticated stuff that you anyhow don't need as a small, as a smaller merchant.
Sort of auto trans-.
Yes. The only no is on the translation of the pages. We don't Even on the enterprise side, we don't translate the actual content, for reasons that, you know, I'll be happy to elaborate on, but it doesn't matter right now. It's also not necessary in order to generate conversion from many of the markets. If the merchant wants to translate the page by themselves, that's fine, and it obviously works seamlessly with that. In most cases, you can actually get most of the value just by trading in English. On neither of the solutions do we translate the pages themselves. We do localize the relevant content, which as you said, is the pricing. The pricing will be in local currency.
The pricing is also localized in terms of how it's rounded according to local marketing conventions like, you know, $0.99 here in the U.S. versus the next 100 JPY in Japan and so on and so forth. Yes, all the rest of the experience will be localized: local payment methods, multiple shipping offerings, duties and taxes, kind of pre-guarantee for a landed cost and so on and so forth. The rest of the experience is gonna be very similar to what I described.
Got it. Got a question here. Quick follow-up. Can you use the microphone?
Is there a difference in take rate between that business and the core business?
Yes, there is a difference in take rates. I would say, economically, we haven't, you know, we're still in discussions with the. This is a new product, so we're still in discussions with our auditors as to exactly how this will be handled accounting-wise. Putting aside accounting from an economics perspective, it is, on the one hand, a lower take rate model because it's a Shopify product. We actually sell, quote-unquote, the product wholesale to Shopify, and Shopify are the ones that are determining the pricing for the merchant and it's basically their product. It's inherently lower take it from an economics perspective.
Having said that, it's also much lower cost to serve because we don't have any sales and marketing going in. It's again, Shopify's product, they are the ones who are gonna market it. They are the ones who are gonna serve these merchants. Apart for R&D, we're not gonna have any major operational expenses on that. When you get to the EBITDA line, it's supposed to be relatively similar to our enterprise business.
Got it. There's a question right here.
As you prove out for larger merchants new markets that they didn't previously serve without your help, what keeps them from ultimately deciding to try to do it themselves and, you know, effectively compete with Global-e over time?
First of all, nothing. Nothing stops them from doing that. Our contracts are without any commitment. Our typical contract, even for the larger merchants, is a one-year minimum, and then a three-month termination of convenience. Theoretically, they can do that. In practicality, we have rarely seen that happen over the last decade. We have seen a lot of the opposite happen, where they say a large brand will come to us and say, "Hey, we have these," whatever, 3, 5, 6 markets that we are already fully localized in. "We don't need you guys for that. We're good. You just take market number 7 onwards." As long as that 7 onwards is enough of a business for us and a meaningful chunk of their business, we are fine.
What happens down the line typically is that first they see how flexible it is, how efficient it is, how easy it is to work this way. Sometimes even, something happens on one of those markets that they do by themselves, a regulatory change or something, there's something that kind of changes their mind, or it may be our customer success team that manages to persuade them that it's gonna be much more efficient to do it through us, and they dismantle those websites and hand them over to us. It has happened with Marks & Spencer on multiple lanes. It has happened with many of the brands along the years. Theoretically, they can.
To give you some numbers, according to our kind of back of the envelope calculations, a single lane needs to be around, call it $50 million-$100 million in order for it to even start to be an option for a brand to do it by themselves. The main mitigation from our perspective is the performance that we can generate. At the end of the day, our take rates, it may sound relatively high, because even for an enterprise brand, we will typically charge, call it 5% of the order, which sounds a lot. Actually, if you think of it, from a merchant perspective, that's a gross take rate. What it includes is the payment acquiring piece, which otherwise they will need to pay out of pocket.
Payment acquiring costs money, and they know that. It includes the fraud protection, which anyhow will cost them money, even if they're at kind of a, I would say best in class. It includes customer services. It includes the overall management of the offering. If they are true to themselves and they build the full business case, including all the auxiliary costs, they typically see that the real added costs from working through Global-e is only about, I would say, depending on the size of the brand and the situation, can be between 100 and 200 basis points, not more than that.
to pay that and get in return the peace of mind and the flexibility of it, all this international thing being somebody else's problem and concentrating on what you do best as a brand, which is, you know, building great products and marketing and so on and so forth, that, at the end of the day, is what is preventing them from doing it by themselves. Not anything contractual and not any real kind of real-life limitation. It's the lack of know-how and the lack of focus that they have.
Amir, in the last minute here, I wanna go back to margins. You know, how are you balancing growth with your margin structure? You know, just recap for us where we are today, and then where you think we can get to and over what timeframe, and what the key drivers are to realize your targeted margins.
We've invested a lot over ever since our we IPO'd in expanding basically all our margin structure. We've taken. When we IPO'd, we were at a gross profitability margin of around 33%-ish. We've crossed the 40% mark. We're now last quarter at around 41.5%. In parallel, we've also invested a lot in extending our EBITDA margins. Our long-term goal, we've basically been cash positive since 2019. We've generated cash way before it was fashionable because we thought this is the right way to build a sustainable business. We've never had a losing client, we've never had a losing transaction. We plan to continue doing that.
We do prioritize growth, but we do plan to do it while remaining cash positive and maintaining, I would say, stronger revenue growth than operational cost growth. We do plan to continue inching upwards, both our pricing or our, I'm sorry, our take rates, and our gross profitability margin, even though the take rates are probably gonna stay relatively stable. We do have levers to pull to extend our gross profitability. Not at the same pace that we've done since the IPO-
Right.
Continue to push it higher. At the same time, continue to invest in operational excellence and continue to move our EBITDA margins toward the long-term goal, which is 20%.
That's great. Amir, that's all the time we have. Thank you very much for joining us. Global-e is always a fascinating company to talk about. Appreciate it.
Thank you for having me.