GLBE Introduction/Q1 Review

Investment Analysis Clubs Saul’s Investing Discussions
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Global-E Online (GLBE) is a platform designed to enable and accelerate global, direct-to-consumer (“D2C”) cross-border e-commerce. Rubenslash provided a nice write up last month when the company came public - https://discussion.fool.com/global-e-online-34835116.aspx?sort=w…. Since then, the stock has done pretty much nothing but go up and has nearly doubled in the month since its IPO. Here is a bit more info on this business along with their Q1 results which were announced earlier this month.

Global-e’s mission is to make global e-commerce “border-agnostic”. The company is based out of Israel and was founded by three people in 2013. I believe all are still with the company today serving as the CEO, COO and Chief Marketing Officer.

You might be thinking, what do they do? Well essentially, they help businesses to sell their merchandise online to different international markets seamlessly by catering to the local language, currency, payment methods, shipping and returns, etc. Here is an example that was provided in the MF Industry Focus: Tech podcast (https://www.fool.com/investing/2021/03/19/what-investors-nee…).

“If you want to see this in action, I don’t know 100% what’s going on under the hood with the tech. But I imagine what you’re seeing here if you Google Etam, gives you a decent sense of what things look like for localized content. So as a U.S. user, I searched Etam. They are underwear, swimwear, and fashion brand. What comes up first for me is a URL, int.etam.com. That is an English language version of their website. Now, their core website, etam.com is the second results, and it’s entirely in french. I did take middle-school and early high school french, but I am not qualified to buy anything on a website. It’s too specific, the vocabulary. You can see just in searching this, the value that it brings to people for you to be able to immediately understand, OK, these are the categories. You hear about a brand from someone else, and you can go to the site in a way that makes sense to you. I think it’s helpful to illustrate that. But I think it is illustrative of what they are able to offer to the user experience.”

All in all, I believe they offer a pretty innovative solution. I can only imagine the problems that arise when trying to set up an e-commerce site to sell internationally are quite common. Global-e makes this process easy. The question is, how much e-commerce business is going to be done on a global scale? I don’t know the answer to this but my guess is the market is only going to grow as the world continues to go global thanks to the rise of the internet/social media. I personally do not buy many products from international sellers (the U.S. market has more than I will ever need), but I imagine there are many people out there that do.

As for competition, here is what Feroldi had to say on the podcast - “They basically said their No. 1 competitor is companies doing this thing themselves; just choosing to take all of these processes in-house and launch it on their own e-commerce site. They did mention that they do have some smaller competitors, but they were so small they weren’t actually named in the prospectus, but Global-E thinks that it is the largest provider of its solutions.”

There is some concentration risk with Global-E. They had 442 customers at the end of 2020, up 56% from 283 at the end of 2019. Their biggest customer accounted for 18% of revenue in 2020, down from 25% the year prior. In addition to this, the company also has significant supplier concentration. DHL processed 59% of all fulfillment orders for Global-E in 2020. Over 50% of Global-E’s revenue comes from fulfillment currently so this would be a big problem if things went awry with DHL. Thankfully, DHL owns over 5% of Global-E’s ordinary shares so their interest are aligned for now.

Let’s get into the numbers.

The company generates revenue through service fees and fulfillment services. Service fees revenue is generated as a percentage of the GMV that flows through the platform. Fulfillment services revenue is generated through the offerings of shipping and handling services.

GMV in the first quarter of 2021 was $267 million, an increase of 133% year over year

Revenue in the first quarter of 2021 was $46.2 million, an increase of 134% year over year

Service fees revenue was $17.1 million, an increase of 146%

Fulfillment services revenue was $29.1 million, an increase of 128%

Gross margin in the first quarter of 2021 was 33.3%, an increase of 390 basis points from 29.4% in the first quarter of 2020

Adjusted EBITDA in the first quarter of 2021 improved to $5.2 million compared to ($0.4) million in the first quarter of 2020

So here we see the company is growing rapidly while on the cusp of profitability. However, COVID served as a huge tailwind to this business and this was their final quarter of lapping the COVID-less quarters. This means revenue growth is going to drop significantly next quarter. The guidance for Q2 would amount to 60% YoY growth at the mid-point. Assuming a 10% beat, revenue growth would come in at 77%. It is tough to predict how big their beat will be seeing as this was only their first ever report as a public company but I would assume they have baked in a solid amount of wiggle room. Regardless, a business growing 60-80% is nowhere near as attractive as a 130%+ grower, especially off a base this small.

Now that the stock has doubled since the IPO, its valuation has reached $7B. I think the opportunity was pretty attractive at $3.5B but now it seems to be pretty fully valued. It is trading at roughly 32x 2021 estimated sales, which feels to be at the high end for a ~70% grower with 33% gross margins.

Lastly, here are a few interesting tidbits. Their net retention rate is right up there with Snowflake. GLBE has reported a Net Dollar Retention Rate of 134% and 172% in the years ended December 2019 and 2020, respectively, and the Gross Dollar Retention Rate has consistently been over 98% since 2018. Clearly, their customers are getting quite a bit of value out of their platform.

Global-E also has an exclusive Services and Partnership Agreement with Shopify to cooperate in offering its e-commerce cross-border solutions to Shopify merchants. Additionally, Shopify bought 7.75 million shares of the company, good for a ~5% stake in the business. They also acquired warrants that entitle it to an additional 11.85 million shares over the coming two years. I would not be surprised to one day see Shopify buy this business.

I think this is a very interesting company, but I am hesitant to purchase it after the recent run up from the IPO price. If they were going to continue to grow at 130%, it would be a different story. All told, while they do offer a very impressive service, I am not sure how desired it is in the market. Is global e-commerce going to explode in the coming years or will most of the e-commerce business be driven by local/national players? I am not sure. What do you say?

Rex - No position in GLBE

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I already introduced this company to the board around IPO date: https://discussion.fool.com/global-e-online-34835116.aspx?sort=w…

The stock is up 82% since my introduction so I hope some people were able to buy the stock. I took a position couple of days after my write-up.

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I think this is a very interesting company, but I am hesitant to purchase it after the recent run up from the IPO price. If they were going to continue to grow at 130%, it would be a different story. All told, while they do offer a very impressive service, I am not sure how desired it is in the market. Is global e-commerce going to explode in the coming years or will most of the e-commerce business be driven by local/national players? I am not sure. What do you say?

I love the business model, the numbers and the theoretical TAM. The initial valuation seemed reasonable or a bit low for the numbers so I opened a tiny position. It’s up 84%. Now I wished I had bought much more.

It is backed by SHOP which increases my confidence in the company. SHOP initially acquired a 6.5% stake and established “a significant service and partnership agreement with Global-E, making the company the exclusive provider of cross-border services for Shopify’s customers” according to the article below. SHOP’s stake dipped to 5.4% post-IPO but they have warrants to almost triple this position in the next two years.

https://www.fool.com/investing/2021/05/07/shopify-takes-193-…

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Very interesting and timely post Rex, I have been considering exactly the same questions:-

  1. Whether to invest in GLBE?
  2. Whether global trade is going to explode?

On the first question, given that I have an 18% position in Shopify and given that it will be easier for global e online to 10x than Shopify from here, that it is growing faster and at a better valuation, I’m tempted to shuffle some Shopify into global e online although admittedly the recent rapid rise has taken some of that opportunity out of the equation.

On the second, I guess we face maybe 2 alternative hypotheses:

With China wanting to have 100% sufficiency and US wanting 0% dependency on China in the near term wrt trade and especially tech then this could have 2 consequences, either;

Nation states become self sufficient and everything on-shores.
Nation states rewire global trade routes and actually replace the one to many routes between China and the world with many to many.

After the trade war over the last 3-4 years, it looks like Governments/companies espoused the first but actually implemented the second.

My assumption would be a boom in many to many global trading. Countries just don’t have the sufficient capacity to self sufficient in everything. It would be too inefficient and the impact on inflation to insane to accept.

Ant

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I have owned this company soon after its IPO, I did not bring it to the board because it is a very recent recommendation of at least one of the premium services that support this board. My recollection was that the practice of touting recently recommended MF stocks was taboo.

With that said, look at the numbers and look at ownership and tell me this is not a winner.

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I have owned this company soon after its IPO, I did not bring it to the board because it is a very recent recommendation of at least one of the premium services that support this board. My recollection was that the practice of touting recently recommended MF stocks was taboo.

I don’t see an issue to bring up such a company if it comes with independent research and no mention that it was recommendation. In the end, most won’t know what is recommendation unless they subscribe to the particular service it, I wasn’t aware it was recommended until you mentioned it but have been considering it based on it originally be suggested

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I don’t see this company ever been recommended by MF and I have access to all of their premium services.

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What is taboo is stating that the stock is a MF (or any other paid service) recommendation, especially taboo is stating which specific service recommended it. Saul and others have been clear that they use services to get ideas and may later bring those ideas to this board if they fit the profile, but do not say stock X was recommended by YYY. This board is specifically for discussion of high growth stocks, a small universe that overlaps with some MF/Beth.Tech/etc paid service recommendations. There will inevitably be some stocks discussed here that were/are MF recommendations.

Back to GLBE, I picked up a small starter position the other day with similar reasoning as Anthony. I believe that global commerce is going to increase and that more and more countries will try to lessen the reliance on China. Many businesses in these countries will need assistance in bringing the products to market and GLBE provides a way to do that more easily and is positioned for growth. Plus they are small enough that continued revenue growth should be maintainable for a few years and should drive the stock price higher if they do maintain it.

The revenues and growth rates are well laid out in the original post here - so no reason to repeat from my analysis. The latest earnings and the market shrugging off the widening losses was the final item that triggered my initial position. I felt the rising expenses as outlined showed continued investment in key areas to drive growth.

Risks I see are:

  1. The runup from the IPO price to almost double today. Too much too fast? But if you wait for a pullback you may not be able to buy.
  2. Customer acquisition costs in other countries is higher than in initial regions
  3. Shopify influence – a selling point for me to buy was Shopify’s involvement, but if they have too much influence on the company and make the platform more Shopify specific then that may not good for continued growth rates - IMHO
  4. Competition – will come in from various angles – other platforms and entrenched solutions, in-house solutions from major players, and the good old established brick & morter local distributors that have existing connections with businesses in the target regions

So – this is enough for me to start a small position and add-on as I free up cash from other areas.

Happy investing

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I listened to a MF podcast about GLBE right after they filed their S-1 and was hooked back then. I was waiting and watching for the IPO, set an alert, and got 1/3 of a position within the first minute after listing at $24.35/share. Across the next three weeks I topped it off to a full position with a Cost Basis of $30 overall.

My thesis boils down to the fact that GLBE is solving multiple major headaches that stand in the way of all but the largest companies being able to sell products across borders. Could someone else build this? Probably. But who would want to? Dealing with languages, currencies, taxes, regulations, laws, cultural dynamics for every country–those hurdles are enormous and yet the value to merchants is through the roof. And logistics, too? Any one of those problems solved is a huge win, let alone a single company that does them all. Small and mid-size companies don’t have the resources and the large ones can spare themselves the headaches and just partner with GLBE–which it looks like many are already doing.

The minute I saw that SHOP was trusting their customer base to them and actually taking a stake was proof enough for me that they could successfully execute, which the financials also show.

Maybe I’ll be proven an idiot, but apart from fraud or something popping up, I don’t see how they lose.

GLBE forever.

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I felt interested in GLBE, so I went to it’s investors relation website. I did a quick calculation, in their Q2 guidance, GMV is 273-285, with a 10% beat of the large number, GMV will be 314. That represents YoY 87.7% and QoQ 17.6%. Not bad, but their 2020Q2 had YoY 122% and QoQ 46%.

Their Q2 revenue guide is 46.8-48.8, with 10% beat of the large number, it will be 53.7. That represents YoY 80.2% and QoQ 16.3%. Last year 2020Q2, their revenue was YoY 134.7% and QoQ 51.3%. And they gave the guide on 6/3, which is already 2 months into the quarter, their Q2 ends 6/30.

I felt it was a significant slow down and usually market will respond to this kind of guide with a sharp price drop. But the price is shooting up wildly. I just can’t understand. Am I missing anything?

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Where have you been last year? There is a pandemic ongoing and pretty much the whole world went into lockdown as of March 2020, significantly boosting e-commerce at that time. No more explanations needed.

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