Bear and WSM
Well done for unpicking Global-e Online.
As a proponent of GBLE I’ve a few thoughts I wanted to add. Had I had sufficient time I would have prefer to have laid out data tables with the hard evidence across more analogs including Mercadolibre and SEA and even Amazon but let me share some brushstrokes here whilst the conversation is still in play.
Firstly there are a couple of sources that are very instructional on the company, its business model, the opportunities and risks as well as the performance.
- the original F1: https://www.sec.gov/Archives/edgar/data/1835963/000119312521…
- the recent TMF discussion https://www.fool.com/investing/2021/03/19/what-investors-nee…
Whilst their post IPO information availability and subsequent announcements have added more recent data points there is still much to understand from these sources.
For example and I haven’t come across this for any eCommerce company let alone GBLE, but the F1 reveals that as of their latest FY, 2020; its Net $ Retention Rate stands at 172%! and that DHL hold a ~5% stake in GBLE (alongside Shopify’s investment).
1) Perspective and Context
Firstly and this is how I think about GBLE, I consider them to be an eCommerce rather than pure SaaS play. I literally diverted proceeds from selling 5% of my Shopify holdings into GBLE, which now sits at #4 in my eCommerce investments, behind: Shopify, Mercadolibre and SEA.
As such then: i) I don’t assume that their GM will be pure SaaS like ii) Their revenues will be a mix of various solutions with different pricing, charging and margins, iii) They have eCommerce market tail winds that provide for a TAM that dwarfs most of our SaaS investment TAMs but iv) at the same time do not deliver recurring subscription revenues even if their revenues are sticky and high frequency.
Unlike WSM, when I am looking at GBLE just as I do with Amazon, PayPal, Shopify, MercadoLibre and SEA, I consider all of their “commerce related” revenues as a % of GMV to be part of their “total take rate”, (verging onto 20% as opposed to just the software solution portion equating to 6.5% in latest Q). Not all of its revenues are literally derived from a % of GMV just as it isn’t for Shopify or Amazon etc where additional merchant solutions add incremental revenues serving the GMV going through the platform with different GMs. In none of these cases are the revenues subscription based or recurring software SaaS like. Shopify does have this part but it isn’t in the Merchant Solutions division which is the comparable business to GBLE.
GBLE makes it clear in their F1 that within its 2 core revenue streams they have i) Service fees - a Gross Merchandise Volume in $ value % derived amount which is the higher margin but smaller $ revenue stream and ii) Fulfilment fees - Merchant Volume derived amount which is the shipping and fulfilment revenues of larger $ amounts but at lower margin. It also makes clear that the Service fee business is outgrowing the Fulfilment fee business and that some new merchants are taking up service fee on its own.
Shopify for example, within its Merchant Solutions revenue line has: GMV % derived revenues, shipping and fulfilment solution revenues and payment solution revenues. These are both a mix of varying rates and margins not dissimilar to GBLE - really it is the Merchant Solutions business of Shopify that relates to GBLE as opposed to the Subscription Solutions.
Now it might be easy for us to sit here and say, why bother with this low margin business, why not stick with the high margin software like service solutions. Well in my mind the same could be said for all other eCommerce platforms. Effectively they see more and more ways to put end to end solutions together to capture more and more of their merchants’ wallets. Furthermore if you look at any comparable business like: Shopify, Amazon, SEA and Mercadolibre - ALL of them have combined in Shipping and Fulfilment either as a solution relying on additional partners or as an internalised capability. All of them also make it very clear that they see this as a strategic advantage and declare metrics around % of GMV that are penetrated by shipping or fulfilment or in house payment solutions. Shopify has over 50% of its merchants using Shopify shipping. Mercadolibre see this as so intrinsically important they have internalised shipping and fulfilment and offer in market shipping for free!
Effectively I do not think Global-e Online or any eCommerce platform can really do what it does without offering Fulfilment Service solution.
The other point I would make is that I really do not think the Fulfilment Services is just a basic pass through of shipping and courier services. In part because this is a complex series of process steps, but also the fact that the take up is so high and with its largest merchants and that they are making a relatively decent margin - which I will illustrate below.
In terms of the key themes driving the tailwind opportunities for GBLE I would boil them down to:
Increase in eCommerce taking share from traditional retail
Growth in cross border/global eCommerce
Increase in companies wanting to engage in DTC (Direct To Consumer) selling
2) Revenue streams and Gross Margin comparison
Let’s look at the revenue streams and growth margin comparison in a number of different ways.
First let’s compare the GBLE business in aggregate with Shopify as an analog. Clearly Shopify has much more maturity in its business and enjoying operating leverage that GBLE hasn’t reached yet. Even so here we go…
GBLE:- 2019 2020
Service $ 23.5m 49.9m
H1 Service GM N/A 70.4%
Fulfilment $ 42.4m 86.4m
H1 Fulfil GM N/A 13.0%
Total $ 65.9m 136.4m
Total GM 28.3% 31.9%
Net $ RR 134% 172%
Total GMV 382m 774m
Total Take % 17.2% 17.6%
Shopify:- 2019 2020
Subs $ 642.2m 908.8m
Subs GM 80% 78.7%
Merchant $ 935.9m 2021m
Merchant GM 37.6% 40.9%
Total $ 1578m 2929m
Total GM 45.1% 47.4%
Total GMV 61.1bn 119.6bn
Total Take % 2.6% 2.4%
So first off, the margin profile of GBLE in aggregate doesn’t look too far off the equivalent blended margin of the Merchant Solutions part of Shopify and not a million miles away from the overall business and I hazard a guess that when Shopify was at this scale it was probably operating at much lower margins.
Second, the fact that it is in touch in aggregate with Shopify’s Merchant Solutions margin suggest that its shipping and fulfilment business is a value adding merchant solution than simply mark up and pass through.
Lastly whether it be 6.5% take rate (latest Q) for just service or the total take rate of 17.6% in FY 2020 or higher in latest quarters, these numbers are far ahead of Shopify and compare well with other eCommerce platform players…
In FY 2020:-
Shopify had $119.6bn in GMV producing total group revenues of $2.929bn = 2.4%
SEA had $35.4bn in GMV producing eCommerce revenues of $2.167bn* = 6.1%
Mercadolibre had $20.9bn in GMV producing eCommerce revenues of $2.561bn# = 12.2%
- Excludes Gaming and SEA Money revenues ($4.4bn in total revenues for the year)
Excludes Banking revenues ($3.973bn in total revenues)
The fact that GBLE achieves 13.8% in H1 2021 in fulfilment whilst “shipping” until at least 2019/2020 (last time I could see the break out), was woefully negative at Mercadolibre as a business.
Now let’s bear in mind the context of GBLE’s 13.8% as a shipping and fulfilment GM. UPS - which has all the advantages of a massively scaled operating business has a 5 year historical GM of 19.5%. Fedex has a 5 year historical GM of 25.8%. For GBLE to be at 2/3rds (70%) of UPS’ gross margin and over half Fedex’s GM suggests that again they are providing valuable fee for service not just simply pass through with mark up whilst piggy backing on DHL etc.
3) Shopify relationship
Also addressed in the F1 but repeatedly over and over in the recent Shopify earnings call, Shopify are very clear in referring to Global-e Online by name multiple times and that their solution is being seamlessly integrated into Shopify’s Shopify Plus platform which is as we know the realm of the larger merchants engaging in global cross border DTC - a perfect match for global-e online and responsible for a significant portion of their GMV.
I really don’t think that the COO and CFO would be calling out Global-e Online during an earnings release if they weren’t a strategic partner of consequence.
It remains to be seen how much GMV % will be shared with Shopify to be their native Shopify plus partner but time will tell. It also remains to be seen to what degree integrating seamlessly with Shopify Plus will increase take up over both service and fulfilment for Global-e Online or whether they will provide service but then utilise Shopify’s ship and fulfilment solutions. Right now over 50% of their shipping is handled by DHL.
Ant
(Long:- SHOP = 16%, MELI = 3%, SE = 2.5% GBLE = 2%)
