Global - E: Dominating a New Business Category
It’s seldom that one encounters a young/startup company among that actually has a clear path to profitability, a huge “total” addressable market, a huge “moat”and no direct competition….although many claim all or some of those characteristics.
But Global - E seems to have a unique position where they solve a crucial business problem that no one else works with.
Who is Global -E
Global E was founded in 2013 and is headquartered in Petach Tikva, Israel.
The company is led by its founders, a group of Israeli entrepreneurs. The CEO, Amir Schlachel, previously worked at an Israeli bank, Bank Hapoalim where he was Assistant to the CEO. He has also worked as an associate at McKinsey & Co and was the Commander of the Talpiot Air Force Academy. Another of the company’s co=founders, Shahar Tamari is the COO, and also worked at Bank Hapoalim as VP of Business Development. Prior to his tenure at GLBE he was a VP for business operations at an Israeli e-gaming vendor called 888.com.…..It currently has employees It went public on the NASDAQ on May 12,2021 (ticker GLBE)
What does Global - E do?
This video from Global E describes their activity
Global - E provides a full solution for companies looking to build online sales outside of their home country. Selling cross border online creates numerous unique problems, all of which Global e provides:
Website in 25 languages
Ability to sell in 100 foreign currencies
150 payment options
Arranging logistics for shipping with 20 different services.
Analytics to aid in developing business
Global-E has full integration with Salesforce Facebook and many other sites.
Global-e receives services fees for conducting transactions and additional fees for handling logistics.
Obviously it is impossible to conduct international online business without the above capabilities. There is no direct competition to Global-e’s capabilities other than the company doing all of this on their own, Clearly that is something that a mega global brand like Nike might choose but for thousands of merchants only outsourcing makes sense. Some might choose to sell their product through Amazon or other similar services. But in that case it loses control on how their product is marketed. Most companies would prefer that other manufacturers (including Amazon) not show up when a potential customer searches specifically for their brand. That is the reason that Global - e has already has a customer list that includes many major retaillers.
Huge potential market. Most of Global-E clients are in UK/Europe. They have barely penetrated the US market. Revenues are growing at close to 100% yoy.. Global-E added its first Asia Pacific customer Theory Hong Kong and has just opened an office in Japan. This means that these 2 massive markets have huge untapped potential in addition to growth in Europe.
The term total addressable market seems to be attached to virtually every startup business but for Global - E it certainly applies. Market analyst Forrester expects the growth in cross border business to grow to $736 bln by 2026.. At present 30% of traffic to merchants are cross border but it only produces 5-10% of sales..clearly a huge missed opportunity. Market consulting firm Report Linker sees the e commerce sector growing by $10.87 trillion between 2021 -2023 a compound annual growth rate of close to 29%. Clearly during the pandemic many consumers have done online shopping for the first time and even with a reopening will continue to do so..especially with brands that have no bricks and mortar present where they live.
Global-E has what they call a flywheel affect existing clients grow their cross border sales and add countries to their marketing. Global-E provides marketing intelligence based on its data culled from across their clients making client marketing more productive. All this adds to GMV (Gross Merchandise Value) as clients grow sales and add markets. and thus to Global-E’s earnings. As more sales go through its system it has more data to help clients. success for its customers adds to the growth in volume and thus in Globale’s share of revenue. GlobalE’s net dollar retention rate (which includes growth from existing clients and new business is 140% meaning not only does it keep its clients, the GMV from these clients increases over time.
One of GlobalE’s founders gave an example of GlobalE’s data showing French consumers would rather pickup their package at a nearby location rather than get home delivery…and are even ready to pay extra for that service. Obviously this is usual information for any of its clients selling to the French market. British retailer Marks and Spencer added 47 new markets since starting its relationship with GlobalE.
A partial list of customers shows the success in reaching top tier merchants:
· Marks and Spencer
· Hugo Boss
· Tag Heuer and Sephora both from the luxury LVMH group
· Marc Jacobs
The following case study appears in materials from the GlobalE investor relations site
Marc Jacobs engaged Global-e in September 2018 and in just three weeks’ time was able to implement a cross-border solution that enabled them to offer their shoppers the improved and localized shopping experience sought. Marc Jacobs went from only limited localized experience offering only a few currencies,only accepting payments through major credit cards and couldn’t localize pricing and marketing strategy. Within 3 months of partnering with global e online orders were up 77% yoy and ecommerce revenues up 130% .
Shopify partnership: a huge new market.
An exciting benefit of the first mover advantage is the relationship Global-E has established with Shopify. Global-E has a three year relationship with GlobalE as the sole provider of cross border logistics. Shopify has has 1.7 million vendors on its program. In 2Q 2021 alone it had volume of $42 billion.
Although the relationship is set initially for 3 years it seems unlikely either party will not renew. Shopify was an investor pre IPO with 7.75 million and has received warrants to buy an additional 20 million shares with warrants that essentially had no cost. There is a fee sharing agreement with Shopify although details were not released. opify 3 years across all merchants exclusive supplier15-20 000 suppliers
2 Quarter 2021 Financial Results.
Global e report substantial growth across all metrics in its August 16 release of 2Q earnings,
GMV (gross merchandise volume) in the second quarter of 2021 was $326 million, an increase of 95% year over year
Revenue in the second quarter of 2021 was $57.3 million, an increase of 92% year over year, Service fees was $21.1 million and Fulfillment services revenue was $36.2 million
Gross margin in the secondquarter of 2021 was 36.0%, an increase of 3.6% points from 32.4% in the second quarter of 2020
Adjusted EBITDA1 in the second quarter of 2021 improved to $7.6 million compared to $3.1 million in the second quarter of 2020
Net loss was ($22.2) million compared to a net loss of ($0.4) million in the year-ago period. Netprofit excluding the Shopify warrants related amortization expense of $25.5 million was $3.3 million.
The above would mean a 65% growth in revenue yoy for 2021 for a company which just reported yoy revenue growth of 92% for 2Q 2021.
Stock price performance . Global-e stock actually opened below its IPO price of $25 when it started trading on May 12 although it closed slightly above that. Since then the stock more than tripled to a high of $84.77 reached soon after its 2q 2021 earnings ...when consensus analyst price target went to $80. Current consensus rating is a strong buy.
GlobalE made a secondary offering on September 14 Founders CEO Schlachet COO Tamari ad CRO Debbi each sold 8% of their holdings, taking home close to $40 mln each. The stock closed at $69.50 that date.
The stock has been volatile :
Valuation and Forecasts:
Analyst coverage for Global-E is relatively low at 8 firms with the average “Buy” and many overweight only one firm has a sell.
Average analyst price target rose to $80 after the 2Q earnings release. That would be a p/s ratio of 52 based on Global-e guidance for 2021. At the current price of 57 the p/s is 44.
Analyst coverage is limited at this point (8 firms) The price target changes by analysts after the 2Q Earnings release indicate that analysts are still trying to understand Gloabal-E’s business. After the 2Q Earnings release:
Raymond Janes target price raised from$41 to $80
Keycorp from $75 to $80
Jeffries from $44 to $80
Piper Sandler from $42 to $80
With the consensus price target of 80 and the price at 57 the stock is more than 20% below the target price
Valuation based on the analysts target p/s would be 51. At current price it would be 44 virtually identical to that of Shopify.
Of those who forecast 2022 earnings the consensus is for 55% yoy revenue growth. Analyst estimates track company guidance so more positive guidance by the company will raise analyst estimates and price targets. With the Shopify revenue just beginning, large untapped markets in the US, and basically untapped markets in Asia it’s reasonable to expected higher growth than the current guidance. The company may be very conservative in its estimates for Shopify revenues as it will be in early stages through most of 2022.
Even taking the consensus estimate of 2022 revenue at $353 million and the p/s of 52 one would get to a price of $125. And as I have noted this is based on a very conservative rate of growth in revenue of 55% for a company that has shown 92% yoy revenue growth in the second quarter.
With the low number of analysts covering the stock and only 50% of the stock publicly traded the stock is somewhat under the radar. The third quarter earnings could be a catalyst for the stock if growth continues as it did in the second quarter and will likely trigger an increase in guidance and an increase in price targets in response. Until then I would expect the stock to be extremely volatile with no major catalysts.
Technical analysis would show support as 55.73 and resistance at $71.75 with a closing price on October 14 at 61.40.
Globa-lE gave a presentation on ...at a Jeffries conference video is here
Video from a Piper Sandler conference here.