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Numbered Spotlight Top Pick Global-e (GLBE) reported earnings on 5-20-2024, and we shared the earnings review that day here:
Global-e (GLBE) – Beats and Raises – Largest Pipeline Ever
We spoke with the CEO afterward and share that transcription below.
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One-on-One with the CEO of Global-e (GLBE)
Ophir Gottlieb:
So, first of all, congratulations.
Great start to the year and lifting full year guidance, which was really nice to see.
You’re closer to it than we are, but in the US we see what’s happening in Western Europe and it’s not awesome.
I told you last time that I would ask about pipeline outside of Shopify Markets Pro every quarter, and I think Nir figured that out.
And so he tried to answer for me on the earnings call. I’ll repeat a little bit what he said and then try to go a step deeper.
He noted that your pipeline remains strong or even stronger than what you’ve ever seen in the past.
The call-out was on the larger project side, so Nir is saying more RFPs coming in, more interest from large merchants and he even said, if this continues, this will positively affect 2025.
He was really going down the line. And it’s fairly unusual for Global-e to talk about things like that. Other than Shopify, you guys tend to not talk about the next year.
So my question is this, and I don’t mean to sound odd, but why are things looking so good?
Is this catching up from a former slowdown of launches from fearful merchants before and now they’re catching up?
Or is this a new long tail inflection point for Global-e? What can you tell me?
Amir Schlachet (CEO, GLBE):
I think it’s a couple of things.
There is a bit of, I would say, merchants getting back in the game, not in terms of launches.
Those merchants that were signed previously, they’re advancing, they’re on track to be launched.
The thing more to look at, I would say six months ago or what have you, we did see, and we talked about it around that point, more focus for merchants on profitability and cash savings rather than an appetite to look into sales growth and revenue growth into the future.
And it was understandable because it was rocky times when it came to macro. Not that macro is out of the woods now, but at least there is a sense of more stability, more understanding of what’s coming.
So yeah, interest rates are still relatively high, but people are not fearing any more than they will hike way higher.
So they kind of know now their financing costs and they can start figuring out how to get back into looking to future growth.
So I think that’s one element that has taken some, especially larger merchants, off the fence and saying, “Okay, we’re happy to now talk about and look into offerings and products that can help us continue to grow into the future and we are willing to undertake the effort of implementing those.”
So that’s one element.
I think another element is also the additional functionality and capabilities that we are constantly adding to our product, to our offerings.
So, more larger merchants than maybe previously would not consider such a service because they were looking for specific capabilities that could cater to their unique use case.
The more of these we encounter, the more functionality we add, the more granular our ability becomes to solve all these use cases in elaborate setups and infrastructure that they have, the more we can accomplish larger and larger deals in that group. And that obviously positively affects our pipeline.
And I think the third thing is that over the last period, and I think we talked about it on some of our previous calls, we are increasingly in a position where we can rely on channel partners and other third-party partners in our ecosystem to sell our offering or help us to sell our offering to their clients and sometimes even approach prospects with joint offerings.
As time goes by, as our reputation grows, as our track record grows even further, we are able to, I would say, both utilize the existing ecosystem of partners better and also work with, I would say, other types of partners that have more reach and more influence over larger merchants and larger opportunities.
So, I think it’s all of these things working in parallel. And you’re right, we typically don’t talk at this point of the year about the following year, but as we talk about these large projects pipeline, it is important to note that at this time or the middle of the year, new very large enterprise deals that are being signed now are typically just for a next year launch. They’re not going to make it before peak time, and nobody launches during peak time.
So we’re anyhow looking at next year launches for these projects, but at the same time we talk about the deals.
Some of them are fairly large deals that we have in the the integration pipeline that are advancing and are on track to launch this side of Christmas.
OG:
Okay, that’s great news, especially the, I’m assuming there’s some sort of homogeneity with the desires for new features that you’re satisfying or new functionality, I’ll call it.
So that’s really good news. That does sound kind of inflection point-ish, like these features are starting to move the needle.
I really like that.
So I’ve been watching macro in the US as sort of a US resident, but Western Europe too.
And the UK and Germany did actually come out of this sort of technical recession – two quarters in a row of negative GDP.
So I know on the call Global-e said it was “more optimistic that merchants are starting to see the light at the end of the tunnel and we see them willing to make commitments faster.”
But at the same time that wasn’t like you guys didn’t have excessive optimism on the call about macro.
It was actually sort of like a reinforcement of what I would call, “it’s not very good, but it’s not getting worse.”
So are you seeing macro turn around in some of your larger Western European countries or same question for APAC?
AS:
So I think your sense is correct.
It’s not that we’re seeing huge optimism when it comes to macro in these regions, but we’re also seeing fewer worries, more stability, if you want.
So there is still volatility.
That’s why we’re still cautious, especially when we look into some future looking elements like guidance, et cetera.
We are still cautious, but the way at least we think about it is that there is still going to be volatility, there is still going to be uncertainty, but it seems to be in within a smaller band. The amplitude of it seems to be smaller and that’s true for all the regions that you mentioned.
OG:
Okay. Yeah, it’s interesting in just, you probably know this, but I talked to a lot of enterprise software companies and it’s actually very much the same thing.
Their wording they’re using is, I actually just borrowed their wording, which is like, “Well, it’s not really that it’s getting better, it’s just that it doesn’t look like it’s getting worse.”
And that is creating a bit of optimism. So it’s happening …
AS:
And that’s also what we’re taking into account when we’re guiding forward for the next quarter for the year.
We’re not assuming any huge improvement in macro or in uncertainty, but we’re also not assuming that it’s going to get a whole lot worse.
We think that this is how it’s going to look like for the next few quarters.
OG:
Yeah, you’re right on line with these other enterprise companies.
And they’re seeing your equivalent of same store sales as sort of their equivalent of this cost optimization thing that’s happening in the cloud.
They’re like, “Actually people are starting to add workloads.” That’s like merchants saying, “Okay, we’re going to do cross-boarder.”
So the world is starting to make sense, at least in its reaction to this. I hope everyone’s right, but we’ll see.
Okay, so I’m over the top excited about Global-e’s soon to be delivered Demand Generation Services.
You know that. We’ve talked about it.
I’m considering it maybe not how you say like an in-house ad tech unit.
And of course, you know why: Builds moat, builds GMV, generates high margins and it’s a win for merchants and for Global-e.
Okay. You’ve told me many times that it would be bifurcated.
On the one side there’s a traditional demand generation marketing services that will expand into additional clients, and then there’s also this unique thing with Border Free.
Okay, second half of this year, you’ve said for a long time, very consistently it will start to deploy the first iteration of this.
Okay, we’re now in the third quarter where we’re talking about this.
So naturally it’s coming closer to 2H 2024. Right?
So I assume interest is extremely high. It’s an assumption.
I hope adoption will be high.
What can you tell me about the conversations you’re having on the interest side and what can you tell me about the progress with that now that it’s becoming closer and closer to a form of GA?
AS:
Sure. So first of all, you’re absolutely right.
The only thing I would maybe slightly refine there in the definition is that I wouldn’t necessarily say these two parts are bifurcated.
There’s actually quite a bit of interplay between them that we plan to have because the Borderfree.com portal if you want, which is kind of an affiliation play for merchants, part of the way we plan to fuel it with traffic, with high quality international traffic, is by using the database of registered clients that we have and vice versa. One of the ways we plan to enlarge the database of registered clients or shoppers that have agreed to get marketing materials from Borderfree is by incentivizing them to sign up to Borderfree.com.
So there is a lot of interplay that we plan between these two.
But to answer your question: one, yes, there continues to be progress in and we are indeed nearing the point of launching the first parts of the offering to I would say the first cohorts of early access merchants.
We are already starting to discuss this with actual merchants and for now we’re seeing, I would say, very encouraging levels of interest in the offering. Still very, very early days, so I don’t want to get too excited too soon, but I would say the merchants that we’re starting to talk to certainly seem to share our belief that this can be beneficial for them. It can drive incremental value, and so it very much remains on track.
There are additional elements by the way that we’re planning. We talked about the two main ones previously, but there are additional add-on elements that we are planning. They’re probably going to be deployed more next year, but we think of it as a full multifaceted offering all aimed at providing a high quality dedicated to international affiliation network for our merchants.
OG:
2025 is looking like a very, very exciting year barring macro-bobbles, obviously as we can’t do anything about it.
I’m sensing this real momentum into 2025.
And not that 2024 is going to be bad.
You’re raising guidance for that too, but everything’s coming. You know what I mean? It’s looking really good.
AS:
I agree.
OG:
Let’s just hope the world economy doesn’t do something to us.
Okay, I want to talk about AI now.
Last quarter, you gave this incredible anecdote that you didn’t have to scale up support staff for the holiday season.
You just used a customized version of an LLM.
And not only did you not have to scale up on your busiest time, but that the satisfaction from customers was exceptionally high, even higher than having to wait for a human email, which could take 24 hours.
That’s what I took.
So then Nir got me really excited because he was answering a question about margins and take rate, and all of a sudden suddenly he says, “Actually, we have a senior team that is going through the organization and mapping AI.”
I think he called it AI initiatives team.
So then I’m like, “Whoa, that’s even better.”
This sounds like a fabulous margin and efficiency driver, and I love that Global-e is out in front of this.
I’m pushing every company I talk to about this to learn more.
So what can you tell me now about this AI initiatives team?
The support thing was a slam dunk and it sounds like you crushed it, but what else is going on?
AS:
So, first of all, even with regards to customer services or support it worked fabulously out of the gate, but we’re still investing in it and making it better.
We just recently launched the next iteration of that that is even more sophisticated in its capabilities to answer support tickets and have real-time conversations with the shoppers and get to resolutions, I would say, even a higher percentage of the cases without the need for human intervention. So we are continuing to invest even in that. We don’t look at it as just a one and done.
But you, you’re very right. In other areas were we’ve decided to focus now is really around efficiencies and automation of processes that are repetitive, that have to be done at scale and that call for AI capabilities.
And I’ll give you an example – classification of super large catalogs, product catalogs for duties and taxes. So it’s obviously a natural task for an automated software. Some of our merchants have catalogs that are in the tens of millions of SKUs or more than that.
So we’re talking very, very large volumes and it’s also, it has a real business impact because if we are onboarding a merchant or if a merchant updates its catalog and we haven’t had a chance yet to classify the products for duties and taxes, it may impede the ability to sell because we need to have to have accurate duties in taxes calculation in order to provide an accurate cost for the end consumer rather than just use defaults and stuff that may skew the calculation.
But that takes time. And it’s not only a time factor – it’s also that in a lot of cases there is some fuzziness to it because it depends, in many cases, on the items’ description. They’re not structured. Every merchant can use different language. Sometimes it’s taken directly from the manufacturing company’s descriptions.
And also when it comes to how these are at the end handled or viewed by the authorities in the different markets where the items are going to, there are human beings involved, there are customs clerks, human beings that end up deciding what the classifications should be and what the duty rate is.
So this really calls for an AI treatment, and we’re starting to implement that as well, again, with great initial results in terms of both speed and ability to digest the huge catalogs at scale, but also very high accuracy levels.
Because I remind you, we are the merchant of record, so we have liability here, which means that we have to scan catalogs for not just classifying them correctly for these calculations, but also restricting products if needed. Sometimes merchants will have products that they’re okay to sell domestically, but they are restricted from import in specific destination markets. So we have to know that in advance.
The last thing we want is for an end consumer to be disappointed that the order that they made gets stopped at the border because it includes an element that is restricted from import into that country.
So we have the data about what’s restricted and what’s not in terms of the rules in each market, but the trick is to apply that correctly to these huge catalogs and make sure that we restrict those items that need to be restricted, but only those items that need to be restricted, and enable as much of the catalog to be available for these markets as possible.
Because otherwise, again, it’s a frustrating experience if as a consumer. You go on a website of a brand that you really like, and every other product that you click, it says, “Oh, sorry, this cannot be sold to your country.” It’s a very frustrating experience.
So this is an example of another element of the business, which is internal, it’s not customer facing, but it’s very important for the flow of our business, and we think that AI can deliver amazing results there as well.
OG:
Yeah, I didn’t fully appreciate the scale until you said some of your large merchants have millions or 10 million SKUs.
AS:
Especially since a decent percentage of our portfolio of brands is in fashion.
In fashion a typical brand can have a quarter or even a third of its catalog rotated every season.
It’s not even, “okay, we onboard a big merchant, we have a huge undertaking, we classify all the catalog and then we’re done.”
Massive parts of it needs to be done and done again every season.
OG:
Yeah, that’s a really good point.
I just now appreciate the scale.
This is the only question I’m going to ask about Shopify because I think you guys cover Shopify wholly satisfyingly, to tell you the truth.
So one thing I was going to ask, do Merchants on Markets Pro have an alternative to DHL?
AS:
They now do because we’ve recently added standard shipping offering, it’s DHL but it’s DHL e-commerce. It’s not DHL Express.
Typically, when we talk about DHL, we mean DHL Express, but we are working on adding additional optionality for standard shipping.
It’s one of the elements of Markets Pro that are in process because we know it’s important for many, many brands to have more optionality on the standard shipping product.
OG:
Okay. All right.
So last question as always, is there anything I didn’t ask that I should have asked or is there something that you wanted to say but I didn’t give you the chance to say because I didn’t ask the right questions?
AS:
The only thing I would say that we’ve seen some kind of … in our follow-up conversations and some inbound questions, one of the things we’ve seen is that some people find it a bit hard to make sense of the whole amortization cost for Shopify warrants.
So what some people are missing is the fact that the vast majority of this amortization actually goes away in the second quarter of next year, which means that by definition going into – probably already in the second quarter- but if not then in the third quarter of next year we’ll be GAAP profitable.
This is going to catch up because the majority of this amortization is actually non-cash and non-dilutive. The GAAP profitability will catch up with …
OG:
Reality.
AS:
Exactly.
And then the rest, I think there’s about $9 million or so that will remain on a quarterly basis until the beginning of ’26, but that also goes away in January ’26.
So I think that clear path to GAAP profitability coupled with our ability to continue growing very fast into the next year in subsequent years, I think that is something that is important to emphasize.
OG:
Okay, good. Yeah, Morgan Stanley usually takes my research and publishes it to their readers, but in this case, I will give them credit.
They nailed that earlier this week. Yeah. They nailed it.
AS:
I think James and his team did a great job.
OG:
Yeah. Okay, Amir, that’s it. Two minutes early we did it!
Thank you very much. Okay, I’ll see you next quarter. Okay, bye Amir.
AS:
Bye.
OG:
Bye.
Conclusion
Today we reiterate Global-e (GLBE) as a numbered Spotlight Top Pick and an “after this” winner. We see a bright future.
The author is long GLBE at the time of this writing.
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