Global-E Online Ltd.

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 4/5

Global-E Online Ltd. is an e-commerce platform that provides cross-border solutions for merchants and shoppers, allowing them to sell and buy products from around the world seamlessly.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Global-E’s business model revolves around facilitating international e-commerce, specifically simplifying the complexities associated with cross-border sales for online merchants and enabling international shoppers to purchase from their sites in a localized way.

Business Overview

Global-E’s platform offers a suite of services including:

  • Localization and Shopping Experience: Presents international shoppers with localized experiences, including multiple languages, payment methods, and currency conversions, to ensure a user-friendly experience.
  • Shipping and Logistics: Streamlines cross-border shipping, handling returns, and managing international logistics.
  • Fraud Protection: Offers fraud screening and payment protection solutions.

The company generates revenue primarily from services, such as transaction fees, fulfillment, cross-border shipping, and related services, such as foreign exchange.

Revenue Distribution

GLBE’s revenue is primarily driven by service revenue, followed by fulfillment revenue. Service revenue is a percentage of the GMV (gross merchandise value) processed through the platform. Fulfillment revenues are from the fulfillment and other services to merchants to enable cross-border trading.

  • Service Revenue: 67%
  • Fulfillment Revenue: 33%

By Geography:

  • United Kingdom: 35%
  • United States: 24%
  • Israel: 18%
  • Europe (ex UK): 15%
  • Other (ROW): 8%

As we can see, the company is highly dependent on the UK, but the US revenues are growing fast.

  • Cross-Border E-commerce Growth: The e-commerce market is rapidly becoming more global, as consumers become more used to online shopping from across the world.
  • Increasing Regulatory Complexity: More and more complexities emerge from cross border trade with regulations becoming increasingly complex and varied between countries.
  • Emergence of New Markets: Significant opportunities exist in untapped emerging markets with increasing purchasing power.
Competitive Landscape

Global-E competes in a fragmented market with several types of competitors, including:

  • Legacy Solutions: traditional logistics companies offering cross-border shipping capabilities.
  • Point Solutions: companies offering focused services like currency exchange or payment processing.
  • Large Marketplaces: marketplaces like Amazon offer cross-border options, competing with services of Global-E.

What sets Global-E apart is its comprehensive end-to-end platform designed specifically for cross-border e-commerce, handling everything from localization and payment processing to shipping and returns. This approach is very different than some of the competition.

Financial Analysis

Revenue:

  • Revenue growth has been a strong driver, as can be seen by the 2022 results of $408 million and 2021 results of $245 million (a growth of 66%).
  • In the most recent quarter (Q3 2023), revenues were $148 million vs. $106 million in Q3 2022, implying a growth of 39% YOY.

Gross Merchandise Value (GMV): GLBE’s platform serves as a middleman where the revenue is a portion of the GMV on sales processed through its platform. The GMV for 2022 was $2,477 million, whereas the GMV for 2021 was $1,449 million (representing a growth of 71%) and the GMV for the first nine months of 2023 was $2,353 million, showing an increase compared to the $1,825 million in the first nine months of 2022.

Gross Profit:

  • Gross margin was around 41% in 2022 vs. 41.4% in 2021. The Non-GAAP gross margin of 2022 was 51.5%, which improved over 2021’s number of 50.2%.
  • The most recent quarter (Q3 2023) shows non-GAAP gross profit of 47.9% compared to 44.9% in Q3 2022, which is a good improvement YoY.

Operating Margins:

  • Operating expenses are high as is typical with high-growth companies.
  • Operating expenses were $387.2 million in 2022 which implies an operating margin of -94.9% vs operating income of $7.9 million in 2021 (a margin of 3.2%).
  • In the recent quarter Q3 2023, operating margin improved to -13.6% versus -23% a year ago.
  • Adjusted EBITDA margin improved to 11.5% in Q3 2023 (vs. 7.6% in Q3 2022).

The high operating loss (GAAP) and low margins should improve, but they are still a concern, especially with recent slowdown in growth. However, the Non-GAAP margins are already pretty healthy and shows the underlying profitability.

Cash flows:

  • The company has had negative free cash flows in 2021 and 2022. However, they have generated close to break-even free cash flows in recent quarters, implying their losses are now stabilizing.
  • At the end of Q3 2023, the company had cash, cash equivalents, and marketable securities totaling around $563.1 million.

Moat Assessment

Global-E’s moat is a 3 / 5, which means it has a narrow but solid moat.

  • Switching Costs: By tightly integrating with their clients’ ecommerce platform (or backends), Global-E makes it costly and disruptive for clients to switch to another vendor. Many merchants will face high costs in rebuilding and migrating their international infrastructure to another provider. While switching costs are helpful to retain clients, it isn’t a wide moat as those switching costs don’t affect the shopper but the merchants.
  • Network Effects: As a cross border ecommerce platform, GLBE benefits from network effects by having a large amount of merchants and shoppers, which helps attract both merchants to join the platform and customers to buy from it. The higher amount of merchants and shoppers on the platform would lead to higher conversion for merchants, and more product variety for shoppers. This is a strong moat source.
  • Intangible Assets: While there are not any patents, the company does have proprietary data, technology, and software, in their platform which is not easy for the competitors to replicate. Furthermore, their brand is becoming recognized in many countries.

These are decent moat sources that are unlikely to erode too quickly. However, other similar platforms could potentially compete effectively with GLBE if it gets big enough or offers a better service.

Business Resilience & Risks to the Moat

Global-E faces several risks that could erode its moat and impede its success:

  • Increased Competition: The cross-border e-commerce market is getting more competitive as more companies develop similar solutions, making it difficult for Global-E to differentiate itself in the long run.
  • Technological Disruption: Rapid changes in technology may allow competitors to leapfrog or offer lower-cost solutions, which would erode Global-E’s advantage. This includes more efficient payment methods or shipping logistics that would lessen the painpoints of cross border trading.
  • Regulatory Hurdles: International regulations are complex and are constantly changing. If a company can’t adapt to changing regulations, the business can have severe ramifications.
  • Macroeconomic Uncertainty: Economic downturns could significantly impact consumer spending, which would affect the volume of transactions on GLBE’s platform and overall profitability.

Despite these risks, Global-E’s diverse operations, technology and partnerships with leading e-commerce companies give the company a solid foundation for resilience, along with ability to adapt to a changing landscape.

Understandability Rating: 3/5

Global-E’s business is complex to value, due to its unique business model. The company’s services and operations, especially around cross border e-commerce, can be hard to fully appreciate as it involves lots of moving parts. While GLBE is not very hard to understand in a basic context, valuing its different segments and forecasting future performance can get very complicated.

Balance Sheet Health: 4/5

GLBE’s balance sheet can be said to be healthy. Some key factors in this assessment are:

  • Solid Cash Position: GLBE has a strong cash position that gives it lots of cushion to pursue acquisitions and growth and also be protected from financial shocks.
  • Low Debt Levels: The company’s has little to no long-term debt which means it isn’t vulnerable to downturns or any changes to rates.
  • Some Concerns about their non-GAAP profitability. The GAAP operating losses still remain high which could indicate underlying operational issues that need to be addressed. However, their growing and already healthy Non-GAAP profit margins seem promising.

Overall, GLBE’s current state of financials is healthy and doesn’t warrant too much worry. They do need to improve profitability with scale to further strengthen their financials.