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What Investors Need to Know About Global-e Online

By Brian Feroldi - Mar 19, 2021 at 3:49PM

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This global e-commerce company has started the process to go public in the U.S.

In this episode of Industry Focus:Tech, host Dylan Lewis is joined by Motley Fool contributor Brian Feroldi to walk through Global-e's prospectus and explain how the company makes international e-commerce a breeze for businesses. Find out if it makes it to their watch lists, and more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on March 12, 2021.

Editor's note: Global-e filed F-1 registration statement for proposed initial public offering.

Dylan Lewis: It's Friday, March 12th and we're talking about another soon-to-be public company. I'm your host Dylan Lewis, and I'm joined by fool.com's inarticulate international acquirer of inspecting Israeli investments, Brian Feroldi. Brian, I don't think you're inarticulate.

Brian Feroldi: But I do occasionally inquire about Israeli investments. That fits, right?

Lewis: That's true. Yeah. I find you to be quite articulate and that's why we do the show together. Even when we're not articulate, that's part of the charm, I think. We both have our hiccups here and there.

Feroldi: Dylan, a part of my title must be self-deprecating, otherwise, I don't feel comfortable.

Lewis: That's right. Now, we are nothing if not self-deprecating. We are made better by our community often, Brian, and that's certainly the case with what we are going to be talking about today. We are doing a show on Global-E, probably a name that a lot of people haven't heard of before. It is not currently traded, we have the prospectus, and it should be available sometime soon. But we owe this one to a friend of the Fool over on Twitter.

Feroldi: Yes, this is highly likely to be a company that just would have flown way under my radar. This company is based out of Israel and its biggest market is in the U.K. It is listed in the U.S, but if it wasn't for one of my Twitter followers named MaxTheComrade for putting this on my radar, we probably wouldn't be talking about it right now.

Lewis: So, shout out to MaxTheComrade. I appreciate the suggestion, and as always, we love getting suggestions for the show. You can either reach out to Brian on Twitter, or me on Twitter, or you can write at industryfocus@fool.com or @MFIndustryFocus on Twitter. We are working off of the proposed information, and we often have to do this caveat, Brian, as we talk about things. Shares are not currently available, we don't know the evaluation. There are some elements of the business we still have yet to get a good sense of. However, we have the prospectus, and I think before we get too far into it, I am just going to put it out there. There are some staggering numbers with this company. This is something similar to a prospectus we did a little while ago, Olo, where I'm like, "Man, this is an attractive business. There are some numbers that really jump off the page."

Feroldi: Dylan, well, I pitched the show to you. I just took one note of the slide, and I said, "Well, how does 100% revenue growth, net income, and 140% dollar-based net retention rate sound to you?" You said, "Okay. We're talking about it." So yes, this company has some very exciting headline numbers.

Lewis: Yeah, I think I borrowed a phrase from our Monday host, Jason Moser, and went with a "Hey now." That is quite strong, and we'll talk about exactly how they do it. For people that are looking to follow this business, the proposed ticker is GLBE. I love it when a company names itself something that makes it very obvious what they do. That's what we have here, Brian, global e-commerce. They don't make you do a lot of guesswork on what the company does.

Feroldi: Yeah. The company is, as you probably have guessed, focused on global e-commerce. In fact, their mission is to make e-commerce border agnostic. The core of what this company does is it provides a cross-border e-commerce platform that provides localized shopping experiences for merchants. So say you are a small merchant and you're on, let's just say, Shopify and you want to offer your products and service in international markets; that's not easy to do. There's a whole lot of rules, regulations that you need to consider, each market has its own language, there could be duties and taxes, there's shipping problems, there's return problems, there's fraud problems. It's a really complicated thing. At the same time, if you are a brand, of course you want to offer your products around the world. So Global-E provides a platform that integrates with a lot of other shopping platforms that makes it easy to do just that.

Lewis: Yeah, and critically, this is dynamic. It is something that keys in on information that the site is getting from users to dynamically provide localized experiences. I think that's the linchpin of this, is what they're able to do very smartly is make it a seamless process for someone who is maybe "out-of-market" for wherever that business tends to operate in an experience that makes sense then, either via language, via currency, or just the way they're being marketed to.

Feroldi: Exactly. You can imagine how important that stuff is if you are a shopper in those markets. Again, let's say you're a shopper in, say, the Ukraine and you want to buy from a company out of England, that English company might not have the expertise to provide you with the currency that you want or in the language that you want. There's a lot of nuances that need to be really nailed to make sure that the conversion rate in international countries matches what you see in your own country, so that's what Global-E helps to do.

Lewis: This will be no surprise to anyone that has followed the e-commerce space over the last year-and-a-half, but this is a business that was doing pretty well, and then 2020 happened and it dramatically scaled what they were doing in terms of gross merchandise volume, in terms of revenue, a huge year for them. Really, where they went from being an interesting but pretty small company to firmly a small cap. But that's probably going public at a valuation that starts with "b."

Feroldi: Yeah. This company was only founded in 2013, so we're talking about something that's barely eight years old at this point. So they were founded in 2013, by 2018, their platform did about $200 million in total gross merchandise volume across the platform, but that number basically doubled the next year and then more than doubled in 2020. Last year, the company did over $750 million in total gross merchandise volume, so the number of customers that they had signed up was a record and the spending per customer that they saw was a record. So yes, like many e-commerce companies, 2020 was a banner year for this business.

Lewis: Yeah. I think what it does is it shows there's some mega tailwinds here. There's a lot of things that are moving in the right direction for this business, and then I think within the space that they operate in, Brian, to be honest, I don't know a lot of companies that do precisely what they do. Usually, when we're talking about e-commerce players, they tend to be specific to a region and they tend to dominate that region, but we don't really talk about ones that are border agnostic.

Feroldi: That's one thing that they call out in their perspective. I was looking down to try and find, all right, this sounds interesting. What's the competition? 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.

Lewis: Yeah. I could see how this would be a market that people would be interested in but have a hard time wrapping their head around, because when you look at the things that Global-E offers, it gets complicated very fast in terms of what they support. They are supporting 25+ languages, they are supporting 100+ currencies, 150+ payment methods. If you spend any time looking at international markets, you realize people pay for things totally differently in different parts of the world. Because this is something that partners with businesses but is truly a direct-to-consumer model, it has to be on the consumer level, it has to be however people are preferring to pay for things, preferring to communicate with things, and then you get into the shipment, the tax elements of things. This is a big, hairy problem to fix, Brian.

Feroldi: Exactly. You can imagine how important those factors are. If you were shopping on a website and everything was priced in Euros, would you know what was a good deal [laughs] or not? It is really important to have everything about an e-commerce site tailored to you. You want the language to be correct, you want the pricing to be correct, you want the shipping solutions to be correct. So to just point, managing all that stuff is incredibly challenging, so I can really see the appeal of this product for small- and medium-sized businesses.

Lewis: Yeah. I think one way to think about it is what Netflix has done with their content. The early stage of e-commerce and shopping online is, I can access things in other parts of the world and shop in a way that maybe I wasn't able to do. It might not be on my terms, I might have to do some conversion in a Google search tab to figure out how much I'm paying, but at least, I can access it. That's what Netflix was doing for a really long time with content. They're making this content, a lot of it was English, local content for our purposes in the United States, putting that out into international markets. What we've seen them do over the last couple of years is say, streaming is awesome, people love it. We want to go global and we want to make content that is specifically for those markets. We want things that make sense culturally to those markets and are first in those languages, first in those cultures. That's precisely what's happening here, is we're making the merge from, "Okay, we're doing it broad-scale," to "We are doing it in a way that makes sense for people on a much more localized level."

Feroldi: What's exciting here about Global-E is they do have some data that shows, hey, if you partner with us, you will see a significant uplift in your international sales. They call it right in the F-1 that they now have over 442 merchants that are on their platform. "We've seen merchants experience an uplift of over 60% in international traffic conversions after they convert to our platform." If that is a metric that is across all of its merchants, you can see that paying for this platform or partnering with Global-E just makes sense because it impacts your top and bottomlines even more so than the cost of this.

Lewis: Yeah. It seems like a no-brainer if you're trying to get into a larger market, which is really what everyone is trying to do. The idea of e-commerce is that you aren't bound by your local economy. This is taking what would be maybe stepping out from your immediate neighborhood and putting you in your country and actually putting you on the world stage and making you available to much more customers, which if you think from a business perspective, that's boosting your TAM, Brian.

Feroldi: Exactly. As companies move their digital advertising online, as they build their social media presence, there's no geographic bounds to those things, so being able to handle international volume is becoming increasingly more important over time.

Lewis: Yeah. The numbers are born out. You talked a little bit about some of the case studies that have been done, but really because we're in an environment where everything can be measured, you can see the benefits of business like this pretty quickly. Conversion rates are one of the easiest ones that they'll point to in their S-1 and just intuitively make a lot of sense, because if you're in a checkout experience, that is in your language, using your currency and is stating international tax implications and logistics in a way that makes sense to you, you're not going to feel nearly as nervous or anxious about placing the international order. That flows through to all the other elements of the site experience that they're offering.

Feroldi: Nothing convinces customers to sign up like actually proving to them with sales and numbers. If you can adopt Global-E's platform and see a significant instantaneous uplift in international sales, you've probably got a customer for life.

Lewis: Then in their case, the merchants are their customers, they have hundreds of customers. They are seeing really good growth. What's hard to assess out with the businesses this big is how relevant are all these merchants and because they are international for the most part of working with a lot of companies that are abroad, a lot of the names aren't as familiar to me when I was looking at their partners and some of the folks they work with. But over 440 merchants, up 50% from a year ago, Brian. They saw some pretty big adoption in the last year.

Feroldi: That's still a relatively small number. That is one reason why I think that this IPO might go under most investors radar. Again, this company is based out of Israel and its No. 1 market is the U.K. So some of the customers that they call out on their website are Marc Jacobs, Etam, ICONIC London, etc. Many of these are names that I have never heard of before, because that's just not the core market that we're in. For that reason, maybe we can cross our fingers that the valuation here won't be too nutty.

Lewis: Yeah, I think that's right. You mentioned Etam, I will throw out there. 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. I will note, because they sell underwear and bathing suits. If you're in a spot where it's not appropriate to do that, don't search that. But I think it is illustrative of what they are able to offer to the user experience.

Feroldi: Dylan, what's the thing we always say when we review companies like this, especially ones that we don't have experience with? This sounds great. Prove it. Prove it to us.

Lewis: Show me the numbers.

Feroldi: Prove to us that this actually has value by showing us some numbers that back up what you're saying. Global-E, I think has done just that. Again, this company only has about seven years of operating history total. But the last few years have seen some really impressive numbers. One of the things this company calls out in its S-1 is that it reports a gross dollar retention rate and that is essentially a dollar-for-dollar measure of same-customer spending minus churn. This number will never go over 100%. If it was exactly 100%, then they retain 100% of their customers. But over the last three years, this number is 98%. That is incredibly high. Now, on a net basis, which does factor in up-selling, down-selling churn, everything like that, that dollar retention rate has been over 140% for the last three years. Those two numbers to me prove, wow, our customers remaining loyal and wow, are they upping their spending.

Lewis: Brian, I'll admit, I was looking at the perspectives into the double-take a couple of times because they threw out their net dollar retention rate for years ended in 2019 and 2020. They say 134% for the year ended in 2019, 172% for the year ended 2020. A number like that, it makes you almost wonder if it's real. That's how impressive it is.

Feroldi: Watch out Snowflake, we have a new top dog with dollar-based net retention.

Lewis: I mean, we're not used to seeing numbers that big and that impressive. I think it speaks to the fact that they are solving a really unique problem. This is an industry that has major tailwinds behind it. This is where money is generally going to be going on the retail side, we talked about some of the names that they work with. You noticed the trend there. It's a lot of clothing and fashion brands. These are things that tend to ship internationally pretty well. They don't spoil. You don't have to worry about any of that type of stuff. I imagine that that's probably going to be a decent amount of their customer base. But that's not to say they couldn't expand beyond that.

Feroldi: It's hard to gauge where that number is going to head over time as the pandemic subsides and shopping becomes more localized. But either way, even the pre-pandemic numbers that this company throws up we're pretty impressive. One reason I think that that number was so impressive last year was because by the very nature of this company's business model. It generates revenue in two different ways. First off, it generates a service fee whenever a transaction takes place that utilizes its platform. Secondly, it generates money from fulfillment fees and that's when Global-E assists with the handling of shipping, the handling delivery services, etc. Last year, those numbers were roughly split to be 37% service fee and 63% fulfillment fee. But the important thing there is that this company makes money as its customers make money. The more that its customers make from international sales, the higher and higher fees Global-E gets to charge. That aligns this company's incentives perfectly with its customers.

Lewis: I think we've seen a couple of companies be mighty successful in the e-commerce space when they've had incentives align with customers, Brian.

Feroldi: I think so too, Dylan. Does Twilio come to mind, where the more you use it, the more you have to pay? That is a model that I think works really well. This isn't necessarily a subscription-based thing. The key metric to watch here is going to be customer retention and gross merchandising volume.

Lewis: They've both been very impressive so far. Services are really an easier thing to focus on. If you look at the pie and the way the revenue is broken down, the majority of it is fulfillment services. I think when you look at what providers can offer merchants, the harder the problem is to fix, the more likely they are going to stick around [laughs] if they do a good job. I look at international fulfillment as a brutally difficult thing to do. I think that if they are able to delight customers in that space, they're going to have them for life. It's good for me to see that that's a good chunk where their revenue is coming from.

Feroldi: I completely agree. I think that fact is going to really keep customers loyal for a long time. That was born out in the numbers. The other thing that I think gives this company really high switching costs is a lot of its integrations. The company calls out that they have direct integrations with Facebook, PayPal, IBM, Salesforce, Shopify, BigCommerce, SAP, WooCommerce, and more. Again, this is a platform that can be used to augment those other things. Not necessarily, it'll replace them completely. That, I also think, helps to give this company really high switching costs.

Lewis: The fact that in their perspectives they [laughs] don't call out any immediate big competitors, is a sign that the moat is pretty impressive there. It's funny though, hearing you go through that list of integrations and thinking about the size of this company, we don't know the valuation ultimately because it's not public yet, but I could see any number of those businesses looking at this company and saying, "That would be a pretty interesting acquisition target at some point."

Feroldi: I totally agree. Shopify could sneeze and probably buy this company out [laughs] with how big it's gotten. That will be something that we'll have to check over time. One other thing that I think also adds to the moat is you just mentioned how complex this servicing, fulfilling the needs that Global-E does is. Another thing to keep in mind here is that this is not a high-margin SaaS business here. In fact, if there is one big knock that I had against this company, it would be its gross margin. Last year its consolidated gross margin with only 32%. This is not a SaaS company with 70%, 80%, 90% gross margins. When the price to sales ratio comes out, you do have to keep this in mind. I'm hoping that the market is rational and applies a number to this that makes sense. But yeah, the gross margin here was only 32% last year. Now, that number was up significantly over the last two years. In 2018, their gross margin was 22%. In 2019, their gross margin was 28%, and last year it was 32%. It's trended higher overtime and hopefully, there's more gains to be had. But again, this is not a high-margin business.

Lewis: You know what it is? It's profitable, Brian. [laughs] How often do we get to say that on a prospectus show? I mean, this is rare for a company that is showing growth than it is to be profitable. We talked about Olo too, where it's probably accidental profitability [laughs] more than anything else. I don't think it's the game plan for them. But it proves out that there's something strong there.

Feroldi: Totally. Last year this company did reach profitability for the first time in its history. It wasn't a high number, it was only about $8 million. But off of $136 million in sales plus the low gross margin, boy, is that impressive. Prior to coming public, this company did have a pretty strong balance sheet too, $68 million in cash, no long term debt. We don't know how much it's going to raise, but financially speaking, this company is pretty strong.

Lewis: It's in pretty good shape. I think they have a decent amount of flexibility. That's a pretty good amount of cash for them to have on the balance sheet given the size of the company, there's only going to be more after they go public. I mean, there's really no shortage of places that they can invest. So, you want a business like this to have a decent forecast.

Feroldi: Exactly. The long term growth plan is probably exactly what you would expect. They want to add existing customers based on their current geographies, they want to get more spending out of the customers that they have, they want to consistently add new geographies to make their services even more useful, and they plan to add partnerships and launch new products and services over time. That's a pretty realistic growth plan that they've already executed really well. Now, when it comes to the real potential here, sometimes a company puts out a TAM number and you just think, wow, did you include the kitchen sink in there? Like, my God, is that number is so huge. That's the case that we see here. This company says that it's total addressable market opportunity is $736 billion. That might just be a tad bit overstated, Dylan, but needless to say, with only $130 million in trailing revenue, I think there's plenty of room for this company to grow.

Lewis: I'm glad you added the context of their trailing 12-month revenue because of some of the [...] might be like, "It's not that bad." Then you're like, "Oh, no, that was $135 million." That's a number they're working off of. They are ambitious and that's good. But there's a long way for them to go. We talk about TAM a lot. It can be a helpful number, [laughs] sometimes it can be an overly ambitious number too.

Feroldi: That is probably the total gross merchandise volume that they are talking about there. You have to compare that to say their gross merchandise volume on their platform which was $775 million roughly last year, but needless to say, if this investment doesn't work out, it's not because of lack of opportunity. [laughs]

Lewis: I think there's a lot to like with this company. We'll have to wait until we get a better sense of valuation, whatnot, of course. But it checks a lot of the core boxes. It creates dependency with the customers. We see the recurring revenue model, Brian, which you love so much. It seems to me to be the kind of thing where there is pricing power. When you look at the management team for this company, Brian, founder-led business and it's a customer-centric business model.

Feroldi: This company was founded by three co-founders in 2013, one of them is currently the CEO, one is the COO, and one is the Chief Marketing Officer. All three of them are still with the business today. Again, we don't know anything about how much of the company they currently own. I've got my fingers crossed that it's a pretty high number given that this business is only seven years old and it's already profitable. But I do like seeing businesses that are run by founders and that's what this company has.

Lewis: If I had to put a ballpark guess out there for valuation, it's going to be a low-single-digit billion, I think, probably for this company. At that size, management really matters. We talk about it all the time, but this is not a very big company in terms of employee headcount. They have about 300 employees between Israel, the U.K., and some of the other countries that they operate in. The folks calling the shots at the top really are going to steer the direction of the business and decide whether it becomes something that gets deep into the $10 billion, $20 billion, $30 billion market cap range or has a hard time growing. Traditionally, we've seen a lot of success with founder-led businesses. It's always something we like to see because we know the motivations are there, we know there's skin in the game. There are so many great elements of it, Brian. That said, I did do some looking on the Glassdoor reviews for this business. Because it's a smaller business, we don't have as much information on them. They weren't glowing, they weren't terrible, it was middle of the road. If you look, it's about 3.6 stars, 71% would recommend to a friend, but that's only on 10 reviews. This is a small business. I do want to see a little bit more from them. I was looking at their YouTube channel just trying to get a sense of interviews of management, a little bit more about company culture, that kind of stuff, there wasn't a ton there. I think most of that is because the company is so small.

Feroldi: Because I would think that they are so new. It's really hard to read anything into any review on Glassdoor when it's an international company because Glassdoor isn't as big in international markets as it is in the U.S. and two, this company has 10 reviews. Who were the types of people that review on Glassdoor? People with extreme opinions in either way. You typically get five stars and one star. I take Glassdoor reviews seriously when there's a couple of 100 reviews, not exactly 10. But to me this is going to be something that, as this company comes public, watch it execute. Is the management team aligned with the incentives? Do they still own a lot of skin in the game? Do they under promise and over deliver? Those are the kinds of things we'll only learn overtime from watching this business.

Lewis: When it comes to risks, Brian, I'm sure some people listening are thinking about this, but small company customer concentration risk is immediately one of the first things you think of.

Feroldi: I hope so, because I hope that's how we're training people to think. This company does have some customer concentration risks to get into. Again, while they have over 450 total paying customers, their No. 1 customer was 18% of revenue in 2020. On the plus side, that was down from 25% the year before, but make no mistake, there is one customer here that has an outsized portion of other companies revenue. Now they did call out that their top 10 customers were 37% of revenue. That was down from 44% the year ago. If you look at two through nine, they are all sub 10% customers here. As long as those numbers continue to come down overtime as I expect that to, that will be something to watch but for right now, there is some customer concentration issue.

There's also another concentration issue that we don't talk about nearly as often, and that is a supplier concentration. A big part of this company's business is fulfillment services and helping customers to ship. As a result of that, this company gets 59% of its shipping transactions processed through DHL, which is a global FedEx-like shipper. That is some serious concentration right there. Now, offsetting that factor is the fact that DHL actually owns more than 5% of Global-E's stock. They do have a financial incentive to keep that partnership going, but make no mistake, if that relationship was to sour for whatever reason, that could be trouble.

Lewis: I don't know precisely how big DHL is as a business, but they're worth a lot more than the 5% stake they have in a small cap company. [laughs] It's great that they have that skin in the game and I think the incentives are generally aligned there. But if it makes sense for them to do something out of their own benefit, the stake is not so big that it would prevent them from doing it.

Feroldi: That's correct. But Global-E is a revenue source for them too if they're instructing their customers to go through DHL. There's plenty of alignment of incentives between those two businesses, but it's still worth knowing about. Now, we touched on this in the top of the show when we were trying to find competition. This company doesn't really list out that many direct competitors because of the unique nature of its businesses. But they are really said that our biggest competitor is just companies choosing to do all this work in-house. If you are a big international company with plenty of resources, I can see you foregoing this solution because you already have a footprint everywhere. If you're a small or medium-sized business and you don't have that expertise, and you don't have the people that you can contact to get that done, I can see that being a very attractive thing for you. But this company is basically saying, we're going to have to educate our customers as to why they need us, so that might be a long-term challenge.

Lewis: Yeah, I really do like the idea of investing alongside category creators though. I look at what Global-E is doing and it seems like that. I think there are a lot of companies in terms of market value that could do this themselves. They could make those investments themselves. They are not most companies though. [laughs] They represent a very large chunk of either market cap or value or merchandise volume, however you'd like to look at it. But the reality is, this is too complicated a problem for most companies to invest in on their own. It really only makes sense if you're on the international conglomerate level.

Feroldi: That's right. Of course, there's competition from the industry giants of the world. You could see a couple like Amazon offering this. One thing they do push back against there and I think they have a big point against that. They say, "Sure, you can go with Amazon and then you get international exposure, but then you are beholden to Amazon's rules and regulations." If you're a brand, we've seen them want to take ownership of that customer relationship back in-house. They realized that going through portals such as Amazon might not be the best way to establish a long-term relationship with their customer. That's one of the reasons we've seen such huge growth in companies like BigCommerce and Shopify. From that level, I think that partnering with Global-E is going to be very attractive to a lot of companies.

Lewis: In the retail space, there's been this dynamic over the last five to 10 years where I think a lot of retailers are like, "We'll work with all these online marketplaces that already have this massive customer base, all we need to do is set up a digital storefront in their skin." Then a couple of years pass, they're like, "Wait a minute, [laughs] you've totally separated us from our customers." It used to be a direct relationship that they were able to manage much more closely, and now it's something where you are beholden to the marketplace operator. A lot of these brands have a lot of pull and a lot of power. I think they're realizing we should flex that, we shouldn't be seating that.

Feroldi: Why would you give up that customer relationship if you didn't have to? To your point, I'm an Amazon customer, I'm not a customer over the products and services they buy, I go to Amazon first and whatever Amazon offers me, that's what I choose to shop from. I have almost zero brand loyalty to anybody that's on there.

Lewis: Brian, we're still in early days with this business. We don't know when shares are going to price, what they are going to price at. Still a lot of details to be figured out. But where does this sit for you? It's a recurring business. The margins you noted aren't quite as high as you'd normally like to see. Is this something that you're interested in as a portfolio idea?

Feroldi: Very much so. I think that this has potential 10-bagger written all over it. I like that the company is in hyper growth mode, I like that they get customers and then keep them for a long period of time, I like the business angle here, I like the opportunity, I like that they're already profitable. There is a lot to like about this business. To your point, we don't know management's holdings, we don't know the valuation, we don't know what the post-IPO balance sheet is going to go like, and there might be some other risks that we don't know yet. We also don't know how they are going to operate as a public company. But I put this up there, as you said, kind of with Olo, where my first look at it was like, "Wow, I like just about everything about this business. I will not be a day one buyer, but you can bet I'm going to start to track this company closely."

Lewis: Yeah, this is the one where you cross your fingers and hope that not too many people hear about it. [laughs] That people don't get too excited. I think it will probably fly under the radars of a lot of investors, because it's an international business. Most of the business they do is not based in the United States. But if I had to guess, Brian, I think there is a higher likelihood of someone coming in and buying this business at some point, than this business being a market loser or something that goes to zero. I think that the upside is pretty obvious. As you mentioned, there's definitely 10x potential, especially with where it's going to price likely. But it might be so attractive that someone goes in and says, "This would be a really nice feature for us to add to our suite." [laughs]

Feroldi: Like you said, that wouldn't necessarily surprise me. If they don't even come public, if just Shopify looks at these numbers and says, "Yeah, we'll add you," it's going to be, again, a drop in the bucket for a company like them. I'm really interested to see what valuation this company pulls. Again about $130 or so million in revenue. We've seen companies come public at 40 times sales, 50 times sales, so that could be a $5-, $6-, $7 billion dollar company. Again, this company has 30% gross margin, so I've got my fingers crossed that it's rational and since prices at 20 times sales, I would love to get into this business at a sub $3 billion valuation.

Lewis: Yeah, but you know, Brian, your guess is as good as mine with these things. [laughs] We just got to have to wait and see. Every time I've thought I've had a good handle on where things are going to price, I've just been totally wrong.

Feroldi: Yes, same with me. [laughs] Maybe we can do a follow up show down the road and then talk about how this thing is actually priced.

Lewis: Yeah. But I think you're right. This one and Olo are watchlist stocks for me almost immediately. I'm hoping that they wind up debuting at valuations that aren't insane and I can take a small nibble and then follow them over time, because I think they're both just doing really interesting things.

Feroldi: Totally agree.

Lewis: Brian, shout out again to our listener and fan, MaxTheComrade, for throwing this on our radar. Folks, if you ever have something you want Brian and I talk about, Brian is @BrianFeroldi on Twitter, I'm @WilyLewis. We're also @MFindustryFocus or IndustryFocus@fool.com. I can't emphasize that enough, Brian. When we get suggestions for shows, it's like one of our favorite things. Our homework has been done for us. We just got to go in and fill up the notes.

Feroldi: Absolutely. Again, this company, I would not have heard of it, if it wasn't for MaxTheComrade. So totally, if you have show ideas, if you have stocks you want us to check out, let us know. We're happy to talk about them.

Lewis: Brian, thank you so much for joining today's show. I would say you were quite articulate today.

Feroldi: Thank you, Dylan. So disappointing to not live up to my title.

Lewis: [laughs] Listeners, that's going to do it for this episode of Industry Focus. If you have any questions or you want to reach out and say "Hey," shoot us an email at IndustryFocus@fool.com, or tweet us @MFIndustryFocus. If you're looking for more of our stuff, subscribe at iTunes or wherever you get your podcast. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell stocks based solely on what you hear. Thanks to Tim Sparks for his work behind glass today and thank you for listening. Until next time, Fool on!

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$195.19 (1.98%) $3.79
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,302.93 (3.66%) $81.38
FedEx Corporation Stock Quote
FedEx Corporation
FDX
$219.67 (3.48%) $7.38
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$369.04 (5.04%) $17.72
BigCommerce Holdings, Inc. Stock Quote
BigCommerce Holdings, Inc.
BIGC
$19.59 (5.95%) $1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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