In the realm of e-commerce, Shopify (NYSE:SHOP) has become the premier platform used by entrepreneurs to sell their goods and services online. The company has more than 1.7 million merchants worldwide, up from just 1 million in late 2019.
Yet investors may be surprised to find that the vast majority of Shopify's merchants are located in North America. In fact, data suggests that roughly 56% of merchants using the platform reside in the U.S. and Canada alone. Selling beyond their own geographical borders represents a massive opportunity for merchants, and Shopify just made a decisive move to help sellers take that next big step.
A significant stake
Earlier this month, the company announced the debut of Shopify Markets, a new hub that helps merchants pursue and manage global commerce opportunities. The platform "helps remove the complexity of international commerce and empowers independent merchants to sell to consumers around the world," Shopify said in a press release.
Shopify Markets is no doubt the result of a broader collaboration and partnership with Global-E Online (NASDAQ:GLBE). The company works to make cross-border sales a reality for online retailers, by eliminating many of the challenges associated with international commerce. Global-E handles a vast array of complications that arise with cross-border selling, including currency conversion rates, foreign language translation, and dealing with local market regulations -- including dealing with customs and duties.
Global-E recently went public, with backing from Shopify, which acquired a significant stake in the company. Shopify acquired a stake of 7.75 million shares or roughly 6.5% of Global-E's stock prior to its IPO in May, though its ownership percentage slipped to about 5.4% after the newly issued IPO shares hit the market. The story doesn't end there, however. Shopify also bought warrants allowing it to acquire 11.85 million additional Global-E shares over the coming two years.
Finally, Shopify named Global-E the exclusive provider of cross-border services for the merchants on its platform, with the initial deal lasting three years, and the option for annual extensions. This all represents a huge vote of confidence in the fledgling-public company. That's not to say Global-E is a novice in the space, having first opened its doors in 2013.
Taking its game to the next level
Shopify already provides merchants with many of the tools they need to sell in various geographies, including multiple currencies and international domains, but this platform takes its cross-border retail capabilities to the next level. By providing merchants with all the tools they need to sell in foreign countries, Shopify is significantly expanding its market opportunity.
According to Shopify, total global e-commerce hit a record $4.2 trillion in 2020, growing 25.7% year over year. Looking ahead, cross-border sales could account for as much as 20% of all e-commerce transactions by 2022, according to estimates provided by Forrester Research.
The very definition of a win-win
By helping its merchants facilitate cross-border sales, Shopify helps itself, increasing not only its revenue, but its gross merchandise volume -- or the total value of products sold across its platform. Both metrics are closely watched by investors, allowing them to more accurately gauge the company's growth.
At the same time, Global-E gets a captive audience of more than 1.7 million merchants looking to increase their sales. By handling the challenges and complexities associated with selling across borders, Global-E increases its own revenue, while simultaneously boosting its credentials with other online sellers.
Investors on both sides of the equation should be celebrating.