Global-e Online (GLBE 2.36%) simplifies cross-border e-commerce. Its platform integrates with a merchant's online storefront to optimize the experience for international buyers, localizing the language, prices, and shipping options. And despite going public just earlier this year, the share price has already soared 124% from its IPO price.
But Global-e still has plenty of room to grow, and with a market cap of just $8.3 billion, this stock could grow many times over in the years ahead. In this Backstage Pass video, which aired on Oct. 4, 2021, Motley Fool contributor Trevor Jennewine discusses Global-e, highlighting the company's strong financial performance and massive market opportunity.
Trevor Jennewine: Global-e went public. The IPO date was back in May, so not too long ago, a few months back. This company specializes in cross-border e-commerce. The problem is, is that cross-border selling is difficult. When you're in the domestic market, merchants typically have a thorough understanding of consumer preferences, and all the other ins and outs of the market. But when you start selling internationally, you have to address a bunch of different problems. There are Language barriers, currency differences, different payment options, different shipping options. Then every time you enter a new international market, that problem multiplies. You can imagine if you were just selling to 20 different markets, you have 20 different sets of problems to solve.
That's really what the Global-e platform attempts to do. It attempts to simplify cross-border commerce. So, its platform supports 25 different languages, 100 different currencies. They have partnerships with 150 different payment processors, companies like PayPal (PYPL 1.34%), and partnerships with 20 different shipping carriers. Global-e provides all of these services across 200 destination markets, and that allows the company to collect a lot of different data. It leans on artificial intelligence to surface insights for its merchants. That might be something like: "This is the best way to organize your website in this market." Or for merchants, based on what they're selling, Global-e could recommend this particular product category, it's really resonating with international buyers in this market. We can really help them basically optimize their storefront on a market-by-market basis for international buyers.
That, basically, it boosts international conversion rates, and to put some statistics behind that: Most global e-commerce brands receive about 30% of their web traffic from international geographies. But those cross-border sales typically represent just 5% to 10% of the total top line. There's a lot of missed opportunities there. By integrating with these storefronts and localizing things like the language, the pricing options, the payment methods, and the shipping options, Global-e boosts conversion rates for cross-border sales, often by more than 60%; the company references that figure in its SEC filings. But it does more than that, too. It provides aftermarket customer support, returns management, and it helps merchants navigate regulatory complexities like import taxes. It's really an end-to-end solution for cross-border e-commerce.
Then, so some of the things that I really like about the company, because they're able to capture data from 200 different markets across the world and use AI to surface insights for their merchants. There's a flywheel effect there. As they get new merchants on the platform, their data repositories will grow. That should make the AI models more effective in surfacing those insights. That flywheel effect, I think, could be a significant growth driver in the years ahead.
Global-e also mentions that they believe they have a larger scale than anybody else in this market. So, that first-mover advantage combined with their scale and their data sets, I think sets this company apart.
This market opportunity is massive. According to Forrester Research, cross-border e-commerce will represent a $736 billion opportunity by 2023. I think one of the good things this company has going for it is earlier this year, they signed an exclusive partnership with Shopify, whereby Global-e is the only provider of cross-border solutions to Shopify's 1.7 million merchants. I think that's really a growth opportunity for both companies. Global-e has 522 merchants on its platform right now. But like I mentioned, Shopify has 1.7 million. So on the Shopify side, this allows its merchants to branch out, reach international geographies. And then on Global-e side, there's over a million merchants that they could potentially become customers.
Shopify actually just launched a new platform, Shopify Markets, that leans on Global-e to provide its merchants with tools to basically sell on a global scale. That just happened last month. I think that partnership represents a significant opportunity on both sides of the equation.
The things I'm watching with this company going forward, I'm watching the customer count. I mentioned they have 522 merchants as of June 30, 2021, on the platform. I'm also paying attention to retention rates. The company reports gross retention, which has typically been above 98% since 2018. That just means that they're keeping the vast majority of their customers; churn is lower than 2%. That's a solid figure. Then they also reported net retention. Net retention over the same period has typically been above 140%, which just means that those merchants are spending more on Global-e's platform each year. If they spent a dollar in the previous year, they're spending $1.40 or more in this year.
They make revenue primarily by taking a percentage of the gross merchandise value [GMV], and so that's another important metric to pay attention to. GMV has been growing quickly. In 2020, it was up 102%, and then through the first half of this year, it's up 111%, so it's actually accelerating a little bit. Then putting all those things together, if you see customers increasing, they're spending more on the platform, GMV is going to be going up, and that should drive revenue. Revenue was up 105% in 2020, and that figure also accelerated up 109% through the first half of 2021. Over the same period through the first six months of this year, the company's gross margin is actually trending upward as well. It's 35% through the first half of this year compared to 31% through the first half of 2020. Not profitable on a GAAP basis, but in the most recent quarter, they did generate positive free cash flow. I think that's a good sign for the long-term sustainability of the business model.
