Q3 2023 Global-e Online Ltd Earnings Call
Welcome to the global use third quarter 2023 earnings call. This call is being simultaneously webcast on the company's website in the investors section under news and events.
For opening remarks, and introductions I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.
Thank you and good morning with me today from globally are mere socket co founder and Chief Executive Officer, Ofer, Koren, Chief Financial Officer, and near Debbie Co founder and President.
EMEA I'll begin with a review of the business results for the third quarter of 2023 also will then review the financial results for the third quarter or 23, followed by the company's outlook for the fourth quarter and full year of 2023, we will then open the call for questions.
Certain statements we make today may constitute forward looking statements and information within the meaning of section 27, a of the Securities Act of 1933 section 21 E of the Securities Exchange Act of 1934, and the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 19 nineties.
Does that relate to our current expectations and views of future events.
These forward looking statements are subject to risks uncertainties and assumptions some of which are beyond our control.
In addition, these forward looking statements reflect our current views with respect to future events and are not a guarantee of future performance.
Actual outcomes may differ materially from the information contained in the forward looking statements as a result of a number of factors, including those set forth in the section titled risk factors in our prospectus filed with the SEC on September 13, 2021, and other documents filed or furnished to the SEC.
These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this call you.
You should not put undue reliance on any forward looking statements.
Although we believe that the expectations reflected in the forward looking statements are reasonable we cannot guarantee that future results levels of activity performance and events and circumstances, reflecting it reflected in the forward looking statements will be achieved or will occur.
Except as required by applicable law, we make no obligation to update or revise publicly any forward looking statements whether as a result of new information future events or otherwise after the date on which these statements are made or to reflect the occurrence of unanticipated events.
Please refer to our press release dated November 15, 2023 for additional information.
In addition, certain metrics will be discussed today are non-GAAP metrics.
The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP.
We use these non-GAAP financial measures for financial and operational decision, making and as a means to evaluate period to period comparisons.
We believe that these measures provide useful information about operating results enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operating decision making.
For more information on the non-GAAP financial measures. Please see the reconciliation tables provided in our press release dated November 15 2023.
Throughout this call we provide a number of key performance indicators used by our management and often used by competitors in our industry.
These and other key performance indicators are discussed in more detail in our press release dated November 15 2023.
I will now turn the call over to Amir co founder and CEO.
Yeah.
Okay.
Thank you Erica and welcome everyone to our Q3 earnings call.
We delivered a strong third quarter with 35% of growth in G M B and 76% growth in adjusted EBITDA on the back of improved profitability margins and strict cost control.
In addition, during the quarter, we made major advances alone all of our strategic vectors.
Despite the continued strong growth for a combination of macro driven reasons G. N V and revenues for the quarter fell slightly short of our guidance range, which also leads us to a slight downward revision of our annual G N V and revenue forecast.
But at the same time, our adjusted EBITDA came in above the guidance range and we are also raising our adjusted EBITDA forecast for the year and.
A testament to the strength and durability of our business model as we continue on our path towards reaching our long term adjusted EBITDA margin target, while sustaining high and durable growth.
Before we dive in deeper into the results I would first like to express my personal wholehearted. Thank you to the many of you who have reached out to us through various channels over the past few weeks in the wake of the imagine really barbaric attack by Hamas terrorists, an Israeli civilians that took place on October <unk>.
Seven.
Your compassion support and generosity, a heartwarming and gave US a rays of light during these dark times.
The atrocities October seven and.
The inevitable subsequent military conflict have impacted a lot of Israeli families.
Ever since the attack took place we have taken many actions to both ensure the safety of wellbeing of our team members and their families and to extend our support to the broad communities that have been impacted.
From a business operations perspective.
While some of our Israeli colleagues have been called for active reserve duty.
There has been no impact on our ongoing activities and our business continues to operate as usual.
As you know and as our company name suggests globally is truly a global organization working natively in diverse teams spread across more than 20 locations around the world. We've only about half of the workforce located in Israel.
So the resilience of our incredible global team the business continuity plans, we have in place and the fact that all of our infrastructure is cloud based we expect no impact on our business, even if the war continues.
In any case I'm certain you will all join me in wishing for better and more peaceful times to come soon.
Switching to our quarterly business results and outlook and starting off with G. M V.
On the one hand, our business continued to fire on all cylinders during Q3 without any slowdown in the pace in which new merchants signed up and went live.
But on the other hand, we didnt cold and stronger than expected macroeconomic headwinds during September and parts of October which negatively impacted same store sales growth reversing the trend we have seen during Q1 and Q2.
The main impact came in the form of softening consumer demand in European markets as well as overall weaker demand in the luxury fashion segment.
In total our G N V for the quarter amounted to $839 million, representing a high base growth rate of 35% year on year.
Total revenues for the quarter also came in below our guidance totaling $133 $6 million up 27% year on year.
The parts of the G. M D shortfall caused by the macroeconomic headwinds I just mentioned.
Revenue growth was further affected by a lower blended take rate in the quarter.
Before I continue I would like to mention that while we're still not in a position to provide concrete guidance for fiscal year 'twenty 'twenty four.
Starting late October and over the past few weeks, we have seen positive signs, indicating a possible recovery in consumer spending towards the peak trading season with same store sales figures bouncing back.
We also have reason to believe that the overall take rate we're seeing in the second half of this year will remain relatively stable into next year.
So while the shortfall in G. M V. In Q3, combined with the prevailing macro related uncertainty levels around consumer spending it forced us to revise our annual guidance slightly downwards.
We Nevertheless believe that these early positive indications over the past few weeks to be able to with the continued strength of our many growth engines and our new bookings will enable our growth rates to accelerate going forward into 'twenty 'twenty four.
Moving forward for her story down the P&L, our non-GAAP gross profitability margin continue to expand coming in at 44, 4% versus 41.5% in Q3 of 2022.
Driven in part by the favorable revenue mix as well as our continued efforts to drive efficiencies and optimizations, thanks to our growing economies of scale.
This in conjunction with our continued tight cost control and best in class operational efficiency yielded an adjusted EBITDA margin of 16, 5% for the quarter compared to 11, 9% in the same quarter last year.
In dollar terms adjusted EBITDA in the quarter amounted to $22 $1 million, a staggering 76% growth year on year.
Beating the top of the forecasted range and representing the strength of our business model and its ability to sustainably generate durable fast paced and profitable growth.
As you will see what it also provides our detailed full year guidance in 2023, we expect to make a large strides towards achieving our long term profitability. Adjusted EBITDA target is in the span of the year. We moved from 11, 9% in 2022 to over 16% forecasted for 2023.
Okay.
Given the immense market opportunity ahead of us our clear market leadership position and a topnotch execution abilities of our global teams. We firmly believe in our ability to continue on this durable and profitable growth trajectory well into the future.
Beyond the financial metrics I would also like to give you a few updates on our strategic poster and main initiatives.
As I mentioned earlier during the third quarter, we continue to onboard many new merchants across all different markets and verticals.
In Europe, we launched with many new brands during Q3, including the iconic fashion brand Ted Baker.
The French fashion icon Lacoste needs cooperation, we've under water suite as well as with the French racing watches brand up himself eco friendly clothing brand Buzz zuk bogey the.
The Spanish brand pulling them walk in.
India Corny it gets out in luxury brand pull in shark and many more.
In the U S. We went live among others with the American fashion House, Tory Burch, the jewelry brands Magic the only watch historic guests, the sustainable footwear and bag brand royalties.
The leading women and women led fashion brand, Frank and I V.
As well as the known California in denim brand agent genes.
We also continued our expansion to additional verticals such as consumer electronics with the recent launch of the iconic audio brand forgiveness.
Okay.
In terms of our expansion into APAC Q3, so many advances as well because we continue to strengthen our presence in this fast growth regions.
In Australia, we launched many new brands this quarter, including Khatami, swimwear plus size fashion brand, taking shape emerging high end fashion brands said agony.
Kids clothing brand Chloe and Emily.
And the popular fast fashion brand Hello Molly.
Japan, so some exciting new launches as well, including the world famous Darwin stationary brand Hooper in EG, the innovative sneaker brands with one and only in ground.
Lingerie brand name a few.
Bruce.
So over in the region. We also launch with an additional Korean fashion brand Coke SOG as well as with the Hong Kong based organic newborn clothing brand the women.
During the quarter. We also continued to expand our activity with existing merchant groups as.
As we went live with three new zones from the L. B M age group jewelry brand with policy and the fashion brands, Emilio Pucci and put to.
We also went live with the U K luxury brand per day, which is part of that a small group.
These are just a few select examples.
Because we are once again headed towards a record year in terms of new bookings and we have a growing pipeline of new opportunities across different verticals and dozens of geographies. We firmly believe that we are just at the beginning of capturing the massive and growing opportunity in cross border ecommerce.
Moving onto additional elements of our strategic roadmap.
We have continued to expand our strong partnership with shopify across all domains.
On the third party side, a partnership agreement with Shopify has been renewed for another year and we are nearing completion of the migration of all our shopify based merchants into the new native solution.
We have also launched the first phase of our integration into Shopify, its new state of the art checkout Extensibility feature.
In close collaboration with Shopify engineering teams and expect to complete the rollout of this exciting new capability by the end of 2023.
But the bigger news this quarter came on the first party side or shall be smaller markets, Peru, which was successfully launched into general availability for U S merchants in September.
Market's probe has been well received by the Shopify merchant community and we believe it will be the primary driver for merchants, who want to expand our reach to consumers worldwide.
This innovative solution enables merchants to create a highly localized international consumer experience across all markets without worrying about the complexities of international duties and taxes compliance international payment fraud International shipping and so on.
This comprehensive offering is addressing a clear and business centric need for countless merchants.
And as such we expect it to continue growing rapidly over many years to come.
Besides supporting the launch our teams continue to work closely together with Shelby five teams to further enhance the set of capabilities available to these merchants and to enable the shop you find markets crew for merchants based in additional markets outside the U S next year.
In terms of our overall technology stack as always we continue to invest in building new features and extending the functionality and interoperability of our platform for the benefit of both our existing and our prospect merchants.
A few notable examples would be our new integration with the payment gateway crypto dot com, which will allow relevant merchants to accept to crypto currencies as payment methods into checkout.
Other notable examples would be our improved support for long term product preorders via payment card to accumulation.
And our recently added capability to support orders, which contained products that are shipped from multiple hubs located in different countries as part of a unified shopping basket.
Enabling global merchants to optimize the delivery experience based on their global inventory footprint.
In parallel we continue to expand our addressable market via integrations to additional platforms.
The latest outcome of this ongoing effort is our first pilot merchant on the Wix platform.
Which is now in life testing.
On boarded by means of our newly developed easy to use plugging for weeks based merchants, ensuring its simple integration process into this popular platform.
In light of all these developments and others as well as many exciting opportunities. We are eager to pursue we continue to expand both our technological teams and our commercial teams around the globe.
But as always we remain committed to doing so in a durable and sustainable way.
Evident from our consistent cash generation and adjusted EBITDA hyper growth.
And with that I will now hand, it over to welfare to take you through the quarterly figures in more depth as well as present, our updated guidance.
Thank you Amir and thanks again, everyone for joining us today for our quarterly earnings call.
First I would also like to thank many of you have expressed support and empathy vis a vis the murderous attack when it makes sense. It brilliance, we experienced on October seven.
As for our Q3 results, while our topline results came in slightly below our guidance range driven mainly by softer consumer demand in September our business model continues to demonstrate its robustness.
And some of your stated we believe that in the coming quarters growth will accelerate supported by the rapid growth of Shopify markets. The continued expansion of the globally enterprise business and the improvement of consumer sentiment we've witnessed since late October.
In parallel with witnessed in Q3, a continued improvement in our bottom line results with adjusted EBITDA coming in above the guidance range.
Like to point out again that in addition to our GAAP results I'll also be discussing certain non-GAAP results, our GAAP financial results along with a reconciliation between GAAP and non-GAAP results can be found in our earnings release.
That said our rapid growth in <unk> continued in Q3 with $839 million of G. N V generated on our platforms and increase of 35% year over year. The growth base was slightly lower than our guidance range driven by a decrease in same store sales starting or.
Early September due to weakness in luxury goods demand and softness in European consumer demand.
In Q3, we generated total revenues of $133 $6 million up 27% year over every year.
Services revenues were $62 $4 million up 31% year over year and fulfillment services revenue were up 23% to $71 $2 million, while service take rate increased compared to Q2 fulfillment take rate continue to decrease.
Mainly driven by the continued growth of our multi local services as well as some shift towards standard shipping, which inherently drives a lower fulfillment take rate compared to express shipping.
As I mentioned, we believe that in the coming quarters growth will accelerate driven by the rapid growth of shopify markets flow pro the continual expansion of the globally enterprise business and the improvement of consumer sentiment. We have witnessed since late October which resulted in improved same store sales.
non-GAAP gross profit continues to outpace revenue growth driven by the higher share of service fees and improved efficiencies.
In Q3, non-GAAP gross profit was $59 $3 million up 36% year over year, representing a gross margin of 44, 4% compared to 41, 5% in the same period last year GAAP gross profit was $56 $5 million representing a mall.
Jen of 42, 3%.
Moving on to operational expenses, we continue to invest in our platform services and product capabilities. In Q3, we strengthened the effort around shopify markets for White label solution, which went into general availability in the U S as of September.
R&D expense in Q3, excluding stock based compensation was $18 $2 million or 13, 6% of revenue compared to $16 $6 million or 15, 7% in the same period last year total R&D spending in Q3 was $24 nine.
Dollars.
We also continue to invest in sales and marketing to support and expand our pipeline while maintaining efficiencies.
Marketing expense, excluding shopify related amortization expenses stock based compensation and acquisition related intangibles amortization was $12 $9 million or nine 6% of revenue compared to $9 million or eight 5% of revenue in the same period last year.
<unk>.
Shopify warrants related amortization expense was $37 4 million total sales and marketing expenses for the quarter was $53 $6 million.
General and administrative expenses, excluding stock based compensation acquisition related expenses and acquisition related contingent consideration was $6 $7 million or 5% of revenue compared to $6 2 million or five 9% of revenue in the same period.
Last year total G&A spend in Q3 was $13 $6 million.
Our overall operational expenses, excluding stock based compensation Shopify related amortization expenses acquisition related expenses and acquisition related contingent consideration stood at 28% versus 30% in the same quarter last year moving towards our long term efficiency target.
Net of 25%.
Although our topline results are slightly under our guidance range. Our business model can see continues to demonstrate its resilience adjusted EBITDA totaled $22 $1 million growing 76% year over year, representing a 16, 5% adjusted EBITDA margin compare.
To $12 $5 million or 11, 9% margin in the same period last year.
Net loss was $33 $1 million compared to a net loss of $64 $6 million in the year ago period net loss is driven mainly by the amortization expenses related to the shopify warrants and two the transaction related intangibles.
Switching gears and turning to the balance sheet and cash flow statement. We ended Q3 2023.
$253 million in cash and cash equivalents, including short term deposits and marketable securities. Our business model strength continues to translate into cash generation as cash flow generating by operating activities was $26 $6 million.
Baird to half a million dollars us a year ago.
Moving on to our financial outlook and guidance for Q4, 2023, and our updated 2023 fully a guidance for Q4 2023, we're expecting <unk> to be in the range of 1.125 to 1.1 dollars $75 billion at the midpoint.
The range. This represents a growth rate of 37% versus Q4 of 2020.
We expect Q4 revenue to be in the range of $178 million to $186 million at the midpoint of the range. This represents a growth rate of 30% versus Q4 of 2022 for adjusted EBITDA. We are expecting a profit in the range of 31, 5% to 36.
$5 million.
For the full year of 2023, we are updating our guidance, we anticipate <unk> to be in the range of $3 49235, $4 billion, representing 44% annual growth at the midpoint of the range.
Revenue is expected to be in the range of $563 million to $571 million, representing a growth rate of nearly 39% at the midpoint of the range for adjusted EBITDA, we are raising our guidance and expecting a profit of 89.1 to 90.
$4 $1 million, representing a hyper growth rate of 88% year on year at the midpoint of the range, which will in turn translate into a year of strong positive cash flow generation.
In conclusion, we continue to enhance our offering and tap into the massive potential of the direct to consumer cross border opportunity. We aim to continue our rapid growth, while improving efficiencies and generating cash and.
And with that I'm, the only and I are happy to take any other questions operator.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue. We ask that you limit yourself to one question and a follow up to that.
Others may have an opportunity to ask questions.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question comes from James Fawcett.
Again Stanley. Please proceed with your question.
Hi, everyone. It's Michael in Fontana in for James Thanks for taking our question.
Given shopify is commentary on your commentary on markets Pro I'd be interested if you could unpack what you saw in the quarter from a same store sales perspective, and perhaps the magnitude of recovery you saw in late October and how that's informing that far Q outlook. Thanks.
Hi.
Thank you for the question.
As we mentioned.
During the call what we saw is the weakness in <unk>.
And same store sales growth came mainly from a consumer sentiment are in Europe, and and also from the luxury segment are pretty much across the board. This is this was a also in addition to that Oh.
So shifting our AR and our own mix towards merchants that are using our multi multi local offering which is inherently lower fulfillment take rates. So these were in kind of the the main factors that impacted.
That figure as we mentioned also if we look forward towards the Q4 and onwards.
Since late October we did see some positive signs in reversal of these trends are with an improvement in same store sales.
So we do believe that in the coming quarters.
Growth will will accelerate.
And that combined with the growth in our Shelby for our markets.
And our strong enterprise pipeline gives us the confidence into dynamics going forward.
Got it that's helpful.
And maybe just on the near to medium term outlook for net dollar.
Our retention how are you thinking about the persistence of <unk> hundred and 30% level over the over the medium term.
The thing I'm thinking through or is it more reasonable to assume that as new merchant G. M. B grows given the market's pro ramp well the mix of your revenue caused some N D. R. A degradation in and if so by how much.
So looking yeah looking into this year till 2023.
As we said we did see some softness in September and then in the first part or most of October and that is reflected in lower same store sales. However, we still think that Ah in 2023, we do expect our on your M. D are to be close.
130, as we've previously communicated.
And looking forward.
To be honest, we are currently working on our budget for 2024. However, we can already say that we do believe that our <unk> will remain close to 130% next year as well.
And has said this along with our strong enterprise pipeline that the growth of our markets flow gives us confidence in our ability to accelerate our growth in the coming quarters.
That's great. Thank you all.
Our next question comes from Samad Samana with Jefferies. Please proceed with your question.
Great. Good morning, Thanks for taking my questions maybe.
Maybe first just following up on Shopify markets Pro can you help us understand maybe how you're thinking about the G. M D ramp.
In the fourth quarter, and I think <unk> mentioned in the thousands in terms of our initial customers and maybe what kind of month.
Month over month momentum you've seen since I arrived in September and I know you don't want to get carried away, but just understanding maybe what the early momentum looks like and maybe what kind of GMB youre, assuming and let's call. It. The first few quarters, just yet to think about transit I had one follow up.
Hello, and thank you for that.
Yeah. It is something you mentioned on the call Shopify market's pro achieved a significant milestone in Q3 off till almost two years of development for both our team and the and the Shopify team and he is now generally available for where we're.
Merchants in the U S. Since then we have on boarded.
As Harley mentioned thousands of merchants, who are now able to sell internationally in a in a simple and seamless way.
And given.
The fact that market's probably became generally available only late this hotel.
The contribution in Q3 is actually very very limited. However, we do expect significant contribution to our growth next deal in the coming years.
Yeah, but it's still early days and it will be reflected in our guidance for 2024.
Great and then maybe just as a follow up.
<unk> seen that in our large platform with a lot of e-commerce.
Stores I'm curious, maybe how we should think about the ramp there.
It's just that the very first pilot customer, but any way you can maybe quantify what the size of that is and is there how should we think about that the economic relationship there versus something like a shopify, just maybe help us frame the opportunity.
Sure.
We did as you mentioned <unk> launched our first pilot client, which is a very very early days in order to speak about the expectation on commercially uplift to come out of it but we did build a very robust integration.
In partnership with a weeks team the relationship with Wix is a it's quite close to what we have with most platform such as our sales force holding a full hybrid so others.
And in limited partnership and work and we do expect it to contribute towards growth in 2020 full L.
I think the way, we don't expect it to be as a is.
It has the same effect as we would expect format shopify markets grow at the same scale, but we do it we do expect it to it will give us some incremental growth.
Great. Thank you and wishing you and the whole global a family well.
But everything on.
Thank you very much.
Yeah.
Our next question comes from Scott Berg with Needham <unk> Company. Please proceed with your question.
Hi, everyone. Thanks for taking my questions and I, certainly echo the sentiments and best of luck with the.
Challenging situation there are certainly I guess, a couple of questions here, let's start off with.
Just the net new business, how should we think about net new logo.
Bookings, new new customer wins here in the quarter and maybe year to date versus your expectations.
And as we see it in our numbers and in a fund that we remain on track to achieve our annual targets.
Targets for new bookings.
Which will make 2023 a record deal for us.
We haven't seen any.
Notable changes in the time it takes to either a sale the sale cycle itself also involved the clients where we're quite optimistic.
On the contribution of our enterprise funnel.
Towards the towards 2024 onwards.
In terms of the additional factor, which is which is choppy markets. Pro has stated it was launched into general availability in the U S. In September since then we've started to see really nice adoption.
To date with thousands of merchants that actually activated the solution and we do accept that to give us an additional acceleration into 2024 onwards.
Got it helpful. And then I know, it's a small sample size in September and October but.
Implementation of customers kind of going into the strong holiday season does that you know modestly changing same store steel sales environment, maybe negatively or even positively impact your ability or your customers' desires to you know make sure. These are make sure your solutions implemented before the strong holiday selling season. Thank you.
Yeah.
Sure then typically as you mentioned, we do see a late October early November.
Push from clients to actually go life pre peak to enjoys the localization and the extra services, we provide hey during peak period.
Is this is this goes the same for this year, we have seen dozens of clients that actually launched with us in the last few days.
By up to play out where there's a code freeze.
That us as well as our merchants they impose full a full peak trading.
We do expect a maybe a two more days of Sanchez.
And then it would go into.
Until the quiet period in terms of launching and the focus would would go into our into the peak trading.
However, we are very happy with our with the launches with the sales cycle is what is the on boarding to launch in the in the dynamic the multiyear dynamic we havent seen any changes though.
Does that change with the change we've seen in an email and also spoke about is is actually within that same store sales, where we which is much more affected by consumer sentiment.
Our next question comes from Alex So far with Goldman Sachs. Please proceed with your question.
Hey, everyone. This is Alex on for well.
The graphs on the launch of markets Pro this quarter, we know it's still early but we were wondering if you could share some color on what you're seeing in terms of the typical merchant profile, maybe like GM. Besides cross border Max in the popular verticals, you're saying you're getting adopted and then my follow up can you just talk about how much of the lower foot.
Film and take rate in the last couple of quarters has resulted from multi local adoption versus sort of a mix shift towards standard shipping.
From express.
<unk>.
Okay.
Hi, Alex it's Neil I'll take I'll take the first question related to Shopify markets Pro.
As you mentioned, it's still early days.
For the adoption of the solution, but the early adopt those as we see them on average would be a smaller in size than what we see on our enterprise our solution.
As we expected so where it's <unk>.
<unk> easier to onboard many more clients and what we can onboard in a certain.
Time period on enterprise platform. However, zelle is much smaller in scale.
For the second part of your question on that so that's the way I also.
Thank you.
So in terms of the fulfillment takeaway was that the the higher the shale impact is from a multi local adoption actually a lot of it is from merchants out there already on boarded a year ago and are growing.
With us and from time to time, we do launch and additional merchant that prefers to work based on this method because they are large and they have global inventories that they can.
Utilized.
And the remaining is from a certain shift from express to standard as you mentioned.
Got it thank you very much.
Thanks, Alex.
Yeah.
Our next question comes from Matthew Clark with UBS. Please proceed with your question.
Hi, Thanks for taking my questions.
I've talked to definitely go out to you guys.
That are sitting in AR.
In a war zone, especially after the tragedy.
One on the the weakness in Europe and in the luxury can you help us understand how big of an exposure you have to to luxury and then to European consumers.
And then I have a follow up.
Okay.
Hi, Thank you for the question itself.
Basically we grew during COVID-19 very fast with luxury brands that have adopted direct to consumer once they are they understood that.
Because the stores are closed and B, we grow very fast.
As you know we have a quite a few <unk> brands. We did launch. Our addition of the three this quarter.
Lactary as is the wide definition, but currently it's approximately 25% of our of.
All of our <unk>.
Regarding Europe, a Europe has a large inbound market and it's a approximately 30% of our inbound sales.
Oh.
Alright.
Yeah.
Thank you and then as we look at.
Your marketing efforts on behalf of Shopify.
Shopify markets Pro customers is there an opportunity for expansion if you start offering them you know.
Marketing services, but Oh.
Some spread.
Yeah. So I'll just clarify on the difference between choppy markets pro in our enterprise business on.
Shopify markets pro.
So these no marketing efforts from the globally side, not on onboarding of merchants or selling to the merchants in order to use the platform.
And not on the service side, we just offer localization.
On the enterprise platform I would say the investment in marketing to bring the clients on board and launch them and of course, it is with a company to those clients. We started to offer indeed, a marketing service. We're still in the early days. It is part of the assimilation of the global if the border free.
Acquisition capabilities.
Into globally, which is still undergoing on the marketing side. However, we see a nice adoption and growth all of idiots early stage. So we did a on the on the back of those capabilities on board.
A couple of our large merchants into our managed service capabilities. We did launch additional 10, new merchants that are using our marketing services to increase brand awareness and demand generation worldwide and so we see I would say the early innings of adoption over time, we do expect that that we as we guided in.
Pass it.
Over time, we do expect it to give us some extra margin on the on the take rate, but it will take a it would take a it will take a few quarters to realize that.
Thank you so much.
Thank you very much.
Our next question comes from Brent <unk> with Piper Sandler. Please proceed with your question.
Good morning, I'll also extend support and best wishes for you your family and colleagues impacted by the tragedy in Israel here, maybe a mirror I wonder if I wanted to go back to same store sales.
And and really double click into the luxury space.
How broad based was the slowdown in same store sales was it across the majority of your luxury merchants was at a handful of any additional color you could give us around same store sales.
And magnitude of the slowdown you saw there were some of those luxury brands would be helpful. Thanks.
Sure. Thank you Brenda and thank you for the kind words.
It was relatively broad in terms of luxury obviously, there are always outliers or brands that.
Are impacted are less it is down to the characteristics of the individual brand, but we did see a trend that I would say roughly covered I would say around 80% of our luxury brands that did see this same store sale growth slow down.
Super helpful. There and then as a follow up if I look at Q4 here, obviously came in a little light because of the macro same store sales, 35% GNP growth in Q3.
You're guiding to 37% growth so actually an improvement in GNP growth in Q4.
Obviously, the macro is getting worse data points suggest things are getting more challenging what what's giving you the visibility for growth on a year over year basis to improve slightly in Q4, you did talk about several new brands going live in Q3, maybe that helps markets pro could help.
I don't know, but but could you double click into what gives you confidence.
<unk> growth is going to actually improve in Q4, even with some of the challenges out there and call it 25% exposure to luxury.
Yes, so thanks, Brian for the question.
As mentioned, we have seen a certain slowdown in same store says mainly around luxury and in Europe and in Q3.
And also as we mentioned we have seen a bounce back towards the end of.
October going into November.
We do believe.
That growth will accelerate in the coming quarters and the main drivers for that is one the successful launch of shopify markets role, which will start contributing already in Q4, it's ramping up but as.
As mentioned, we do have a large number of merchants on its smaller merchants, but still it will contribute into Q4 and contribute more significantly into 'twenty at 24. In addition to that the very healthy pipeline and the launches.
We saw also will support accelerated growth.
And we did see an improvement as I mentioned in consumer.
Demand since late October going.
<unk>.
Actually up to these days with the beginning of the peak. So there is still the peak period in front of Us and obviously, we took that into account.
But we do believe that growth will be accelerated.
Our next question comes from Brian Peterson with Raymond James. Please proceed with your question.
Oh, that's great to hear from you and best wishes to the global lead family in this really challenging times.
Over a mirror I wanted to follow up maybe on French last question, you've mentioned that you've seen some encouraging signs in spending over the last few weeks is that a function of what had softened in luxury in Europe, getting better or is it maybe broader base trends kind of outside of that.
And is it fair to say that those same store trends are back to where they were in August you know I'd love to just kind of double click on what's improved in what you've seen over the last few weeks.
Yeah. So thanks, Brian for for the question.
And what we have seen is a general improvement.
We have seen a improvement out of Europe as part of the general improvement.
And less improvement.
Improvement in luxury limited our improvement.
Round luxury but all in all the numbers have bounced back.
So it's a three week period, but.
But we need to wait and see what happens through the peak, but what we have seen a general improvement with Europe as part of that.
I appreciate the perspective, maybe just on border free.
To get an update on the progress there any expected synergies and as you kind of talked about that enterprise.
Reason for accelerating growth in coming quarters is border free included in that I, just want to make sure I get an update on what's going on with border free thanks, guys.
Sure.
Thanks, Brian It's Neal.
Then as I said.
As we mentioned in the past we did extend the period for the board of free clients to migrate over to the global it platform.
But over this quarter are we managed to a start on boarding clients into globally already.
I can say that we see positive signs, though trading for clients that actually migrated from the border free platform to a globally is much better conversion rates are up as we expected.
And on the back of it we see higher trading volumes. So we do expect that once we migrated the vast majority.
Within our within 2024, and this will have positive impact on the on the same store sales of border free that is currently on the border free platform I would say.
Not a not as good as what we see in on globally.
Our next question comes from Koji Ikeda with Bank of America. Please proceed with your question.
Hey, Amir near O'hare, Thanks for taking the question.
I wanted to dig in on the fulfillment.
Great and how to think about this metric going forward.
In the quarter take rate it was about eight 5% and I realize you did call out. The you know the kind of a multi local sand or kidney and so I really appreciate the color there.
But also thinking about I do recall in prior quarters.
Time's smaller box high value products.
Can drive fulfillment take rate lower and then layering on the ramp of market to grow on top of that.
The question here is how can we be thinking about the long term fulfillment take rate for the business and maybe some of the dynamics that could affect that.
Sure Yeah. So thank you for that.
Well I'll start from from luxury as we mentioned.
On the great quarter for luxury.
<unk> didn't have any negative impact on our fulfillment take rate.
Going forward.
And as we mentioned.
The main drivers were a multi local and also some shift from express shipping to standard shipping going forward, we do.
Expect a stabilization and maybe a slight improvement going into.
Into next year into the first quarter, but all in all if we look to.
To 2024 and again, we are working on the budget currently but we.
We do expect.
Take rates to stay relatively stable throughout 'twenty fall with some volatility between the quarters.
Our next question comes from Matti shocked with Keybanc capital markets. Please proceed with your question.
Hey, guys just wanted to maybe keep on the fulfillment take rate subject and wanted to know if any of that consumer weakness kind of also resonates with shipping speeds and shipping take rates. Just wondering if you would maybe express Eric.
Less expression hang in the holiday season, this year compared to last year.
I think you're perfectly right.
Some effect related to consumer sentiment in the higher growth of standard shipping versus express.
Seen in Q3 as we've seen shoppers.
Mainly in Europe.
Trending more towards the standout with increase a standard care in the mix.
M. However, when we go into Q4, especially for peak period and into Christmas sales as consumers are much more concerns and concerns with the time it will take for the package to arrive as a lot of it is gifting, especially if we speak about Christmas shopping we don't ask.
To see this trend continue.
As we do as we do give a sum the warnings and the ease of checkout prior to Christmas to alert about higher transit time in standup, usually we see a we see a shift towards the back towards express. So we don't expect this to continue.
Okay, Great and I think we've heard from some other ecommerce players, but they are kind of expecting bigger discounts.
Discount this holiday season from the retailer and so I'm just wondering what your guys expectations are in terms of maybe discounts from retailers and maybe lower cart sciences and typical thanks.
So within September October Bill, we did witness some low LTV on average it was driven by I would say a reduction in luxury that also with smaller baskets of new of the combination of both yielded on companywide.
A bit of a reduction the over average order value.
And we do expect some of it to translate into a into lower baskets within peak, we did and we do discuss especially with some of our larger brands plans into Pik and found that some of it is based on a heavier discounting than the last year.
All in all we don't think it would be a major effect.
And the early signings of peaks that we see in the last few days look very positive in terms of the uplift in sales.
Without a major impact on the average basket versus last year.
Our next question comes from Pat All reasons with JMP Securities. Please proceed with your question.
Oh, great. Thank you.
So putting it altogether what are the top one or two things that you feel you need to get done you know for 2024.
And as part of that the Shopify agreement still expire in April 2024, with the automatic renewal is that still how that works.
Thanks, Matt I'll start with the second one is if you're in I know as we mentioned the the agreement was extended for another year. The original evergreen window through the three year initial term, which indeed and <unk> in April of next year, but it also had an auto renewal.
Isn't that kicked in so oh it was renewed its now until April 2025. So that's that's regarding the Shopify agreement.
In terms of priorities for next year I think it's a it's pretty clear for us, though we have our of course that we believe are very very firmly in our in our ability to continue.
Executing on on all our all our strategic vectors. So it will it will be making.
Making sure that we continue this strong.
Push of our funnel into actual deals and getting the many merchants that we have signed any integration getting them live.
As a as planned and in parallel.
Hum growing.
Shopping for our markets grow together, we've shared before and extending our reach to additional markets.
Into additional verticals.
Stay tuned.
We have oh.
Quite a few strategic initiatives, we talked a lot about the demand generation.
So in previous quarters, and we have a few.
You added services did all day.
Longer term in terms of further impact on the actual financials, but we believe they're important.
Stones.
The building that we're building and we will continue to.
Two investing Neises Oh.
Future growth engines for the business.
Our next question comes from Mark It seems like with the benchmark Company. Please proceed with your question.
Thank you and good afternoon.
Two quick ones. Just if you think you talked a lot about consumer sentiment improving in specifically.
In Europe, I'm curious what you attribute.
The more near term snapback to and if theres any sort of.
Correlation as you look at that Snapback, if you will to our sales volumes that type of thing and then as we look at first half of next year not looking for any specific numbers, but just trying to understand if the macro gets a bit tighter or sort of how you think about.
Flex you have on the expense side, and where specifically are you.
They have some flexibility there thank you.
Thank you for your question Neil So well.
The softening we've seen coming in September and I would say kind of bouncing back or ending late October <unk>.
We don't really have a.
Good macro explanation to eat as we didn't see a major shift in inflation.
Yeah, Colin deflation and inflation expectations and your hopes to like come.
Honestly are attributed to something specific or whatever.
We did see a change and changing back again so.
Hopefully if the trend we've seen now will continue through peak I think whether or not.
In a very good position full Iran and in the following quarters.
And on that we're optimistic.
Thanks, Ian I'll take.
Your second question in terms of our expenses, we do we do have some flex, but but actually are what we are doing and what we have been doing over the last few quarters, even more than that is is actually preempting that in and managing our operational expenses very very tightly.
In making sure as we look forward to adding additional head count. We also mentioned in the prepared remarks that we do continue to expand our teams to support the future development.
But at the same time, we're doing it very diligently and we are always.
The lookout through the expected growth of the business to make sure that our our revenues grow faster than our than our cost base.
This is very actively managed by us on a day to day basis.
Okay. Thank you.
Last one just when you talk about you.
You mentioned you expect Shopify arc is proud to be a significant contributor next year, albeit.
Quantifying that.
Yes.
Just curious what type of penetration do you need of their plus merchant base for that to be significant.
I think that the great thing about shopify market's pro it caters for virtually all of Shopify merchants. So it's not limited to plus any small merchants on the shopify platform that is interested in international not doing even smaller.
Mountain International can actually can actually.
I subscribe to the service and turn it on and it simple and actually we will see it in much broader adoptions and then I'll take plus we do believe it will come significant even if the adoption rates.
And aren't very very high you will see a really a very significant contribution we need to recall that a shopify cross border or the reported <unk> around the 30 billion.
Don't know Mark if we get if we get if we are able to cater for some of it also for the shipping markets Pro Yeah. It is a nice growth rate fully globally on top of all quarters growth.
Yeah.
Our next question comes from Zachary done with Ft Partners. Please proceed with your question.
Hey, there guys. Thanks for taking my question I just wanted to touch quickly on the service fee take rate so on a year over year basis.
Second sequential quarter of the take rate declining.
And that decrease actually accelerated so you know last quarter. You said you expect to see stable in the back half with some upside from value added services. So I guess my question is two fold one is that take rate coming in lower because of weaker demand from value added services and then just two how should we think about that seek rate going forward should we.
Expected to be down again year over year.
Any context, there would be appreciated thanks.
Yeah. Thank you for the question.
Actually we are quite satisfied from the service fee take rate. It did meet our expectations are we mentioned in the previous quarter that Q3 is a very tough comp because we had a particularly high service fee take rate in 2022.
But.
As you can see the service fee take rate has increased sequentially from Q2 to Q3, and we do believe that a there is some additional.
Additional upside, but as I mentioned previously going into Q4 and next year, we do believe that the it should stay stable and again, maybe some upside on the service fee side.
Yeah.
Okay.
There are no further questions at this time I would now like to turn the floor back over to Adam for closing comments.
Thank you and thank you everyone for joining us on this call today.
Before we finish I would just like to take this opportunity and thank you all again for your ongoing support and for sharing our passion for cross border E Commerce.
And our belief in the enormous opportunity presented by it.
We very much look forward to updating you again on our calls that we continue our rapid path to conquer this market. So until next time Goodbye to you all and take care.
Yeah.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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