Q3 2024 Global-E Online Ltd Earnings Call
Thank you.
Speaker Change: Welcome to Global E's third quarter 2024 earnings announcement conference call. This call is being simultaneously webcast on the company's website in the investor relations 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.
Speaker Change: Thank you and good morning. With me today from Global E are Amir Schlachet, Co-Founder and Chief Executive Officer, Ofer Koren, Chief Financial Officer, and Mir Debbie.
co-founder and president.
Speaker Change: Amir will begin with a review of the business results for the third quarter of 2024. Ofer will then review the financial results for the third quarter of 2024, followed by the company's outlook for the fourth quarter of 2024 and full year of 2024. We will then open the call for questions.
Speaker Change: Certain statements we make today may constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933.
Speaker Change: Section 21E of the Securities Exchange Act of 1934 and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events.
Speaker Change: These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control.
Speaker Change: In addition, these forward-looking statements reflect our current views with respect to our future events and are not a guarantee of future performance.
Speaker Change: Actual outcomes may differ materially from the information contained in the board-looking statements.
Speaker Change: 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 with or furnished to the SEC.
Speaker Change: These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this call. You should not put undue reliance on any forward-looking statements.
Speaker Change: 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 reflected in the forward-looking statements will be achieved or will occur.
Thank you.
Speaker Change: 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 the statements are made, or to reflect the occurrence of unanticipated events.
Speaker Change: Please refer to our press release dated November 20, 2024 for additional information.
Speaker Change: In addition, certain metrics we will discuss 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 financial information prepared and presented in accordance with GAAP.
Speaker Change: We use these non-GAAP financial measures for financial and operating decision-making and as a means to evaluate period-to-period comparisons.
Speaker Change: We believe that these measures provide useful information about operating results.
Speaker Change: 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.
Speaker Change: For more information on the non-GAAP financial measures, please see the reconciliation tables provided in our press release, dated November 20, 2024.
Speaker Change: 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 20, 2024.
Speaker Change: I will now turn the call over to Amir, co-founder and CEO.
Amir Schlachet: Thank you, Erica, and welcome everyone to our Q3 Earnings School.
Amir Schlachet: We delivered a very strong third quarter, thanks to the growing contribution of new merchant launches within the quarter, as well as growth of our existing merchants.
Amir Schlachet: As such, Q3 saw both GMV and revenue growth accelerating to 35% and 32% respectively.
both well above the top range of our guidance.
Amir Schlachet: This strong top-line growth was accompanied by our continued efficiency measures and cost control, yielding an adjusted EBDA growth rate of almost 41%, more than 7% above the midpoint of our guidance range.
Amir Schlachet: Given the successful launches of new merchants, which are trading well, and a more positive consumer sentiment as of September, we expect growth to continue accelerating in Q4 to a rate of 39% year-over-year and are raising our full-year guidance accordingly.
Amir Schlachet: We now expect annual GMV for the full year of 2024 to grow 35%, revenues to grow at 30%, and adjusted EBITDA to grow almost 50% year over year.
Amir Schlachet: Moreover, this strong performance across the board, combined with our 2024 New Merchant Bookings which are at an all-time high, further strengthened our conviction in our ability to hit the 30% mark in GMB growth again in 2025.
Amir Schlachet: Beyond the financial metrics, I would also like to give you a few updates on our strategic posture and main initiatives.
Amir Schlachet: As you know, Globally's mission is to power better global e-commerce.
Amir Schlachet: We are the clear leader in global e-commerce as a service. But nevertheless, we invest in adding new features and new functionalities all the time, as we continuously transform the way merchants and shoppers across the world engage with one another.
Amir Schlachet: For example, during Q3, we went live with a new click-and-collect option of Bopis for buy online and pick up in store, enabling relevant merchants to enhance their multi-channel reach to a global level.
Amir Schlachet: Merchants using Bopist can utilize their physical stores in different countries around the world as local fulfillment hubs for global e-commerce.
Amir Schlachet: as well as convenient pickup locations for their shoppers, thereby enabling a better shopper experience, more efficient global stock utilization, and a rise in physical store footfall.
Amir Schlachet: The first US merchant to utilize this capability saw around 50% of its e-commerce sales to Canada managed through its in-country branded stores during the first month of offering this option to shoppers.
Amir Schlachet: On the operational side, we started beta testing on several additional direct injection lanes, both outbound and inbound.
Amir Schlachet: and on several new consolidated return lanes, as we strive to provide merchants with the best-in-class logistics offering around the globe, enhancing their efficiency while offering a better and more diverse set of options to their shoppers.
Amir Schlachet: On the duties and taxes front, our comprehensive duty drawback platform now supports additional options on standard shipping names.
Amir Schlachet: and we have granted early access to several merchants for a new global duty drawback program for GDP.
Amir Schlachet: This new program enables merchants to provide better customer services through a simplified, transparent, and hassle-free duties and taxes refund process.
while leveling global shopper experiences with those of domestic ones.
Amir Schlachet: Last but not least, we continue to invest in AI-based capabilities, as the evolving landscape of Large Language Models, or LLMs, enables us to make incredible leaps in service and efficiency.
Amir Schlachet: For example, during Q3, we rolled out a new iteration of our AI product classification tool, which leverages cutting edge LLMs to generate a precise mapping of products in our merchants catalogs to their respective Harmonized Customers Codes, or AGES codes.
Amir Schlachet: This is a crucial prerequisite for accurate duties and taxes calculations, as well as shipping and import restrictions management.
Amir Schlachet: Compared to the previous system, which utilized first-generation machine learning algorithms, this new LLM-based tool yields increased accuracy and has the ability to learn and improve over time, constantly bettering its performance.
Amir Schlachet: As our platform continues to evolve, more and more merchants sign up and go live with us.
Amir Schlachet: As I mentioned earlier, during the third quarter, we continue to onboard many new merchants across all different markets and verticals.
Amir Schlachet: In North America, we went live with leading fashion brands, such as the fast-growing plus-size fashion brand Torrid, with the emerging Elevated Basics twin brands of Nudes and Tones, and with the iconic footwear brand Dr. Martens, just to name a few.
Amir Schlachet: In other verticals, we went live with Raycon, a fast-growing consumer electronics brand. We've watched Rank Air Force, with the cosmetics brand John Rhode Beauty, and with the vitamins brand Dr. Berg.
Amir Schlachet: During the quarter, we also completed the successful migration of several more brands from the old border-free platform onto Globally, including El Albin, Lanzan, and Oscar de la Renta.
Amir Schlachet: All of which can now enjoy the benefits of trading through our cutting-edge platform and services.
Amir Schlachet: We also end live with many new brands across the UK and Europe, including significant launches in the sports vertical of two top Premier League and Bundesliga football clubs, Manchester United and Bayern Munich.
Further deepening our penetration and track record within this vertical.
Amir Schlachet: We also went live with many other brands across various verticals including the German ski and lifestyle brand Bogner, the British clothing brand Trapster London, the Swiss science-based sportswear brand X Bionic, the Swedish horse riding brand Equestrian Stockholm,
and fast-growing Swedish swimwear brand Bright.
Amir Schlachet: The UK-based Land Rover spare parts site LR Parts, the Polish clubwear brand Misbehave, the Danish handbag brand V Collective, and many many others.
Amir Schlachet: Asia Pacific continues to exhibit fast growth in Q3, further gaining share in our activity as more and more APEC-based brands choose to go global via our platform.
Amir Schlachet: Examples would be the leading Australian fashion brand Dish, the brand of sites in Japan and Hong Kong, the Japanese pre-owned fashion set Ragtag, the Hong Kong-based leather brand Cafun, and the Korean sports gear brand Dimito.
Amir Schlachet: Q3 also sold several auditions to our growing portfolio of luxury brands.
Amir Schlachet: Most notably, the web stores of Derrick Rose and luxury fashion designer Margaret Howell in the UK, Longchamp and Paco Rabanne in France, and the famous watches and jewellery brand Chopard in Switzerland.
Amir Schlachet: But the biggest news on the merchant's front is the recent launch of Herod's.
Amir Schlachet: probably the world's most iconic luxury department store and the last on our list of planned large merchants planned to launch this year.
Amir Schlachet: Through the integration with Scale, the platform chosen by Herods to support their online sales, we delivered a fully localized, top-of-the-line shopping experience for every Herods customer around the globe, including their domestic customers in the UK, well in time for their traditional holiday sales.
Amir Schlachet: We are extremely excited to be supporting the online business of Harrods and very much look forward to growing together with them over the coming years.
Amir Schlachet: Apart from the launch of new merchants, as always we also continue to expand our activity with existing brands and brand groups as part of our land and expand motion.
Amir Schlachet: During the quarter, we added all the remaining lanes with Victoria's Secret, thereby completing the phased launch as planned.
Amir Schlachet: We also went live with Disney in Australia and New Zealand and added support for 23 more markets on Astroline's APAC store.
Amir Schlachet: In France, we went live with the luxury hour brand, Vaux-Net, further expanding the list of brands we work with within the LVMH group.
Amir Schlachet: We also went live with the Swiss design fashion brand Strelzon, the second brand to go live with us out of the three brands that formed the Holy Fashion Group.
Amir Schlachet: as well as with the iconic swimmer brand Billabong, the third brand to go live out of the Liberated Brands Group.
Amir Schlachet: With new merchant bookings this year at an all-time high, we continue to see strong demands for our services across all geographies and verticals we serve.
Moving on to some additional elements of our roadmap.
Amir Schlachet: We continue to develop and roll out new capabilities on Shopify Managed Markets, which continues to grow as planned and generate great value to the thousands of merchants using it.
Amir Schlachet: Among the new features released this past quarter were order editing, which provides merchants with the ability to edit international orders prior to fulfillment,
support for several new alternative payment methods.
Amir Schlachet: and upgrades to our automated catalog analysis algorithms, allowing merchants to sell more products to more markets.
Amir Schlachet: During Q3, we also expanded our strategic partnership with the digital transformation leader TransCosmos.
Amir Schlachet: Following our successful joint work in Japan, we have extended our partnership with Transkosmos to also cover South Korea, where we will work together to support the international online growth of their Korean clients.
Amir Schlachet: Finally, I'm happy to announce that as planned, we recently launched our demand generation offering.
Based on the revamped Vodafree.com brand discovery portal.
Hundreds of merchants already signed up for the launch.
Amir Schlachet: displaying their products on the portal and tapping into the fast-growing mass of international shoppers who can now wear the world by starting their fashion journey on Borderfree.com.
Amir Schlachet: The launch is supported by an out-of-home media campaign, an online campaign across multiple channels, and a shopper cashback reward offering to which many of the participating merchants have already signed up as well.
Amir Schlachet: These are still very early innings, but we already see an increased level of engagement and activity on the portal, and believe that over time, our demand generation offering, spearheaded by BorderFree.com, will grow and provide more and more value to our merchants.
Speaker Change: And with that, I will now hand it over to Ofer to take you through the quarterly figures in detail and present our updated guidance for the remainder of the year.
Ofer Koren: Thank you, Amir, and thanks all of you for joining us today on our earnings call.
We are pleased with our performance in the third quarter.
In Q3, we experienced accelerated growth combined with healthy margins.
Ofer Koren: The strong growth was driven both by the contribution of new merchants that successfully onboarded and launched as planned, and an improvement in consumer sentiment as of September.
Speaker Change: I'd like to point out that in addition to our GAAP results, I'll also be discussing certain non-GAAP results. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results, can be found in our earnings release.
Speaker Change: GMV continued to grow rapidly in Q3, as we generated 1.134 billion of GMV, an increase of 35% year-over-year.
4% over the midpoint of our guidance for the quarter.
Speaker Change: Our strong GMV growth was fueled by positive consumer sentiment as of September and trading volumes generated by new merchants launched, which were on the upper side of our expectations.
Speaker Change: In Q3, we generated total revenue of $176 million, up 32% year-over-year.
Speaker Change: Service fee revenue were $82.6 million up 32% and fulfillment services revenue were up 31% to $93.4 million dollars.
Speaker Change: This quarter was characterized by balanced growth. Services fee take rate slightly decreased from Q2 due to the loss of the Ted Baker account, to which we had provided demand generation services with a high service fee take rate.
Speaker Change: Fulfillment services take great increase compared to Q2, driven by favorable mix.
Non-GAAP gross profit once again outpace top-line growth.
Speaker Change: In Q3, non-gap gross profit was $82.3 million, up 39% year-over-year, representing a non-gap gross margin of 46.8% compared to 44.4% in the same period last year.
Driven by operational efficiencies.
Speaker Change: Gap gross profit was $80.1 million, representing a margin of 45.5%.
Speaker Change: Moving on to operational expenses, we continue to invest in the development and enhancement of our platforms.
Speaker Change: R&D expense in Q3, excluding stock rate compensation, was $22.8 million, or 13% of revenue, compared to $18.2 million, or 13.6% of revenue in the same period last year.
Total R&D spend in Q3 was $27 million.
Speaker Change: We also continue to invest in sales and marketing and we continue to see a strong pipeline ahead.
Speaker Change: Sales and marketing expense, excluding Shopify-related amortization expenses, stock-based compensation, and acquisition-related intangibles amortization, was $21.5 million, or 12.2% of revenue.
Speaker Change: compared to $12.9 million or 9.6% of revenue in the same period last year.
Speaker Change: Shopify warrant related amortization expense was $37.4 million. Total sales and marketing expenses for the quarter were $62.7 million.
Speaker Change: General and administrative expenses excluding stock-based compensation and acquisition related contingent consideration was 7.7 million dollars or 4.4 percent of revenue.
Speaker Change: compared to 6.7 million dollars of 5% of revenue in the same period last year.
Total GNA spend in Q3 was 11.4 million dollars.
Speaker Change: Adjusted EBITDA totaled $31.1 million, representing a 17.7% adjusted EBITDA margin, an increase of 41% from $22.1 million or 16.5% margin in the same period last year.
Speaker Change: Net loss was $22.6 million compared to a net loss of $33.1 million in the a year ago period.
Speaker Change: The net loss is driven mainly by the amortization expenses related to the Shopify warrant and by the transaction-related intangibles.
Speaker Change: We believe that despite the impact of the items I just mentioned, we will be close to gap break even in Q4 thanks to our growth and the peak trading period.
Speaker Change: As the amortization expenses related to the Shopify warrants are expected to decrease significantly in April 2025 and end in December 2025.
Speaker Change: We believe we are on track to turn GAAP profitable in mid-2025, making 2025 our first-ever GAAP profitable year.
Speaker Change: Switching gears and turning to the balance sheet and cash flow statements, we continue to generate cash in the quarter. Cash flow generated by operating activities was $30.3 million compared to $26.6 million a year ago.
Speaker Change: We ended the quarter with $359 million in cash equivalents, including short-term deposits and marketable securities.
Moving on to our financial outlook.
Speaker Change: We are introducing guidance for Q4 and raising our 2024 full year guidance.
Speaker Change: In Q2 2024, we are expecting GMV to be in the range of $1.615 to $1.685 billion. At the midpoint of the range, this represents a growth rate of 39% versus Q4 of 2023.
Speaker Change: We expect Q4 revenue to be in the range of $243 to $255 million. At the midpoint of the range, this represents a growth rate of 34% versus Q4 of 2023.
Speaker Change: For Adjusted EBITDA, we are expecting a profit in the range of $51.5 to $57.5 million. At the midpoint of the range, this represents a growth rate of 55% versus Q4 of 2023.
Speaker Change: For the full year of 2024, we are raising our guidance and now anticipate GMV to be in the range of $4.76 to $4.83 billion, representing a 35% annual growth at the middle point of the range.
Speaker Change: Revenue is now expected to be in the range of $732.9 million to $744.9 million, representing a growth rate of 30% at the midpoint of the range.
Speaker Change: For Adjusted EBITDA, we are now expecting a profit of $135.2 to $141.2 million, representing a growth rate of 49% at the midpoint of the range.
Speaker Change: In conclusion, the opportunity before us is immense as we continue to enable merchants around the globe to unlock the potential of their global direct-to-consumer businesses.
Speaker Change: We remain focused on execution and believe we can continue to grow rapidly while generating growing free cash flows in the years ahead.
Speaker Change: And with that, Amir and I are happy to answer questions you might have. Operator?
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: We request that our callers limit their questions to one main and one follow-up.
Speaker Change: Your first question comes from William Nance with Goldman Sachs. Your line is now open.
William Nance: Hey guys, nice results this morning. Appreciate you taking the question.
William Nance: And it was great to hear the commentary on just the profitability outlook. And I was wondering, just on that note, EBITDA margin is coming in very strong. I was wondering if you could talk around the outlook for free cash flow and the conversion of EBITDA. I think historically you've had some very, you know, very elevated free cash flow conversion in the fourth quarter, and then it dips in the first quarter. Just wondering if you could speak to that seasonality and if that's still something we should expect. Thank you.
Typically, Q2 and Q3 are quite standard.
Speaker Change: But due to the peak season in Q4 and the positive working capital that we typically have around that, Q4 is a very strong quarter, Q1 is the other way around. It's typically the slowest quarter in terms of cash flow.
Speaker Change: Generally speaking, when we look at the full year and put aside the seasonality, free cash load tends to be slightly above adjusted EBITDA levels.
Speaker Change: Great. So that's great to hear on the full year number. Very helpful. And, you know, you announced some product enhancements, the buy online, pick up and store. So that's very operationally intensive to get that product rolled out. I'm just wondering if you could talk to kind of the client reception and just with all the product enhancements, how you're thinking about pricing and pricing power over the next couple of years. Thank you.
Speaker Change: enable them to do a global multi-channel. It's a great customer experience.
Speaker Change: And we do it also in other fields. We do a lot of product enhancement to optimize the cost for trade for our merchants, such as duty drawbacks, and the global duty drawback program we just recently released to the market.
Speaker Change: And we intend to continue with that. Some of it, as we build more capabilities, inherently, we can increase slightly the take rate. For example, Duty Drawback, it's a new service.
Merchants Adopted
Speaker Change: Basically, there is no out-of-pocket money for them. They save money because we can now reclaim duty expenses on returns. However, we take a cut out of it. So, yes, we are able to increase our take rates. However, our merchants do not see it as an increase in fee. On the contrary, it saves cost and creates efficiency for them.
Speaker Change: So, on such places, we are happy to enjoy the extra margin. In general, we don't expect the foreseeable future to increase our prices. We understand that
Thank you very much.
Speaker Change: Now that's great to hear about pricing for value. Appreciate you taking the questions.
Thanks a lot.
Speaker Change: Your next question comes from Andrew Bosch with Wells Fargo. Your line is now open.
Speaker Change: Hey guys, thanks for taking the question. I just wanted to hit on the demand gen platform and the the hundreds of merchants
Speaker Change: that you said are in the pipeline there. Can you give us a sense on how big these merchants are, what you anticipate their activity levels would be? And if you could reconfirm, I believe that you've mentioned in the past that demand gen would be a gross margin uplift. So maybe we could just kind of put some way to dollar frame that opportunity there.
Speaker Change: Hi Andrew, thank you, it's Neil. As you mentioned, yes, we recently launched BorderFree.com as a cornerstone for our demand generation initiative for our partner, Burrens.
while still in its infancy.
Speaker Change: So it's still in its early innings. We are very excited of the long-term potential contribution to our brands in the coming years.
Speaker Change: As it grows and they start to adopt it, we believe that in the coming years it will have an effect also on our ability to generate additional take-out of it.
Speaker Change: I think that in the short term, in the coming quarter, our focus would be about the penetration of the product and making sure we create value for our brands.
Speaker Change: We are seeing the increase in traffic. We have more than a couple of hundreds of brands that came in already and registered.
Speaker Change: They are on the mid-size, most of them, there are a few large that joined already. I think that as we gain traction and are able to demonstrate...
Speaker Change: the value we can bring out of it to our merchants, we will see more and more of our clients coming in. At this stage, I don't think it will have any impact.
Speaker Change: impact on our take rates or top line. I believe that once we're building it into the coming quarter, then we will see the adoption rate and the value we create, we might start to see some fraction there.
Speaker Change: Great. And then on my follow-up, I just want to talk about managed markets. Last time we spoke, I believe you mentioned that it was tracking ahead of plan.
Speaker Change: But I guess that, as we kind of think about 25 from a product perspective,
Speaker Change: Is that also tracking ahead of plan and what do you think that could mean as far as further adoption for managed markets in the year ahead?
Speaker Change: Yeah, hi Tamir. As you said, Managed Markets is indeed tracking well and the same goes for adding new features and new capabilities and thanks to that, it's continuing to gain traction within the Shopify merchant base and we expect that trend to continue into next year as the product gradually improves.
Speaker Change: So we expect the merchant adoption curve to improve as well.
Great. Thank you, Amir.
Thank you.
Speaker Change: Your next question comes from Koji Akita with Bank of America. Your line is now open.
Koji Akita: Yeah, hey guys, thanks for taking the questions. I wanted to ask the question on the GMB guide for the fourth quarter Just kind of looking at the midpoints of the guide that implies GMB is adding about 516 million sequentially
Koji Akita: That's a pretty big absolute number, you know, it's up 47% year-over-year. When I do look at 4Q last year, the sequential net ad in GMB was up 60% to 350, so I know that that growth was there before. So I just wanted to kind of dig in a little bit more here, you know, definitely hear you on all the launches and all the good news there, but what are you seeing in the transaction trends quarter-to-date that's giving you the confidence in that guy?
Thank you for that, Koji Itsofer.
Speaker Change: basically what we have seen that there are two drivers behind that that basically build our confidence around the Q4 guide
The first one is, as you mentioned, is...
Speaker Change: the successful merchant launches that we had throughout the second half of the year.
Speaker Change: Manchester United and some of the others. So basically, those have launched on plan, and as we mentioned, they're trading well. They're trading on the higher side of our expectations. So this is definitely one strong driver.
Speaker Change: The second one is the improved consumer sentiment. Unlike the first half, which was surprisingly stable, the second half continues to be very volatile in terms of consumer sentiment.
Speaker Change: We saw, as we mentioned in the previous quarter, softness in July and the deep going into August.
Speaker Change: However, in September it picked up very nicely and that continued through October and the beginning of August.
Speaker Change: November. So as we know, this is out of our control and it may be, may continue to be volatile.
Speaker Change: We haven't incorporated the highest numbers that we have seen in the past month or two.
But we are also much more encouraged compared to...
Speaker Change: Your next question comes from Scott Berg with Needham. Your line is now open.
Scott Berg: Hi everyone, really nice quarter here. I guess two for me. We'll start with your...
bookings and revenue growth year-to-date.
Scott Berg: I don't know if it's going to be Tormir or Nir. But as you think about the composition of what your bookings have looked like year-to-date...
Scott Berg: And I know we get net revenue retention on the fourth quarter number.
Speaker Change: But has that shifted at all? Elaine had a really large shoe company last year, and I know that launch went well, but that launch was larger than typical. Just didn't know if you're seeing more customers this year.
Speaker Change: try to land really big with, you know, 10, 20, 30 markets versus the historical cadence that might be land a little bit small but have strong, you know, expansion activity over time.
Thank you.
Speaker Change: Hi Scott, it's Neil. We are very, very happy with the year-to-date results on bookings. We are at a record level of bookings. We have seen great momentum in the market with large enterprises signing in and going live.
Speaker Change: Victoria's Secret, which actually gave us most of the global e-commerce outside few specific distribution markets, local distribution markets.
Speaker Change: Sango for Harrods where we took over not only all of the global markets but also the domestic market in the UK as part of our multi-local strategy.
We have seen the same also with Manchester United.
Speaker Change: Well, we've taken not only the global expansion, but also the local market as part of the multi-local strategy.
Speaker Change: So we do see positive effects of large merchants actually launching with virtually almost everything that they have to give on global e-commerce and even though domestic e-commerce is part of it.
Speaker Change: I think that we do see a robust pipeline also looking into 2025. We are very optimistic with the advanced stages in the funnel. We see conversion of leads into deals staying strong, so we're quite optimistic this is going to continue also going into 2025.
Thank you. Thank you.
Speaker Change: Very helpful. Thank you. And then, Ofer, you kind of noted that G&A expenses were down quarter over quarter, but they were down on a seasonal nature much more than what we've seen historically. Anything led to that? I'm really just trying to think about modeling for Q4 and into next year. That might be a lower rate, more sustainably going forward.
Speaker Change: We're going to be talking about the the the the the the the the the the the the the the
So basically, you know, if you look at...
at Q3 and, you know, or maybe something...
Speaker Change: In the middle, between the two quarters, this should be the representing pace going forward. Obviously, as we are growing, we expect this expense to grow over time. But as a base, I think you can look at the midpoint between the quarters.
Speaker Change: Your next question comes from Samad Samana with Jeffrey. Your line is now open.
Samad Samana: Hi, good morning and thanks for taking my questions. Maybe first, just going back to borderfree.com, I guess how should we think about what you're embedding into 4Q expectations from that launch, if anything, and how should we think about maybe what the take rate implications there are that you're thinking through the fourth quarter and into next year?
Speaker Change: We don't expect to see any revenue yet, as Nir mentioned.
Speaker Change: Currently, our main objective is to create value for the merchants and create their confidence in this service. So, I would say that in the short term, and again, going into at least the first half of next year,
Speaker Change: Nothing significant on the top line. We do have some expenses related to this service. It's already embedded in the Q4 guide.
Speaker Change: Great, and then I know you mentioned bookings in the prior question as well, but I guess I just
Speaker Change: The comment that Harrods is the last major launch of this year...
Does that imply that there are other large...
Speaker Change: Merchants that you've booked, but at this point we'll wait to go live in 2025, and I guess if that is the case, then how should we think about maybe seasonality that you're thinking about 2025 based
Speaker Change: Go Lives, is it looking like it should be similar in the first half as it was in 2024?
Speaker Change: Yes, so as you understood, we do have a robust pipeline, some of it is already signed, not only in advanced stages, so those are projects in motion, they would not launch this year.
Speaker Change: I don't think we would see material change in the timing of it versus what we've seen in 2024 But we do expect I would say a couple of
Speaker Change: nice sized merchants to launch in the first half. I don't think that Q1 we would see any significant contribution as we haven't this year for new merchants but I think that as of Q2 we would start to see it rise.
Speaker Change: Your next question comes from James Fawcett with Morgan Stanley. Your line is now open.
Great, thank you very much. I wanted to ask...
Speaker Change: Quickly on take rates, a little bit of clarification there. You mentioned Ted Baker as one of the drivers of
Speaker Change: service fee take rate decel, but when you strip them out, would service fees have been stable, but maybe slightly up versus last quarter? And then similarly on fulfillment, you had alluded to a broad-based AOV increase last quarter, which was compressing fulfillment take rates. Was that not a factor this quarter? And how should we think about the trajectory of both over the near to medium term?
Speaker Change: We were quite stable this quarter, and we expect to see stability on that side going forward.
Speaker Change: In terms of fulfillment take rates, as always, it's much more volatile than service fee, because there are different parameters impacting it.
Speaker Change: It's the AOV, it's the mix, multi-local and so on and so forth.
Speaker Change: This quarter we had a positive mix, so that had a positive impact. It was actually expected, but it was our expectations met reality, or reality met our expectations.
Speaker Change: In terms of, and AOV actually slightly decreased in Q3, so we haven't seen the trend from Q2 continuing.
Speaker Change: a bit lower as embedded in our guidance would be a good base for next year. This quarter is slightly higher than what we see as the ongoing take right there.
Speaker Change: Your next question comes from Chris Tsang with UBS. Your line is now open.
Hi, good morning. Thanks for taking our question.
Speaker Change: So, I have a question on what's embedded in your Q4 guidance in terms of merchant launches. So, you talked about completing the last merchant launch for this year, but then you also have a number of smaller versions, mid-sized versions, and I assume those you have better visibility for. But the other part is...
for South Platte Managed Markets.
Speaker Change: I just wondered what was the ramp-up pattern throughout the fourth quarter of last year and since it's more of a turn-key solution, based on our understanding, it's a lot easier to turn it on.
Speaker Change: continued onboarding of new shops and managed markets merchants throughout the rest of the fourth quarter, even during the holiday shopping season.
Ofer Koren: Yeah, so thank you for the question. It's Ofer. I think that generally speaking, as in every year, we see the less significant launches on the calendar, typically around October. Sometimes
Ofer Koren: You'll see a few going into November. We do have some smaller merchants also onboarding or launching after that. But generally speaking, the larger merchants or decent-sized merchants wouldn't go after October because everybody's preparing for the peak season.
And then, once the peak is behind us...
Ofer Koren: typically everybody goes into the holiday season. So you see a few launches in December but nothing significant that would impact the results.
Ofer Koren: mid-January, beginning of February. So typically you see additional launches coming in towards the end of Q1 and Q2. So that would be the standard cadence, and this is what we are seeing now as well.
Speaker Change: Your next question comes from Brian Peterson with Raymond James. Your line is now open.
Speaker Change: Hi, thanks for taking the question. This is John on for Brian. I wanted to ask on the sales cycles for enterprise customers. Realize that each customer journey is going to be different here and there's certainly seasonality with the holidays. Was wondering if you could speak to the timing of sales cycles, how those have trended versus earlier in the year, and as you attracted larger and larger brands to the platform, is that maybe helping with the pace of sales cycles? And then I have a quick follow-up.
The
Hi, it's Neil. Thank you for the question.
Speaker Change: With enterprise clients, I think over the last two or three years,
Speaker Change: We did see an improvement in the sales cycle timing. It comes from multiple factors. It's us gaining much more experience.
Speaker Change: It's getting, I would say, all the clarifications on the financial stability, et cetera, much quicker due to our positioning as a publicly traded company, as a stable company that generates cash every quarter, and going into multiple other factors that we sharpened over the years. We do see additional potential for improvement. I don't think it will be a material difference. It takes.
Speaker Change: It runs around six months and the launching of it would be in the realm of...
Speaker Change: Most of the enterprise clients we would launch in 2025 and will enter 2025 are already in the sales funnel. Some of them, as I said earlier, are already signed. Some of them are in early to advanced stages. And on the back of it, we will see them converting and launching throughout the year.
Speaker Change: Great, thanks. That's really a color there. And then maybe just follow up on the earlier commentary on managed markets. I was wondering if you could share any update there on as you've added more features, how you're seeing maybe merchant size changing there, and also any color on the pace of merchant addition from managed markets. Thank you.
Speaker Change: Your next question comes from Patrick Walravens with Citizens JMP. Your line is now open.
Speaker Change: Oh great, thank you and congratulations. Amir, how do we think about what the possible impact would be on your business if we end up getting higher tariffs and potentially universal tariffs?
in the United States.
The
Speaker Change: Yeah, hi Pat. It's a good question. I think it has two sides to it from our position. On the one hand, obviously higher tariffs will make it harder for U.S. shoppers to buy or for out-of-the-U.S. merchants to sell. We believe that as long as there are not extremely high unreasonable tariffs, the impact will probably be there on a grander scale, but it should not be that detrimental for the U.S.
Speaker Change: The UK was good for our business. Yes, UK merchants took a hit, but on the other hand it made our service so much more valuable for them and for European merchants that were selling into the UK because now everyone had to overcome additional export or import challenges, depending on which side you look at it from. So in general that's our assumption going forward.
Awesome, thank you.
Speaker Change: Ladies and gentlemen, as a reminder should you have a question please press star 1. Your next question comes from Maddy Shraj with KeyBank Capital Markets. Your line is now open.
Maddy Shraj: And then my second question for you, any geo call-outs? Obviously the U.S. seems strong, but are there goals to do additional geo penetration? Thanks.
Speaker Change: Regarding the expenses related to demand gen, they're not one-time expenses, obviously there is a higher expense around the launch, but there will be ongoing expenses, we are promoting this product, bringing traffic to borderfree.com, so there will be expenses going forward.
Of your second question
Speaker Change: Just to be clear, we do expect, going forward, the rate of investment in demand generation will not create any material difference in the level of spend on sales and marketing from what you see today.
Speaker Change: And regarding the second part of the question, as I mentioned, we have seen a better consumer sentiment around the globe.
Speaker Change: I can call out Europe as the continent that saw the highest rise.
Speaker Change: In Europe, the destination market, it's not only the low base. Europe is, at least currently, doing well in terms of trade.
Great, thanks for the question.
Speaker Change: Your next question comes from Mark Zutawicz with Benchmark. Your line is now open.
Speaker Change: Thank you. And apologies if this was asked. I'm just jumping from another earnings call. But in terms of Shopify managed markets, I'm just curious. You had a target of roughly $200 to $300 for the year. I'm just curious if the GMV contribution is coming in at the lower versus higher end of that range. And maybe if you can just talk about...
Speaker Change: the related GMV pickup that you expect to see perhaps into next year as perhaps there's more co-promotion between Shopify and yourselves. Thank you.
Yes, so thank you for the question.
Speaker Change: I think that looking at this year, we are not at the top range and not at the bottom range, but we are within the range mentioned.
Speaker Change: Ads of merchants coming in. We don't expect to see any step change, but we do expect this offering to continue and grow.
Amir Schlachet: There are no further questions at this time. I will now turn the call over to Amir for closing remarks.
Thank you. Thank you. Thank you.
Amir Schlachet: Thank you everyone for joining us on this call today. Before we conclude, I would just like to take this opportunity and thank all of our amazing Global East staff members who have worked tirelessly over the past months to onboard new merchants, to support our existing merchants, and to make all the necessary preparations to ensure that all of them will be fully ready to serve their global clients during the all-important peak trading period.
Amir Schlachet: I would also like to thank you all for your ongoing support and your shared belief in our vision to transform the world of global direct-to-consumer e-commerce.
Amir Schlachet: As we head into the holiday period, and on behalf of all of us here at GlobalE, I would like to wish you a happy and successful holiday season, and we very much look forward to updating you again on our calls as we continue our exciting and rapid path to capture the immense opportunity that lies ahead of us.
Until next time, goodbye to you all and take care.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Thank you for watching.