Global-E Online Ltd.

Welcome to the Global E's third quarter 2023 earnings call. This call is being simultaneously webcast on the company's website in the investor section under news and incentives. 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 Global E are Amir Shloket, co-founder and chief executive officer, Ofra Karen, chief financial officer, and Nir Debbie, co-founder and president. Amir will begin with a review of the business results for the third quarter of 2023. Ofra will then review the financial results for the third quarter of 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 27A of the Securities Act of 1933, 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. 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 and 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 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 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.

Thank you, Erica, and welcome everyone to our Q3 Earnings School. We delivered a strong third quarter with 35% of growth in GMB 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 along all our strategic vectors. Despite the continued strong growth, for a combination of macro-driven reasons, GMV and revenues for the quarter fell slightly short of our guidance range, which also leads us to a slight downwards revision of our annual GMV and revenue forecasts. 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, 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 unimaginably barbaric attack by Hamas terrorists on Israeli civilians that took place on October 7. Your compassion, support, and generosity are heartwarming and gave us rays of light during these dark times. The atrocities of October 7 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 and well-being 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. Through the resilience of our incredible global team, the business continuity plans we have in place, and the fact that all our infrastructure is cloud-based, we expect no impact on our business even as 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 GMV. 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 did encounter 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 GMV for the quarter amounted to $839 million, representing a high-paced 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. Apart from the GMV 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 are still not in a position to provide concrete guidance for fiscal year 2024, 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 are seeing in the second half of this year will remain relatively stable into next year. So while the shortfall in GMV in Q3, combined with the prevailing macro-related uncertainty levels around consumer spending, have forced us to revise our annual guidance slightly downwards, we nevertheless believe that these early positive indications over the past few weeks, together with the continued strength of our many growth engines and our new bookings, will enable our growth rates to accelerate going forward and into 2024. Moving forward further down the P&L, our non-GAAP gross profitability margin continues 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 amounts 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 when NOFA provides our detailed full-year guidance, in 2023, we expect to make a large stride towards achieving our long-term profitability adjusted EBITDA target. As in the span of the year, we moved from 11.9% in 2022 to over 16% forecasted for 2023. Given the immense market opportunity ahead of us, our clear market leadership position, and the top-notch 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 posture 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 UK fashion brand Ted Baker, the French fashion icon Lacoste in its cooperation with Underwater 3, as well as with the French racing watches brand Depenseur, eco-friendly clothing brand Balzac Paris, the Spanish brand Pauline & Moi, and the iconic Italian luxury brand Paul & Shark, and many more. In the U.S., we went live, among others, with the American fashion house Tory Burch, the jewelry brand Moon Magic, the online watches store of Guess, the sustainable footwear and bags brand Rothy's, the leading women-owned and women-led fashion brand Frank & Eileen, as well as the known Californian denim brand, AG Jeans. We also continued our expansion to additional verticals, such as consumer electronics, with the recent launch of the iconic audio brand, Fung & Olsen. In terms of our expansion into APAC, Q3 saw many advances as well, as we continue to strengthen our presence in this fast-growth region. In Australia, we launched with many new brands this quarter, including Kotomi Swimwear, plus-size fashion brand Taking Shape, emerging high-end fashion brand Set Agni, kids clothing brand Chloe & Amelie, and the popular fast fashion brand Hello Molly. Japan saw some exciting new launches as well, including the world-famous diary and stationery brand Hobonichi, the innovative sneaker brands of One & Only and Grounds, lingerie brand Amorphio, and others. Further in the region, We also launched with an additional Korean fashion brand called PSABI, as well as with the Hong Kong-based organic newborn clothing brand, The Wee Bean. During the quarter, we also continued to expand our activity with existing merchant groups, as we went live with three new maisons from the LVMH group, jewelry brand Repossy, and the fashion brands Emilio Pucci and Patu. We also went live with the UK luxury brand Pour Des, which is part of the Richemont group. These are just a few select examples, as we are once again headed towards a record year in terms of new bookings. And with 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 e-commerce. Moving on to additional elements of our strategic roadmap, we have continued to expand our strong partnership with Shopify across all domains. On the third-party side, our 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's 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 for Shopify Markets Pro, which was successfully launched into general availability for US merchants in September. Markets Pro has been well received by the Shopify merchant community, and we believe it will be the primary driver for merchants who want to expand their 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 Shopify's teams to further enhance the set of capabilities available to these merchants. and to enable Shopify Markets Pro 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.com, which will allow relevant merchants to accept cryptocurrencies as payment methods in the checkout. Other notable examples would be our improved support for long-term product pre-orders via payment card tokenization, and our recently added capability to support orders which contain 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 live testing, onboarded by means of our newly developed, easy-to-use plugin for Wix-based merchants, ensuring a 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, as is evident from our consistent cash generation and adjusted EBITDA hypergrowth. And with that, I will now hand it over to Ofer 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 who have expressed support and empathy vis-à-vis the murderous attack on innocent civilians we experienced on October 7th. As for our Q3 results, While our top line results came in slightly below our guidance range, driven mainly by softer consumer demand in September, our business model continues to demonstrate its robustness. As Amir stated, we believe that in the coming quarters, growth will accelerate, supported by the rapid growth of Shopify Markets Pro, the continued expansion of the globally enterprise business, and the improvement of consumer sentiment we have witnessed since late October. In parallel, we have witnessed in Q3 a continued improvement in our bottom line results, with adjusted EBITDA coming in above the guidance range. I'd 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 the reconciliation between GAAP and non-GAAP results, can be found in our earnings release. As said, our rapid growth in GMV continued in Q3, with $839 million of GMV generated on our platforms, an increase of 35% year-over-year. The growth pace was slightly lower than our guidance range, driven by a decrease in same-store sales starting 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 year. Service fee revenues were $62.4 million, up 31% year over year, and fulfillment services revenue were up 23% to $71.2 million. While service fee take rates increased compared to Q2, Fulfillment take rate continued 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 Pro, the continued 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 margin 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 the Shopify Markets Pro 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 spend in Q3 was $24.9 million. We also continue to invest in sales and marketing to support and expand our pipeline while maintaining efficiencies. Sales and marketing expense excluding Shopify-related amortization expenses, stock-based compensation, and acquisition-related intangibles amortization was $12.9 million, or 9.6% of revenue, compared to $9 million, or 8.5% of revenue, in the same period last year. 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 5.9% 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 of 25%. Although our top line results are slightly under our guidance range, our business model continues to demonstrate its resilience. Adjusted EBITDA totaled $22.1 million, growing 76% year over year, representing a 16.5% adjusted EBITDA margin, compared 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 to the transaction-related intangibles. Switching gears and turning to the balance sheet and cash flow statements, we've ended Q3 2023 with $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, compared to half a million dollars used a year ago. Moving on to our financial outlook and guidance for Q4 2023, and our updated 2023 full year guidance. For Q4 2023, we're expecting GMV to be in the range of $1.125 to $1.175 billion. At the midpoint of the range, this represents a growth rate of 37% versus Q4 of 2022. We expect Q4 revenue to be in the range of $178 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 GMV to be in the range of $3.49 to $3.54 billion, representing 44% annual growth at the midpoint of the range. Revenue is expected to be in the range of $563 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 $94.1 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 with that, Amir, Nir, and I are happy to take any of your questions. Operator?

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. We ask that you limit yourself to one question and a follow-up so 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 with Morgan Stanley. Please proceed with your question.

Hi, everyone. It's Michael in Fontana for James. Thanks for taking our question. Given Shopify's commentary and your commentary on MarketsPro, 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 the 4Q outlook. Thanks.

Hi.

Thank you for the question. As we mentioned during the call, What we saw is a weakness in same-store sales growth that came mainly from consumer sentiment in Europe and also from the luxury segment pretty much across the board. This was also, in addition to that, was also a shift in our own mix towards merchants that are using our multi-local offering, which inherently has a lower fulfillment take rate. So these were kind of the main factors that impacted. that figure. As we mentioned, also, if we look forward towards Q4 and onwards, since late October, we did see some positive signs and reversal of these trends with an improvement in same-store sales. So we do believe that in the coming quarters, growth will accelerate. And that combined with the growth in Shopify Markets Pro and our strong enterprise pipeline gives us the confidence in the dynamics going forward.

Got it. That's helpful. And maybe just on the near to medium term outlook for net dollar retention, how are you thinking about the persistence of this 130% level over the medium term. The thing I'm thinking through is, is it more reasonable to assume that as new merchant GMV grows, given the market's pro ramp, will the mix of your revenue cause some NDR degradation? And if so, by how much?

So looking into this year, to 2023, As we said, we did see some softness in September and the first part or most of October, and that is reflected in lower same-store sales. However, we still think that in 2023, we do expect our annual NDR to be close to 130 as we 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 NDR will remain close to 130% next year as well. And as I said, this, along with our strong enterprise pipeline and the growth of 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 first, just following up on Shopify Markets Pro, can you help us understand maybe how you're thinking about the GMV ramp in the fourth quarter? And I think Shopify has mentioned in the thousands in terms of initial customers and maybe what kind of month over month momentum you've seen since since the go live in september and i know we don't want to get carried away but just understanding maybe what the early momentum looks like and maybe what kind of gmv you're assuming in let's call it the first few quarters just to think about trends and i have one follow-up hi samad thank you for that um

As Amir mentioned on the call, Shopify Markets Pro achieved a significant milestone in Q3 after almost two years of development for both our team and the Shopify team and is now generally available for merchants in the U.S. Since then, we have onboarded, as Harley mentioned, thousands of merchants who are now able to sell internationally in a simple and seamless way. Given the fact that MarketsPro became generally available only late this quarter, the contribution in Q3 is actually very, very limited. However, we do expect significant contribution to our growth next year and the coming years, 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, Wix is obviously another large platform with a lot of e-commerce stores. I'm curious maybe how we should think about the ramp there. I know it's just the very first pilot customer, but any way you can maybe quantify what the size of that is and how should we think about the economic relationship there versus something like a Shopify just to maybe help us to frame the opportunity?

Sure. Then we did, as you mentioned, launched a first pilot client, which is very, very early days in order to speak about the expectation on commercial uplift to come out of it. But we did build a very robust integration in partnership with the Wix team. The relationship with Wix is quite close to what we have with most platforms, such as Salesforce Commerce or Hybrid or others, in the method of partnership and work. We do expect it to contribute towards growth in 2024. I think we don't expect it to be as It's the same effect that we would expect from Shopify Markets Pro. It's not the same scale, but we do expect it to give us some incremental growth.

Great. Thank you. And wishing you and the whole Globally family well with everything going on. Thank you very much.

Our next question comes from Scott Berg with Needham & 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, 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 kind of bookings, new customer wins here in the quarter and maybe year-to-date versus your expectations?

Okay. As we see it in our numbers and in our funnel, we remain on track to achieve our annual target for new bookings, which will make 2023 a record year for us. We haven't seen any notable changes in the time it takes to either sell the sales cycle itself or to onboard the client, so we're quite optimistic. on the contribution of our enterprise funnel towards 2024 onwards. In terms of the additional factor, which is Shopify Markets Pro has stated it was launched into general availability in the US in September. Since then, we've started to see really nice adoptions. to date with thousands of merchants that actually activated the solution. And we do accept it 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 the modestly changing same source sales environment maybe negatively or even positively impact your ability or your customer's desires to make sure your solution is implemented before the starting holiday selling season. Thank you.

Sure. Then typically, as you mentioned, we do see late October, early November, a push from clients to actually go live pre-peak to enjoy the localization and the extra services we provide. during peak period. This goes the same for this year. We have seen dozens of clients that actually launched with us in the last few days prior to the code freeze that us as well as the merchants imposed for peak trading. We do expect maybe two more days of launches and then it would go into the quiet period in terms of launching. and the focus would go into the peak trading. However, we are very happy with the launches, with the sales cycle, as well as the onboarding to launch, and the dynamic, the multi-era dynamic, we haven't seen any changes, though. The change we've seen, and Amir and I spoke about, is actually within same-store sales, which is much more affected by consumer sentiment.

Our next question comes from Alex Topher with Goldman Sachs.

Please proceed with your question.

Hey, everyone. This is Alex on for Will. Congrats on the launch of MarketsPro 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 GMV size, cross-border mix, and the popular verticals you're seeing getting adopted. And then my follow-up, can you just talk about how much of the lower fulfillment take rate, uh, in the last couple of quarters has resulted from multi-local adoption versus sort of the mix shift towards standard shipping, uh, from express. Thanks.

Hi, Alex. It's near. I'll take you. I'll take the first question related to a Shopify markets pro. Uh, as you mentioned, it's still early days. Um, for the adoption of the solution. But the early adopters, as we see them, on average would be smaller in size than what we see on our enterprise solution, as we expected. So it's much easier to onboard many more clients than what we can onboard in a certain time period on an enterprise platform. However, they are much smaller in scale. For the second part of your question, I'll refer it to Ofer. Thank you, Nir.

So in terms of the fulfillment take rate, the higher share of impact is from multi-local adoption. Actually, a lot of it is from merchants that have already onboarded a year ago and are growing with us. And from time to time, we do launch an additional merchant that prefers to work based on this method because they are large and they have global inventories that they can utilize. And the remaining is from a certain shift from express to standard, as you mentioned.

Got it. Thank you very much. Thanks, Alex.

Our next question comes from Kunal Madukar with UBS. Please proceed with your question.

Hi, thanks for taking my questions. Our thoughts definitely go out to you guys that are sitting in a war zone, especially after the tragedy. One, on the weakness in Europe and in the luxury, Can you help us understand how big of an exposure you have to luxury and then to European consumers? And then I have a follow-up.

Hi, thank you for the question. It's Ophel. Basically, we grew during COVID very fast with luxury brands that have adopted direct-to-consumer products once they understood that physical stores are closed and we grew very fast. As you know, we have quite a few LVMH brands. We did launch additional three this quarter. Luxury is a wide definition, but currently it's approximately 25% of our GMV. Regarding Europe, Europe is a large inbound market and it's approximately 30% of our inbound sales.

Thank you.

And then as we look at your marketing efforts on behalf of Shopify Markets Pro customers, Is there an opportunity for take rate expansion if you start offering them marketing services with some spread?

Yeah, so I'll just clarify on the difference between Shopify Markets Pro and our enterprise business. On Shopify Markets Pro, there is no marketing efforts from the global east side, not on onboarding the 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, of course, is with the 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 border-free acquisition capabilities into globally, which is still undergoing on the marketing side. However, we see a nice adoption and growth already at the early stage. So we did on the back of those capabilities on board a couple of large merchants into our managed service capabilities. We did launch additional 10 merchants that are using our marketing services to increase brand awareness and demand generation worldwide. So we see, I would say, the early innings of adoption. Over time, we do expect that, as we guided in the past, that over time we do expect it to give us some extra margin on the take rates, but it will take a few quarters to realize that.

Thank you so much.

Thank you very much.

Our next question comes from Brent Breslin 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, Amir, I wanted to go back to same-store sales 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 it a handful? Any additional color you could give us around same-store sales and magnitude of the slowdown you saw there with some of those luxury brands would be helpful. Thanks.

Sure. Thank you, Brent, 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 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, Ofer, as a follow-up, if I look at Q4 here, obviously it came in a little light because of the macro, same source sales, 35% GMV growth in Q3. You're guiding to 37% growth, so actually an improvement in GMV growth in Q4. Obviously, the macro is getting worse. Data points suggest Things are getting more challenging. 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. MarketsPro could help. I don't know. But could you double-click into what gives you confidence GMV growth is going to actually improve in Q4, even with some of the challenges out there and call it 25% exposure to luxury?

So, thanks, Brian, for the question. Well, as mentioned, we have seen a certain slowdown in same-store sales, mainly around luxury and in Europe 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 Market Scroll, which will start contributing already in Q4. It's ramping up, but as mentioned, we do have a large number of merchants on it, smaller merchants, but still it will contribute into Q4 and contribute more significantly into 2024. 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 sentiment since late October, going actually up to this day, to 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.

It's great to hear from you, and best wishes to the GlobalEat family in these really challenging times. Ofer, or Amir, I wanted to follow up maybe on Brent's last question. that you've seen some encouraging signs and 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 based trends kind of outside of that? Uh, 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 and what you've seen over the last few weeks.

So, so over, thanks Brian for, uh, for the question. Um, And what we have seen is a general improvement. We have seen improvement out of Europe as part of the general improvement, and less improvement in luxury, limited improvement around luxury. But all in all, the numbers have bounced back. So it's a three-week period, but we need to wait and see what happens through the peak. But we have seen a general improvement with Europe as part of that.

I appreciate the perspective. Maybe just on border-free, I'd love to get an update on the progress there in expected synergies and And as you kind of talked about that enterprise as a reason for accelerating growth in coming quarters, is border-free included in that? Just want to make sure I get an update on what's going on with border-free. Thanks, guys.

Sure. Thanks, Brian. It's new. As we mentioned in the past, we did extend the period for border-free clients to migrate over to the globally platform. But over this quarter, we managed to start onboarding clients into Globally already. I can say that we see positive signs there. Trading for clients that actually migrated from the border-free platform to 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 2024, this will have positive impact on the same store sales of border free that is currently on the border free platform, I would say, not as good as what we see globally.

Our next question comes from Koji Akita with Bank of America. Please proceed with your question.

Hey, Amir, Nir, and Ophira. Thanks for taking the questions. I wanted to dig in on the fulfillment take rate and how to think about this metric going forward. In the quarter, take rate was about 8.5%, and I realize you did call out the kind of the multi-local and the standard shipping, so I really appreciate the color there. But also thinking about, I do recall in prior quarters, sometimes smaller box, high-value products, can drive fulfillment take rate lower, and then layering on the ramp of MarketsPro on top of that. The question here is, how should 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, Jim. I'll start from luxury. As we mentioned, it wasn't a great quarter for luxury, so that didn't have any negative impact on fulfillment take rates. Going forward, and as we mentioned, the main drivers were multi-local and also some shift from express shipping to standard shipping. Going forward, we do expect stabilization, maybe a slight improvement going into next year, into the first quarter. But all in all, if we look to 2024, and again, we are working on the budget currently, but we do expect take rates to stay high. relatively stable throughout 24 with some volatility between the quarters.

Our next question comes from Maddy Schradt with KeyBank Capital Markets. Please proceed with your question.

Hey, guys. Just wanted to maybe keep on the fulfillment take rate subject. Wanted to know if any of the consumer weakness kind of also resonates with shipping speeds and shipping take rates. You know, just wondering if we would maybe express or expect less express shipping in the holiday season this year maybe compared to last year. Thanks.

Yeah, I think you're perfectly right that there was some effect related to consumer sentiment and the higher growth of standard shipping versus express we've seen in Q3 and as we've seen shoppers, mainly in Europe, trending more towards a standard with increased standard share in the mix. However, when we go into Q4, especially for peak period and into Christmas sales, consumers are much more concerned with the time it will take for the package to arrive. A lot of it is gifting. especially if we speak about Christmas shopping, we don't expect to see this trend continue. As we do give some warnings in the checkout prior to Christmas to alert about higher transit time in standout, usually we see a shift back towards express, so we don't expect this to continue.

Okay, great. And I think we've heard from some other e commerce players that they're kind of expecting bigger discounts this holiday season from the retailer. So just wondering what your guys's expectations are in terms of maybe discounts from retailers and maybe lower cart sizes than typical things.

So within September, October, we did witness some lower AOV on average. It was driven by, I would say, a reduction in luxury, but also with smaller baskets in Europe, the combination of both yielded on company-wide a bit of a reduction over average order value. Okay. And we do expect some of it to translate into lower baskets within PIC. We did and we do discuss, especially with some of our larger brands, our plans into PIC. And some of it is based on heavier discounting than last year. All in all, we don't think it would be a major effect. And the early signings of PIC 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 Walravens with JMP Securities. Please proceed with your question.

Oh, great. Thank you. I mean, so Amir, putting it all together, what are the top one or two things that you feel, CEO, you need to get done, you know, for 2024? And as part of that, does the Shopify agreement still expire in April 2024 with automatic renewal? Is that still how that works?

Thanks, Pat. I'll start with the second one. As we mentioned, the agreement was extended for another year. The original agreement was a three-year initial term, which indeed ends in April of next year, but it also had an auto-renewal mechanism that kicked in, so it was renewed and it's now until April 2025. So that's regarding the Shopify agreement. In terms of priorities for next year, I think it's pretty clear for us. We have our core set. We believe very firmly in our ability to continue executing on all our strategic vectors. So it will be making sure that we continue the strong push of our funnel into actual deals and getting the many merchants that we have signed and in integration, getting them live as plans. And in parallel, growing Shopify Markets Pro together with Shopify and extending our reach to additional markets and to additional verticals as we stated. On top of that, we have quite a few strategic initiatives. We talked a lot about demand generation also in previous quarters and We have a few value-added services that are, say, longer-term in terms of their impact on the actual financials, but we believe they're important stones in the building that we're building and we'll continue to invest in these as future growth engines for the business.

Our next question comes from Mark with the Benchmark Company. Please proceed with your question.

Thank you and good afternoon. Two quick ones. You talked a lot about consumer sentiment improving and specifically in Europe, I'm curious what you attribute the more near-term snapback to and if there's any sort of correlation as you look at that snapback, if you will, to higher 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 try and understand if the macro gets a bit tighter, sort of how you think about flex you have on the expense side and where specifically you may have some flexibility there. Thank you.

Thank you for your question. It's new. So the softening we've seen coming in September and I would say kind of bouncing back or ending late October, we don't really have a good macro explanation to it as we didn't see a major shift in inflation or in current inflation or in inflation expectations in Europe. So I can't honestly attributed to something specific. However, we did see a change and changing back again. So hopefully, if the trend we've seen now will continue to repeat, I think we're in a very good position for year-end and the following quarters. And on that, we're optimistic.

Thanks Ian. I'll take your second question. In terms of expenses, we do have some flex, but actually what we are doing and what we have been doing over the last few quarters, even more than that, is actually preempting that and managing our operational expenses very tightly and making sure as we look forward to adding additional headcount. 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 with the lookout to the expected growth of the business to make sure that our revenues grow faster than our call space. So this is very actively managed by us on a day-to-day basis.

Okay, thank you. And maybe one last one. Just when you talk about you mentioned you expect Shopify Argus Pro to be a significant contributor next year, albeit not quantifying that. Yet, 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 Markets Pro, it caters for virtually all of Shopify merchants, so it's not limited to plus merchants. Any small merchants on the Shopify platform that is interested in international or doing even small amounts in international can actually subscribe to the service and turn it on. It's simple. And actually, we will see a much broader adoption than outside plus. We do believe it will come significant even if the adoption rates aren't very, very high, you will see a very significant contribution. We need to recall that Shopify cross-border reported GMVs around the $30 billion mark. If we are able to cater for some of it also through the Shopify Markets Pro, it is a nice growth rate for globally on top of our current growth.

Our next question comes from Zachary Dunn 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, I think it's the second sequential quarter of the take rate declining, and that decrease actually accelerated. So, you know, last quarter, you said you expected to stay stable in the back half with some upside from value-added services. So, I guess my question is twofold. Is that take rate coming in lower because of weaker demand from value-add services? And then just two, how should we think about that take rate going forward? Should we expect it 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. 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 there is some additional upside, but as I mentioned previously, going into Q4 next year, we do believe that it should stay stable. And again, maybe some upside on the service fee side.

There are no further questions at this time. I would now like to turn the floor back over to Amir 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 as we continue our rapid path to conquer this market. So until next time, goodbye to you all and take care.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.