Flexport Shopify Join Forces - Term Sheet Digest
Flexport is back in the headlines after acquiring Shopify's logistics business, lets dive a little deeper to find out why Flexport is one of the highly traded stocks in the secondary markets.
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This Week’s Top Pick in the Secondary Markets
TLDR;
Flexport was founded to automate paper customs in 2013, today, it does more than that, the company moves commodities on behalf of small businesses like Shopify stores, modern companies (Warby Parker, Peloton), and established companies like Bridgestone and Gerber.
The company clocked in $5Bn in revenues last year and $3.2Bn the year before, it raised $2.4Bn in total funding, and its last round was a $935M in Series E, led by a16z and MSD Partners.
Flexport recently acquired Shopify’s logistics business, and its founder Ryan Peterson, recently moved away from day-to-day operation, leaving a former Amazon executive, Dave Clark, in charge as the new CEO.
Flexport is an $8 Billion logistics giant that owns no trains, planes, or ships. To be clear, you don’t expect a freight forwarding company to own logistics, but you don’t expect freight forwarding startups to be valued at $8 Bn either.
Another shocking thing about Flexport is the amount of capital raised - a freight forwarding company - which just coordinates the movement of commodities - has raised $2.4 Bn. The company clocked in $5 Bn in revenues last year and $3.2 Bn the year before - putting its fundraising and valuation in perspective.
IN A STATE OF CONFUSION
The company was founded to automate paper customs forms in 2013. Today it does so much more, Flexport moves commodities on behalf of small businesses like Shopify stores, modern companies (Warby Parker, Peloton), and established companies like Bridgestone and Gerber. In 2021, the company’s executives were a little confused when they beat their own internal projections and clocked in $37 Million in net profit. Flexport is more focused on growth, it is not expected to make profits in the coming years.
The freight forwarding industry as a whole is full of complexity and confusion. It is pegged at $182 Billion, and DHL is the largest market share holder with only 6% in market share. The majority of the market - 61% - is controlled by small regional entities, and none of them are in the top 20 biggest companies in the industry. In this industry with 1000s of moving parts, if any company can bring even a little visibility and structure, it is not going to struggle to get customers - exactly what Flexport is doing.
Customers choose Flexport not because Petersen reinvented the wheel but because its one-stop software suite simplifies their lives. Take San Francisco–based shoemaker Rothy’s, a Flexport customer since 2017. Flexport manages the shipping of 25 products from a factory in China to two hubs in California and Kentucky and offsets their carbon footprint. But it’s Flexport’s visibility tools that allow marketers and store managers to know when to expect new shipments that are really valuable, says Rothy’s COO, Heather Skidmore Howard.
ENGINEERING THE GLOBAL TRADE
Flexport took what was historically a services-heavy business and broke it out into both software and services. In the years since other freight forwarders have caught up to a lot of the digital advances Flexport introduced to the market, which have now become table stakes.
Flexport has brought technology to the party. Many incumbents have been slow to adopt technology, preferring phone calls and fax to contemporary tools. Flexport upended the space by building a large engineering team and creating a modern platform that offers visibility and control over the freight forwarding process. Flexport doesn’t just want to be the most cutting-edge freight forwarder. It wants to build a global trade platform that offers accurate, real-time data for the entire industry. It is a goal no less audacious than constructing a digital twin for the world’s supply chain. To get closer to their audacious ambitions, Flexport recently acquired assets of Shopify logistics, including Deliverr, an e-commerce fulfillment company that Shopify acquired last year.
PRICING THE GLOBAL TRADE
Pricing Flexport is a difficult task because there is no directly listed public market competitor or a business that closely resembles the scale of Flexport. There are incumbents like DHL, Kuehne + Nagel, Nippon Express, DSV, and DB Schenker Logistics, but their businesses and industry are so fragmented it's hard to predict Flexport’s potential based on the incumbents alone.
Unlike other tech companies in the downturn, Flexport valuation wasn’t cut by its investors. The pandemic and the supply chain issues the world faced were beneficial for Flexport, especially for Ryan Peterson - who became the face of the logistics industry due to the amount of attention the industry got during the crisis. Flexport was expected to be one of those companies that flourished due to the pandemic bump, but even after the pandemic, Flexport is flourishing, a new $900 Million round acquire a great business for cheap and $8Bn valuation during one of the worst periods of venture-backed startups.
Flexport is also one of the most traded stocks in the secondary markets, where somehow the increasing demand day by day is met with increasing supply. But, since its peak in November 2021, just like every other public and private company, its share price is decreasing - it went from $26 to $10 in most secondary marketplaces.
Although Flexport is expected to invest in its growth for a couple of years without worrying much about the profits, its growth also fell sharply to just 52% in 2022 from 154% a year before. Some of the credit for 154% growth will be going to the pandemic bump and increase in shipping prices due to the supply chain crisis, but a 100% decrease in growth raises the question about the sustainability of the business.
Another interesting change in the last year was Ryan Peterson moving away from the day-to-day operations of the company. In September 2022, Petersen and Dave Clark, formerly an Amazon executive, started a six-month period where they will be co-CEOs, after which Clark will remain as CEO, and Petersen will become the executive chairman.
Flexport has proved to be a true outlier in pretty much every single category of startups, most pandemic-supported startups have cooled down now and saw their valuation tumble - not Flexport. A product and engineering-driven outlier in the service-based logistics industry. All these factors make Flexport a great bet, and although Ryan Peterson is not well-liked in the logistics and freight forwarding industry - to say the least, his credentials, grit, and the product he built make him worthy of the recognition he seems to be getting lately.
TOP STORIES
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“THOUGHT LEADERSHIP”
Link to the tweet because Substack doesn’t let you embed tweets anymore.
LAST WEEK IN NUMBERS
$40Mn: Tiger Global is back in the headlines, but not for leading massive rounds in digital companies. It is planning to invest $40Mn in an Indian cricket team Rajasthan Royals, which is a part of the Indian Premier League’s franchise.
$3000: Apple is rumored to be releasing its much-speculated mixed-reality headset called “Reality Pro” in this year’s WWDC on June 5th, which is expected to cost around $3000.
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