Shares of Global-E Online (NASDAQ: GLBE) have been hammered since September, dropping around 60% since then. Global-E helps small and medium-sized enterprises (SMEs) grow internationally by helping them overcome barriers to international e-commerce, and the company has seen incredible growth in its last quarter. However, the shares have not fared as well as the company’s finances might suggest.
Global-E hit a high of $80 per share in September after rising rapidly since its IPO in May 2021, but sits at $34.91 per share at the time of this writing. Global-E is seeing rapid growth and impressive adoption from existing customers, but is that enough to bring the company back to all-time highs by the end of 2022? Let’s find out.
The cause of the fall
Global-E has been caught in the middle of the tech sellout that has taken place over the past few months. The tech-heavy Nasdaq The index has fallen nearly 18% from its highs, and many other high-growth companies have fallen further. This wide swath of stocks fell in large part because of the Federal Reserve’s plans to raise interest rates to fight inflation in the United States.
Global-E’s valuation was also extremely high at the start of its fall. In September, the stock was valued at 50 times sales, an astronomical price even for a service provider for e-commerce businesses. Risk (NYSE: RSKD), another e-commerce service provider, traded at just 24 times sales in September. Now it is trading at 19 times the sell, which is still high from Riskified’s current level of 5 and could fall even further in the coming months. The company got this high valuation because shares jumped more than 160% in less than six months after its IPO.
While inflation concerns have hit the growth-oriented tech sector hard, they have hit Global-E stocks particularly hard. Since the company operates in the field of e-commerce and the price of goods sold by its customers increases in line with inflation, some investors are concerned that Global-E will experience slower growth as interest rates rise. interest increases and e-commerce activity potentially decreases. It could also negatively affect the company’s gross margins. Global-E earns money through the growth of its customers’ sales, so if its customers earn less money but use Global-E’s services for the same amount, Global-E will receive less revenue for an amount similar of services provided. However, this has not yet taken place. Global-E gross margins increased from 30.7% in the third quarter of 2020 to 38.6% in the third quarter of 2021.
Why I love Global-E
Despite concerns about Global-E’s short-term prospects, the company’s long-term future is bright. It has become a must-have product for companies of all sizes wishing to expand internationally, which can be a difficult undertaking when a company tries to do so independently. When expanding internationally, there are many hurdles and sticking points between a US-based company and an international customer.
Global-E helps businesses minimize these frictions with the partnerships and connections it has cultivated with various payment processors, language systems, shipping providers and currency systems around the world, enabling a business to trade national electronics to easily sell its products to international customers. .
The alternative to using Global-E to resolve these frictions is to develop partnerships, experience and knowledge internally – a time-consuming and costly process. This is an especially tough business for SMBs, which is part of the reason the company only has a 2% churn rate.
Global-E makes money on the Gross Merchandise Volume (GMV) of e-commerce customers, so when customers do better, Global-E does better. If the company does a good job of helping its customers expand internationally, it will see revenue growth and a net increase in retention rate – both have happened. In Q3 2021, the company reported revenue growth of 77% to $59 million, and its net retention rate consistently exceeded 140%.
Global-E has also developed a strong relationship with Shopify (NYSE: SHOP). The partnership gives the company a stake in Global-E in exchange for opening Global-E’s services to Shopify merchants. This partnership is extremely beneficial: Global-E now has access to over 1.7 million SMEs, many of which are looking to expand overseas.
In Q3 2021, the company lost $28 million, but its free cash flow was positive for the period. Global-E generated $5 million in free cash flow during the same period. Combining that with the fact that the company has over $391 million in cash and no long-term debt, its loss shouldn’t be a major concern for investors as long as it’s at this stage of growth. .
Will Global-E reach $80?
With shares at 60% of their all-time highs, the company is expected to jump 147% to $80 per share. Given that the average annual return of the broader stock market is around 9%, the idea of 150% growth for Global-E is unlikely given the headwinds it will face in 2022.
However, if investors have a time horizon longer than a year, the likelihood of hitting and even surpassing these all-time highs seems much better. Due to the company’s strong product and loyal customer base, I think it’s more than reasonable to assume that the shares could reach and likely surpass their highs over the next five years. Long-term investors might consider buying stocks at these lower prices.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.