As we've all learned this year, e-commerce is now an essential tool for almost every retailer. There are many benefits to using e-commerce for your business, but the biggest might be the capabilities to sell to anyone in the world, as long as they are also connected to the internet. However, selling goods internationally can be difficult for most retailers due to local taxes, language barriers, and currency translations. The recently IPOed Global-E Online (GLBE -0.97%) is looking to help retailers solve this problem with its end-to-end cross-border solutions. But does Global-E Online have what it takes to be a top-performing e-commerce stock like Shopify (SHOP 1.26%)?
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What is Global-E Online?
Global-E Online helps other merchants easily sell goods to international customers. It acts as the "merchant of record" for the companies, handling all the complications of selling from one country to another. This includes handling local languages, local import taxes, currencies, and deliveries for its retail partners. As a retailer, building these solutions would be very difficult on your own. However, since most of the processes are the same no matter what you are selling, Global-E can build these software solutions once and sell them over and over to retailers who want them.
It currently has 440 merchants using its tools including Forever 21, Hugo Boss, and Versace. Right now, it mainly operates in the United Kingdom, United States, Europe, and has small operations in Israel (where it is headquartered). It plans to expand to as many countries as possible. This expansion will be important because the more countries and tools it adds to its platform, the higher the value proposition it is to become a Global-E Online customer.
In 2020, Global-E had $773 million in gross merchandise volume (GMV), which is the number of dollars flowing through its platform. This was up 103% from 2019. Revenue grew 107% year over year in 2020 to $136.4 million. Global-E is breakeven from a profitability standpoint, but it is seeing gross margins expand. For example, in 2020 gross profit grew 133% to $43.47 million and gross margin expanded to 31.9% from 28.3% in 2019.
Partnerships with Shopify and Facebook
To expand outside of just large merchants, Global-E Online has partnered with two of the biggest e-commerce platforms in the world: Shopify and Facebook (META 0.14%). With Shopify, all merchants on its platform can use Global-E Online's services to help ease any woes with international transactions. The partnership just started this April, so time will tell if it can help grow Global-E's GMV. With the partnership, Shopify and Global-E will share a cut of GMV, which will lower Global-E's take rate. Global-E also gave Shopify a large ownership stake in itself, around 5% of its outstanding stock. On top of this ownership, Shopify owns 11.85 million warrants that enable it to purchase more shares in Global-E over the next two years. The partnership with Shopify can help Global-E grow its business, but it had to sacrifice a lot to make it happen.
The Facebook partnership is more straightforward. Merchants using Facebook for Business can access Global-E to help their businesses go international. It is unclear what sort of agreement Facebook and Global-E Online have, but it is likely Facebook will share in Global-E's take rate just like it does with Shopify.
So is it the next Shopify?
Global-E is a fascinating business that is solving difficult problems merchants have when selling items internationally. But the stock does not look like the next Shopify, or in general, something that can materially outperform the market like Shopify has this past decade. This mainly comes down to the stock's sky-high valuation multiple. At a market cap of $8.8 billion, Global-E Online trades at a lofty trailing price-to-sales ratio (P/S) of 56 -- and that is before considering the dilutive warrants that Shopify owns and the 12.5 million stock options outstanding owned by Global-E employees. The business is growing rapidly, but with this extremely high valuation, Global-E looks like far from the next Shopify.
