Founded in 2013 and recently having gone public in May 2021, Global-e Online's (GLBE 0.57%) mission is to make global e-commerce border-agnostic, offering its clients a worldwide reach with a localized shopping experience. Through its volume-based sales model, Global-e earns revenue in two ways: service fees and fulfillment services. Service fees are simply what the company receives for integrating its platform into a merchant's sales system, while fulfillment services revenue comes from its shipping and handling offerings.
Essentially, the company simplifies the numerous intricacies of selling products internationally; language differences, currency changes, country-specific tax policies, and localized pricing adjustments are just a few examples. By doing the leg work for its merchants on these various fronts, Global-e increases their international sales success rate by 60%, highlighting how valuable its services are.
In just over seven years, Global-e has grown its gross merchandise volume (GMV), or the total amount of goods sold through its merchants, to $326 million as of the second quarter of 2021, leading to revenue of $57 million over the quarter. However, with a target addressable market (TAM) of $736 billion according to the economic research firm Forrester's 2023 cross-border e-commerce sales forecast, the company's growth story is just beginning.
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Two trends powering Global-e's stock
Along with the overall movement toward online retail, Global-e has two mega-trends squarely backing its operations: merchants shifting their focus toward direct-to-consumer (D2C) sales and the growing interest from small and medium businesses (SMB) in selling globally online.
Regarding D2C, Global-e empowers businesses of all sizes to take ownership of their online shopping experience with their customers. This removes many physical retail risks and governmental and local complexities that a merchant would normally face as they expanded internationally. Furthermore, with social media driving brand power more than ever, companies need to perfect their shopping experiences to build prestige, and Global-e simplifies this process beautifully.
On the SMB front, Global-e is entering somewhat unchartered waters, allowing it to tap into a market with huge flywheel potential as it grows. This flywheel potential comes from making new sales using the Global-e's interface, giving the merchant insights into what products or pricing work best. Without Global-e's integrated platform, even a single international sale is wildly complex for a small business owner, who needs to sort out currencies, account for tax policies, figure out shipping and handling, and more. Taking this one sale and multiplying it by hundreds of orders throughout hundreds of potential countries, the task becomes far too complicated for an entrepreneur on their own. Global-e makes it possible, giving the merchant additional sales and precious insights into its global customers, as each incremental sale grows its database of customer information. These insights ultimately power Global-e's flywheel effects as its merchants gain valuable customer data, generating additional future sales potential.
Target addressable market and growth runway
As previously mentioned, Forrester estimates that by 2023, the TAM for cross-border e-commerce will be more than $700 billion, representing 500 times upside to Global-e's GMV target of $1.35 billion for 2021. Despite accounting for only a tiny fraction of this overall market share, the company actually has a leadership position in its space. As co-founder and CEO Amir Schlachet said during the first-ever quarterly earnings call, "we are the only cross-border enabler with a truly global footprint." Perhaps most importantly for investors, Global-e is the only publicly traded company in this space, giving us a truly unique investment opportunity.
While the company has grown GMV and revenue by 95% and 92%, respectively, year over year for the most recent quarter, it is far too early to begin looking at its bottom line when sizing it up as a potential investment. However, Global-e's gross profits rose at an even higher clip of 113% over the same time frame, with margins expanding to 36% from 32.4% one year ago. Overall, the company is hitting all the right notes from an early growth perspective; it will just be a matter of continuing this margin expansion as the business continues to mature.
An investor's next move
Buoyed by the globalization of SMB and the growing interest in D2C for brand-focused companies, Global-e is attractively positioned to capitalize on the continued rise of global e-commerce. Furthermore, regarding the company's TAM, investors may get the best of both worlds -- Global-e has both a first-mover advantage and a massive remaining market share. In addition, I will be watching the company's gross profit growth and gross profit margins very closely, as those are the two most important metrics in my mind for a company as young and growing as fast as Global-e. Finally, while the company has not announced its next earnings date, I will be watching for opportunities to add to my position, as the company looks "overvalued" by many traditional metrics.
