Global-E Online (GLBE +1.02%) has had a volatile first year of trading. It IPOed in May 2021, and shares at one point rose 160% before falling back to 115% gains today. This means that -- like many other tech stocks -- shares are down roughly 33% off their all-time high.
With so much volatility and the fact that shares have doubled in less than a year, many investors might simply look away from this stock. However, I think that could be a mistake five years from now because the future for Global-E is incredibly bright. While there are some risks to the stock, I think that Global-E is a great stock to slowly buy today and hold for the long term. Here's why.
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A bright future
Global-E serves e-commerce companies looking to grow their international businesses. Unless you are a multi-billion dollar enterprise, expanding internationally can be very difficult. Not only are there language barriers, but there are also payment and currency barriers to entering a new country. Navigating these independently can be increasingly challenging, and processing payments and exchanging currencies is an area where a mistake is costly. This is where Global-E helps.
With experience and partnerships in 25 native languages, 100 currencies, 150 different payment methods, and 20 shipping providers, Global-E can effectively help any business expand internationally. The customer churn demonstrates how difficult and how needed Global-E is today. Since 2018, Global-E has consistently had less than 2% customer churn, showing that Global-E is extremely valuable to its customers. The company earns service fees based on its merchants' gross merchandise volume (GMV), so when its customers do better, Global-E does better.
The company's incentives allow for a complete focus on customer success, and this has resulted in impressive growth. In the third quarter of 2021, the company grew its GMV 86% year over year, resulting in 77% top-line growth for the quarter. What is especially impressive about Global-E is its impressive customer relationship expansion. Its net retention for the first six months of 2021 was above 140%, meaning that existing customers spent 40% more during that period than they did in the year-ago period.
The company has also landed a major partnership with Shopify (SHOP +3.77%). This partnership gives Shopify merchants access to Global-E's services. Many of Shopify's merchants are looking to expand internationally but need help growing their businesses, so Global-E will likely benefit immensely from this partnership.
There are always risks
While there are a lot of highlights with Global-E, there are always lowlights. The first is the company's unprofitability. In Q3, the company's net loss represented 48% of revenues for the period, and the company is right on the border of being free cash flow-positive. In the first nine months of 2021, the company's free cash flow was negative $9 million, but it generated a positive $5 million in Q3.
As an investor might expect with a company that has extremely low churn and is growing fast, the company's valuation is high. Even after the 33% drop from its highs, Global-E still trades at 32 times sales -- a nosebleed valuation for any investor. Additionally, while the partnership with Shopify is a great bonus today, it could also hurt them in the long term. Shopify is an innovative business that could potentially develop a competitive platform internally. Then, not only would it be a strong competitor, but it could immediately cut the relationship and gain lots of customers. Making a competing solution would be difficult, but if any company has the talent and money to do so, it is Shopify.
Where to go from here
Despite its risks, the low churn, heavy customer reliance, and rapid growth all leave me impressed. Because of this, I think the company is worth buying now, and Global-E was one of my most recent buys. However, the volatility could be a problem for many investors, so if you do decide to buy Global-E, it would be smart to do so in multiple small amounts. Dollar-cost averaging helps investors get into a stock at an average cost over a multi-month period rather than buying a full position immediately. This strategy would decrease the volatility of the stock, and it is what I am doing with my position.
The company is doing something extremely difficult, which makes the barriers to entry high. This provides some stability for the company. Considering that e-commerce is a rapidly growing industry, I would not be surprised if Global-E continues the success it is seeing today. Despite the volatility and the sharp rise in share price, I think today is a great time to buy Global-E.
