Shares of Global-E Online (GLBE -1.53%) got a nice bump on Feb. 16 after the company reported solid earnings as well as strong guidance. The company crushed estimates on the top line and improved its bottom line, and it projected continued strong growth through 2022.
Global-E is based in Israel and helps businesses expand internationally. The company has partnerships with dozens of payments and shipping providers across the world, along with experience dealing with hundreds of currencies and languages. These partnerships and connections allow Global-E to offer its expertise to make expansion into international markets smoother for businesses.
E-commerce companies have been hit hard recently by worries about inflation impacting consumer spending habits online, but Global-E is less affected by the U.S. economic turmoil. The company is also not heavily impacted by American inflation as much of its business takes place in Europe, but shares have been priced as if it is. The company has major growth opportunities ahead driven by one market that has potential for exponential growth, making this stock one to consider as it could be a bargain right now.
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Global-E is gaining adoption
The company's fourth quarter was strong. Its revenue jumped 54% year over year to $83 million, driven by gross merchandise volume (GMV) reaching $505 million, a 66% jump from prior-year totals. Global-E makes money when it helps make international product sales, so with just 2% customer churn and a 152% net retention rate, strong growth in GMV is likely to continue.
The company has also been rapidly improving its margins. The company's gross margins reached 39.5% in Q4, a six-percentage-point increase year over year. Major improvements on this front have also led to profitability getting a boost. On a GAAP basis, the company lost $22 million in Q4 -- but excluding warrants granted to Shopify as a result of Shopify merchants getting access to Global-E's products, the company's net income was $9.4 million.
The company's $21.5 million in free cash flow, which represents 26% of revenue, also looks strong. This means that for every dollar in sales it makes, it gets $0.26 in cash that it can reinvest back into its business.
The major opportunity for Global-E
One growth segment that stood out was its outbound revenue coming from the United States, a small but rapidly growing market for Global-E. Almost all of its revenue has come from Europe, but with businesses in the U.S. rapidly adopting its services, the company saw 108% growth in 2021 from U.S. businesses selling their products internationally. The U.S. is a major market opportunity for Global-E, and considering the company had just $71 million in revenue coming from the U.S. in 2021, it still has plenty of room to expand.
Global-E's expansion into the U.S. is coming at a volatile time for the U.S. economy and that could present some headwinds. If high inflation isn't brought under control and eventually hits spending for U.S. consumers, that could slow Global-E's growth in the U.S. If international customers slow their purchasing of products from U.S. businesses because of higher prices it could affect top-line growth. Short-term, this so far has not been an issue for Global-E as its revenue is predominantly coming from Great Britain and the European Union (roughly 70%).
Another sign that inflation may not be a huge concern is that Global-E has already shown that it can grow in inflationary environments. Europe's current annualized inflation rate is 5.1% (Great Britain is 5.4%) which is not much lower than America's 7%. And yet it has still been able to generate strong growth. And if the higher prices get absorbed into the economy, it would result in even stronger growth for the company as higher prices mean higher commissions.
Global-E is also making pushes into other countries. The company has been making efforts to expand into Australia -- where it already has its first merchant -- and Japan. Its partnership with Shopify also opens Global-E's services to merchants from 175 different countries.
The market ahead
The rise of small- and medium-sized businesses (SMBs) across the world is extremely prevalent. A study by DigitalOcean -- an SMB-focused cloud provider -- estimated that there are 100 million SMBs globally today, and that figure will grow by 14 million annually. Most SMBs do not have the capabilities in-house to build the relationships that Global-E can on an outsourced basis, making these smaller customers Global-E's primary customer base. As the company continues to expand internationally and in the U.S., the company could grow like gangbusters alongside the SMB market at large. The company is backing up this idea with guidance for almost 70% revenue growth for the full-year 2022.
Shares of Global-E admittedly look expensive right now at 23 times sales, but if the company can continue expanding internationally and in the U.S. in 2022, it should quickly grow into these valuations making the stock price look more than reasonable. And at these growth rates, shares could be wildly undervalued compared to a decade from now.
