It is important that long-term investors give little thought to short-term analyst price targets because predicting where a stock is going to move in just one year is similar to flipping a coin. However, Goldman Sachs analyst Will Nance has an aggressive price target on Global-E Online (GLBE -2.15%) of $89, implying 210% upside from today's price of $28.70. When an analyst estimates that a stock is going to grow this much, it might be smart to pay attention to the company in question.
Unlike many initial public offerings (IPOs) that came public last year, Global-E's shares are currently above their IPO price. They are, however, down almost 65% from their all-time highs set in September 2021. It is unclear how the stock market or Global-E's stock will perform in the short term, but this optimism warrants a look at the company to see if it can be a winner over the longer term.
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Why the stock is falling
Global-E provides services that make it easier to sell internationally, where there are multiple difficulties for e-commerce businesses. A company faces many barriers -- like language, payments, logistics, and tax or legal hoops to jump through -- when selling goods in another country. Many businesses do not have the expertise the maneuver these alone, which is where Global-E assists. It has partnerships with more than 20 shipping providers and experience with over 25 languages, 150 payment methods, and 100 currencies to ease these troubles.
There are a few potential reasons Global-E's share price has not followed its operational success. First, shares have been trying to swim upstream since it came public. The Nasdaq Composite index is down more than 20% from its all-time highs set in November, and Global-E is a small-cap stock, which are typically more volatile than the broader stock market.
The company's valuation was previously at sky-high levels as well. It traded at 50 times sales at its peak, a high valuation that had plenty of room to compress. Now, the company trades at just 15 times sales -- a much more appealing valuation.
Another potential reason could be the political conflicts with Russia and Ukraine, along with the fear from investors that this could spread into Europe at large. Global-E made 23% of its revenue from European Union countries in 2021. If the war gets worse and Europe is impacted, that could slow economic activity and hurt Global-E.
Why it could be a winner
That being said, there is a lot more to like about the business than there is to be concerned about it. The company has seen rapid adoption from consumers selling much more today with Global-E. Gross merchandise volume grew 66% year over year in the fourth quarter to $505 million, and that drove revenue growth of 54% over the same period to $83 million.
Importantly, Global-E's customers are sticking around and increasing their spending. The company touted just 2% customer churn in 2021, and its net retention rate was 152% over the same period, meaning that customers from the year-ago period are now spending 52% more today. With such little churn, the company could increase the percentage of every transaction it takes, which it has been doing. Global-E's take rate for its service fees -- which include everything except fulfillment -- increased to over 7%, and its overall take rate is expected to be roughly 16.7% in the first quarter of 2022.
Global-E is just getting started
The company did post a net loss in 2021 of $75 million, but that was primarily due to a negative impact from Shopify's warrants due to the company taking a stake in Global-E. Excluding those, Global-E would have had a net income of $9.4 million for the year. Additionally, the company's 2021 free cash flow reached $13 million, and management is looking to use this cash to continue its growth.
One of Global-E's major growth opportunities is in the U.S. In 2021, only 29% of revenue came from the states, but this could expand in the coming years. Revenue from U.S. merchants shipping internationally grew 108% year over year in 2021, and if the company maintains similar churn and retention figures, U.S. merchants could become a large portion of revenue.
Global-E has so many levers it can pull to expand its growth, which is likely why this Goldman Sachs analyst has such high hopes. The company's growth could easily continue if it can keep increasing its take rate or gain a strong brand name and expand internationally. With all of these tailwinds, I think the long-term future of the business is bright, and the price dip is giving investors a great buying opportunity.
