In 2021, consumers worldwide spent $4.9 trillion shopping online, according to eMarketer. That figure is expected to grow at 10.6% per year to reach $7.4 trillion by 2025. But even then, e-commerce sales will account for less than 24% of total retail sales, leaving a long runway for growth.
Businesses like Global-e Online (GLBE -1.45%) and Shopify (SHOP 3.42%) are well positioned to benefit from that trend. And with both of those stocks down over 55%, now looks like a good time to buy a few shares of each.
Here's what you should know.
Image source: Getty Images.
1. Global-e Online
Global-e is on a mission to make cross-border e-commerce easier. Its platform supports dozens of languages, currencies, payment methods, and shipping carriers, helping merchants localize their digital storefronts on a market-by-market basis. In turn, that helps them engage international buyers more effectively and boost conversion rates, often by more than 60%.
Global-e benefits from a network effect. It facilitates transactions across 200 markets, generating a tremendous amount of market-specific data in the process. The company uses that data to surface actionable insights for merchants, helping them tweak their content to better fit the tastes and preferences of international buyers. That flywheel has already been a powerful growth driver, and it should only get stronger in the years ahead.
In 2021, Global-e's gross merchandise value soared 87% to $1.4 billion, and the average merchant spent 52% more, evidencing the stickiness of its platform. As a result, revenue rose 80% to $245.3 million, and the company generated positive free cash flow of $12.8 million. More importantly, Global-e is well positioned to maintain that furious growth rate.
Forrester Research values the cross-border e-commerce market at $736 billion by 2023, a figure that's 500 times bigger than the $1.4 billion in sales facilitated by Global-e last year. But the company's founder-led management team is working hard to capitalize on that opportunity.
Of particular note, Global-e has partnered with Shopify -- the market-leading e-commerce software platform, according to a recent G2 Grid Report -- making it the exclusive third-party provider of cross-border solutions for Shopify's 2 million merchants. That partnership could turbocharge growth for both companies.
More broadly, Global-e clearly creates value for its clients, as evidenced by the uptick in spend per merchant. Likewise, with a price-to-sales ratio of 19, the stock doesn't look that expensive after Global-e's monster financial performance in 2021. That's why I think it's worth buying a few shares of this beaten-down growth stock.
2. Shopify
Shopify simplifies e-commerce. The company provides hardware and software to help merchants manage sales across both brick-and-mortar and digital storefronts. And it supplements those products with value-added services like payment processing (Shopify Payments) and financing (Shopify Capital). Merchants can also access over 8,000 integrations through the Shopify App Store, such as tools for marketing, payroll, and customer service.
In short, Shopify provides businesses with all the tools needed to grow their brand across a variety of channels. That differentiates it from Amazon, which pulls third-party sellers onto a common marketplace, then uses data generated by its marketplace to compete against its sellers.
Amazon still dominates the U.S. e-commerce industry, but Shopify is the second-largest player. It captured 10.3% market share in 2021, up from 5.9% in 2019.
As a result, Shopify has been a financial machine. Revenue surged 57% to $4.6 billion in 2021, and free cash flow rose 18% to $454 million. Moreover, gross payment volume accounted for 49% of gross merchandise volume last year, up from 45% in 2020, and Shopify extended $324 million in credit to its merchants in the fourth quarter, up 43% from the prior year.
That means more clients are using value-added services like Shopify Payments and Shopify Capital, making its platform even stickier. Put another way, the more a merchant relies on Shopify, the harder it is to cut ties with the company and switch to a new vendor.
Despite those impressive results, investors weren't thrilled with the company's guidance. Management believes revenue will grow more slowly than 57% in 2022, though it still expects to grow more quickly than the broader e-commerce industry. Personally, that information makes me more bullish. The pandemic supercharged e-commerce sales over the last two years, and some deceleration is natural.
But if Shopify can still outpace the industry, it will continue to gain market share. And with shares trading at 20 times sales -- much cheaper than their three-year average of 39.5 -- now looks like a good time to buy this beaten-down stock.
