During a market downturn, investor attention tends to shift toward more established businesses like Amazon or Apple for safety. However, some smaller names look more appealing than ever.
Some of these under-the-radar companies are executing fundamentally, and with shares priced substantially lower than last year, right now can be an opportune time to buy. Investors looking to take advantage of the tech stock crash should look closely at Global-e Online (GLBE -0.28%) and Riskified (RSKD 0.19%). Let's take a closer look at these two under-the-radar tech stocks.
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1. Global-e Online
E-commerce stocks have been battered recently, and since Global-e enables e-commerce companies to easily sell products internationally, it has also taken a hit. Shares are down more than 76% from their all-time highs, despite continued execution. The company helps e-commerce companies with everything from local language messaging to shipping to payment acceptance. At the end of 2021, the company was trusted by more than 650 merchants to grow their brands worldwide.
Even if a company has a team to handle international commerce, these problems can be time-intensive and difficult to maneuver. Global-e can fix these problems and allow companies to realize their international opportunity. As companies succeed with Global-e, they become highly loyal and sticky, which is likely why the company has had 2% customer churn or less since 2018. Additionally, Global-e earns a fee based on the gross merchandise volume (GMV) that it processes, so its incentives align with customer success.
Having high customer loyalty for mission-critical services has paid off. The company grew revenue 65% year over year to $76 million in Q1 2022. It also saw increased adoption for large companies like Adidas, which uses its platform to operate in 16 markets, with even more to be rolled out over the coming quarters.
Almost all of its revenue comes from the U.S., U.K., and the European Union, so if a recession impacted consumer budgets there, that could hurt Global-e in the short term. That said, the long-term thesis for the company is still appealing. Forrester expects that by 2023, the cross-border e-commerce space will be worth $736 billion, and Global-e's high switching costs and customer loyalty could allow it to gain significant market share. With $2.34 billion projected GMV in 2022, Global-e has tons of room to explode higher.
At just 9.5 times sales, investors can get this thriving business at a bargain. The company has proven that it provides immense benefit to businesses of any size, and that value could allow it to capitalize on the growing cross-border e-commerce industry over the long term.
2. Riskified
Riskified also provides immense value to e-commerce businesses. It uses artificial intelligence (AI) to detect fraud among customers of established e-commerce companies like Peloton Interactive and Wayfair. The company has seen steady expansion over the past year, yet shares are down more than 80% since its IPO in 2021 and trade at just 3.2 times sales -- a rock-bottom price for any stock.
The company's main appeal is its chargeback guarantee: If Riskified incorrectly permits a fraudulent order, it will pay its client back for the lost goods. This creates tremendous value for the client, which is likely why the business saw almost no churn in 2021. As a result of this top-notch product, the company processed nearly $22.7 billion in GMV in Q1 2022, which grew 20% year over year.
Currently, Riskified's main competition is in-house solutions, but its chargeback guarantee is a big competitive advantage and gives companies little reason to avoid using Riskified. However, competition in the space is growing, putting pressure on Riskified to continue refining its AI models and building its brand name.
The company has struggled with AI accuracy in recent history. It saw problems in Q3 2021 when the company's gross margin -- which primarily consists of chargeback payments -- dropped seven percentage points year over year to 46%. This means that Riskified had to pay back much more in chargebacks due to faulty AI determinations, potentially signaling that the company's AI engine wasn't working properly. This doesn't seem to be a long-term issue, however. In Q1 2022, Riskified's gross margin improved to 52%.
Like Global-e, Riskified faces recession risk. The company takes a piece of every transaction it approves, so if overall activity slows, the company would be hurt. Riskified had a free cash flow burn of $10 million in Q1, so it could be put in a rough financial position if an economic downturn lasts longer than expected.
However, if it can survive a potential recession, Riskified looks like it could thrive over the long term. With shares trading as low as they are today, few investors have high hopes for the company. If the company can keep its AI accuracy high and see continued adoption, Riskified could fly higher. If you have a long time horizon, you might want to consider buying some shares of this promising company on the dip.
