Many stocks have taken it on the chin recently, and e-commerce stocks have been no exception. Etsy has fallen more than 75% from its all-time high, and even a stalwart like Amazon has dropped almost 45% from its peak.
However, there are a few e-commerce stocks that, despite their steep sell-offs, are continuing to execute. One especially appealing option is Global-e Online (GLBE 3.82%), which is down almost 80% from its high mark, but the company is still growing. With the thesis on track, investors should take advantage of the discounted price.
Why Global-e Online has slumped in 2022
Global-e has fallen alongside many e-commerce stocks due to the fear of a potential recession. Consumers are more likely to save extra cash for a rainy day instead of spending it on discretionary purchases. Other essential goods like groceries and gas are also more expensive as a result of inflation, so consumers are spending more on their necessities and less elsewhere. Whichever way you slice it, an economic downturn is bad for e-commerce stocks in the short term.
Considering Global-e offers services that make it easier for e-commerce businesses to expand internationally, the company would also see a decline in activity. Revenue is tied to the gross merchandise value (GMV) it facilitates, so if its customers do less business across borders, the company will see a top-line slump.
It has a significant revenue concentration in the U.S. and U.K., and both countries could face tough economic conditions. As a result, Global-e would be hit especially hard in the short term if businesses from these regions struggle.
Given this uncertainty, Global-e pulled back its 2022 forecast in the first quarter. The company lowered full-year GMV guidance 5% to $2.34 billion, while revenue guidance went down 6% to $393 million (both figures at the midpoint of the range). Even after this reduction, these targets still represent about 60% year-over-year expansion rates for both revenue and GMV.
The story going forward
So despite major headwinds, the company still expects to deliver strong growth, which is evidence of its competitive advantages: high switching costs and a sticky product. Once customers start using Global-e's services, they tend to stick with them. Without Global-e, businesses would have to develop cross-border solutions internally. This would be difficult and costly.
This dynamic becomes clear when observing the company's low churn and high retention. Churn has usually remained under 2% since 2018, and the company has seen net retention rates clock in above 140% during much of the same period. This means that customers are rarely leaving, and they're spending more each year.
While the extra spending could decline during a recession if one were to take place, customers would still likely continue using Global-e to offer international sales. E-commerce businesses will want to stay tapped into a whopping $736 billion market, according to Forrester. While a recession might stall adoption in the short term, the long-term potential for cross-border commerce is still large, and Global-e sits in a great position to capitalize on it.
A risk to the company is that e-commerce platforms like Amazon also have cross-border services to support customers that sell through their platform. Therefore, if you sell through Amazon, there is little need for Global-e. However, the latter's customer demographic is slightly larger than the typical merchants selling on Amazon. Global-e serves independent, billion-dollar businesses like Adidas and Figs, whereas Amazon sellers can vary in size.
Another risk is the company's free cash flow burn, which topped $11.6 million in the first quarter. If an economic downturn lasts longer than expected in the company's core markets, the weakness would put further pressure on its cash flow.
Why I'm buying Global-e soon
Macro fears have caused the stock to tank, which gives long-term investors a great buying opportunity. Shares of Global-e are trading at 6.8 times forward sales estimates, which is much lower than the valuation it went public at. It is also the same valuation as larger businesses that have much less room to run. Shopify, for example, trades in line with Global-e, despite having a market cap almost 16 times larger.
Global-e is not a guaranteed success, but after this steep price cut, the potential reward for long-term investors looks much greater than the risks. It has sustainable competitive advantages that will allow the company to thrive over the long term. I plan to buy Global-e very soon at these prices, and you should consider doing the same.
