Long-term investors don't typically stress analyst price targets, since these targets forecast just the next 12 months. That said, investigating what could move companies up or down to hit this goal can be a worthwhile exercise. Importantly, you might also find a long-term winner in the making.
Global-e Online (GLBE -2.26%) could be one of these big winners. The company provides cross-border e-commerce solutions that make it easier for businesses to sell goods internationally. Morgan Stanley analyst James Faucette has a price target of $51 on the company, implying a significant upside from the current stock price.
While this represents an aggressive increase in the company stock price over just one year, here's why Global-e could reach and possibly even exceed this price target over the long term.
Image source: Getty Images.
One of the few e-commerce businesses still growing rapidly
E-commerce stocks have tanked recently, with shares of big-name companies like Shopify and Etsy down more than 60% from their all-time highs. This is because the e-commerce industry has seen a slowdown. With high inflation and a possible recession, e-commerce businesses are experiencing declining demand for discretionary goods. Global-e has followed suit: It was down 59% from its all-time high.
Global-e facilitates international e-commerce transactions, and it takes a portion of each sale for providing fulfillment services and access to its cross-border platform. Therefore, if its customers' sales decline, so does Global-e's revenue.
The company has seen continued adoption of its services during this challenging time. Second-quarter revenue soared 52% year over year to $87 million, and the gross merchandise volume it facilitated shot 64% higher over the same period to $534 million. This might have been held up by its big-name customers like Walt Disney and Adidas -- both of which have been increasing their usage of Global-e.
This price target isn't unreasonable
This continued success shows the company's crucial role for its merchants. One of the primary ways a merchant expands its footprint is by selling internationally, which can be challenging. After all, e-commerce businesses have to deal with different languages, payment options, taxes, and regulatory requirements when selling internationally. Global-e helps businesses maneuver these pain points, making cross-border commerce much easier.
The company is a need-to-have service for merchants that don't want to deal with this hassle. As a result, Global-e's churn rate has remained less than about 2% since 2018. As investors have seen this year, customers continue to rely on Global-e for international sales, despite this tough macroeconomic environment.
Additionally, customers are continuing to increase their usage of the platform. In Q1, the company's net retention rate was above 130%, and it has remained above this level since 2018. Having low churn and high customer expansion rates during a period that has been difficult for merchants indicates that Global-e could be here to stay and thrive over the long term.
How Global-e could falter
Global-e isn't a risk-free investment, and there are a few things to keep monitor. The first is the company's lack of profitability. Over the trailing 12 months, Global-e posted a net loss of $153 million. That said, Global-e generated cash over the same period, chalking up $45 million in free cash flow. With more than $268 million in cash on the balance sheet, the company also has the money to fuel this unprofitability for a while.
Competition is the more prominent concern. Global-e primarily sells to independent e-commerce players selling directly to the consumer. Third-party services like Amazon, however, might have cross-border capabilities in-house. Therefore, if Global-e's customers change course and rely on Amazon to sell products instead of its own site, it might be easier to use Amazon's cross-border services.
Another concern is Global-e's valuation. Shares aren't cheap at 17 times sales, meaning most of the stock's future appreciation would have to come from revenue growth rather than multiple appreciation.
That said, the company looks strong in its niche and could see the necessary adoption to see shares rocket higher. Global-e is gaining massive traction among many established brands, and given its low churn, it could stay that way for the long term. The company has the potential to reach Faucette's price target (and maybe even soar multiples higher than that goal) over the long haul.
