GigaCloud's (GCT -1.24%) stock price tumbled 12% on Sept. 30 after the Chinese e-commerce services company posted its second-quarter earnings report. Revenue rose 11% year over year to $124 million, but adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) declined 53% to $7.8 million. Net income also fell 55% to $6.1 million, while earnings per share (EPS) plunged 65%.

Those numbers were unimpressive, but investors might recall that GigaCloud briefly became a meme stock after its public debut at $12.25 on Aug. 18. It started trading at $19.20, inexplicably skyrocketed to an intraday high of $62 the following day, but now trades at about $10 a share. Should investors give GigaCloud a second look as it slumps below its IPO price? Let's dive deeper and see where it could be headed in a year.

Two workers inspect parcels in a warehouse.

Image source: Getty Images.

How does GigaCloud make money?

GigaCloud's B2B (business-to-business) marketplace connects Asian manufacturers of "large parcel merchandise" -- such as furniture, home appliances, and fitness equipment -- to large overseas merchants like Amazon, Walmart, and Wayfair. It operates 21 warehouses across North America, Europe, and Asia, but it generates most of its revenue from U.S. retailers.

GigaCloud claims its scale enables it to ship large products overseas at lower rates than FedEx or UPS. Most of its revenue currently comes from its first-party marketplace, which takes on its own inventories and resells those products to overseas merchants. But it's gradually expanding its higher-margin third-party marketplace, which enables those manufacturers to directly ship their products overseas.

How fast has GigaCloud been growing?

GigaCloud gauges its growth with its gross merchandise volume (GMV), or the total value of all the goods sold on its platform, its active third-party sellers, its active buyers, and its average spending per active buyer. It calculates the year-over-year growth of all four metrics on a trailing-12-month basis. But as the following chart illustrates, GigaCloud's growth has cooled off significantly over the past two and half years.

Metric

1H 2022

2021

2020

GMV

$458.8 million

$414.2 million

$190.5 million

GMV growth (YOY)

44%

117%

437%

Active third-party sellers

452

382

210

Active seller growth (YOY)

67%

82%

196%

Active buyers

4,061

3,566

1,689

Active buyer growth (YOY)

59%

111%

283%

Spend per active buyer

$112,987

$116,150

$112,777

Spend per active buyer growth (YOY)

(10%)

3%

40%

Data source: GigaCloud. YOY = year over year. 

GigaCloud blamed that slowdown on difficult year-over-year comparisons to the pandemic, which had temporarily boosted its sales of home furnishings as consumers spent more time at home and the subsequent supply chain constraints and disruptions that were exacerbated by the intermittent COVID-19 shutdowns across China. As a result, GigaCloud's revenue growth decelerated and its margins crumbled in the first half of 2022.

Metric

1H 2022

2021

2020

Revenue

$236.5 million

$414.2 million

$275.5 million

Revenue growth (YOY)

15%

50%

125%

Gross margin

14.3%

21.6%

27.3%

Operating income

$15.7 million

$39.4 million

$44.2 million

Operating income growth (YOY)

(42%)

(11%)

820%

Net income

$10.8 million

$29.3 million

$37.5 million

Net income growth (YOY)

(50%)

(22%)

1,211%

Adjusted EBITDA

$14.7 million

$48.0 million

$45.5 million

Adjusted EBITDA growth (YOY)

(45%)

5%

829%

Data source: GigaCloud. YOY = year over year. 

Will those headwinds wane anytime soon?

GigaCloud expects its revenue to stay roughly flat sequentially in the third quarter, but it didn't provide any additional guidance for its margins. CFO David Lau said the company was already seeing some "signs of supply chain normalization," while CEO Larry Lei Wu said it was still "well positioned" to grow its market share in the B2B large parcel market.

GigaCloud isn't widely covered by analysts yet, so we don't have any clear consensus estimates for the current year. But assuming its growth stays flat sequentially in the third and fourth quarters, it might grow its annual revenue by more than 20% to over $500 million this year.

If the supply chain headwinds dissipate next year, its growth might accelerate again as it did in 2021. Even with a moderate acceleration to 30% growth, it could generate $650 million in revenue in 2023. GigaCloud currently trades at about one times its trailing sales, so its stock seems deeply undervalued relative to its long-term growth potential.

GigaCloud's stock also looks cheap at eight times last year's adjusted EBITDA, and its margins could gradually expand as it expands its third-party marketplace. Therefore, this pullback could represent a good buying opportunity for investors who believe Amazon, Walmart, Wayfair, and other mass retailers will continue to source their products from GigaCloud.

Where will GigaCloud's stock be a in a year?

GigaCloud's stock will likely remain out of favor for the rest of the year as inflation and rising rates drive investors away from higher-growth e-commerce stocks. The delisting threats for Chinese stocks, which GigaCloud insists it can avoid because it generates most of its revenue overseas, will exacerbate that pressure.

But next year, GigaCloud's prospects could improve as inflation cools off and the delisting issues are resolved. If that happens, the market could revalue GigaCloud's stock -- and it could soar above its IPO price again.