With the tech-heavy Nasdaq Composite down 17% over the last 12 months, growth-focused stocks have been in a rut. Global-e Online (GLBE 0.29%) is no exception. But while the company faces the same macroeconomic headwinds as the rest of the industry, its unique business model and well-defined niche could help power continued success. Let's discuss why this beaten-down growth stock could skyrocket.
What is Global-e Online?
Founded in Israel in 2013 and publicly traded since May 2021, Global-e is a mid-cap tech company that facilitates cross-border e-commerce and fulfillment. The shares soared amid the pandemic's stay-at-home boom, peaking at an all-time high of almost $82 before falling down to Earth for much of 2022 as rising rates and other macroeconomic headwinds mounted.
Federal Reserve rate hikes can hurt growth stock valuations by discounting the future value of their cash flows. Higher rates also raise the cost of the capital unprofitable companies need to scale up their businesses. That said, Global-e's dip looks like a buying opportunity because these macroeconomic challenges don't change its long-term thesis.
Business is booming
Unlike largely consumer-facing e-commerce platforms (such as Amazon), Global-e focuses on enterprises. It helps online retailers sell their products internationally by creating a localized checkout experience while handling customs, logistics, returns, and many other complexities involved in cross-border e-commerce.
This niche means Global-e is less directly exposed to inflation and fluctuations in consumer confidence. Further, it can allow the company to maintain a high growth rate, even when the overall industry is weak, because enterprises use Global-e's services to help them save money and/or reach more customers, which are priorities in both good and bad times.
Fourth-quarter earnings highlight the company's resilience. Revenue jumped 69% year over year to $139.9 million, which is an acceleration compared to the previous year, when sales increased 54%.
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While Global-e is not profitable by generally accepted accounting principles (GAAP), the company expects to generate adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $66 million to $74 million in 2023. This metric will add back stock-based compensation and warrants obligations related to its initial public offering.
Investors should take non-cash expenses seriously because equity dilution reduces their claim on future earnings. That said, Global-e's spectacular growth rate could help it eventually become profitable on a GAAP basis although management has not provided a concrete timeline.
How is the valuation?
With a price-to-sales (P/S) ratio of 11, Global-e stock is significantly more expensive than the S&P 500 average of 2.3. But this premium is justified by its growth rate. Further, the P/S ratio has also fallen sharply from a whopping 43 recorded in late 2021. That said, Global-e is not perfect.
As an investor, I would like to see management provide more color on when it expects to achieve GAAP profitability, and hopefully, start reining in spending. But other than those issues, the stock remains an excellent buy-the-dip opportunity with fantastic long-term potential.