Global-e Online (GLBE 2.44%) has been a popular stock among investors in 2023. Its share price has surged roughly 115% year to date due to several factors, including the company's rapid revenue growth, decreasing inflation, the Federal Reserve pausing interest rate hikes, and investors regaining confidence after a terrible market in 2022.
Despite some investors feeling that the current valuation is too high and that they may have missed the opportunity to purchase the stock when it was sitting at its 52-week low in late December 2022, Global-e remains an attractive investment opportunity for growth-seekers. Here's why.
It's an emerging leader in an untapped market
Global-e Online is an emerging leader in the cross-border e-commerce market, which Statista projects will grow from $785 billion in 2021 at a compound annual growth rate (CAGR) of 29% to $7.9 trillion U.S. dollars by 2030.
Many retailers need help selling internationally due to the complexity of cross-border e-commerce. Global-e Online helps these retailers by offering a comprehensive suite of services that simplifies cross-border e-commerce for retailers, including currency conversion, tax calculation, shipping, customer support, and local marketing. Although the company was not the first to offer these services, it has been able to differentiate itself from its competitors by offering a broader portfolio of services and focusing on providing a high-quality customer experience.
Global-e's acquisition of Borderfree from Pitney Bowes in 2022 was also a game-changer. As a pioneer in localized cross-border e-commerce services since 1999, Borderfree brought a wealth of experience and expertise. This acquisition also bolstered Global-e's market share, strengthened its solutions for large enterprises and marquee retailers, and cemented its leadership position. In addition, the deal established a partnership with Pitney Bowes, which will provide valuable cross-border e-commerce logistics services to Global-e's clients.
As a result of its leading position in this undeveloped market, its business has experienced rapid growth over the last three years, producing an 84% CAGR from 2019 to 2022.
Revenue fails to fall to the bottom line
While revenue is growing like gangbusters, Global-e has yet to turn a profit, and there are a few reasons why. One reason is that it is still in the early stages of growth. The company invests heavily in research and development, infrastructure, and marketing. Although these investments are crucial for the company's growth and long-term success, they have yet to yield profits -- a significant risk in an uncertain global economy.
Another reason Global-e Online has yet to achieve bottom-line profitability is that the company is operating in a competitive market. Several other companies offer services similar to Global-e Online's, meaning the company has to compete on price and service. This makes achieving a positive net income challenging.
The danger for Global-e is that unprofitable companies sometimes struggle to raise capital, invest in growth, or withstand financial downturns. Additionally, they may eventually be unable to offer competitive pricing or services, leading to customer defection. They also may be unable to provide employees with competitive salaries or benefits, resulting in high turnover rates that can harm productivity.
If Global-e Online wants to continue growing and succeeding, it must eventually address its profitability concerns.
How Global-e Online will achieve profitability
Global-e intends to become profitable over the next few years in several ways.
First, it plans to continue growing new merchants and spending on its platform, enabling it to spread its fixed costs (such as rent, equipment, and salaries) over a larger number of customers, which can lead to lower costs as a percentage of revenue. It added 58% more retailers in 2022 compared to 2021, which helped increase its gross merchandise value (GMV), or the total value of goods sold on its platform, by 67% over 2021.
Next, the company plans to increase its gross margin. This is the percentage of revenue it retains after paying for the cost of goods sold (COGS), which includes expenses related to shipping, web and cloud hosting, and merchant support. The company can improve the gross margin over time by negotiating better shipping pricing with logistics providers and eliminating superfluous expenditures in other COGS items.
Management has improved this crucial measure of profitability over the last several years by raising its gross margin from 31.9% in 2020 to 38.7% in 2022.
It also plans to reduce its operational expenses using the latest artificial intelligence techniques to improve service levels, automate processes, and improve efficiencies, thereby increasing profitability.
Why the stock is a buy
With the worst of the current global downturn likely behind us and the global economy on the mend, investors are more likely to overlook the company's current unprofitability and focus more on how much market share it can grab in an enormous market.
Considering that the company grew Q1 2023 revenue by 54% over the previous year's comparable quarter, paying 15.7 times trailing 12-month sales is reasonable for a high-growth company like Global-e Online. If you are a growth investor with high risk tolerance, contemplate picking up a few shares today.
