Global-e Online (GLBE 2.44%) has continued its hot streak. The small e-commerce service provider handily beat its own financial guidance once again during its second-quarter earnings update.
Up to this point, I've passed on Global-e because Shopify (SHOP 1.11%) is a shareholder and key services-integration partner, so my stake in Shopify yields some ancillary exposure to Global-e too. But after a post-earnings sell-off, the smaller software provider looks intriguing.
Raising full-year guidance for profitable growth
Global-e is a software-service suite for companies that sell online -- and specifically for those that want to sell outside of their home country. The business offers services like website customization (including currency exchange and payment acceptance) for specific countries, shipping and logistics integration, taxes, and the like. Its software integrates with Shopify, where it will soon be releasing Shopify Markets Pro for cross-border e-commerce, and with Meta Platforms shops for Facebook and Instagram.
Successes have been landed quarter in and quarter out since Global-e's initial public offering (IPO) in 2021 as merchants -- especially high-end purveyors of fashion and apparel -- look to create relationships with customers all over the world. This showed up in the latest quarterly update.
Q2 2023 gross merchandise value (GMV) sold via Global-e, which is the basis for how the company gets paid, was up 54% year over year to $825 million. Resulting revenue was up 53% to $133 million. Both metrics easily surpassed management's guidance from three months ago.
Better yet, though Global-e is tiny, it is making fast progress on profitability. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $21 million in Q2 versus an outlook for as much as $18 million. It still has work to do to reach profitability according to generally accepted accounting principles given its net loss of $36 million last quarter, most of which is related to the investment agreement with Shopify from a couple years ago. Free cash flow was positive at $18 million.
Data by YCharts. Trailing-12-month free cash flow.
Given the great Q2, management also once again raised its outlook for full-year 2023. Revenue is now expected to fall in a range of $570 million to $596 million (previously $562 million to $590 million), up about 43% from 2022. A slowdown is coming, but it looks like Global-e will grow at a still healthy 30%-plus pace the second half of this year.
A better deal than Shopify right now?
I'd emphasize here that if you already own Shopify stock, you get a stake in Global-e owing to the warrants (which can be exercised for stock) Shopify owns in the smaller software outfit. Given Global-e's diminutive size and reliance on Shopify and Meta for distribution to e-commerce merchants, you may likely decide owning some Shopify stock (or even Meta stock) is good enough and pass on investing in Global-e directly.
However, if you're looking for a top e-commerce software-growth stock, maybe Global-e is a better add right now than Shopify. Granted, both companies are still scaling toward profitability, but at this particular juncture, it's far smaller Global-e that's generating the better free-cash-flow margins ... at least for now.
Data by YCharts.
Additionally, Shopify stock trades for 11.3 times trailing-12-month sales and is forecasting low-20% revenue growth next quarter. Global-e trades for just a slight premium over that at 12.7 times trailing sales but is forecasting low-30% growth next quarter.
Given this information, Global-e actually appears to be the better deal right now. If you've been watching the company, the financial progress has been steady and appears to give weight to Global-e's software merits. If you decide to buy, remember to take it slow and be prudent as this is a very small business with high reliance on bigger peers. Consider utilizing a very small dollar-cost average plan if you buy at all.
