Global-e Online (GLBE 2.44%) has been a volatile stock. After going public at $25 per share, the e-commerce company went on to a high of $82 and fell back below $20 before recovering to $39 recently.
Bulls think Global-e provides a unique service solving critical pain points for companies and is well-positioned to grow. Bears argue that the company is still young and needs to prove its worth. Let's see who is right.
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Why the bulls are excited about Global-e
One of the biggest trends of late is for companies and merchants to sell their products globally via online sales. While the opportunity may be huge, selling products across borders is complex. A lot is involved in selling to foreign customers, including localization, payments and logistics, duties and taxes, and shipping. Dealing with all this consumes enormous amounts of management attention, not to mention the additional costs.
Enter Global-e. The e-commerce company specializes in cross-border e-commerce solutions. And since Global-e is doing this at scale, the cost of its services could be less than a company would pay to come up with its own solutions. Less headache, lower cost, and higher sales -- a great value proposition.
Unsurprisingly, Global-e has grown rapidly, more than tripling its revenue from $136 million in 2020 to $409 million in 2022. This solid performance streak continued in 2023, with revenue for the first nine months improving 43% to $385 million due to a robust improvement in gross merchandise value (GMV), up by 47% year over year to $2.4 billion.
While that's impressive, the bulls think that the young company has just started. For perspective, Global-e estimates that the cross-border e-commerce industry will reach $736 billion in 2023. With an annualized GMV of less than $4 billion, it hasn't yet reached 1% of this opportunity.
So long as the company continues to execute well in the coming years, it should be able to grow to 10 times its present size and still not exhaust its opportunity.
Why do the bears have reservations?
Global-e might have executed well in recent years, but the bears still have concerns about the sustainability of such a performance.
One is that the company has been listed for less than three years, so its short financial track record makes it difficult for investors to assess its long-term prospects. For example, investors have yet to determine whether the company can sustain its growth momentum in an economic downturn.
Besides, Global-e operates in a highly competitive industry with plenty of companies looking to grow their market share. For instance, Shopify -- a partner and investor in Global-e -- is also actively expanding its cross-border e-commerce business. So while the companies are currently working together, there is no guarantee that the friendly relationship will continue. If the relationship ends, then Shopify will be a formidable competitor.
Another major complaint about Global-e's stock is its high valuation. The shares trade at a price-to-sales ratio of 12.3, a considerable premium over Amazon's 2.8. Global-e's premium valuation is not unreasonable, especially considering the vast opportunity ahead.
Still, since a massive part of Global-e's valuation lies in its ability to grow in the future, any minor hiccup -- such as weaker-than-expected growth in a quarter or two -- could completely change investors' sentiment toward the stock. At best, the stock price would be very volatile. At worst, investors could permanently re-rate the stock to a lower valuation if the company fails to execute to investors' expectations.
What it means for investors
The bulls and the bears both have good arguments. Global-e has executed well over the last few years and is well-positioned to leverage the enormous cross-border e-commerce tailwind that will develop in the coming years.
The downside is that the company's short track record makes it relatively difficult for investors to predict its future performance. The company's high valuation creates another barrier for conservative investors.
Overall, this is unlikely to be a bet-the-house kind of opportunity. Bullish investors can consider initiating a small position and add to that position over time, while others may prefer to keep looking.
