Investors continue to be enamored of artificial intelligence (AI) stocks, which makes a lot of sense. AI has the power to transform business and everyday life, and many changes are already happening.
But AI isn't the only game in town. E-commerce may be yesterday's trend, but if you've moved on, you've left a huge opportunity on the table. E-commerce is still increasing as a percentage of overall retail sales and is expected to reach 22.6% by 2027. Amazon and Shopify are reporting strong growth, and some international companies like MercadoLibre are growing even faster.
Global-e Online (GLBE -1.92%) is a business-to-business e-commerce specialist with a lot of momentum, and its stock is down 63% from highs. Let's see why it's down, and why it could skyrocket.
It's a small world for Global-e
Global-e markets a cross-border e-commerce platform for retailers. It provides high-tech solutions that simplify global shipping and help clients generate higher sales. These are tools like instant customs calculations, localized checkout, and various shipping options. The platform is easily embedded in a client's website and is a no-brainer addition for any e-commerce retailer looking to reach global markets.
It works with top global brand names like Walt Disney and Adidas, and it has a large pipeline of new labels that consistently join. In the 2023 fourth quarter, it added EleVen by Venus Williams, Jean-Paul Gaultier, and Warner Bros. Discovery's Harry Potter store in the U.K., among many others.
It also has a partnership with e-commerce giant Shopify. Shopify was one of its original investors and still has warrants for Global-e stock that it can exercise through 2025. Shopify offers Global-e services to its millions of merchant clients, and it launched a white-label service called Shopify Markets Pro in September.
So far, it's off to a fantastic start. Shopify gave two examples: Chicago-based suit company Suitshop, whose international sales increased 600% since it got started, and New York-based skincare company Beekman 1802, whose international sales increased 137% in six months.
Why is Global-e's stock down?
Global-e has demonstrated fabulous growth since it went public in 2021. However, that growth has decelerated in the inflationary environment. Revenue increased 33% year over year in the 2023 fourth quarter, and gross merchandise value (GMV) was up 42%. Those numbers reflect organic sales as well as new deals, and they also incorporate the acquisition of Borderfree in 2022.
Profitability metrics are improving. Adjusted gross profit increased 37% year over year in Q4, and gross margin expanded from 41.3% to 42.7%. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 62% in the quarter. Net loss was still wide at $22 million, but it was an improvement from $28 million in Q4 2023.
These large losses are still weighing on investor sentiment. Investors want to see greater progress here. Investors are also keeping in mind the overall global economic circumstances and how they relate to Global-e and its near-term potential.
Global-e's profitability is chiefly affected by three factors: Overall marketing and expenses to grow its business, the ability to scale in a pressured environment, and the Shopify warrants, which it amortizes and carries as part of its expenses. Since those don't expire until next year, management expects further losses in 2024.
A massive opportunity in niche e-commerce
The good news is, these all appear to be short-term factors affecting an otherwise healthy and growing business. Although (barring any surprises) Global-e won't report a GAAP profit this year, gross profit and adjusted EBITDA should continue to increase. These are the numbers investors should watch right now.
Management is guiding for GMV to increase 27% year over year in the 2024 first quarter and revenue to rise 21%, with both of them expected to increase 32% for the full year. It provided more detailed guidance for 2024 trends, and it expects the first half of the year to feel pressure from the migration of Borderfree's customer base onto the Global-e platform. Borderfree's clients are predominantly large, established businesses with a strong physical retail presence, like Macy's and Nordstrom. They comprise most of Borderfree's GMV and are experiencing sales declines.
Management is expecting sales in the second half of the year to accelerate as several large merchants are expected to launch on its platform. The migration of the Borderfree clients will have a lower effect on year-over-year comparisons, and it's expecting a stronger push from a ramp-up in Shopify Markets Pro.
According to Statista, global e-commerce is expected to increase at a compound annual growth rate of 9.5% through 2029, and as it lands more clients, Global-e will benefit from secular trends.
Global-e stock trades at a price-to-sales ratio of 8.6, about its lowest ever. It's still not exactly cheap, but it deserves a premium for its high growth rates and long-term opportunities. The stock is down 25% this year, and Wall Street's average price target is a 45% gain with a high of 68%. Global-e reports first-quarter earnings on May 20, and investors should tune in for its latest update.
