2023-07-11 08:00:00 ET
Summary
- Global-e is the leading empowerment platform in D2C cross-border e-commerce, a market opportunity projected to be worth ~$736B in 2023, and growing at ~2x the total e-commerce market.
- Despite a post-pandemic slowdown in e-commerce, Global-e has been growing at a rapid clip in recent quarters whilst making significant strides toward profitability!
- In this note, we shall revise our investment thesis and re-run Global-e through TQI's QA process, i.e., analyze its fundamental, quantitative, technical, and valuation data, to reach an informed decision.
Introduction
The IPO and SPAC boom of 2020-21 ended with tears in 2022-23 for most early-stage growth investors; however, Global-e Online ( GLBE ) is emerging as a positive outlier. After doubling in 2023, GLBE stock is currently up more than 65% from its IPO price of $25 [set in May 2021], which is a handsome return in such a short period of time.
Back in April 2022, I highlighted Global-e as a high-quality proxy play for Shopify ( SHOP ) and assigned a "Buy" rating to both of these e-commerce companies, with a preference for buying Shopify:
Global-e is a solid business - rapidly-growing revenues, operating at FCF breakeven (slightly positive), robust balance sheet, and huge TAM. At $35 per share ($5B in market cap), Global-e's valuation is pretty reasonable; and it could easily outperform the market from this point over the next decade. However, Shopify is the undeniable behemoth (the 800-lb gorilla) in the e-commerce space, and it could very well eat up Global-e's business in the future. Also, Shopify is currently trading below its fair value. In my opinion, Global-e's stock could outperform Shopify due to its much smaller size; however, we are probably better off owning Shopify over Global-e because Shopify's business moat is much stronger than that of Global-e.
Key Takeaway: I rate Global-e a buy at $35; however, I like Shopify better at current levels (from a qualitative perspective), and so, I suggest accumulation in Shopify over a new purchase in Global-e.
Source: Global-e Online: A High-Quality Proxy Play For Shopify
Since the publication of this report, Global-e is up ~30%, Shopify is up ~2.5%, whereas S&P500 ( SPY ) is down ~2%. At my investing group, The Quantamental Investor, we accumulated Shopify during 2022 within our Moonshot Growth portfolio strategy, wherein we now own SHOP at a cost-basis of $29.89 per share. While we would have probably done better with Global-e, I am happy to have hit a double with Shopify (currently trading at ~$61).
In the post-pandemic era, e-commerce trends have slowed down considerably; however, Global-e is still growing sales at more than 50% y/y while simultaneously marching toward profitability. In today's note, we shall briefly revise our investment thesis for Global-e and re-run it through TQI's Quantamental Analysis process to see if GLBE is a good buy at current levels.
Investment Thesis
Global-e is one of the leading empowerment platforms in the direct-to-customer [D2C] cross-border e-commerce space. Simply put, Global-e simplifies international e-commerce for merchants and shoppers by offering end-to-end services such as global shipping, localized shopping & checkout experiences, currency management, etc.
By integrating Global-e's platform into their website, merchants can sell internationally without the hassle of selling internationally (as Global-e does all the heavy lifting for them). Moreover, shoppers get a localized experience while shopping at their favorite brands' digital storefronts. This leads to higher sales conversion among international shoppers (revenue uplift for merchants), who typically make up 30% of website traffic but only 5-10% of sales.
In 2023, global retail e-commerce sales are projected to hit ~$6.5T (growing at ~10% y/y), according to a blog post from Shopify. With the proliferation of the internet and social media, consumer buying habits are becoming global, and this trend is evidenced by the rise of cross-border e-commerce (which is growing ~2x faster than e-commerce sales) . The global cross-border e-commerce market is estimated to be worth $736B in 2023, and this is the humongous TAM on offer for Global-e. With GLBE's expected 2023 GMV of ~$3.5B being a small fraction of its TAM, the company clearly has a long growth runway ahead of itself. Furthermore, as e-commerce penetration rises, Global-e's TAM is set to expand even further (at a brisk pace) over the coming decade and beyond!
While it is not a household name, Global-e has partnerships with some of the largest retail brands in the world, including names like Disney ( DIS ), Louis Vitton ( LVMUY ), Macy's ( M ), Nordstrom, Kylie Cosmetics, and many others. That said, Global-e's partnerships with Shopify [exclusive deal] and Facebook (META) are even more critical to its long-term future, as these partnerships could potentially bring millions of new merchants to its platform.
As of Q1 2023, Global-e is growing rapidly (~54% y/y) and making great strides toward profitability. Although Global-e's current non-GAAP gross margins of ~41% reflect a highly competitive business environment, we have observed a solid uptrend in its margin profile. In the long run, Global-e's gross margin should expand to ~50-60% range on the back of operational efficiencies and economies of scale. And at a steady state, I expect to see Global-e's free cash flow margins reaching 25-30%.
As I see it, Global-e is already a rapidly growing, free-cash-flow printing machine. Further, Global-e's platform stickiness, big partnerships, and rapid sales growth render GLBE a high-quality play on the secular growth trend of cross-border e-commerce.
Now that we have revised our investment thesis for Global-e Online, let's re-run GLBE through TQI's Quantamental Analysis process to see if it's a good buy at current levels. In the next section, we will analyze Global-e's recent business trends, quant factor grades, technical charts, and absolute valuation.
Running Global-e Through TQI's Quantamental Analysis Process
In its relatively short history as a public company, Global-e has showcased a knack for outperforming consensus revenue and earnings estimates with a series of "beats and raises" over the last eight quarters.
While e-commerce trends have slowed down drastically after the pandemic, Global-e has managed to scale TTM revenues to $450M at a breathtaking pace, albeit with decelerating growth rates. As of Q1 2023, Global-e was growing at ~54% y/y, and projected growth for full-year 2023 currently stands at ~45% y/y.
As I see it, Global-e's growth is simply fantastic due to the difficult macroeconomic environment we are in right now. On top of growing rapidly at scale, Global-e is also expanding its gross margins and delivering operating leverage.
Despite being a loss-making business on a GAAP basis, Global-e is already free cash flow generative. With nearly $212M in cash and no debt, I see no liquidity concerns at Global-e.
In Q1 2023, Global-e's GMV grew by ~55% y/y to $704M, and revenue came in at $117.6M (up 54% y/y). While Global-e's revenue growth rates are decelerating, GLBE is outpacing the cross-border e-commerce market growth by a factor of more than 2x! Now, with Global-e's revenue mix shifting away from fulfillment to services, Global-e's take rate is moving lower and gross margins are heading higher.
In my view, Global-e's business is going from strength to strength with robust customer additions and platform spend expansion. Looking under the hood, we can see that Global-e's business is growing like wildfire across business segments and geographies:
For Q2 2023, Global-e has guided for revenues and adj. EBITDA of $125-130M and $15-18M, respectively. And the midpoint of this guidance range implies 46% y/y growth. Given management's history of guiding conservatively, I wouldn't be surprised if GLBE's Q2 revenues come in ahead of $130M.
Global-e is in hypergrowth phase, and considering the massive size of the opportunity in front of the company (current cross-border e-commerce TAM: $700B+), it may remain in hypergrowth phase for many more years to come.
According to consensus analyst estimates, Global-e is set to grow sales at ~30.2% CAGR over the next five years. Fundamentally, Global-e is looking stronger than ever as a business, and its outlook has never been brighter. Now, we shall analyze Global-e's quant factor grades and technical chart to complete our QA process.
Global-e's Technicals And Quant Factor Grades
After IPO'ing at ~$25 in May 2021, GLBE stock skyrocketed to ~$84 in a matter of months before crashing by more than 80% by mid-2022. As you can see in the chart below, GLBE has formed a Stage-I base in the $17-34 range over the last 12-18 months, and the stock is now breaking out of this range in what appears to be the early days of a Stage-II uptrend.
On the back of forming a double bottom at ~$16, Global-e stock has been rallying up in 2023 in a series of higher highs and higher lows. And this strong technical momentum is reflected in GLBE's "Momentum" grade of "A+".
Despite a post-pandemic slowdown in e-commerce, Global-e is still growing at a robust clip, and so I think GLBE's "Growth" grade of "A" is more than deserved. Furthermore, Global-e's (earnings) "Revisions" grade has improved significantly [from "D+" to "B"] over the last six months, indicating strong near-term financial performance from the company.
While Global-e is free cash flow generative, the business is not yet profitable on a GAAP basis. Hence, a weak "Profitability" grade ["C"] is justified. With Global-e still commanding a lofty EV/S [enterprise value to sales] multiple of ~15x, it finds itself in rare air when considering valuations with peers. Since SA's Quant Rating system is based on relative metrics, GLBE's "F" grade for "Valuation" is not unfair [despite the company being fairly valued on an absolute basis].
Overall, Global-e has a "Hold" rating with a score of 3.40/5, according to Seeking Alpha's Quant Rating system. Now, let's examine Global-e's fair value and expected returns.
Global-e's Fair Value And Expected Return
To determine the fair value and expected return of Global-e, we will use TQI's Valuation model with the following assumptions:
According to TQI's valuation model, Global-e is worth $41.71 per share, which is where the stock is currently trading, i.e., GLBE is fairly valued.
Now, let's consider the long-term reward potential by looking at a range of expected outcomes for Global-e, using an exit multiple of 20-30x P/FCF:
Assuming a base case exit multiple of 25x P/FCF, I see GLBE rising from $42 to $84 in the next five years. With the 5-yr expected CAGR (more or less) meeting my investment hurdle rate of 15%, Global-e is a decent "Buy" at current levels.
Concluding Thoughts
Global-e stock doubled in the first half of 2023 and is now trading at fair value. As we saw in this note, Global-e just about qualifies as a "Buy" under our Quantamental Analysis process, which is a mix of fundamental, quantitative, technical, and valuation analysis. With robust sales growth and free cash flow generation, Global-e looks like a solid bet for GARP investors looking to participate in the secular growth trend of e-commerce.
Key Takeaway: I rate Global-e a "Buy" at $42, with a strong preference for slow, staggered accumulation using a 6-12 month DCA plan.
As always, thank you for reading, and happy investing. Please feel free to share any questions, concerns, or thoughts in the comments section below.
For further details see:
Global-e Online: A Textbook GARP Stock