2023-10-27 03:54:25 ET
Summary
- We assess Global-e Online Ltd as a potential investment opportunity for growth potential in the expanding e-commerce industry and improving profitability.
- Despite downward pressures on Israel-based stocks, the resilience of the Israeli economy and support from Wall Street analysts suggest the downturn is temporary for Global-e Online.
- Global-e's recent financial performance shows growth in gross merchandise value, revenue, and non-GAAP gross profit, indicating positive momentum for the company.
This is our fourth article in a series about Israel-based companies listed on an American stock exchange ( MBLY , CHKP , NICE ). We suggest retail value investors also consider Global-e Online Ltd ( GLBE ) as the next investment possibility. Global-e has serious growth potential, and momentum, and is expected to reach good and consistent profitability in the near future. The stock enjoys broad support from Wall Street analysts. The target price can be expected, in our opinion, to rise 30% over the next 12 to 18 months. Global-e is a young company but the 10 th largest Israel public business listed on an American exchange by market cap ($5.82B).
Downward Pressures in the Big Picture
Downward pressures from a combination of circumstances are worrisome but they are not making Global-e and other high-value, Israel-based stocks potential opportunities for investors.
Foreign investments began shrinking in 2022. By Q1 2023, they were -40% to -60%. Share prices and momentum of high-value Israeli companies dipped and dived more since the initial shock of war, but are appearing to stabilize. In 2023, tech stocks on American exchanges tumbled “closing out their worst month (September) of 2023,” and continued the slide into October, CNBC’s business roundup reports . The outbreak of war added traction to the downturn in Israel-based companies' share prices.
There is more resilience in the economy than the TASE-35 drop indicates. The Bank of Israel is an apolitical institution akin to the U. S. Federal Reserve; its Governor “is cautiously optimistic about the resilience of the Israeli economy.”
The Bank predicts Israel’s 2023 GDP will slip from an expected growth rate of 3% to 2.3% from the war’s impact, global downturns in economic growth, and disaffection among investors in the global tech sector. The Bank expects Israel’s GDP will soon regain its momentum and hit a growth rate of 2.8%. America’s GDP growth rate was around 2.2% annually for 5 years and 2.1% through Q2 ’23.
In our opinion, the current downturn in a host of Israel-based stock prices trading on American exchanges is temporary and investors will shrug it off.
Profile
Global-E Online Ltd. designs and promotes its platform to enable faster direct-to-consumer cross-border e-commerce. Global-e operates in Israel, Europe, the United Kingdom, North America, and in other countries. Shoppers can buy online and merchants sell worldwide.
The platform has a Pro segment allowing a company to sell into 200 destinations worldwide that allow for local destination pricing, sensitivity to product displays, local and alternative payment methods, automatic tax and duty calculations, shipping, and returns per local practices, all to boost Global-e’s customers’ e-commerce sales.
The company was publicly listed in 2021 opening around $25 per share in May. By September ’21 the share price was +$70 closing ~$18 each in December 2022. The stock regained momentum in 2023; the price is up 38.7% over the last 12 months and 62% YTD.
Seeking Alpha rates its valuation with an F grade and its Quant Rating is a Hold despite better growth than 3 months prior, increased profitability and revisions. Global-e’s valuation grades are an F by every S A metric: P/E, EV/Sales, EV/EBITDA, Price/Sales, Price/Book (D-), Price/Cash Flow, and no dividend is paid.
The average share price of Israeli hi-tech stocks dived from 15% to 20% at the time of the October 7 invasion. Some prices dropped more. Global-e shares sold for about $39 at the close of September, hit $40 on October 6, and slid down to $33.58 on October 26. That remains quite a far distance from Global-e’s 52-week low of $18 just 10 months prior; its high was over $45 in July. But this is not unusual activity for this stock; its 5-year monthly Beta is 1.30 defining its high volatility since its IPO.
Q2 ‘23 Numbers
By contrast to SA’s conservative valuation grade, is the assessment of 11 Wall Street analysts, 10 of whom assess the stock to be worth a Buy or Strong Buy. We are in concert with them. SA analyst , Bert Hochfeld, who last December and again in August rated the stock a Buy opportunity points out the good earnings potential, strong growth drivers, improvements in Global-e’s business model, margins, and cost ratios among other factors. Global-e Online is expected to next report earnings on November 15, ’23.
Support for the stock grew following the Q2 ’23 release :
- Gross Merchandise Value indicates the total sales monetary value for merchandise sold through a particular marketplace over a certain time frame. In the second quarter of 2023, GMV was $825M at Global-e; that is an increase of 54% Y/Y.
- Revenue was $133.3M, an increase of 53% Y/Y.
- Service fees revenue was $59.5M and fulfillment services revenue was $73.8M.
- Non-GAAP GP was $57.7M, an increase of 58% Y/Y.
- GAAP gross profit in the second quarter of 2023 was $54.9M.
- GAAP gross margin hit 41.2%, an increase of about 140 basis points.
- Net loss in Q2 ’23 was $35.5M compared to the net loss in Q2 ’22 of $48.8M
- The company reported cash and equivalents totaling $307.9M
- Cash flow from operations at the end of 2022 topped $81M up from $15M in 2021 and $29.4M in 2020.
We expect revenue and earnings to continue to grow because e-commerce is expanding exponentially; we forecast the share price can climb above $45 per share over the next 12 months depending on the impact of a hot war on Global-e’s local workforce , marketing, and branding success. That might achieve a 35% upside from the current price for investors.
We further anticipate the next earnings report will show improvement in the EPS loss from -$0.41 in Q3 ’22 to about -$0.25. Global e-commerce will cross the $2T threshold in 2023. It is our opinion that Israel’s hi-tech sector is adjusting to the impact of the war.
Companies will receive all kinds of comfort and aid from the government recognizing IT’s essential and integral place in Israel’s economy. IT companies are themselves making adjustments like moving functions to offices overseas offices. One analyst’s latest revenue, earnings, and cash flow growth estimates for Global-e are:
Risks
We see a few more serious risks that can depress the share price. SG&A expenses are more than 50% of revenue; that contributes heftily to the operating income loss of $168.7M in FY ’22 and $146.1M TTM. Management needs to get SG&A down below 30% of revenue to undergird profitability and EPS.
Shareholders were diluted last year amounting to $1.24 EPS. The company raised a few hundred million dollars by selling millions of shares at a price range of $23 to $25 to an investor in exchange for ~13% of the total offering. This action likely accounts for much of the +$300M cash on hand.
Third, the stock trades at a premium valuation that ought not to be ignored. It is facing tough times ahead being based in Israel. Finally, Global-e Online Ltd is a young company with not a lot of seasoned experience wending its way through the highly competitive maze, some of which are big names with humongous market caps.
Takeaway
We forecast growth in revenue and earnings for this relatively new entry into the world of companies servicing e-commerce. It is an industry growing phenomenally and that bodes well for Global-e. For instance, in Q2 ’22, 19 hedge funds owned shares. At the end of Q2 ’23, 32 funds owned shares accounting for nearly 8% of the outstanding shares. Corporations own over 25%. Institutions and public agencies own about 50%, and, most impressively, corporate individual insiders own 7.74% of the shares.
Global-e Online is in our opinion a potentially high-growth low-risk company in a big industry. With greater attention and focus by management to profit and expenses, the share price can flare up. Growth has been largely organic since Global-e has only bought one business to strengthen its platform: Flow Commerce in 2021 for an estimated $500M.
We do not forecast any significant drop in the share price but shares are selling at a premium. Management will have to report exceptional progress in the next 2 or 3 quarters to justify share price increase to move it over $40 per share. Our enthusiasm is based on its momentum, business predictability, and the strength of broad consensus among analysts.
For further details see:
Global-e Online Expected To Grow As E-Commerce Thrives