Summary
- Global-e investors have been on a rollercoaster ride since the company IPO'd back in May 2021.
- Global-e offers an innovative solution to an obvious problem and is growing like a weed.
- The company is riding the tailwinds of DTC and cross-border e-commerce, trends likely to continue for the next several years.
- Global-e continues to increase its customer pipeline, adding larger and more established brand partners.
- If you can stomach the volatility, Global-e may be a good choice for the speculative portion of your portfolio.
Investment Thesis
Global E-Online ( GLBE ), the leading platform provider enabling cross border DTC e-commerce, has been on a rollercoaster ride since IPO'ing back in May 2021. Shares debuted at $25, skyrocketed to $84 three months later, then bottomed at $16 back in May 2022. Since then, shares have again doubled and now sit at $30. If you're an investor who's held through the turmoil, I'm impressed.
Global E is a volatile stock, but when I look through the noise, I see an intriguing investment opportunity. They're growing like a weed and riding secular tailwinds in DTC and cross border e-commerce. Global E is growing their customer pipeline, adding larger and more established brands, the most recent being Disney ( DIS ).
I like the business, but Global E still has a lot to prove. The company is not GAAP profitable, but they are cashflow positive even if you back out Stock Based Compensation. For me, Global E doesn't check the boxes of GARP nor Value which is where I'm most comfortable, but it's too intriguing an opportunity not to dabble. If you're looking to fill a spot for the speculative portion of your portfolio, I think Global E is worth a closer look, but be sure to position size accordingly.
Solving A Problem
If you didn't know, Global E operates an online platform enabling DTC cross border e-commerce. It's really an innovative tool solving an obvious problem. Think of an American consumer looking to purchase an item directly from a French retailer, for example. The French retailer's website is likely to be in France's native language, French. An American consumer who doesn't speak French will have a very difficult time purchasing from the French retailer seeing as how they can't read French. This is where Global E offers a solution. Their platform enables the merchant's site (the French retailer) to be translated to the consumer's native language (the American). Global E takes a cut from each transaction facilitated through the platform. The company refers to this revenue as "service fees".
GLBE Growth (GLBE Annual Filing 2021)
What's interesting is that "service fees" make up only half of Global E's revenue stream. The other half is made up from "fulfillment services" which includes shipping and handling of goods. Shipping is complicated enough nationally, but is that much more inconvenient internationally. Think of the various rules and regulations a merchant would be required to know if shipping to multiple countries. For the merchant, it's a buy it, don't build it decision.
Here's a detailed description of Global E's revenue streams from their most recent annual filing :
Service fees revenue is generated as a percentage of the GMV that flows through our platform. Fulfillment services revenue is generated through our offerings of shipping and handling. We mandatorily bundle components of our integrated platform solution that we believe are essential to achieving improved sales conversion of our merchants’ international traffic. Our fulfillment services are offered on an optional basis, and thus merchants may choose to utilize or cease utilizing our fulfillment services, either in whole or for select markets, at any time and from time to time. Many merchants use our fulfillment services alongside our integrated platform solution due to convenience and competitive pricing achieved due to our economies of scale, while some merchants choose to use our integrated platform solution on a standalone basis. Service fees revenue generated from the use of our integrated platform solution on a standalone basis has increased over time, equaling $1.0 million (or 4.3% of service fees revenue), $2.6 million (or 5.2% of service fees revenue) and $8.4 million (or 8.7% of service fee revenues) for the years ended December 31, 2019, 2020 and 2021, respectively.
Impressive Growth
Global E is growing like a weed. For Q2 2022 , the company reported the following results:
- GMV of $534 million, an increase of 64% year over year
- Revenue of $87.3 million, an increase of 52% year over year, of which service fees were $39.3 million and fulfillment services was $48.0 million
- Non-GAAP gross profit was $36.5 million, an increase of 77% year over year
This is impressive growth considering the year started soft for Global E. In Q1 2022 , the company guided down for the full year 2022 due to macro headwinds from inflation, rising interest rates, and the war in Ukraine which are weighing on consumers globally. However, if you look beyond the horizon, you'll see Global E operates in a fast-growing market where they're poised to deliver for the long-term.
Exploding Cross Border E-Commerce
DTC is the latest craze. It seems every merchant is looking to cut out the middleman, from Nike ( NKE ) to Lululemon ( LULU ) to Tesla ( TSLA ). Companies such as Global E and Shopify ( SHOP ) provide the tools necessary to enable merchants, both large and small, to offer DTC. By the way, Global E is the exclusive partner of Shopify, who owns a 9% stake in the company, enabling cross border ecommerce for its many merchants.
Not only is Global E riding the waves of DTC, but they're also benefiting from an explosion in cross border ecommerce. A study completed by Report Ocean estimates the cross-border ecommerce market will 8x by 2030. To quote:
The global cross-border B2C E-commerce market size was US$ 765.73 billion in 2021. The global cross-border B2C E-commerce market size is forecast to reach US$ 6,209.29 billion by 2030, growing at a compound annual growth rate ( OTC:CAGR ) of 26.2% during the forecast period from 2022 to 2030.
For 2022, Global E expects to generate $2.5 billion in GMV, which means they currently have less than a 0.5% market share. I love the TAM, and adore the potential for Global E.
A Growing Pipeline
The growth in DTC and cross border ecommerce has enabled Global E to grow their customer pipeline as well. Global E's pipeline growth reminds me of the power of compounding . The more customers Global E lands, the more other brands take notice. Global E's reputation builds with each brand added to the platform, giving potential clients greater confidence in their platform solution. As the company adds larger and more well-known brands, they increase their own brand awareness amongst retailers. A sort of compounding effect.
In Q2 2022 alone, Global E added the following brands. Some of them you've never heard of, but some of them you have. In my opinion, this is positive because a year ago the list compromised mostly smaller, unrecognizable brands. The fact I now recognize half of them is a win for Global-e.
- Disney - no description necessary
- Wimbledon - official merchandiser of professional tennis
- NOBULL - training apparel brand and sponsor of CrossFit
- drew house - Justin Beiber's fashion brand
- SKKN - Kim Kardashian brand, SKIMS already a customer of Global E
- Zenith - luxury watch brand
- Freshly Cosmetics - Spanish cosmetics brand
- Rag & Bone - fashion brand
- Zadig & Voltaire - fashion brand
Here's some additional color from Nir Debbi, Global E's co-founder and President, from the company's Q2 2022 earnings call:
So we are at the initial stages of penetration into APAC, but we are very, very confident looking at the future, as we see the pipeline of new bookings being I would say, going from strength to strength over the quarters. I recently visited Tokyo, Japan for the event we had with our partner Trans Cosmos and we've seen extensive interest from amazing Japanese brands looking to go D2C. We've seen tremendous success in building a pipeline in Australia, fueled by our partnership with Australian Post and the DHL team in Australia.
So basically, in terms of the growth in pipeline, it starts from, I would say, the demo bookings that we've seen a substantial 2-digit increase and go throughout the funnel into the signings of new merchants, and I can tell you that year-over-year, we are at over 100% growth for the entire half one of 2022 and this momentum is - and Q2 is even higher than Q1 on that. So it's a substantial increase in new bookings, I would say that supports our, I would say, increased guidance into the second part of the year and also support our long-term goals.
Valuation
This is a speculative play, no doubt about it. Global E is unprofitable from a GAAP perspective and barely profitable from an Adjusted EBITDA perspective. Typically, I tend to stay away from companies that are only profitable after a pencil-whip of the income statement. Global E falls into this category, but I like the opportunity and think it's worth the risk.
Global E's unprofitability makes valuation difficult. I'm going to go all the way to the top line and base the valuation on P/S. I will use Shopify as a gauge for Global E.
For 2022, Global E has guided to revenue of around $420 million, which is a 71% increase over 2021. I'll assume they'll continue to experience robust growth the next few years, but with growth moderating to 20% annually by 2028. Currently, Global E's P/S is 15 compared to Shopify's P/S of 8. Assuming Global E's P/S settles near 7 within the next 5 to 7 years, I put a 2030 price target of $142 on Global E. From a starting price of $30, this equates to a 25% CAGR.
GLBE P/S Valuation (Author's personal data)
Bear Case
I recognize there are a lot of "ifs" in the valuation above. A 25% CAGR on Global E could very well be a pipedream. Here's my bear case for why this may be the case.
Currently, Global E is facing macro headwinds like every company on earth. They're particularly vulnerable because most of their brand partners offer discretionary goods and, for the merchant, cross border sales are likely to be the first to go. A prolonged recession or persistent macro headwinds will impact merchants, which will impact Global E. Cash going out without cash coming in is a recipe for secondary stock offerings which will dilute existing shareholders. With a volatile history, I doubt the market treats such an offering with favorability.
There's also no guarantee the trend in DTC or cross border ecommerce will continue. Continued geopolitical tensions could result in nations not allowing cross border commerce whatsoever. This would also have a negative impact on Global E's top line.
In short, the revenue growth I've assumed in the P/S valuation may have little merit. Buyer beware.
Conclusion
Global E is an innovative company offering a solution to an obvious problem. They're riding tailwinds from a growth in DTC and cross border ecommerce and are adding more and more reputable brand partners. Revenue is growing like a weed, and I believe this trend will continue for the next several years. In my opinion, with a path to 5x by 2030, Global E is a good choice for the speculative portion of your portfolio. My recommendation is to hold your nose and buy, but to allocate only a small percentage of your funds. Then forget about it for the next 5 years. Global E is not one of those stocks you want to watch every day. If you decide to, I suggest you get some Dramamine.
For further details see:
Global-e Online: Worth The Risk, But Position Size Accordingly