As an e-commerce company, Global-e Online is at the forefront of a market yet to be fully explored and holds substantial potential for expansion. Global-e Online (NASDAQ: GLBE) has seen an upswing in its popularity among investors in 2023, with a 115% spike in its share price. This substantial growth has been attributed to a combination of factors, such as the company’s accelerated revenue expansion, a decrease in inflation, a pause in interest rate hikes by the Federal Reserve, and a revival of investor confidence following a turbulent 2022 market.
Even though some investors might think that the current valuation is inflated and they have missed the chance to buy the stock at its 52-week low in late December 2022, Global-e remains an enticing investment for those looking for growth opportunities. Here’s why.
Emerging as a Leader in a Nascent Market
Global-e Online is carving a niche for itself in the cross-border e-commerce market, a sector projected by Statista to swell from $785 billion in 2021 to a colossal $7.9 trillion by 2030, growing at a compound annual growth rate (CAGR) of 29%.
Numerous retailers require assistance with international sales due to the intricacies of cross-border e-commerce. Global-e Online aids these retailers by providing a wide range of services simplify cross-border e-commerce, such as currency conversion, tax computation, shipping, customer support, and local marketing. Although not the first to offer these services, Global-e has distinguished itself from competitors by delivering a broader portfolio of services and prioritizing exceptional customer experience.
The 2022 acquisition of Borderfree from Pitney Bowes was a transformative move for Global-e. As a trailblazer in localized cross-border e-commerce services since 1999, Borderfree brought substantial knowledge and expertise. This acquisition boosted Global-e’s market share, reinforced its solutions for large corporations and prominent retailers, and consolidated its leadership stance. Moreover, it partnered with Pitney Bowes, securing valuable cross-border e-commerce logistics services for Global-e’s clientele.
Because of its leading role in this underexplored market, Global-e’s business has experienced rapid expansion over the past three years, recording an 84% CAGR from 2019 to 2022.
Revenue Not Yet Translating to Profit
Despite its revenue surging, Global-e has not yet generated a profit for several reasons. It’s in the early growth phase, which involves heavy investment in research and development, infrastructure, and marketing. While these investments are critical for the company’s growth and long-term viability, they haven’t led to profits yet, posing a significant risk in a volatile global economy.
Another barrier to profitability for Global-e Online is the competitive landscape it operates. With multiple companies providing services similar to Global-e Online’s, the company has to vie for price and service, challenging net income generation.
The risk for Global-e lies in the difficulties unprofitable companies often face when trying to raise capital, invest in growth, or weather financial downturns. They may also struggle to maintain competitive pricing or services, leading to potential customer attrition. They might not be able to offer competitive wages or benefits to employees, causing high turnover rates that can undermine productivity.
Global-e Online must address its profitability issues to sustain growth and succeed.
Path to Profitability for Global-e Online
Global-e has outlined several strategies for achieving profitability in the coming years.
Firstly, it plans to expand the number of merchants and increase spending on its platform, allowing it to spread its fixed costs over a more extensive customer base, potentially lowering cost ratios. It added 58% more retailers in 2022 compared to 2021, which bolstered its gross merchandise value (GMV) by 67% over 2021.
Additionally, the company aims to enhance its gross margin by negotiating improved shipping prices with logistics providers and cutting unnecessary expenses in other cost of goods sold (COGS) items. This vital profitability measure has been boosted over the last several years, with gross margin rising from 31.9% in 2020 to 38.7% in 2022.
Global-e also plans to cut operational expenses using cutting-edge artificial intelligence techniques to enhance service levels, automate processes, and improve efficiency, thus increasing profitability.
Investing in the Stock: A Viable Option
As the worst phase of the global downturn is likely over and the worldwide economy is recovering, investors might be willing to overlook the company’s current lack of profitability and focus more on its potential to capture market share in this immense market.
Given that the company’s revenue for Q1 2023 increased by 54% compared to the same quarter in the previous year, a 15.7 multiple of trailing 12-month sales seems justifiable for a high-growth company like Global-e Online. If you’re a growth investor willing to accept high risk, consider adding shares to your portfolio.
While Global-e Online has yet to profit, it’s positioning itself as a leader in the expansive cross-border e-commerce market. Its forward-thinking strategies and strong track record of revenue growth make it a compelling opportunity for growth-oriented investors. Although the company must address profitability concerns, the substantial potential in its yet-to-be-fully-tapped market segment and a resilient business strategy augurs well for its future. Global-e Online presents an investment opportunity worth considering for those with higher risk tolerance.
