I've been on the hunt lately on trying to find any discounted gems in the markets. I'm taking a longer-term educational perspective on crypto, but scoping out anything in the equities first. One stock that was on my radar was GLBE... or Global E Online.
I had this on my radar for some time, and I actually came across it as a recommendation from my fulfillment center on an eCommerce company I'm involved in. They gave me four recommendations – two of which were Global E companies (the other being Flow.io, which was acquired by GLBE).
Anyways, let's dive right into it... can this be the next Shopify stock?
GLBE's mission statement, as stated in its F-1, is to "make global e-commerce 'border agnostic.' In normal terms, it's basically a platform that allows merchants to access international e-commerce sales without the friction of currency, banking, import duties, customer service, fulfillment, etc. It allows (international) customers to shop much easier – i.e. without surprise duties. You've likely experienced this from the consumer side. But, from the business side, I can tell you it is pain in the ass (and often not worth it) to deal with international shipping. But, international e-commerce is growing at a faster rate... hence why we're doing this analysis.
The reason why, as an online store, you'd get increased conversions, is quite simple – localized pricing, checkout, shipping options, payment options (i.e. AliPay), and even customer service.
They have some large ecommerce players signed up on this platform, which you can see on their website, including Forever 21, Harvey Nichols, and they recently signed up the LVMH group, which includes Sephora Asia.
There are a lot of strategic partnership, including one with Facebook... and more importantly, Shopify. Shopify acquired an interest in the company, that is worth about 5.5%, but also holds additional warrants for 11.85 million shares. Over the next two years, this could bring Shopify's stake in the company to nearly $500 million (at current prices).
Global E is founder-led... always a good thing. It was founded in 2013 by Amir Schlachet, Shahar Tamari and Nir Debbi – it's an Israeli company. Stalking their LinkedIn profiles, it seems they have technology backgrounds, but this is their first entrepreneurial venture. But, with investors like Shopify backing them, it's a bit more comforting. The Israeli tech scene is probably still under many people's radars, so I wouldn't underestimate them. They've launched in several countries, and achieved impressive Gross Merchandise Value (GMV) growth.
Key Performance Indicator (KPI)
In terms of KPIs, they look at Net Dollar Retention, to asses customer stickiness... which is consistently above 100%. But, the one tying most to revenues (which I'm concerned with) is GMV. This is also consistent with our Shopify analysis – if you've checked it out – which allows us to compare the two.
GMV has increased 100% in 2020, and I'm estimating it's increased about 50% in 2021. That being said, let's dive into our valuation.
We're primarily going to forecast GMV to derive our revenue forecasts. But, before we do that, just for your knowledge, I think it's worth understanding the breakdown of revenues. Although, it's all reported in one revenue segment, they have two sources of revenues:
Service Fees – for transactions taking place on their platform, for which they receive a fee
Fulfillment Fees – for shipping goods to end consumers on behalf of merchants
I would like to see service fees increasing, which they have been since 2018, because this is a higher margin business. I'm not interested, to be honest, in investing in a fulfillment company. I'm looking for a tech company.
As a reminder, all valuation sheets are available to premium members of The Hawk Letter and Discord. I highly recommend you join, to make your own assumptions and investment thesis :)
As with Shopify, we start by analyzing growth in GMV and then forecasting that. What I personally did, was take a look at Shopify's GMV and compare it that of Global E... and assign a multiple. Remember we did the same thing with Shopify vs. ecommerce global growth? So it's still correlated with that set of data. I landed on a multiple of 1.25. BUT, this is a conservative scenario, in my opinion, because we know that multiple is much higher in recent quarters. In Q3'21 for example, it was nearly 2.5x... meaning GLBE transactions grew 250% faster, relative to Shopify's growth.
So, we'll take a look at a scenario where we use a higher multiple, as a bull case. But, assuming this base case, and we use Shopify's P/E and P/S current multiples and average them, we get a price target of $50; a DCF model gives me a fair value of $80... after normalizing and giving weight to a compression or normalization of other valuation multiples, I get a price target of $43... not a lot of upside from here, but for a growth company there is a lot of uncertainty in the valuation – which is why I baked in the most conservative case here.
Should we 2x the growth rate of Shopify, we get a price target of $65.
I think the latter scenario is very possible, because it's a much smaller company than Shopify, and more exposed to international ecommerce only... which in some cases is growing much faster than USA. However, the clear opportunity here is China. But, I don't think Global E is providing any real solution in China with Tmall being the preferred cross-border option for many brands. I don't think, realistically, they'll be able to break into that barrier very easily.
Overall, I think is a very exciting company. There is definitely potential here to "buy the dip". There are questions around e-commerce growth, but Global E is providing a solution to most merchants to keep growing by fulfilling internationally.
It's more appealing, to me, than Shopify – though, admittedly a much riskier play. For that reason, I would go with small allocation only. It's a big bet, for a multi-bagger – which, sometimes you have to make. And, if there is more certainty, you're most definitely paying a lot more. I wouldn't say it's a "no brainer" or one of my highest conviction names; but, it makes sense to me... it is investable.
That being said, I would consider starting a position on any red days we see ahead. If you're interested in being up-to-date on the plays, consider joining the Discord. Hope to see you there!
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