Despite recent volatility, the S&P 500 is up 30% over the past year, and companies looking to take advantage of that environment are going public at record rates. Through the first three quarters of 2021, the market has seen 1,635 initial public offerings (IPOs) raise a total of $331 billion.
In general, I exercise caution when considering recent IPO stocks. That’s because I prefer to see a few quarters’ worth of financial data before making a decision. That being said, if I’m particularly interested in a company, I may open a small position early on. For instance, Global-E Online (NASDAQ:GLBE) went public in May 2021, and it’s at the top of my watchlist.
Here’s why I think this recent IPO stock could grow threefold in the next five years.
Big market opportunity
Domestic e-commerce is fairly straightforward. Merchants are typically familiar with the local language, currency, and consumer preferences, and they don’t have to worry about international regulations. However, cross-border e-commerce is much more complicated, as merchants need to overcome a variety of barriers, and the problem only becomes more daunting with each new geography.
Global-E aims to simplify things. Its platform integrates with a merchant’s online storefront, localizing the language, pricing, and payment methods to create a better experience for international buyers. The company also helps merchants navigate regulatory complexities like customs duties, and it provides shipping services, after-sale customer support, and returns management, making its platform an end-to-end solution for cross-border e-commerce.
More importantly, Global-E delivers on its mission. Its platform helps merchants boost international conversion rates and revenue (often by more than 60%) in over 200 destination markets. And that scale gives the company an advantage, allowing it to collect troves of consumer data from hundreds of different geographies. Global-E then leans on artificial intelligence to make sense of that information, surfacing relevant insights for merchants on a market-by-market basis.
This creates a flywheel effect: As Global-E powers more e-commerce stores, the company collects more data. This makes its AI models more intelligent, enhancing its ability to optimize content for international buyers. This virtuous cycle should be a powerful growth driver in the coming years.
Why does that matter? Forrester Research believes cross-border e-commerce will be a $736 billion market by 2023. That puts Global-E in front of a massive opportunity.
Not surprisingly, Global-E’s value proposition is resonating with modern businesses. The company already has 522 merchants on its platform, up 18% through the first half of 2021. And since 2018, its gross retention rate has typically been above 98%, meaning less than 2% of clients churn each year. Over the same period, its net retention rate has typically been above 140%, meaning the average client is actually spending more over time.
Collectively, those metrics have translated into a strong financial performance. In the most recent quarter, revenue rose 92% to $57.3 million, and Global-E generated positive free cash flow of $6.8 million, evidencing the sustainability of its business model.
More importantly, I think the company can maintain this momentum in the coming years. In April 2021, Global-E signed a partnership deal with Shopify, whereby it will be the exclusive provider of cross-border solutions to Shopify’s 1.7 million merchants. The company also has a partnership with Facebook, and in both cases, these agreements should bring new sellers to its platform, helping Global-E capitalize on its massive market opportunity.
The potential for threefold growth
Global-E helps merchants grow sales across 200 geographies, with support for 25 languages and 100 currencies. Its platform also works with 150 payment processors and 20 shipping carriers, giving clients the flexibility to address a wide range of consumer preferences. That breadth and scale sets Global-E apart from its rivals.
With that in mind, if the company continues to execute, I think its market cap could easily grow threefold in the next five years, from $9.5 billion today to $28.5 billion by 2026. That’s why this growth stock is at the top of my watchlist.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.