This recent IPO could produce 3X returns in 5 years
Despite recent volatility, the S&P 500 is up 30% from last year, and companies looking to take advantage of this environment are going public at record rates. In the first three quarters of 2021, the market saw 1,635 initial public offerings (IPOs) raise a total of $ 331 billion.
In general, I use caution when considering recent IPO stocks. This is because I prefer to see a few quarters of financial data before making a decision. That being said, if I am particularly interested in a business, I can open a small position very early on. For example, 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 could triple over the next five years.
Great market opportunity
Domestic e-commerce is pretty straightforward. Merchants generally know 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 traders have to overcome a variety of obstacles, and the problem becomes more and more daunting with each new geography.
Global-E aims to keep things simple. Its platform integrates with a merchant’s online storefront, localizing language, prices, and payment methods to create a better experience for international buyers. The company also helps merchants navigate regulatory complexities such as tariffs, and provides shipping services, after-sales customer support, and returns management, making its platform an end-to-end solution. tip for cross-border e-commerce.
Most importantly, Global-E is fulfilling its mission. Its platform helps merchants increase conversion rates and international revenue (often by over 60%) in more than 200 destination markets. And that scale gives the company an edge, allowing it to collect a wealth of consumer data from hundreds of different geographies. Global-E then relies on artificial intelligence to make sense of this information, bringing out relevant information for traders market by market.
This creates a flywheel effect: As Global-E powers more e-commerce stores, the company collects more data. This makes its AI models smarter, improving its ability to optimize content for international buyers. This virtuous circle should be a powerful engine of growth in the years to come.
Why is this important? Forrester Research estimates that cross-border e-commerce will represent a market of $ 736 billion by 2023. This puts Global-E in front of a huge opportunity.
Not surprisingly, Global-E’s value proposition resonates 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 is typically above 98%, which means less than 2% of customers are unsubscribed every year. Over the same time period, their net retention rate has typically been over 140%, meaning the average customer is actually spending more over time.
Collectively, these actions have resulted in strong financial performance. In the last quarter, revenue increased 92% to $ 57.3 million, and Global-E generated positive free cash flow of $ 6.8 million, testifying to the sustainability of its business model.
More importantly, I believe the company can maintain this momentum for years to come. In April 2021, Global-E signed a partnership agreement with Shopify, where 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 either case, these deals are expected to attract new sellers to its platform, helping Global-E capitalize on its huge market opportunity.
Growth potential triples
Global-E helps merchants increase sales in 200 geographies, with support for 25 languages and 100 currencies. Its platform also works with 150 payment processors and 20 shipping carriers, providing customers with the ability to meet a wide range of consumer preferences. This breadth and scale sets Global-E apart from its competitors.
With that in mind, if the company continues to run, I think its market cap could easily triple over the next five years, from $ 9.5 billion today to $ 28.5 billion by now. 2026. That’s why this growth stock is at the top of my watch list.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.