On Friday, Morgan Stanley adjusted its stance on Global-E Online Ltd (NASDAQ:GLBE), downgrading the stock from Overweight to Equalweight and setting a new price target of $40.00. The firm's analyst cited several reasons for the change, noting shifts in market perception and stock performance.
The analyst's initial upgrade to Overweight in May was based on three main factors: concerns over potential delays with enterprise merchants, underappreciation of enterprise warrant amortization dynamics, and worries about functionality gaps with Managed Markets. These concerns have since been alleviated, with the market's expectation for the company's gross merchandise volume (GMV) contribution aligning with more optimistic projections.
Despite these positive developments, the analyst remains confident in Global-E Online's trajectory. The company is expected to benefit from recent and upcoming large enterprise merchant wins, which should contribute significantly to its performance in the second half of 2024 and into 2025. Additionally, the analyst believes that the Markets Pro offering could perform at the higher end of expectations.
Global-E Online's stock has shown significant strength, with a 23% increase since the first quarter 2024 earnings report on May 20, which marked a year-to-date low compared to peers. This growth has been more pronounced than peers, which have seen a 14% increase over the same period. The company's valuation has also expanded, with its enterprise value to EBITDA (EV/EBITDA) multiple rising to approximately 22 times the 2026 estimate, from around 18 times post first quarter earnings.
However, Morgan Stanley now sees the risk-reward balance for Global-E Online as more even. The stock's recent performance and the potential for increased volatility in same-store sales have led to the decision to downgrade the rating and adjust the price target. The analyst concludes that while the company trades at a slight discount to peers and expects accelerated GAAP EPS growth in 2025 and 2026, the current valuation reflects a more balanced view of the stock's potential risks and rewards.
In other recent news, Global-E Online reported impressive second-quarter financial results, surpassing consensus expectations. The company achieved a record non-peak quarter Gross Merchandise Value (GMV) of $1.08 billion, a 31% year-on-year increase, and saw a significant rise in revenue of 26% to $168 million. Despite these positive results, Global-E revised its 2024 GMV and revenue guidance downward due to a significant customer bankruptcy and a dip in consumer sentiment.
KeyBanc and BofA Securities both adjusted their outlook on Global-E, reducing their price targets but maintaining positive ratings on the stock. The analysts' revisions were primarily due to the bankruptcy of a major customer, Ted Baker, and a general decline in consumer spending.
However, Global-E's sustained top-line growth trajectory, bolstered by a strong pipeline of new clients, supports a positive outlook. The company's new merchant onboarding and strategic partnership with Shopify (NYSE:SHOP) have been successful, with Global-E expecting to accelerate its growth in 2025. These are recent developments that investors should note.
InvestingPro Insights
Global-E Online Ltd (NASDAQ:GLBE) presents a mixed financial picture, aligning with Morgan Stanley's recent downgrade to Equalweight. According to InvestingPro data, the company's revenue growth remains strong, with a 27.51% increase over the last twelve months as of Q2 2024, reaching $632.89 million. This robust growth supports the analyst's expectation of significant contributions from large enterprise merchant wins in the near future.
However, profitability remains a concern. An InvestingPro Tip highlights that GLBE is not profitable over the last twelve months, with an adjusted operating income of -$98.57 million. This aligns with the company's current P/E ratio of -57.07, indicating that investors are paying a premium for future growth potential rather than current earnings.
The stock's valuation metrics, as pointed out by InvestingPro Tips, show that GLBE is trading at high multiples across various measures, including EBITDA, revenue, and Price/Book ratios. This supports Morgan Stanley's observation of the stock's expanded valuation, which has led to a more balanced risk-reward profile.
On a positive note, analysts expect GLBE to become profitable this year, and net income is anticipated to grow. These expectations, combined with the company's strong cash position relative to debt, suggest potential for financial improvement in line with the projected acceleration in GAAP EPS growth for 2025 and 2026.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Global-E Online, providing a deeper understanding of the company's financial health and market position.
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