By Leo Sun
KEY POINTS
- GigaCloud’s stock has nearly quadrupled from its IPO price.
- Its growth is decelerating and its margins are declining.
- GigaCloud could be turning into another meme stock.
The Chinese e-commerce solutions company soared after going public.
GigaCloud Technology($GigaCloud Technology Inc(GCT)$ )has taken investors on a wild ride since its initial public offering.
Those post-IPO gains were stunning. But is GigaCloud becoming anothermeme stock like AMTD Digital, the Hong Kong-based fintech company which saw its stockinexplicably skyrocketfrom $7.80 to over $2,500 after its IPO last month? Or is GigaCloud's recent rally actually sustainable?
What does GigaCloud do?
GigaCloud bundles together discovery, payments, and logistics services in an end-to-end marketplace. It fulfills orders for "large parcel merchandise" like furniture, home appliances, and fitness equipment.
Its marketplace is a B2B (business-to-business) platform that connects product manufacturers (primarily located in Asia) with resellers across other regions. Management says that product manufacturers consider its marketplace an "essential sales channel" that helps them "transact without borders."
GigaCloud is based in Hong Kong, but it actually generates most of its revenue in the U.S. It doesn't expect to be targeted by Chinese regulators, since it doesn't operate in a "sensitive" industry, and it plans to switch from its Chinese auditor to an American one to avoid a potential delisting.
How fast is GigaCloud's business growing?
GigaCloud's growth in gross merchandise volume (GMV), active third-party sellers, active buyers, and spend per active buyer all decelerated significantly last year:
Metric |
2020 |
Growth (YOY) |
2021 |
Growth (YOY) |
|---|---|---|---|---|
Gross Merchandise Volume |
$190.5 million |
437% |
$414.2 million |
117% |
Active third-party sellers |
210 |
196% |
382 |
82% |
Active buyers |
1,689 |
283% |
3,566 |
111% |
Spend per active buyer |
$112,777 |
40% |
$116,150 |
3% |
The company attributed that slowdown to challenging year-over-year comparisons to the pandemic, which had temporarily boosted sales of home furnishings as more people stayed indoors. The slowdown was also exacerbated by supply chain constraints and disruptions. As a result, revenue growth cooled off, gross margins contracted, and operating and net profits declined:
Metric |
2020 |
Growth (YOY) |
2021 |
Growth (YOY) |
|---|---|---|---|---|
Revenue |
$275.5 million |
125% |
$414.2 million |
50% |
Gross margin |
27.3% |
N/A |
21.6% |
N/A |
Operating income |
$44.2 million |
820% |
$39.4 million |
(11%) |
Net income |
$37.5 million |
1,211% |
$29.3 million |
(22%) |
Is it too late to buy GigaCloud's stock?
Unlike AMTD Digital, GigaCloud actually operates a stable business model with irons in the fire. It's also backed by the Chinese e-commerce giantJD.com, which owns 12% of the company.
However, GigaCloud's stock has clearly gotten ahead of its business, which remains heavily exposed to high freight costs, supply chain constraints, and trade tensions between the U.S. and China. Simply put, its post-IPO rally was unjustified, and it's too late to chase this high-flying stock.
Resource: the Motley Fool
Comments
Not at all, it may have more to drop.