Is GigaCloud Technology Stock a Good Buy?

Prior to the COVID-19 pandemic, China gained status as the world's preeminent manufacturing powerhouse. Commanding 28.7% of all manufacturing output, no other country comes close to challenging its hegemony. However, for enterprises engaged in business-to-business (B2B) transactions, it raises an uncomfortable dilemma. Essentially, certain products — because of their size and bulkiness — don't lend themselves to cross-border shipments. But that's where GigaCloud Technology Inc. enters the frame to address this pain point.

Featuring an end-to-end e-commerce marketplace for large parcel merchandise, GigaCloud brings together two main parties — manufacturers of bulky goods (such as furniture, home appliances and fitness equipment) that are typically located in Asia and resellers of those goods, located in Asia as well as the U.S. and Europe. Mainly, the beauty of the GigaCloud business model is that it facilitates cross-border transactions to end customers at a fixed price.

GigaCloud delivers efficiencies to international shipments, enabling higher transaction volumes because all the underlying supply chain mechanisms occur under one umbrella. The platform promotes product discovery as resellers now have greater options via GigaCloud than through traditional transactional marketplaces.

The company democratizes the global distribution process. Previously, cost considerations prevented resellers from engaging in bulky goods. Now, with cross-border transactions occurring seamlessly and through a predictable fixed-price framework, manufacturers and resellers can conduct business at a scale never before imagined.

Still, as with any initial public offering (IPO) — or the first time a private enterprise distributes its equity shares to retail investors — significant risks abound. Below are the key pros and cons to consider.

What Does GigaCloud Technology Do?

Billed as a pioneer of global end-to-end B2B ecommerce solutions for large parcel merchandise, GigaCloud Technology brings together goods manufacturers and resellers, removing distribution-related friction points to enhance growth opportunities on both ends of the business ecosystem. Management refers to its B2B platform as the GigaCloud Marketplace, which integrates everything from discovery, payments and logistics tools into one easy-to-use platform.

According to the company’s Form F-1 Registration Statement, GigaCloud’s “global marketplace seamlessly connects manufacturers, primarily in Asia, with resellers, primarily in the U.S., Asia and Europe, to execute cross-border transactions with confidence, speed and efficiency. We offer a true comprehensive solution that transports products from the manufacturer’s warehouse to end customers, all at one fixed price.”

Based in Hong Kong, GigaCloud first launched its marketplace in January 2019, focusing first on the global furniture market. Since then, management expanded operations to include other retail sectors like home appliances and fitness equipment.

Per its Form F-1, “GigaCloud Marketplace is one of the fastest growing large parcel B2B marketplaces with over $190.5 million, $414.2 million and $438.1 million of gross merchandise value, or GMV, transacted in our marketplace in 2020, 2021 and the 12 months ended March 31, 2022, respectively.”

In addition, to enhance its overall interfacing experience, management states that the company sells its own inventory (or 1P) through the GigaCloud MarketPlace and to and through third-party e-commerce websites. These include Rakuten Group Inc. (PINK: RKUNY), Amazon.com Inc. (NASDAQ: AMZN) and Walmart Inc. (NYSE: WMT) in the U.S. and Wayfair Inc. (NYSE: W) in the U.K.

GigaCloud disclosed that it uses artificial intelligence (AI) software “that generates seller ratings and credit profiles through volume data.” Additionally, this intelligent protocol “optimizes routing by organizing incoming orders and rebalancing inventory levels” within the company’s warehousing network.

When Did the GigaCloud Technology IPO?

GigaCloud inked its name on the IPO calendar on Aug. 19, 2022. Shares trade on the Nasdaq exchange under the ticker symbol GCT. Aegis Capital Corp. represented the sole bookrunner for the IPO.

GigaCloud announced the pricing of its IPO at $12.25 per Class A ordinary share. This rate hit the high end of the previously estimated pricing spectrum, which ran between $10.25 to $12.25. The company offered 2.94 million shares, leading to a total raise of slightly over $36 million before deducting expenses related to the new listing.

GigaCloud ended up offering around half a million more shares than previously anticipated. At these terms, the company commands a market value of $493 million.

Moving forward, it’s possible (though hardly guaranteed) that GCT stock could generate higher-than-normal interest for new listings issued this year. While 2021 represented a record IPO binge, with recent public enterprises raising an unprecedented $594 billion, the narrative so far this year has been downright morose. While public market debuts have trickled in recently, they were of the nano-capitalization fare.

Adding even more confirmation, data from FactSet revealed that throughout the first half of 2022, only three IPOs raised more than $500 million.

“The top 10 IPOs for the first quarter raised just $3.6 billion in total; in the second quarter, the total for the 10 largest IPOs was just $2.5 billion. Compare this to the fourth quarter of 2021 when the top 10 IPOs raised a staggering $25.8 billion,” in large part from the debut of Rivian Automotive Inc. (NASDAQ: RIVN).

And unlike recent new listings — many of which were downright speculative — GCT stock is actually tied to a profitable enterprise.

What Analysts Are Saying About GigaCloud Technology IPO

Given the more substantive nature of the GigaCloud IPO, a few independent analysts have weighed in on GCT stock. First, Vadim Kovalenko noted that as of March 31, 2022, GigaCloud had 21 warehouses in the U.S., Japan, U.K. and Germany. Further, in the trailing 12 months, the platform’s trade volume was $438 million. The numbers of active merchants and clients were 410 and 3,782, respectively.

Just as importantly, Kovalenko cited market research by Frost & Sullivan, which stated that the U.S. B2B e-commerce sector reached an estimated $1.3 trillion valuation in 2020. By 2025, experts project that this segment will hit $2.2 trillion. GigaCloud potentially enjoys a large total addressable market.

Content manager and journalist Corey Mann cited even more optimistic figures, noting that by 2027, the global B2B e-commerce market could command a valuation of $18.7 trillion by 2027.

“Moreover, the Asia Pacific currently holds the largest market share,” wrote Mann. “This is a good sign for GigaCloud as it continues to grow, no matter how big its piece of the pie is.”

Still, on the other end of the equation, it’s important to acknowledge that several East Asian countries have adopted stricter COVID-19 mitigation measures than their western counterparts. In particular, China has been especially draconian.

Indeed, it’s one of the reasons why market analyst Donovan Jones features a pensive outlook on GCT stock, grading it a hold. “Growth risks, a low margin business, uncertain Chinese regulatory environment and the potential for continued rolling COVID-19 lockdowns in China make me cautious on GCT,” wrote Jones.

GigaCloud Technology Financial History

GigaCloud Technology drives some confidence in the financials. Most notably, the company features strong growth over the past three years despite the ravages of the SARS-CoV-2 virus. In 2019, the company posted total revenue of $122.3 million. A year later, it rang up $275.5 million, and, in 2021, GigaCloud generated sales of $414.2 million.

More impressively, the e-commerce marketplace is a profitable enterprise. In 2019, it posted a net income of $2.9 million. In the next year, the bottom line reached $37.3 million, dipping down a bit in 2021 but still very much positive at $29.3 million.

GigaCloud Technology Potential

The concept of bringing together manufacturers and resellers to effectively engage in traditionally cumbersome parcel goods unlocks significant value across the entire retail supply chain. At a time when businesses are struggling for traction, such a platform might be a game-changer.

Pandemic-related disruptions — such as the sourcing of critical commodities — represented an ongoing problem, not just for GCT stock but for myriad other industries. GigaCloud’s business appears to have become margin constrained.

Between 2020 and 2021, revenue increased by over 50%. However, gross profit only increased a little over 19%. Until GigaCloud can return to a better margin profile, investors will likely be cautious about overexposure to GCT stock.

Where to Buy GigaCloud Technology Stock

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Thorough Due Diligence

Investors should evaluate GigaCloud Technology Inc.'s position in the B2B e-commerce market, its ability to handle cross-border transactions for large goods, and the risks associated with competition, regulations and the past COVID-19 pandemic. While the company has shown strong financial growth, margin constraints and pandemic-related disruptions pose ongoing challenges. Thorough research and caution are advised before investing in GCT stock.

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