GigaCloud’s business shines, but investors still rain on its parade

The B2B e-commerce company unveiled a $46 million share repurchase program in its latest move to revive its flagging share price

Key Takeaways:

• GigaCloud’s revenue doubled in the second quarter and its net income grew 46.7%, as GMV in its marketplace topped $1 billion for the 12 months through June
• Investors seemed to ignore the upbeat report and a new stock repurchase announcement last week, bidding the company’s shares down in the days after the latter

By Edith Terry

Sometimes you just can’t win. Whether due to recent turbulence in China tech stocks, overall weakness in China’s manufacturing sector, runaway ocean freight costs or a downturn in the U.S. furniture market, investors have largely shunned GigaCloud Technology Inc. (GCT.US) since its market debut almost exactly two years ago.

They continued to shun the cross-border B2B e-commerce company last week after it announced a relatively large new share repurchase, about a month after also ignoring its latest stellar results that showed triple-digit revenue growth and strong double-digit profit growth in the second quarter.

With operations based in the Eastern Chinese city of Suzhou, GigaCloud is a B2B e-commerce company whose main business is sourcing bulky items such as furniture, home appliances and fitness equipment from China and selling them to resellers in the U.S., Europe and Japan. Its shares have lost nearly 60% of their value since it announced its first-quarter earnings in March. Its latest second-quarter results did nothing to arrest the slide.

Last week’s $46 million share repurchase briefly halted the selloff before the downward pressure resumed.

The investor scorn has left GigaCloud’s shares trading at a meager price to earnings (P/E) ratio of just 6.7. That’s less than a third of the 21 for e-commerce giant Alibaba (BABA.US; 9988.HK), which also operates a B2B marketplace, and is light years behind the 69 for global giant Shopify (SHOP.US).

GigaCloud has tried a bit of everything to win over investors, including an earlier share repurchase in June 2023. Some of its efforts have produced results, but most have not.

To counter auditing concerns by the Public Company Accounting Oversight Board (PCAOB), which works closely with the U.S. securities regulator, GigaCloud moved its official headquarters from Suzhou first to Walnut, then to El Monte, both in the Los Angeles area. It recently switched its CFO by replacing David Kwok Hei Lau with interim head Erica Wei, a 10-year veteran with PwC in Los Angeles.

It paid $85 million last November for Noble House Furnishings, a bankrupt B2B distributor of indoor and outdoor home furnishings based in Chatsworth, which came with inventory and 2.3 million square feet of warehouse space in the Los Angeles area. The same month it also acquired Florida-based Wondersign, a cloud based digital signage and catalog company for $10 million.

In the second quarter, it launched a new branding as a service (BaaS) platform for furniture suppliers, Christopher Knight Home, taking it through the pilot stage with a core group of marketplace sellers.

It seems to have successfully countered headwinds from a short-seller report released in May by Grizzly Research, which claimed the company’s web traffic failed to match its reported growth. GigaCloud’s response noted that unlike B2C companies, its customers were typically resellers rather than consumers and that the 130,000 visitors to its website in April 2024 were consistent with its reseller end-market.

While its own progress looks solid enough, there are also some things it can’t change that are undermining its business. Those include broader weakness in the U.S. market, where retail furniture sales fell 7% year-over-year in the first half of 2024. On top of that, container freight rates increased dramatically from $1,342 per 40-foot container in October 2023 to $5,900 in July this year, the highest price on record, according to data aggregation service Statista.

Improving financials

Despite those macro headwinds, the company’s own financials keep getting better. GigaCloud’s revenue rose 103% year-on-year to $310.9 million in the second quarter, marking a sixth consecutive quarter of expansion, according to Chairman Wu Lei. Its net income for the period also rose 46.7% to $27 million.

Its only key metric that showed some weakness was its net income margin of 8.7%, which was down from 12% a year earlier. But even there, the drop was mostly due to $13.9 million in share-based grants during the quarter from year-end bonuses, versus just $1.5 million in similar grants a year earlier. The latest revenue growth extended a 43% revenue increase in 2023 to $703.8 million, with net income up 292.1%, to $94.1 million that year.

Speaking to investors on his company’s earnings call last month, Wu called GigaCloud’s business model “unique,” and attributed the strong second-quarter revenue growth to its “new business model that obviously proved to be one that is providing better efficiency in the supply chain.”

The company’s revenue comes from both products and services. Its products are sold both over its own GigaCloud Marketplace platform, and also through third-party e-commerce websites. It also offers a range of services to buyers and third-party sellers, including not only e-commerce services but also things like ocean transport and warehousing. Its second-quarter revenue from products was $225.5 million, up 105.2%, while its revenue from services was $85.4 million, also nearly double the $43.3 million in the second quarter of 2023.

Gross merchandise value (GMV) for transactions on GigaCloud’s platform increased 80.7% to $1.1 billion for the 12 months through June 30, up from $607.5 million from the previous 12-month period. GMV for third-party sellers in its marketplace grew 76.1% to $571.9 million during the 12-month period, representing 52.1% of total GMV, with the number of active third-party sellers up 39.8% to 930.

GigaCloud’s second-quarter revenue of $311 million easily beat its own earlier guidance for $265 million to $280 million given out three months earlier. It’s not uncommon for companies to give such conservative estimates to lower expectations, with the hopes that exceeding such forecasts will boost their stock.

GigaCloud’s stock got a small lift the day of the second-quarter earnings announcement last month, though they gave back all of that and more the next trading day. Similarly, they rose briefly after last week’s share repurchase announcement, but then gave all of that back and more in the following days.

The company estimated its revenues for the third quarter would be between $266 million and $282 million, which would represent a 54% increase from the year-ago figure of $178.2 million at the midpoint. That would mark a sharp slowdown from the latest quarterly growth, though it’s also quite possible the company is being conservative again with the latest estimate.

One investor who posted on GigaCloud’s comments page on Yahoo Finance commented, “There is no doubt that shorts are in control at the moment, but as far as I am concerned, I am holding and remain optimistic on the longer time frame.” All five analysts surveyed by Yahoo Finance in August also rated the company a “buy.” So clearly some people are bullish on the company, or at least believe its stock is quite a good value at its current price.

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