A High-Tech Big Parcels Platform Sees Inflection Point

Let’s look first of all at what GCT does.

GigaCloud Technology Inc is a pioneer of global end-to-end B2B [business to business] ecommerce solutions for large parcel merchandise. The Company’s B2B ecommerce platform, which it refers to as the “GigaCloud Marketplace,” integrates everything from discovery, payments and logistics tools into one easy-to-use platform. The Company’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. The Company offers a comprehensive solution that transports products from the manufacturer’s warehouse to the end customer’s doorstep, all at one fixed price. The Company first launched its marketplace in January 2019 by focusing on the global furniture market and has since expanded into additional categories such as home appliances and fitness equipment.

GigaCloud Technology website

Despite floating in the teeth of a global bear market in August 2022 GCT shares were initially received with great enthusiasm by the stock market.

GigaCloud Technology (GCT) shares soared 73.22 percent in their NASDAQ debut today – touching an intraday high of $21.22, up $8.97 from their $12.25 IPO price. The flight took off at the opening trade. GigaCloud Technology shares opened at $19.20 on Thursday (Aug. 18, 2022). At the first tick, the stock was up $6.95 or 56.73 percent from its IPO price. GigaCloud Technology, a global B2B ecommerce platform for home appliances and other big items, increased the size of its IPO and priced it at $12.25 – the top of its $10.25-to-$12.25 range – on Wednesday night (Aug. 17, 2022). A total of 2.94m Class A ordinary shares were priced, up from 2.45m shares in the prospectus. The IPO raised $36m. 

IPOScoop.com, 18 August 2022

As can be seen from the chart initially it was all downhill from there with the price falling to a low point of almost $4 in November 2022. Since then they have been battling higher with a notable acceleration in the uptrend recently. We can see why from studying the latest quarterly results, which the CEO describes as representing an inflexion point for the business.

2023 and the fourth quarter in particular, have marked a significant inflexion point for GigaCloud, which has changed the trajectory of the business and that we believe will change the way people think about the industry. We have jumped an order of magnitude in the scale of our business and the potential of our supplier fulfilled rating model. On the top line, we saw revenue increase to $244.7m for the quarter, up approximately 95pc period-over-period. And for the full year revenue increased to $703.8m, an increase of approximately 44pc from 2022. While these are certainly impressive results, especially keeping in mind that the Noble House transaction did not close until 1 November. We believe that we have still not seen the full power of our business synergy.

Larry Wu, CEO and founder, Gigacloud Technology, Q4 2023, 18 March 2024

The business is scaling rapidly.

For the period ending December 31, 2023. Our GigaCloud Marketplace GMV [gross merchandise volume] grew approximately 53pc year over year to $794.4m in the TTM [trailing 12-month] period. On the seller side, the platform signed approximately 46pc increase in active 3P sellers, which ended at 815 for the quarter. As I’ve mentioned in the past, we see the expansion of our 3P ecosystem as a crucial aspect of our platform expansion and achieving scale in our supplier fulfilled retailing model. While we continue to devote a significant amount of time and resources into quickly vetting and onboarding new 3P sellers to our platform. We expect to see our acquisition and integration of Noble House continue to incrementally add a number of sellers to this number. Our 3P seller marketplace GMV rose dramatically in the quarter, increasing approximately 65pc year over year to $426.3m in the TTM period. Overall, this accounted for approximately 54pc of our total marketplace GMV in the same period. As I’ve mentioned on our prior calls, while our 1P approach remains an integral part of our business strategy, ultimately, we believe that the growth of our organic 3P GMV will be important to the scaling of our business, and we see positive momentum in our organic 3P growth rate continuing to drive a larger, more productive marketplace. On the buyer side, we saw active buyers increase to over 5,000 in the 12 months prior period, an increase of approximately 21pc year on year with average spend per active buyer accelerating 27pc to approximately $159,000. This further demonstrates that we’ve been successful in attracting the type of high-quality seller we want on our platform.

We expanded our warehouse footprint by over 100pc ending the year with 8.2m square feet of inventory space across 33 warehouses globally. We are seeing tremendous gains in our operational KPIs [key performance indicators] with our active buyers spend increasing over 27pc and the buyer base increasing over 20pc.

Iman Shrock, president, Gigacloud Technology, Q4 2023, 18 March 2024

The CFO gives us a more detailed breakdown of what is happening.

Our total revenues for the fourth quarter were $244.7m, which was an increase of 94.8pc year over year and approximately 37.3pc sequentially. On a full year basis, we generated $703.8m, a 43.6pc increase versus the year prior period. Breaking this down for just the fourth quarter, service revenue from GigaCloud 3P saw a 92pc year over year increase to $69.3m. Product revenue from GigaCloud 1P saw a 50.9pc year over year increased to $88.3m. And product revenue from off-platform e-commerce saw a 179.7pc year-over-year increase to $87m. These increases correspond with a 53.3pc year-over-year increase in total GigaCloud Marketplace GMV, which ended the full year at $794.4m on a TTM basis. Our gross profit for the fourth quarter was $69.8m, which was an increase of 161.4pc year over year and resulted in gross margin of 28.5pc versus 21.2pc in the year prior period. On a full year basis, gross profit increased by 127pc to $188.6m, which resulted in a gross margin of 26.8pc versus 17pc in the year prior period.

On the bottom line. Our net income for the fourth quarter was $35.6m, which was an increase of 184.8pc year over year from $12.5m. This resulted in basic and diluted earnings per share of $0.87 versus $0.31 in the year ago period.

David Lau, CFO, Gigacloud Technology, Q4 2023, 18 March 2024

The addressable market is enormous.

So as far as the total addressable market in the US, we’re looking at an industry within furniture, our biggest, vertical of almost $65bn and Europe has been a tremendous market for us as far as growth. And we have onboarded three new 3P sellers from different regions Turkey, Colombia and Mexico. So what we’re going to continue to see is a global evolution of the business in the GigaCloud marketplaces adopted in more and more marketplaces, while our primary market in the United States would still be the growth driver going forward, the European market will be right behind it.

David Lau, CFO, Gigacloud Technology, Q4 2023, 18 March 2024

Below is a graphic illustrating what GCT does.

The quotes above come from Q4 20. The presentation (the latest available) comes from Q3 2024.

Below are the operational highlights from Q4 2023.

Operational Highlights

• GigaCloud Marketplace GMV² was $794.4m in the 12 months ended December 31, 2023, an increase of 53.3pc from $518.2m in the 12 months ended December 31, 2022.
• Active 3P sellers³ were 815 in the 12 months ended December 31, 2023, an increase of 45.5pc from 560 in the 12 months ended December 31, 2022.
• Active buyers⁴ were 5,010 in the 12 months ended December 31, 2023, an increase of 20.5pc from 4,156 in the 12 months ended December 31, 2022.
• Spend per active buyer⁵ was $158,569 in the 12 months ended December 31, 2023, an increase of 27.2% from $124,692 in the 12 months ended December 31, 2022.
• 3P seller GigaCloud Marketplace GMV⁶ was $426.3m in the 12 months ended December 31, 2023, an increase of 65.4pc from $257.7m in the 12 months ended December 31, 2022. 3P seller GigaCloud Marketplace GMV represented 53.7pc of total GigaCloud Marketplace GMV in the 12 months ended December 31, 2023.

GCT, Q4 2023, 18 March 2024

Compare these with the trends for Q3 2024 (see below) and we can see that for most metrics growth accelerated in Q4 2023.

Operational Highlights

• GigaCloud Marketplace GMV² was $684.8m in the 12 months ended September 30, 2023, an increase of 40.8pc from $486.3m in the 12 months ended September 30, 2022.
• Active 3P sellers³ were 741 in the 12 months ended September 30, 2023, an increase of 43.3pc from 517 in the 12 months ended September 30, 2022.
• Active buyers⁴ were 4,602 in the 12 months ended September 30, 2023, an increase of 9.6pc from 4,198 in the 12 months ended September 30, 2022.
• Spend per active buyer⁵ was $148,793 in the 12 months ended September 30, 2023, an increase of 28.5pc from $115,834 in the 12 months ended September 30, 2022.
• 3P seller GigaCloud Marketplace GMV⁶ was $369.5m in the 12 months ended September 30, 2023, an increase of 67.0pc from $221.3m in the 12 months ended September 30, 2022. 3P seller GigaCloud Marketplace GMV represented 54.0pc of total GigaCloud Marketplace GMV in the 12 months ended September 30, 2023.

Strategy – Buy Gigacloud Technology (GCT)

As can be seen from the operational highlights above the trends are not only strongly positive but accelerating supporting CEO, Larry Wu’s, contention that the business is at an inflexion point.

This is a new strategy for Quentinvest to identify smaller companies with exciting potential. Financier, Jim Slater, used to say in favour of smaller companies v larger companies, that elephants can’t jump. Over recent years the Magnificent Seven have proved they can but catching shares earlier in their ascent offers exciting possibilities for capital gain.

In line with what I have been saying about spread bets being more efficient than daily funded bets (DFBs) for investors, I have switched all my DFBs to nine-month spread bets. An easy way to accomplish this is to ask IG to do it for you.

Share Recommendations

GigaCloud Technology. GCT. Buy @ $35.62