E-commerce has grown into a massive industry. Despite beginning in the late 20th century, it continues to grow at a relatively rapid pace. Grand View Research forecasts a compound annual growth rate (CAGR) of 11% through 2030, taking the industry's global size to $5.4 trillion if the prediction holds.
Despite the increase, many of the largest e-commerce companies have morphed into conglomerates, encompassing many businesses. Thus, despite their e-commerce potential, these three companies will likely drive most of their growth from segments outside of that business.
1. Amazon
Most consumers and investors likely see Amazon (AMZN 0.75%) as an e-commerce company. That makes sense on some levels since online sales are the single largest source of revenue for the conglomerate.
But Amazon's financials imply that online sales could be a loss leader. Instead, the company derives revenue from other sources such as selling ads on the site, subscription services (namely Amazon Prime), and providing online seller services.
Moreover, investors should not ignore its cloud computing arm, Amazon Web Services (AWS). It accounted for only about 16% of net sales in 2023, but due to significantly higher margins, it contributed the majority of Amazon's operating income.
Overall, net sales in 2023 totaled $575 billion, 12% higher than one year ago. Thanks to slower growth in operating costs, Amazon returned to profitability, earning $30 billion in net income in 2023. It lost $3 billion in 2022.
Amid that recovery, the stock has risen by around 80% over the last year, and its 63 price-to-earnings (P/E) ratio is close to historical lows for the stock. As its smaller businesses propel relatively rapid profit growth, the stock should continue to drive significant returns for investors.
2. MercadoLibre
Latin American e-commerce leader MercadoLibre (MELI 10.05%) has had to innovate from the beginning to succeed. When it began in 1999, selling online presented a challenge to cash-based customers.
To that end, the company formed Mercado Pago to offer financial services that facilitated purchases. So successful was this segment that it offered services to businesses and customers outside of MercadoLibre.
The company extended that innovation to order fulfillment and delivery through Mercado Envios. This allowed it to package and ship goods to clients, bringing one-day and two-day delivery to areas that had not had that previously. Also, like Amazon, MercadoLibre derives revenue from selling advertising on its site.
Thanks to these separate businesses and the synergies created when they work together, MercadoLibre generated more than $14 billion in revenue in 2023, a 38% increase from year-ago levels.
Over that period, it also earned $987 million in net income, more than double the $482 million reported in 2022.
Amid recent struggles involving a one-time tax liability, growth in lower-margin first-party sales, and falling shipping revenue, the stock grew by only 8% over the last year.
Nonetheless, the P/E ratio of around 72 is near historical lows and compares well to its U.S. counterpart, Amazon. As MercadoLibre moves on from the tax liability and continues to capitalize on synergies in its home region, the stock is likely to continue moving higher.
3. Sea Limited
Sea Limited (SE 1.74%) was a highflier during the 2021 bull market, but like many tech stocks during that time, missteps and misfortune took a toll on the company during the subsequent bear market.
Its Shopee e-commerce segment dealt with failed market entries into Europe and Latin America. Also, with the gaming segment Garena, a ban on Free Fire in India led investors to sour on the stock. Consequently, shares are down by around 85% from their 2021 high.
The last earnings call offered some hope to investors. The company has emphasized building a logistics infrastructure in its home markets in Southeast Asia, which should bolster its competitive advantage in those markets, helping it maintain its market lead.
Moreover, Garena developed a version of Free Fire that addresses the security concerns of the previous version. That increases the likelihood that it will return to India, a market with 1.4 billion people.
Garena's recovery could be crucial to boosting revenue under generally accepted accounting principles (GAAP), which grew 5% in 2023 to $13 billion. If Garena could come closer to matching Shopee's 24% revenue growth and the 44% increase for its fintech arm, SeaMoney, such increases could revive interest in the stock.
Despite Garena's struggles, net income was $163 million, its first annual profit as a public company. Also, even with yearly declines, Sea Limited stock has risen by more than 30% in 2024.
As it recovers, the forward P/E ratio of 34 could draw investors amid rapid profit increases, eventually helping it return to all-time highs from 2021 and beyond.
