The e-commerce industry is on an upward trajectory, and several companies are profiting from this growth. Two such companies are Alibaba (NYSE:BABA), whose most important market is China, and MercadoLibre (NASDAQ:MELI), which operates primarily in Latin America.

Both companies have performed well on the stock market this year, with MercadoLibre's 103% year-to-date gain outpacing that of Alibaba at 56%. There's no doubt that both of these e-commerce giants are growth stocks worth considering. With that being said, let's dig into their respective businesses and figure out which of the two companies is the better buy today. 

The case for Alibaba

Alibaba's core commerce segment generates the bulk of its revenue, but there's also the company's cloud computing segment via Alibaba Cloud, and its digital media and entertainment segment, which is led by its online video platform Youkou. In short, Alibaba's revenue is diversified beyond e-commerce.

Small shopping cart containing small boxes on a laptop keyboard

Image Source: Getty Images.

Alibaba continues to post strong financial results. During Q2 of fiscal 2020 (its most recent quarter), Alibaba's core commerce segment grew once again, with its actual active consumers reaching 693 million -- a 15% year-over-year increase -- and its monthly active users (MAU) growing by 13% year over year and finishing the quarter at 755 million. Alibaba's other segments also performed well. For instance, Youkou's average daily subscribers increased 47% year over year, and Alibaba's cloud computing revenue grew by 64% compared to the year-ago period.

The company's total net revenue for the quarter was $16.6 billion, a 40% increase year over year. Alibaba's net income was $9.9 million, although that included a one-time gain of about $9.7 billion. Without this gain, the company's net income was $4.5 billion. It is worth pointing out that of all of Alibaba's segments, the only profitable one is its core commerce segment. 

Beyond its latest reported quarter, Alibaba has been growing its top line at a fast pace:

YOY Growth

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Revenue

54%

41%

51%

42%

40%

YOY= Year-over-year. Source: Alibaba

Alibaba faces several competitors across the range of its business. In its core commerce segment, arguably its biggest rival is JD.com. The company's Youkou platform also faces stiff competition from iQiyi and Tencent Video. However, the company generated about 85% of its revenue from its core commerce segment during the third quarter, which means its leadership position in this segment is what matters the most, and the company is well-positioned to continue growing that segment

The case for MercadoLibre

MercadoLibre operates the largest e-commerce platform in South America and generates the bulk of its revenue via this business. But beyond e-commerce, the company's ventures into the fintech industry via Mercado Pago -- which is the company's payment platform -- is also noteworthy. During the third quarter, Mercado Pago reached new heights, with its total payment volume (TPV) and its total payment transactions soaring by 66.2% and 118.5% year over year, respectively.

Furthermore, the company's gross merchandise volume (GMV), the total dollar amount of items sold on its platform, was $3.6 billion, a 22% increase year over year. MercadoLibre's unique buyers and live listings increased year over year by 25.7% and 44.5% respectively, and the company sold a total of 98 million items, 17.3% higher than the year-ago period. The company's total net revenue was $603 million for the quarter -- a 69.7% increase year over year -- but it recorded a net loss of $118 million. 

MercadoLibre has also been growing its top line rapidly:

YOY Growth

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Revenue

16.5%

19.5%

47.6%

62.5%

69.7%

YOY= Year-over-year. Source: MercadoLibre

MercadoLibre has been looking for ways to grow even more. The company raised $1.85 billion in a secondary common stock offering in March, and it secured a deal with PayPal, which made a $750 million investment in MercadoLibre. This partnership could lead to the companies combining their respective businesses in ways that could benefit both. As for headwinds, MercadoLibre might have to compete with Amazon more in its core market in the future, which is something investors should keep in mind. 

The verdict

Both of these companies are a buy, in my view. However, I would give the edge to Alibaba at the moment. The company holds a leadership position in a market that is larger than MercadoLibre's, and Alibaba still has plenty of room to grow. Furthermore, of the two e-commerce giants, Alibaba's revenue growth has been more consistent over the past year, and it has been the more profitable one over the trailing 12 months. This is despite the Chinese economy slowing down and the trade war with the U.S. For those reasons -- and despite MercadoLibre's strong prospects -- Alibaba is the better option right now.