Please ensure Javascript is enabled for purposes of website accessibility

Better Buy: MercadoLibre vs. Amazon

By Brian Withers - Updated Jan 24, 2020 at 4:33PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

E-commerce is only getting bigger. Which online operator will be more lucrative for shareholders?

Global e-commerce sales for 2019 are expected to be up 17.9% from the previous year, to $3.46 trillion.

That number sounds huge, but it's less than 15% of total retail sales. As more consumers move their purchases online, this medium is expected to reach 22% of all retail spending by 2023. MercadoLibre (MELI -0.90%), the Latin American e-commerce specialist, and the online juggernaut Amazon (AMZN -1.98%) are primed to benefit from this growth. 

But which is the better buy for shareholders?

Key metrics side-by-side

Amazon was founded five years before MercadoLibre, but it has grown much bigger since it started in a more established and tech-oriented market. Its revenue is more than 100 times larger than its smaller, regionally focused counterpart.

Metric

MercadoLibre

Amazon

Year founded

1999

1994

Most recent quarterly revenue

$0.6 billion

$70 billion

Most recent quarterly revenue growth

70%

24%

Market capitalization

$34 billion

$935 billion

MRQ e-commerce revenues outside home geography

none

$18 billion

MRQ non-e-commerce revenue

$0.3 billion

(Payments)

$9 billion

(AWS cloud services)

Note: MRQ=most recent quarter. Data from Yahoo! Finance, company earnings reports, and annual filings. Table by the author.

Both companies have expanded beyond their e-commerce beginnings. Amazon moved into cloud storage in 2006 as it realized its in-house infrastructure services could be sold to other companies.

MercadoLibre ventured into payment services in 2003 to enable its customers who didn't have a bank account or credit card to buy online. The Latin American specialist is growing faster, but Amazon is still putting up impressive growth for its size.

Mini shopping chart on laptop keyboard with shipping boxes overflowing onto keyboard.

Image source: Getty Images

Amazon: Being big has advantages and drawbacks

Amazon has become the dominant online retailer in the U.S. by focusing relentlessly on the customer, gobbling up smaller companies to enhance its ecosystem, and facilitating sales for a huge third-party fulfillment network.

Its international business is also massive, with $72 billion in trailing 12-month revenues -- this alone would land it in 42nd place on the Fortune 500 list.

Amazon has also built a huge logistics network that ships 46% of its orders. With 2.5 billion packages shipped per year, it rivals FedEx's 3 billion annual packages and could overtake the overnight-freight company and even UPS in a year or two. Its size has created a tremendous network effect, making it the place for consumers and sellers to be and further fueling its e-commerce growth. But its size is starting to be a problem.

Amazon has come under government scrutiny in the U.S. and Europe for the advantage it has being a reseller's platform and having its own brand of goods. Being the top dog in the U.S. has led some prominent politicians to call out its alleged monopolistic advantages over smaller players.

While these political issues are certainly newsworthy, more concerning are the questionable practices and cracks starting to show in its core business. The practice of using its third-party seller data to create its own products (Amazon-branded products showing up first in search results) is leading to criticism. And fake reviews and counterfeit products showing up on the platform are starting to taint the brand. These could become worse as the company gets even bigger.

On the plus side, Amazon has numerous growth levers in addition to its e-commerce business: online advertising, the Alexa technology platform, physical stores, its AWS cloud services, and even healthcare. Given all of this optionality, this mega-cap company has plenty of ways to grow. 

MercadoLibre: Experience meets a challenging, but growing market

MercadoLibre has always focused on Latin America. It opened in Argentina in 1999, and it has since expanded to 18 countries across the region. Brazil is its largest source of revenue at 65%, followed by Argentina and Mexico. These top three countries make up 95% of MercadoLibre's revenue stream.

The company has grown despite the region's low usage of credit cards and bank accounts. Instead of viewing this as a stumbling block, it saw an opportunity and created a payment service that has become a huge source of growth and revenue.

In its most recent quarter, its payment platform facilitated $7.6 billion in transaction value, growing 94% from the previous year. Non-marketplace revenue, led by its payments platform, is now almost half its total revenue and growing faster.

But the company has only started to tap the full opportunity of the Latin American market. The table below shows that the population of its top three markets exceeds that of the U.S. These countries have high internet usage, but the percentage of online buyers still pales in comparison to that of the U.S.

Metric

Brazil

Argentina

Mexico

U.S.

Population

209 million

44 million

129 million

326 million

GDP

$2.06 billion

$0.64 billion

$1.15 billion

$19.39 billion

Internet users

67.5%

75.8%

63.9%

75.2%

Online buyers

36.1%

45.8%

19.7%

71.5%

Source: MercadoLibre business overview presentation from Q2-2019. Data based on 2018. Table by the author.

MercadoLibre has its risks, too. Amazon is starting to grow its competitive footprint in Brazil, and the region is known to be a challenging place to do business with less stable governments, economies, and currencies. But the company has a tremendous track record and brand recognition, and it is poised to take advantage of the region's 96% of goods that are still purchased in retail shops.

What's the better buy today?

Both of the companies are proven operators with plenty of opportunities still ahead, so this is a difficult choice.

A quick look at the metrics that point to whether a stock is a bargain at the moment seems to give the nod to Amazon, with a reasonable price-to-sales ratio and a price-to-operating cash flow metric that is lower than its historical averages.

Metric

MercadoLibre

Amazon

Price-to-sales ratio

16.0

3.5

Price-to-operating-cash-flow ratio

76.9

26.6

Data from Yahoo! Finance and Ycharts. 

But the challenges that Amazon faces with its enormous size are getting harder for shareholders to ignore. With Latin America in the early stages of discovering the convenience of online commerce and electronic payments, MercadoLibre is the better buy today, even if the financial metrics suggest it is currently selling at a premium to Amazon.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$787.81 (-0.90%) $-7.15
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,216.21 (-1.98%) $-44.89

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.