Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and its Google search engine are well known to consumers throughout the world. MercadoLibre (NASDAQ:MELI), not so much. It's an e-commerce powerhouse in Latin America but has limited presence elsewhere.

Contrasting these two companies to decide which is better seems like an unfair match-up, but investors well-acquainted with both have seen stock prices for each grow over the last few years. At this point, are these two giants in their respective spheres able to deliver further growth in their businesses? If so, which rises as the better buy?

Let's examine each and see if we can come up with an answer.

A circle of laptops connected into a central cloud icon on a pedestal.

Image source: Getty Images.

Alphabet's cloud bet

Alphabet is well-known for its consumer properties Google and YouTube, but the digital advertising arm of its business is what delivers the bulk of the revenue. Its dominance as a vehicle for digital advertising translated into $37.9 billion of its total $46.1 billion in fourth-quarter revenue for the quarter ending Dec. 31, 2019. However, the company has been working to diversify beyond its reliance on ad revenue, and Alphabet's progress in this regard was revealed for the first time in a new, more granular breakdown of revenue by business unit in its fourth-quarter results.

One area of note is its Google Cloud offering, which seeks to take advantage of today's red-hot cloud computing trend. More organizations are finding value migrating IT infrastructure to tech companies like Alphabet, enabling Google Cloud to realize a 53% increase in fourth-quarter year-over-year revenue from 2018's $1.7 billion to $2.6 billion in 2019. The growth is impressive when contrasting the past three years of Google Cloud revenue.

Year Google Cloud Fiscal Year Revenue % Increase
2019 $8.9 million 53%
2018 $5.8 million 41.4%
2017 $4.1 million N/A

Data source: Alphabet.

A contributing factor to Google Cloud's growth was that the number of deals over $50 million more than doubled year-over-year, according to CEO Sundar Pichai. Google Cloud adopters included Lowe's, the U.S. Postal Service, and Lufthansa, which is using Google Cloud's artificial intelligence (AI) capabilities to improve the airline's operations.

Pichai noted in the earnings call how Google Cloud ended 2019 with more than a $10 billion run rate. To further accelerate growth, the company is aiming to triple the size of its Google Cloud sales team. However, Alphabet faces tough competition with rivals such as Microsoft also seeing strong revenue gains in its cloud offerings as more businesses migrate to cloud infrastructures.

MercadoLibre's fintech solution

Although not as world-renowned as Alphabet's assets, MercadoLibre dominates in its own arena of Latin America. The company provides an e-commerce platform to the region with a leadership position akin to Amazon's in the U.S. and Alibaba in China. This dominance led to an 84.4% year-over-year jump in revenue on a foreign exchange (FX) neutral basis for the fourth quarter ending Dec. 31, 2019.

That growth is amazing, but of particular note is the company's growing payments business, Mercado Pago. The challenge for an e-commerce business in Latin America is that many consumers do not possess credit cards, which prevents spending online. To combat this, the company created a digital payment solution, Mercado Pago.

In the fourth quarter, Mercado Pago's payments volume rose 98.5% year-over-year on an FX neutral basis. The total number of transactions increased by over 127% year-over-year to 285.5 million transactions for the quarter. This success was driven primarily by the company's off-platform services. The off-platform component consists of payment services to third-party merchants, including brick-and-mortar retailers, as well as mobile point-of-sale payments and a mobile wallet. 

While the company enjoyed phenomenal year-over-year revenue growth, it failed to make a profit in the quarter with a net loss of $54 million. It's not uncommon for technology stocks to operate at a loss, and, the company did amass $4.8 billion in total assets (a large portion of it in cash) against total liabilities of $2.7 billion, so its balance sheet is solid.

The final verdict 

While MercadoLibre's total company revenues of $674.3 million for the quarter pales in comparison to just Alphabet's Google Cloud business alone, for growth investors, it's hard to ignore MercadoLibre's gains in e-commerce, and especially, its tremendous success in the fintech arena. Whether that growth is sustainable is the question. The economic outlook for the Latin American region this year is expected to be sluggish according to the World Bank, and that was before the novel coronavirus pandemic.

Alphabet, meanwhile, is a mature business without the explosive growth of MercadoLibre, but also without the risks. Its fourth-quarter net income was $10.7 billion while its $233 billion in total assets easily eclipse total liabilities of $55 billion.

Alphabet's combination of stability, steady growth in areas such as Google Cloud, and deep pockets make it the better buy.