The COVID-19 pandemic has forever changed the way some consumers make purchases. And with access to high-speed internet greater than ever, online shopping activity has experienced a sea-change in the last year, even in countries that have been slow to adopt e-commerce and digital payment systems in the past.

These changes have played right into the hands of Latin America's leading online commerce platform MercadoLibre (NASDAQ:MELI) and social media titan Facebook (NASDAQ:FB), which is slowly rolling out its own digital payments and shopping tools to cash in on the global trend as well.

While each has significant growth opportunties ahead, both stocks present investors with unique risks. Which one is the better buy right now?

Someone in thought holding a smartphone and credit card.

Image source: Getty Images.

MercadoLibre: All-out expansion, but local economy headwinds

MercadoLibre was a growth stock before COVID-19, but the pandemic has accelerated Latin America's migration to online shopping. Revenue has skyrocketed into triple-digit percentage territory over the last 12-month stretch, notching a 111% year-over-year gain in Q1 2021 (or up 158% when excluding the effects of currency conversion) to $1.4 billion.  

E-commerce remains a small fragment of shopping activity in most Latin American countries, still just a single-digit percentage of the grand total spent on retail in the most populous countries like Brazil and Mexico. But MercadoLibre is reporting a sharp uptick in activity on this front. In Q1 alone, it said it had 69.8 million active users, 62% more than a year ago. That's only about 10% of the total population of Latin America, though, so there's no shortage of room for the company to continue expanding.

One way it's extending its reach is with its digital payments business. Many people in Latin America don't have a basic banking relationship but do have a smartphone. Mercado Pago and Mobile Wallet -- MercadoLibre's digital payments and mobile money management applications -- are opening up access to basic checking and payments services to millions of people. The result? More online shopping on MercadoLibre. Total payment volume increased 82% year over year in Q1 (129% excluding currency conversion) to $14.7 billion, $2.9 billion of which was transacted with Mobile Wallet. The company reported that some three-quarters of respondents plan to continue using digital payment options even after the pandemic ends.

MercadoLibre is the primary beneficiary from a massive move to online activity south of the border, but there are risks. Many countries the company operates in have been experiencing persistently high inflation, which erodes the value of the company's profitability and assets on its balance sheet over time. MercadoLibre may have begun to address this issue with its recent (and still rather small) purchase of Bitcoin to facilitate transactions in the currency, which could help it stave off inflationary effects. But for now, investors should keep an eye on how inflation is throttling growth (which is apparent in the difference between currency conversion-neutral revenue and the much lower realized revenue figures in Q1). 

Facebook: A tech platform with massive optionality, but regulatory concerns

Facebook needs little introduction. Its family of apps (including Instagram and WhatsApp) had 3.45 billion monthly users during the first three months of 2021, a 15% increase over a year ago. In spite of its massive size and reliance on advertising, it's still growing at a rapid pace. Revenue was up 48% year over year to $26.2 billion in Q1 2021, and management expects a similar rate of growth in Q2 before moderating in the second half of the year.  

Like other massive tech platforms, Facebook is highly profitable. It generated $24.2 billion in free cash flow over the 12 months that ended March 31, 2021 (a 26% free cash flow profit margin). This gives Facebook massive wiggle room to invest in new ventures. One area is digital payments and small business e-commerce. Facebook tapped software firm Shopify to power Facebook Shops, online Facebook, Instagram, and WhatsApp storefronts for merchants. It has also launched WhatsApp Payments in India and Brazil, allowing users to transfer money to each other and to small businesses that use the platform. This payments service could eventually make it a bigger rival of MercadoLibre.

Facebook's aspirations on this front extend far beyond that, though. It's still hard at work getting Diem -- a blockchain-based stablecoin (a type of cryptocurrency with a value pegged to a fiat currency, in this case the U.S. dollar) -- up and running. Diem is being designed to power Facebook's ambitious global digital payments system. If it can overcome regulatory hurdles, Diem could be a big deal considering the social media company has billions of users already.  

Speaking of regulatory hurdles, though, Facebook has many on the horizon. It has frequently come under scrutiny for its practices related to personal user data, and Apple and Alphabet's Google have started eliminating app activity tracking on smartphones this year (which makes digital ads that Facebook relies on less valuable to marketers). Also, a looming worry is the Federal Trade Commission's (FTC) lawsuit to unwind the acquisitions of Instagram and WhatsApp (purchased in 2012 and 2014, respectively), citing anti-competitive practices at Facebook to squash its competition. If the FTC gets its way, Facebook's empire would be broken up. The individual parts would likely still remain formidable players in the tech space, but not as dominant as the sum of their individual parts right now under the Facebook umbrella. 

Which is the better buy?

MercadoLibre is earlier on in its growth journey as it expands e-commerce across Latin America, but it trades for a premium 111 times trailing-12-month free cash flow. That metric will moderate over time as the company reaches a more profitable scale, but along the way, there will be some wild swings in stock price -- especially considering the uncertain economic situation surrounding some of the countries it operates in.

For now, Facebook is a far more stable company and is still growing at a fast pace. It trades for 40 times trailing-12-month free cash flow, a reasonable value given its expected expansion this year and even faster-growing bottom line. A possible break-up of its business could be a problem in a couple of years as the antitrust lawsuit progresses, but it won't be the end of the line for Facebook if the FTC wins the case. At this juncture, I prefer the regulatory risk over the inflation pressure MercadoLibre faces, and I think Facebook is the better buy (though MercadoLibre is certainly worth a look too).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.