Both MercadoLibre (MELI -1.27%) and Sea Limited (SE 1.90%) have become prominent e-commerce players in multiple countries. MercadoLibre became a first mover in Latin America while Sea Limited started in Southeast Asia but has since expanded outside that area.
The question for investors is which stock could serve them better. While both should continue to drive massive growth, is one of them a better buy? Let's see.
Image source: Getty Images.
The case for MercadoLibre
MercadoLibre serves customers from the southern tip of Chile all the way up to the Mexico-U.S. border. The internet and direct marketing retailer has succeeded primarily by adapting to the needs of its customers. To deal with logistical challenges unique to Latin America, it established Mercado Envios. This provides the logistical services needed to move products for the company and clients.
Many Latin American customers lack access to bank accounts and credit cards. To serve these customers, the company created Mercado Pago. Through this service, cash-based customers can buy items online. Mercado Pago also provides fintech services to other clients even if they do not buy from MercadoLibre.
This strategy helped the company achieve net revenue of nearly $4.9 billion in the first nine months of 2021, up a stunning 87% from the first three quarters of 2020. Results to the bottom line have been just as impressive. Despite massive increases in interest expenses, foreign currency losses, and income taxes, MercadoLibre managed to report a net income of $275 million during the first three quarters of 2021, up 120% from the same period in 2020.
The company has not offered any forward guidance, but the consensus estimate for 2021 revenue currently stands at just under $7 billion, or 75% higher than in 2020. While that represents a modest slowdown, investors could find a buying opportunity due to this year's stock performance.
MercadoLibre has fallen by 20% over the past year. Most of the drop came following an equity offering in November and fears of higher interest rates amid rising inflation. But this has helped take the stock to just 11 times sales, the lowest sales multiple since March 2020. Such declines could motivate new buyers should they see the company emerging from the ongoing effects of the pandemic.
Why investors should consider Sea Limited
Sea Limited shares many commonalities with MercadoLibre. Though it began as a gaming company called Garena, its Shopee e-commerce arm has experienced fast growth in its home region of Southeast Asia, serving eight countries there including Vietnam, Indonesia, and the Philippines. It has also expanded into other regions. Its move into Europe took it into French, Polish, and Spanish markets. Meanwhile, in Latin America its presence in Brazil, Chile, Colombia, and Mexico also places it in direct competition with MercadoLibre.
Like MercadoLibre, it has also expanded into fintech with SeaMoney, providing both financing and digital payment services for consumers and merchants. Though that part of the company remains comparatively small, it drove $4.6 billion in payment volume in the third quarter alone.
All of these moves have helped sales soar. In the first nine months of 2021, the company reported $6.7 billion in revenue, up 140% from the first three quarters of 2020. During that same period, e-commerce revenue climbed 175% while digital entertainment (which houses Garena) experienced a 120% increase. For all of 2021, analysts predict revenue will rise 117% to $9.5 billion.
Still, the company continues to face heavy and rising operating expenses. Its net loss of over $1.4 billion in the first three quarters of 2021 was 30% higher than the year-ago period. Investors sold the stock in recent weeks as losses came in higher than expected. After roughly doubling earlier this year, the shares are down nearly 40% from their 52-week high -- leaving them now up just 12% over the past year.
The steep drop in the share price has taken its price-to-sales ratio to 13, its lowest point since mid-2020. This discounted valuation could make Sea Limited a buy going into 2022.
MercadoLibre or Sea Limited?
Both companies should beat the overall market for years to come. However, if forced to choose one, Sea Limited appears to offer better value for the money. While its sales multiple is slightly higher, it has logged significantly faster revenue growth in e-commerce. Moreover, it has ventured outside its region and holds an added advantage over MercadoLibre in gaming. This combination should give Sea Limited stock an edge over time.
