In 2020 and the beginning of 2021, many new investors were coming to the market. They had money, and they wanted to get in on the stellar returns investors have had in the recent past. After all, from 2016 to 2020, the S&P 500 had risen an impressive 58%, which equates to 12%-plus annual returns. The time leading up to 2020 was a time of stock market bliss, where there was relatively little volatility and (for the most part) stocks soared higher.
Because of this, investors bid stocks up to very high valuations. Now, however, that narrative has changed. Some of these high-valuation companies are beginning to see more stabilized growth than outsized growth, and investors are dropping them. That being said, plenty of these once-popular companies have been oversold, which presents some potential bargains for long-term investors.
While most companies saw their share prices drop because of underwhelming guidance or decreasing margins, it is unclear why MercadoLibre has fallen. The international e-commerce company continued to dominate Latin America in many parts of its business. Still, shares are down more than 35% from their all-time highs set in September 2021.
MercadoLibre's business isn't 35% worse, however. In the fourth quarter of 2021, the company saw 60.5% year-over-year revenue growth to $2.1 billion. This was driven by its e-commerce success, as well as increasing market share in other parts of its business. Its logistics platform, Mercado Envios, reached 40% penetration in Q4 in the regions where it operates, led by Mexico where Envios has a 67% market share. This jumped from the year-ago period where its market share was 30% overall and 60% in Mexico.
The company also has a thriving payments platform. Mercado Pago had a total payment volume (TPV) of over $24 billion in Q4. What is really impressive is Pago's off-platform TPV, which is how much Pago users spend on things outside of MercadoLibre's e-commerce platform. This includes things like groceries or purchases on other e-commerce sites, and this success shows how well Pago is being integrated into all parts of a consumer's life.
It's one thing to use Pago within the MercadoLibre ecosystem, but when a consumer uses it for all of their mobile payments in their day-to-day life, it shows how sticky and critical Pago is becoming. Off-platform TPV grew 75% year over year in Q4, totaling $16 billion.
On top of all this, the company's net income in 2021 exploded higher. For the full year, it reached $83 million, a large jump from its 2020 net loss of $707,000. Shares trade at nine times sales -- a valuation that the company has seen just four other times during its entire life as a public company. With this cheap price and strong business execution, investors have a nice buying opportunity today.
2. Sea Limited
Sea Limited has been hit much harder than MercadoLibre. Shares are down more than 64% from their all-time highs set in October 2021, and the company's price-to-sales ratio is at its lowest since 2019. Admittedly, Sea Limited has been in the news a lot this year, and much of it was bad.
Perhaps the biggest piece of news was that India banned Sea Limited's hit mobile video game, Free Fire. Less than two months later, the company pulled its e-commerce business, Shopee, out of the country as well, citing "global market uncertainties." Considering that India is home to over 1.4 billion people, a major opportunity was lost in that region.
That being said, the company still has tons of potential ahead in its e-commerce and digital payments businesses. For the full year of 2022, revenue guidance for its e-commerce and digital payments businesses represents 76% and 155% year-over-year expansion, respectively.
It's important to remember that Sea has still created some of the most popular apps in the world. In Q4 2021, Shopee was the eighth-most popular app in the world in terms of downloads, beating out Zoom Video Communications, Spotify, and Amazon. More to the point, Sea Limited's Free Fire was the most downloaded mobile game in the world in February 2022 -- the same month that the game was banned in India. That means that, despite being dropped by one of the biggest countries in the world, it was popular enough to still be in the top spot.
In light of the recent news, plenty of investors left Sea for dead and assumed that these things will prevent the company from growing ever again. In reality, however, Sea is much stronger than people think. It has created some of the world's most popular apps, and while this growth will slow slightly, the brands that Sea has built should not be underestimated. Shopee and its digital payments business could continue to grow rapidly over the coming years, and with this discounted price, today could be a great entry point.