Some investors are understandably cautious about e-commerce stocks right now considering that many tech stocks have seen significant declines over the past year. But writing off buying stocks because of some short-term pain will certainly leave investors disappointed once the market inevitably bounces back.
So, for inventors who understand that the current market volatility won't last forever and are on the hunt for top e-commerce stocks that have still have more room to grow, it's worth considering MercadoLibre (MELI -0.90%), Shopify (SHOP 0.68%), and Amazon (AMZN -2.37%).
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1. MercadoLibre
MercadoLibre is the largest player in the Latin American e-commerce market. How big is it? Well, consider that the company's 2021 sales were nearly two times larger than the combined sales of its next two largest competitors.
Latin America has an estimated 300 million online shoppers, and the region's e-commerce market is expected to grow from $104 billion this year to an estimated $160 billion by 2025. MercadoLibre's commerce sales increased 23% to $1.4 billion in the second quarter (ended June 30), accounting for more than half of the company's $2.6 billion revenue in that period. Total quarterly revenue climbed 53%, proving that MercadoLibre has more to offer than just a booming e-commerce business.
The company's payment service, Mercado Pago, has an impressive 38 million unique users, and is helping the company tap into the fintech space. Sales from the service more than doubled in the second quarter, surpassing $1 billion for the first time ever.
The company's valuation also makes it pretty enticing right now. MercadoLibre's price-to-sales ratio of 4.6 is far lower than the 16.5 it sported a little more than a year ago, and in line with the current price-to-sales of 4.3 for the overall internet services industry.
MercadoLibre has a clear lead in the Latin American e-commerce market, and with the company's current growth it's not likely it'll give up the lead position any time soon. With its share price taking a significant haircut over the past year, the company's stock looks like a great buying opportunity.
2. Shopify
Small and medium-sized businesses learned firsthand during the height of the pandemic that having an online presence isn't just nice to have -- it's now foundational to nearly any business. That's where Shopify comes in. The company's platform helps companies of all sizes set up and manage their online stores, allowing them to add additional services as they grow.
Like many e-commerce stocks, some of the company's growth slowed when in-person shopping started back up. But anyone who's thinking that e-commerce is all dried up is missing the big picture.
In the second quarter of this year, just 14% of all U.S. retail sales happened online, which leaves plenty of room for this market to expand. Last year, Shopify's total revenue hit $4.6 billion, an increase of 57% year over year - and that's just scraping the surface of what Shopify's management believes is a $153 billion total addressable market.
More recently, in the second quarter (ended June 30), Shopify's sales increased 16% to $1.3 billion, and its gross merchandise volume rose 11% year-over-year to $46.9 billion.
I won't sugarcoat the fact that Shopify's share price has fallen considerably over the past year, but there's still plenty of time for this rising e-commerce star to shine again once the broader market rebounds. And that drop now means the stock's current price-to-sales of 7.2 is more than seven times lower than it was trading at more than a year ago.
3. Amazon
Amazon has its hands in many different types of businesses these days, but the company's e-commerce business is still its largest by revenue.
In the second quarter (ended June 30), Amazon's North American e-commerce sales were $74.4 billion, an increase of 10% from the year-ago quarter. Like Shopify, the pandemic e-commerce bump is over, but there's still plenty of opportunity for the company.
Consider that Amazon has an estimated 163.5 million users who are signed up for its Prime membership service right now. Those customers are lucrative ones, spending more than double what non-Prime members spend each year.
That's great news for Amazon and its investors, especially when you consider that the Prime service continues to grow and could reach an estimated 176 million members by 2025.
The company's recent quarterly results showed that even while facing substantial economic headwinds, the company remains resilient. Total revenue increased by 7% in the second quarter to hit $121 billion, which outpaced Wall Street's average estimate of $119 billion.
The company also issued revenue guidance in the range of $125 billion to $130 billion for the third quarter, which represents 15% growth at the midpoint of guidance.
Most investors probably already know that Amazon's stock isn't exactly cheap. The company's current price-to-earnings is about 47 right now, compared to the broader tech sector's 30, but it's still cheaper relative to the stock's 57 price-to-sales multiple from more than a year ago.
When looking for a strong e-commerce play, it's hard not to bet on Amazon. The Prime membership ecosystem has millions of people locked in, and the company's latest financial results prove that its e-commerce business isn't done growing yet.
E-commerce is alive and well
While e-commerce sales have leveled off since their pandemic highs, that's hardly a reason to ignore this market. The height of the pandemic was a unique time in e-commerce's short history, and the market isn't anywhere near finished growing.
Recent research from Morgan Stanley shows that the e-commerce market "has plenty of room to grow" and should increase in size from $3.3 trillion right now to $5.4 trillion by 2026.
The companies listed above are already well-positioned to benefit as this market expands in the coming years. Savvy investors can look past the current market volatility by setting their sights ahead and on the potential of these three promising e-commerce stocks.
