When one thinks of the "top e-commerce stock," investors often mention Amazon. This might make sense since it pioneered and remains a force in the industry.
Nonetheless, they might also sour on Amazon when seeing that its e-commerce growth has dramatically slowed. Instead, some of its peers abroad continue to grow rapidly, a factor that might lead investors to consider Shopify (SHOP 0.23%), MercadoLibre (MELI -1.01%), or Sea Limited (SE -2.20%) as the new top e-commerce stocks.
1. Shopify
Shopify will likely prosper, not because of its e-commerce site directly, but how it supports its e-retailers. Yes, the Ottawa-based company has built a competitive advantage by offering a robust sales platform that clients can easily customize.
However, Shopify also supports clients through an extensive ecosystem. These customers can take advantage of inventory management, payment, and capital-raising services. Additionally, if customers need help storing, packaging, and shipping goods, Shopify's fulfillment arm can help.
Those capabilities helped Shopify become the top e-commerce platform provider in the U.S., claiming 25% market share, according to BuiltWith. Shopify outperformed website building platform Wix and WordPress plugin WooCommerce to gain that distinction.
Admittedly, the cost of building a fulfillment network contributed to the company returning to losses. And with e-commerce growth slowing in a tech bear market, Shopify stock plunged by about 80% from its all-time high.
But for all the challenges, revenue for the first nine months of 2022 grew 20% year over year to $3.9 billion. And the price-to-sales (P/S) ratio of 8.8 fell to a multiyear low. Given Shopify's increasing influence, that valuation could make buying now a genius move.
2. MercadoLibre
Much like Shopify, MercadoLibre has thrived on an extensive ecosystem. The Argentine conglomerate, whose name means "free market," has succeeded by bundling services designed to address challenges unique to doing business in Latin America.
One significant challenge involves part of the local population lacking bank accounts and credit cards. Its fintech arm Mercado Pago addresses this issue by offering services to facilitate online purchases for cash-based customers. That also extends into loans with Mercado Credito, which can calculate credit scores and provide loans to individuals or businesses.
Additionally, Mercado Envios can store, package, and deliver goods. That segment can often provide same-day or next-day delivery, a service not commonly offered in that part of the world.
Through this ecosystem, MercadoLibre generated about $7.5 billion in net revenue in the first nine months of 2020, rising 52% year over year. Also, due to efforts to keep the cost of net revenue down, its $317 million in net income during the period surged 146% year over year.
Even with that success, the bear market weighed on the internet and direct marketing retail stock, and it fell by more than half from its all-time high.
Still, the P/S ratio of 5 represents a modest recovery from all-time lows. But amid those conditions, MercadoLibre's rapid revenue growth has continued, indicating that this lower stock price may not last.
3. Sea Limited
Another stock to consider is Sea Limited, which has emerged as the MercadoLibre of Southeast Asia. Like its Latin American counterpart, it operates an e-commerce arm, Shopee. Shopee has emerged as the leading e-commerce site in Southeast Asia, and it has expanded into Poland and four Latin American markets.
And similar to MercadoLibre, the Singaporean conglomerate operates a fintech business. This segment, Sea Money, offers digital financial services in its Asian markets.
However, it differs from its peers as it began in gaming and continues to operate Garena, a game development and publishing business. Garena has become best known for the battle royale game Free Fire, the most downloaded game from 2019 through 2021.
Together, Sea's segments generated $9 billion in revenue in the first nine months of the year, rising 34% versus the same period last year. Though Garena's revenue grew only 1% during that timeframe, revenue from e-commerce and other services surged 70%!
Still, rapid growth in expenses led to losses increasing 45% during the period to nearly $2.1 billion. And amid the tech bear market, Sea Limited stock fell 75% this year.
But since the decline took the P/S ratio to just below 3, the losses could become more tolerable for some investors. And given that its e-commerce and gaming should eventually bounce back, it is likely Sea Limited stock will also benefit from that recovery.
