Shopify (SHOP 0.23%) and MercadoLibre (MELI -1.01%) are two leading players in the e-commerce space, with different business models and sets of strengths. Shopify stands as a top provider of online services that make it easy for businesses big and small to launch and expand online retail platforms. Meanwhile, MercadoLibre is a top provider of e-commerce platforms and payment-processing services in the Latin American market.
Both stocks are down big in the current bear market, and both could eventually go on to see huge valuation recoveries. But which is the better buy right now? Read on to see why two Motley Fool contributors disagree on which e-commerce stock will deliver better bang for your buck.
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Shopify has capitalized on industry growth
Parkev Tatevosian: One of the industries that benefited greatly during the earlier stages of the pandemic was e-commerce. That's understandable. Nonessential brick-and-mortar stores were forced to shut their doors temporarily, and people wanted to avoid the potentially deadly virus in circulation. Shopify, which helps merchants establish and expand their online presence, thrived in that environment. Indeed, Shopify's sales exploded by 86% in 2020 to $2.9 billion.
That said, Shopify was growing revenue exponentially even before the outbreak. Between 2012 and 2019, Shopify's revenue increased from $24 million to $1.6 billion. More importantly, Shopify has been able to turn top-line growth into profits. Between 2012 and 2021, Shopify turned an operating loss of $2 million into an operating income of $269 million.
The fact is consumers have steadily shopped online more. In 2020, an estimated 14% of U.S. retail spending occurred online. That figure is forecast to rise to 22% in 2025. Shopify has capitalized on industry growth to boost sales and profits in the past; it's reasonable to expect it to do the same over the next few years as a result.
SHOP PS Ratio data by YCharts. PS ratio = price-to-sales ratio.
According to its price-to-sales (P/S) ratio of 8.8, Shopify's stock has arguably never been cheaper. This suggests it might be an excellent time for long-term investors to buy shares of this e-commerce enablers stock.
Still growing rapidly and attractively valued
Keith Noonan: MercadoLibre has sometimes been described as the Amazon of Latin America because it stands as the region's largest e-commerce player, but it's actually looking even more distinguished lately. While Amazon and many other companies in the e-commerce space have seen their revenue growth decelerate dramatically over the last year, MercadoLibre has continued to post enviable rates of sales expansion.
Even with inflation and other macroeconomic pressures hitting Brazil and other key geographic market segments hard, MercadoLibre has continued to serve up an impressive performance.
Total payment volume conducted through its payment processing platform increased 76.4% year over year on a currency-neutral basis. Meanwhile, gross merchandise volume sold through its e-commerce platform rose 31.5% year over year to reach $8.6 billion. These catalysts pushed overall revenue up 60.6% year over year to $2.7 billion in the period. Perhaps even more impressive, net income across the first three quarters of the company's last fiscal year rose roughly 146% to reach $317 million.
While the company has continued to post encouraging revenue and earnings growth, its stock has still been caught up in bear-market pressures. The company's share price is off roughly 45% from its high, and I think investors have an opportunity to build a position in a promising company at a price that leaves room for huge upside.
E-commerce and payment processing services remain in comparatively young states compared to where they are in markets, including the U.S. and Western Europe. And MercadoLibre has an incredible long-term opportunity as retail operations and spending increasingly migrate to those channels. With the company still posting explosive growth, MercadoLibre stands out as a worthwhile buy, trading at roughly 74 times expected forward earnings and 4.1 times expected sales.
Which stock is right for your portfolio?
Shopify takes more of a pick-and-shovel approach to the e-commerce space, providing many of the tools that businesses and individuals need to launch their own e-commerce stores. It's also less exposed to volatility risks that come with being in the Latin American market.
Meanwhile, MercadoLibre is still growing at an incredible rate and has managed to record fantastic business performance despite a litany of headwinds. The company should continue to serve up encouraging results in the near term, and its long-term potential is even more exciting.
On the one hand, for investors only interested in owning one of these stocks, it makes sense to weigh their respective strengths and valuation profiles to determine the best fit for your portfolio goals. On the other hand, if you're looking for broader exposure to the e-commerce industry, this is a case where buying both stocks could be the right move.
