If you had invested $1,000 into Amazon stock at its initial public offering (IPO) on May 15, 1997, and held those shares until now, you would have over $1 million. That's one story of how e-commerce has transformed an upstart into one of the world's largest companies.
However, the internet has made e-commerce a game for many players -- not just Amazon and the other big names. Here I want to examine two companies that might be lesser-known names today, but could be big names many years from now: Shopify (SHOP +1.31%) and MercadoLibre (MELI +1.36%).
Image source: Getty Images.
1. Shopify
When I think of e-commerce, Shopify immediately comes to mind. The company offers a web and mobile platform that allows businesses to market and sell their products online.
Few companies experienced as big of a pandemic-fueled boom as Shopify -- and for obvious reasons. In many locations, physical stores were shut down or forced to operate with restrictions. As businesses flocked to Shopify, shares surged. Yet, as the pandemic wound to a close, so did investor interest in Shopify. At its low ebb, shares had fallen roughly 70% from their all-time high.
NASDAQ: SHOP
Key Data Points
There are, however, many reasons to be optimistic about Shopify's future. For one thing, e-commerce isn't going anywhere. Some estimates place the current e-commerce market at over $5.5 trillion, likely to grow to $8 trillion by 2026.
What's more, Shopify's revenue continues to expand -- albeit at a slower rate. Shopify recorded $5.6 billion in revenue over the past 12 months, with quarterly revenue growing 26% year over year. That's down from the astronomical 90%-plus growth seen during the pandemic, but that absurd growth rate was never sustainable in the long run anyway.
Nevertheless, one concerning metric is that Shopify's operating margins shrank by roughly 15%, showing that expenses are growing even faster than revenue. Clearly, the company will need to get a handle on its runaway spending before investors will embrace it for the long term. If management can do this, expect Shopify's stock to find a bottom and resume its climb higher.
2. MercadoLibre
Based in Uruguay, MercadoLibre operates several e-commerce and payment platforms. If you're a growth-focused investor, MercadoLibre is a name you should know. The company is something like a combination of Amazon, eBay, and Paypal rolled into one and crowned with a Latin American flair.
At any rate, MercadoLibre's revenue has soared as the Latin-American e-commerce market has hit its stride. Revenue has skyrocketed from $1.3 billion five years ago to $10.5 billion today; quarterly revenue growth has averaged an eye-popping 58%.
NASDAQ: MELI
Key Data Points
What's more, Wall Street sees more growth ahead. Analysts predict revenue to climb 24% this year and next, with 2024 revenue expected to top $16 billion. Income, too, has been on the upswing. Unprofitable as recently as 2021, MercadoLibre's net income now stands at $482 million over the last 12 months.
Accordingly, the stock's valuation has improved markedly over the same period. MercadoLibre's price-to-earnings (P/E) ratio is now 130. That's still high, but less than half of what it was a year ago.
All that said, MercadoLibre's valuation remains a risk worth mentioning. In addition to the lofty P/E ratio, MercadoLibre's price-to-book (P/B) ratio is a stunning 35. That's astronomically high, even within the e-commerce sector. For comparison, Shopify's P/B ratio is below 7; eBay's is 4.5.
So while the company isn't for everyone, growth-oriented investors looking for a highflier with a similarly high-flying valuation should consider MercadoLibre.
