When the COVID-19 pandemic hit in 2020, the e-commerce industry boomed as users went online to get their daily necessities. But as global economies reopened, customers returned to their old ways of life, pulling the e-commerce industry down.
While the short term isn't all that rosy, the long term remains positive for the e-commerce industry, as it continues gaining market share from brick-and-mortar stores. As such, here are two companies that investors looking to take advantage of this long-term tailwind should keep on their radar.
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1. Shopify
In the early days of the internet, entrepreneurs without technology skills found it extremely difficult to sell online, even if they had good ideas. Shopify (SHOP 0.23%) entered the scene to solve that problem for businesses.
As a software-as-a-service (SAAS) company, Shopify democratizes online commerce by making it easy for businesses to sell their products online. The tech company provides all the necessary tools, such as online storefronts and payments, in return for a monthly fee and a percentage of the sales. It became a success as entrepreneurs flocked to use its tools to grow their online businesses.
But Shopify didn't stop there. It continued to innovate to add new tools and expand new sales channels to help businesses sell anywhere, anytime. For example, the company introduced its point of sales (POS), lending, and global e-commerce services, to mention a few, to help customers become more successful.
And as customers grew their businesses, Shopify's finances ballooned. From its initial public offering (IPO) in 2015, revenue multiplied more than twentyfold, from $205 million to $5.6 billion.
Moreover, there is a good chance Shopify could continue growing from here, in both the U.S. and overseas. To put the opportunity into perspective, Shopify's market share in the U.S. is less than 2%. On top of that, the U.S. e-commerce market of $870 billion in 2021 was less than 20% of the global e-commerce industry market of $4.9 trillion!
So long as Shopify can continue to delight its customers -- by giving them better tools and helping them succeed -- it stands a good chance of keeping its growth machine intact for many years.
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2. Mercadolibre
Like Shopify, Mercadolibre (MELI 0.28%) benefited enormously from the e-commerce tailwinds over the last two decades. But unlike Shopify, Mercadolibre operates a two-sided marketplace. Under this business model, it serves not only the sellers but also the consumers.
Mercadolibre provides all the tools and a vast user base for sellers to help them grow their online sales. It also helps consumers find (and buy) a wide range of online products conveniently and at attractive prices. Over time, more sellers join the platform as users grow, and vice versa, creating a virtuous cycle.
The e-commerce company's success in attracting and retaining sellers and users resulted in a meteoric rise in revenue -- up from $52 million in 2006 to $10.5 billion in 2022. With a deep understanding of the Latin American market and its localized approach, Mercadolibre adjusted its marketing, operations, and services to suit the needs of local consumers.
This localized approach has given the company an edge over international giants like Amazon. Besides, Mercadolibre leverages its customer relationship into adjacent areas, such as fintech and digital payments, building a digital ecosystem in the region.
While Mercadolibre's past growth was impressive, its prospects are equally promising. It is riding on massive trends, such as an increase in e-commerce penetration, a young and growing middle-class population, and an increase in the adoption of digital services.
Besides, the company continuously innovates and adds new services to delight its customers. While it began as an e-commerce company, it has added new services -- such as logistics, digital wallet, and credit services -- to grow consumer wallet share over time. Together, these factors will help the tech company sustain its growth engine for years (if not decades). All said, investors should keep the company on their radar.
