The e-commerce sector has been volatile over the past three years. Many companies in the industry saw their share prices soar in the early days of the pandemic as retail activity switched to online channels. But once things started reverting to normal, many of these corporations' financial results and stock market performances suffered.
Still, for long-term investors, there is little to worry about. The e-commerce industry is on an incredible growth path that should continue for the foreseeable future. Let's consider three stocks that can help investors cash in on this opportunity: Shopify (SHOP 1.37%), MercadoLibre (MELI 12.69%), and Etsy (ETSY +0.56%).
NASDAQ: SHOP
Key Data Points
1. Shopify
Shopify focuses on providing e-commerce merchants with all the tools they need to build a killer online storefront so they can focus on running their businesses. The company offers nearly everything from payment processing to marketing tools to the ability to sell products on your favorite social media platform, and much more. Shopify is one of the leaders in this niche.
It has arguably developed a solid brand name, helped by the fact that it is constantly adding new features to improve its platform.
For instance, Shopify is leveraging the rapidly advancing artificial intelligence (AI) field to help its customers. The company recently introduced Shopify Magic, a suite of AI tools entrusted with handling tasks for merchants, from answering common questions about their businesses to creating blog posts.
The goal for Shopify remains the same: to make things as seamless for merchants as possible. This is designed to attract more of them onto the platform and increase the company's gross merchandise volume and revenue over time. Shopify has generally grown its top line at a good clip.
SHOP Revenue (Quarterly) data by YCharts
While the company remains unprofitable, it recently made a move that could help it show green on the bottom line sooner. Shopify decided to sell its logistics business, which was expensive and was harming the company's profits.
Shopify's revenue should also improve as the economy rebounds and people spend more time shopping. Over the long run, the company's economic moat, created by high switching costs, should help it maintain a leading spot in its niche.
That's what makes Shopify a stock worth buying in August and holding onto.
NASDAQ: MELI
Key Data Points
2. MercadoLibre
MercadoLibre is known as the Amazon of Latin America thanks to its leadership in e-commerce in the region. It has spent years building the infrastructure necessary to run a business that allows people in more than a dozen countries to make orders online and have them delivered to their doorsteps. Not an easy thing to do.
Further, MercadoLibre boasts a fintech unit, Mercado Pago, that's one of the region's leaders in the field.
The rest of the company's business, from its shipping and logistics arm to its Shopify-like unit that allows merchants to build online storefronts, creates a robust ecosystem that is hard for its clients to leave.
Thus, MercadoLibre benefits from high switching costs and the network effect, since the more merchants there are on its platform, the more customers will turn to it, and vice-versa.
It is difficult to see anyone toppling MercadoLibre off its pedestal anytime soon in the region. In the meantime, the company continues to deliver excellent financial results. Even with the slowdown all e-commerce companies have experienced since mid-2021, MercadoLibre has been impressive.
In the second quarter the company's revenue increased by 31.5% year over year to $3.4 billion, while its net income of $262 million more than doubled compared to the year-ago period.
MercadoLibre's overall business looks too solid to pass up for investors interested in the e-commerce industry. A comprehensive suite of services that complement one another, a solid moat, and leadership in a continent where, like everywhere else, e-commerce will only continue to gobble up a larger percentage of retail sales make this tech giant a solid long-term bet.
NYSE: ETSY
Key Data Points
3. Etsy
Etsy's claim to fame is that its platform specializes in offering handmade, vintage, and rare items. Many things shoppers can readily find on its platform are difficult to come by elsewhere.
According to a survey the company conducted, 87% of buyers say that Etsy has items that they can't find anywhere else. This helps the company create a network effect on its website, where buyers and sellers of rare items increasingly go to find one another.
The downside of Etsy's specialty is that rare goods aren't known for being cheap. Perhaps that's why it has been affected by the challenging economic conditions more than many other e-commerce giants.
Etsy's second-quarter revenue only increased by 7.5% year over year to $628.9 million, while its gross merchandise volume declined by just under 1% to roughly $3 billion. On the bottom line, Etsy's net income fell by about 15.3% year over year to $61.9 million.
The good news is that Etsy's number of active buyers and sellers increased during the period. While it may not be reflecting on its revenue growth yet, it's essential to focus on the long game. The economy will rebound, increasing consumer discretionary spending, which should benefit companies like Etsy.
And the e-commerce specialist has barely scratched the surface of its estimated $2 trillion addressable market.
Etsy may be down right now, but with the long growth runway ahead, it remains an excellent e-commerce stock to buy.
