One industry that is almost certain to expand over the next five years is e-commerce. That's because, despite appearances, online retail hasn't killed the traditional shopping experience yet, not even close. For instance, in the U.S., e-commerce sales made up 16% of total retail sales in the third quarter. As that number grows, the leaders in this space could ride the wave and deliver outstanding returns through the next five years (and beyond).
Here are two e-commerce companies that may have what it takes to pull it off: MercadoLibre (MELI +3.55%) and Shopify (SHOP 1.12%).
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1. MercadoLibre
MercadoLibre is the leading e-commerce company in Latin America. Its business spans many countries in the region and is adapted to the terrain. It has found success despite some political and economic instability across much of Latin America. One secret behind MercadoLibre's success is the breadth of its offerings, which create high switching costs and a network effect. The company doesn't just run an e-commerce platform; it also provides payment solutions and a host of other financial services (digital wallets, loans, BNPL, etc.) to consumers and businesses, as well as a logistics and fulfillment network.
NASDAQ: MELI
Key Data Points
Now, MercadoLibre has seen increased competition in recent years, especially from Shopee, which is owned by Sea Limited. However, given its strong market position and efforts to attract customers through initiatives such as expanding its free shipping offering, MercadoLibre should remain highly competitive. Further, Latin America has seen rapid e-commerce growth in recent years, and that trend should continue for the foreseeable future. MercadoLibre should deliver excellent financial results and market returns through the next five years for these reasons.
2. Shopify
Shopify has made significant progress in the past two years. The company's revenue growth has been strong; it has turned a net profit more often than not, and free cash flow is growing at a good clip. That's why the stock has crushed broader equities recently. Over the next five years, Shopify should also capitalize on the growth of e-commerce. The company remains a leader in its market niche, providing merchants with relatively simple, highly customizable templates to launch online storefronts. It also offers a range of other services that simplify merchants' tasks, including inventory management and marketing.
NASDAQ: SHOP
Key Data Points
About 30% of e-commerce businesses in the U.S. sell through Shopify, which speaks volumes about how valuable its services are. Shopify also benefits from high switching costs. It's not easy to leave its platform after spending considerable time, effort, and money building a store through it. Lastly, Shopify is constantly improving its platform to attract even more business. Last year, it partnered with OpenAI in a move that will allow its merchants to sell items directly through ChatGPT, an initiative that could boost the company's gross merchandise volume and revenue. It's one more reason the stock's outlook through 2031 looks attractive.
