Both free market (NASDAQ: MELI) And sea ltd (NYSE: SE) They are becoming prominent players in e-commerce in many countries. MercadoLibre became the number one mover in Latin America while Sea Limited started in Southeast Asia but has since expanded beyond that region.
The question for investors is which stocks can serve them best. While both should continue to drive explosive growth, is one better to buy one? let’s see.
MercadoLibre . case
MercadoLibre serves customers from the southern tip of Chile all the way to the Mexico-US border. The online retailer and direct marketing has succeeded primarily by adapting to the needs of its customers. To deal with the unique logistical challenges of Latin America, Mercado has created Envios. This provides the logistics needed to transport products to the company and customers.
Many Latin American customers lack access to bank accounts and credit cards. To serve these customers, the company created Mercado Pago. Through this service, customers who rely on cash can purchase items online. Mercado Pago also provides fintech services to other customers even if they have not purchased from MercadoLibre.
This strategy helped the company generate net revenue of approximately $4.9 billion in the first nine months of 2021, a staggering 87% increase over the first three quarters of 2020. The bottom line was impressive. Despite massive increases in interest expense, foreign exchange losses, and income taxes, MercadoLibre managed to generate net income of $275 million during the first three quarters of 2021, up 120% over the same period in 2020.
The company didn’t provide any forward guidance, but the consensus estimate for 2021 revenue currently stands just under $7 billion, or 75% higher than 2020. While this represents a modest slowdown, investors can find a buying opportunity due to this year’s stock performance.
MercadoLibre is down 20% over the past year. Most of the decline came after the November stock offering and concerns about higher interest rates amid rising inflation. But that helped lift the stock to sales just 11 times, the lowest sales multiplier since March 2020. Such declines could spur new buyers if they see the company emerging from the ongoing effects of the pandemic.
Why Investors Should Consider Sea Limited
Sea Limited shares many commonalities with MercadoLibre. Although it started as a gaming company called Garena, the e-commerce arm of Shopee has seen rapid growth in its home region of Southeast Asia, serving eight countries there including Vietnam, Indonesia, and the Philippines. It also expanded in other areas. Its move to Europe moved to the French, Polish and Spanish markets. Meanwhile, its presence in Latin America in Brazil, Chile, Colombia and Mexico also puts it in direct competition with MercadoLibre.
Like MercadoLibre, it has also expanded into fintech with SeaMoney, providing digital finance and payment services to consumers and merchants. Although this part of the company is still relatively small, it generated $4.6 billion in payout volume in the third quarter alone.
All these moves helped increase sales. In the first nine months of 2021, the company reported revenue of $6.7 billion, up 140% from the first three quarters of 2020. During the same period, e-commerce revenue jumped 175% while digital entertainment (which includes Garena) saw 120%. more. For the full year of 2021, analysts expect revenue to rise 117% to $9.5 billion.
However, the company is still facing heavy and increasing operating expenses. Its net loss of more than $1.4 billion in the first three quarters of 2021 was 30% higher than the same period last year. Investors have sold off the stock in recent weeks as losses came in higher than expected. After nearly doubling earlier this year, shares are down nearly 40% from their 52-week high – leaving them now up just 12% over the past year.
The sharp drop in the stock price brought the price-to-sales ratio to 13, the lowest point since mid-2020. This downgraded valuation could make Sea Limited a purchase in 2022.
MercadoLibre or Sea Limited?
Both companies should conquer the market as a whole for years to come. However, if forced to pick one, Sea Limited seems to offer better value for money. While its sales multiplier is slightly higher, it has reported faster revenue growth in e-commerce. Moreover, it has ventured outside its territory and has an added advantage over MercadoLibre in gaming. This combination should give Sea Limited an advantage over time.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.