MercadoLibre vs Amazon Stock: Which Is Best?

MercadoLibre vs Amazon Stock: The transition to e-commerce has reached a tipping point – it’s no longer optional for brick-and-mortar shops. Consumers expect all businesses, no matter how small, to make goods and services available for online purchase.

Whether shoppers ultimately buy through a website or visit the store in person to wrap up the transaction, the only way for companies to stay competitive is by offering a consistent multi-channel experience that ties advertising and branding activities, websites, phone support, and in-person visits together seamlessly.

Building an effective e-commerce site independently isn’t practical for many small business owners. Fortunately, that’s no longer necessary. A number of tech entrepreneurs took note of the complexity and expense facing small business owners new to the online shopping space and developed simple solutions for creating a professional, user-friendly online experience with minimal effort.

Platforms offered by companies like Shopify, Square, and Weebly are designed with beginners in mind. Anyone can launch an online shop with minimal effort, and digital payment solutions are built right into the process.

However, e-commerce giants like MercadoLibre (NASDAQ:MELI) and Amazon (NASDAQ:AMZN) are also diving into this space, and they are starting to overshadow earlier arrivals in this area of e-commerce.

In addition to their massive shares of their respective markets, Amazon and MercadoLibre are making it possible for everyone to connect with consumers, regardless of geography.

Their storefront-building tools and resources, coupled with their dominance in online sales, make them formidable opponents for other companies attempting to compete in the world of online shopping.

Now, both are bringing financial services into the mix so that consumers and merchants have end-to-end support, whether they are buying or selling.

For investors, the question is MercadoLibre vs Amazon stock – which is best? After all, both appear well-prepared to deliver strong growth – particularly from a long-term perspective. Which has more market opportunity? Which will win in revenue growth? Perhaps more importantly, in an Amazon vs. MercadoLibre matchup, which faces the most risk?

Amazon vs. MercadoLibre Market Opportunity

Amazon founder and Executive Chairman Jeff Bezos has said that Amazon’s market opportunity is virtually unlimited. That might be a bit of an exaggeration, but it’s not far off.

The B2C e-commerce platform has a global presence, and Amazon is building out its B2B business. It already controls a massive portion of the B2C market, especially in the United States, and some analysts have suggested that B2B could be even bigger.

Meanwhile, Amazon Web Services (AWS) leads the cloud computing market by a wide margin – more than the second and third place providers combined. AWS continues to innovate and expand, and it brings in significant profits.

That benefits the larger company because AWS can lessen the impact of economic downturns that cause financial trouble for retailers.

Amazon has no intention of limiting its business to e-commerce and cloud computing. It regularly explores new technology and complementary products and services.

For example, Amazon recently acquired iRobot – maker of the automated Roomba vacuum – and it has a successful video streaming service, as well as a music streaming service and a number of other subscription-based products.

Even Google is a bit concerned about Amazon’s capabilities. Now that Amazon is diving into digital advertising, the current leader in web-based marketing could see its market share declining.

MercadoLibre is intent on doing for Latin America what Amazon did for English-speaking countries.

MercadoLibre has divisions dedicated to e-commerce, online auctions, financial services, and digital marketing.

Like Amazon, MercadoLibre has developed expertise in logistics, and it is now offering opportunities for merchants to simplify shipping and reduce the cost of getting products into the hands of customers.

In short, both companies want to take merchants and customers through the purchase process from start to finish – from connecting buyers and sellers through marketing to getting goods delivered promptly.

The biggest difference between the two is that Amazon is well-established in developed countries, while MercadoLibre primarily services the emerging economies of Latin America. That’s a critical distinction because it suggests that MercadoLibre has more growth opportunity.

Many Latin American consumers and businesses are new to web-based transactions, and most do not use traditional financial services.

Among other plans, MercadoLibre intends to bring basic banking to millions of Latin Americans. As comfort with e-commerce and online financial services increases, MercadoLibre may see a steep positive trend in transaction volume, revenue, and profits.

All of those figures are important to investors and shareholders because they tend to boost stock prices.

Amazon vs. MercadoLibre Revenue Growth

The pandemic had a halo effect for Amazon because it compressed the timeline for the transition from brick-and-mortar shopping to e-commerce. Even the most skeptical consumers chose to buy online rather than expose themselves to the virus by visiting retailers in person.

The downside to Amazon’s rapid growth during the pandemic years is that consumers returned to brick-and-mortar stores when the pandemic became more manageable. E-commerce didn’t drop to pre-pandemic levels, but adoption rates slowed – and so did Amazon’s revenues.

Amazon reported $121 billion in revenue for the second quarter of 2022. That’s still a 7.2 percent increase year-over-year, but it is the lowest rate of growth in two decades.

More importantly, the company recorded a $2 billion loss for the quarter, which is troubling to current and prospective shareholders. In the second quarter of 2021, Amazon had a net income of $7.8 billion.

MercadoLibre also benefited from the pandemic, and growth rates hit triple digits for several consecutive quarters during that period. It is slowing down now that the pandemic is better controlled, but growth is still in the double digits, which is very respectable.

For the second quarter of 2022, MercadoLibre reported revenue of $2.6 billion. That figure represents 57 percent growth year-over-year. Net income was almost double that of second quarter 2021, totaling $123 million.

Amazon vs. MercadoLibre Risks

Amazon and MercadoLibre have certain risks in common. The biggest is the possibility of an extended economic downturn – particularly if inflation stays elevated.

Though consumers will still be in need of certain essential items, rising prices and decreased purchasing power will impact what they buy, when they buy, and how much they buy.

Both companies can withstand a certain amount of economic pressure because neither depends exclusively on e-commerce.

Amazon enjoys strong revenue and high-profit margins from AWS, and MercadoLibre’s financial services division is more lucrative than its retail businesses.

However, an extended recession could create a situation in which cloud computing and financial services aren’t enough to keep profits up. That scenario is likely to bring share prices down.

Of the two, Amazon’s position is a bit more precarious than that of MercadoLibre, primarily because Amazon’s value proposition doesn’t include low prices for consumers.

Amazon customers choose the e-commerce platform over other options because delivery is convenient, fast, and free with a minimum purchase or Prime membership. If household budgets are strained, consumers may give up fast shipping in favor of saving money.

MercadoLibre’s marketplace still competes on price. That’s a win for cash-strapped consumers, and it puts MercadoLibre in a stronger position to withstand current market conditions.

Amazon Stock Forecast

Amazon’s second-quarter earnings announcement included guidance for the third quarter of 2022. One of the key points was a projected year–over-year increase in net sales.

Amazon leaders expect net sales to come in between $125 billion and $130 billion for the quarter, which – if accurate – would represent growth of 13 percent to 17 percent.

Operating income for the quarter is likely to shrink as compared to the third quarter of 2021. At the moment, business leaders expect that figure to be anywhere from $0 to $3.5 billion, which is a drop from third-quarter 2021’s $4.9 billion.

Shareholders and analysts were pleased with the second-quarter results and liked what they heard from Amazon leadership regarding third-quarter guidance.

Nearly all of the analysts who follow the company rated Amazon stock a buy. The median 12-month price target for Amazon stock is $173.00 – a 20 percent increase over share prices in mid-August.

MercadoLibre Stock Forecast

During the most recent earnings call, MercadoLibre’s leaders outlined their plan for growing the business.

Building customer loyalty and expanding relationships is a top priority, so the company is working to simplify the user experience by streamlining transactions and connecting various services. The strategy will serve to retain current customers, and it may influence them to purchase additional services.

Analysts are nearly unanimous in their determination that MercadoLibre stock is a buy. The median 12-month target price for MercadoLibre stock is $1,240.00, which is an increase of approximately 14.5 percent over the share price as of mid-August.

Amazon vs. MercadoLibre Stock: Which Is Best?

Amazon stock and MercadoLibre stock are both well-positioned to deliver returns for shareholders in the coming year and beyond. Both companies have plenty of room to grow, and both have diversified beyond e-commerce, which protects against market downturns.

However, in a choice between MercadoLibre stock and Amazon stock, MercadoLibre stock has a slight edge. Specifically, it is growing faster, which means shareholders may benefit from comparatively larger short-term returns.

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