MercadoLibre Vs Sea Limited Stock: Which Is Best?

As two emerging giants of the e-commerce space, MercadoLibre (MELI) and Sea Limited (SE) both benefited last year from lockdown-related tailwinds and the secular growth trend in digital commerce.

While each company serves separate geographical markets at the moment, it’s inevitable the pair will clash sometime in the near future. But which of the two, if either, will come out on top – and which stock makes for the better investment at the present time?

MercadoLibre Revenues & EPS Soaring

The e-commerce market in Latin America is exploding. With its growing population of 490 million people, the region accounted for around $94 billion in sales in 2020, which is expected to rise to $161 billion by 2024.

This is all good news for Argentina-based third-party online marketplace provider MercadoLibre, who, with 668 million visits to its site per month, is the most popular e-commerce platform in Latin America.

The company isn’t just a marketplace for vendors, however; MELI also runs a robust and continually improving FinTech business which underpins its huge logistics and fulfillment service, Mercado Envios, as well as its payments solution platform, MercadoPago.

MercadoLibre’s market value has grown a massive 760% over the last 5 years, a situation that reflects the business’s unstoppable success in its evolution from a local eBay (EBAY) competitor to a world-leading e-commerce juggernaut.

And the company’s growth story shows no sign of abating. In its latest quarterly report, MELI’s EPS of $1.37 beat Wall Street predictions by a stunning $1.25, while the firm also posted record net revenues of $1.7 billion, a huge 103% year-on-year increase before currency adjustments.

Crucially, MercadoLibre’s unique active user count was up 47% for the quarter – a fact CFO Pedro Arnt alluded to as important due to the company’s ability to roll-out financial services, such as credit loans and debit cards, to its “wide and growing base” of customers.

As impressive as MELI’s e-commerce segment has been over the last few years, the scale and growth of its FinTech offering, MercadoPago, is beginning to rival even this.

While MercadoPago still only represents about 33% of its Second Quarter revenue, the FinTech business grew 20% sequentially from the First Quarter, buoyed as it has been by the underrated opportunity that the un-banked Latin American population promises. 

As it stands, 50% of Latin Americans have no access to financial services, with cash the main medium for transaction. MELI’s credit wing, Mercado Credito, believes it can bridge this gap with its own FinTech platform, which, in time, could enable users not just to access financial services but also investment products such as stocks and cryptocurrencies too.

The first step in this process will be to offer loans to customers; indeed, MercadoPago’s loan portfolio grew 222% between Q1 2020 and Q1 2021, from $179 million to $576 million.

With so many avenues for expansion, it’s no surprise that Mercado’s growth metrics are thorough the roof. Its year-on-year EBITDA growth stands at a surreal 13,336%, while its trailing twelve month revenue appreciation is a sector busting 97%.

However, high growth companies are usually punished in the short-term with high valuations too, and MELI is no different. Anyone buying MercadoLibre at the present time will have to come to terms with a forward non-GAAP P/E ratio of 534, and a Price-to-Book multiple of 977.

The stock is certainly not cheap, but, for the possibility of massive growth, it’s a price some might say is worth paying.

Source: Unsplash

Sea Limited Has 3 Arrows In Its Quiver

Like MercadoLibre, Sea Limited (SE) also operates in an emerging market with huge growth potential, sporting both a thriving e-commerce segment and a promising FinTech wing to boot. And where MELI is king of the Latin American market, Sea Limited is the dominant player in the developing South East Asia economy.

Sea Limited is comprised of three separate businesses:

• Shopee – SE’s e-commerce outfit;
• SeaMoney – a digital payments and financial services provider; and
• Garena – Sea Limited’s online game development house.

Two of these segments, Shopee and SeaMoney, are complimentary, and together work synergistically to drive each business forward.

Garena is more of a standalone entity, and is the only segment in Sea’s portfolio that is currently a profit making enterprise.

Garena’s superior revenue generating abilities have so far underwritten the rest of the company’s growth ambitions, and a lot of SE’s future success ultimately depends on Garena’s continued good performance.

Sea’s big growth opportunity rests mainly in its e-commerce operations – the gross merchandise value for the South East Asia area was $62 billion in 2020, and is expected to rise to $175 billion in 2025. However, the company has been expanding its footprint recently as well, and has begun making moves on the wider Asian region, establishing a presence in Japan, China, Thailand, and Korea.

Revenues for the company have been growing consecutively each quarter for the past two years. In its latest earnings call, Sea Limited announced a year-on-year top-line growth of 159%, taking its total GAAP revenues for the Second Quarter to $2.28 billion, beating analyst estimates by $260 million. The firm also had a rare earnings surprise too, exceeding EPS expectations by $0.07 to clock a loss per share of -$0.61.

Despite SE’s good fortunes on its top- and bottom line, shares dipped after the earnings release due to negative comps on its total adjusted EBITDA – which dropped from $7.7 million in Q2 2020 to -$24.1 million this time round. However, the company got a boost from a 45% increase in its quarterly active users, reaching a total of 725.2 million people, as well as an 85% year-on-year increase in paying users, which topped out at 92.2 million.

Shopee’s rise to prominence in the South East Asia market is all the more remarkable considering it took only a mere 6 years to achieve, having just launched operations in the territory in 2015. And just as MercadoLibre now dominates Amazon in the Latin America market, Sea Limited also beat another giant of the space, Alibaba’s Lazada, to take top-spot on its own turf.

But questions remain over Sea’s lack of overall profitability. Company founder, Forrest Li, addressed these concerns at the end of last year saying that “it [Shopee] can be profitable anytime”. Investors don’t seem too worried though; Sea Limited’s shares are up over 100% in just twelve months, and struck an all-time high market cap in early September. 

And The Winner?

Again making comparisons with Mercado, Sea’s business is growing rapidly – operating cash flow increased 582% the last year alone – but its valuation is steep.

Its forward Price-to-Sales ratio of 19 is actually higher even than MELI’s at 12, making the choice between these two e-commerce players difficult.

Hedging your bets might be the wisest course here: cover both bases, and open a position in each.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.