E-commerce has trended steadily upward for years, but 2020 supercharged online sales. Many retailers took their business online, which came as a relief to consumers who preferred to avoid brick-and-mortar shopping during the COVID-19 pandemic.
Investors who purchased e-commerce stocks before 2020 saw impressive gains over the course of that year. Though the rate at which e-commerce stocks have grown year-to-date in 2021 has slowed, that doesn’t mean these stocks are old news. E-commerce is still pulling market share from brick-and-mortar retailers – especially in emerging economies.
Two major players in this industry include MercadoLibre (MELI) and Shopify (SHOP). Investors interested in adding one of these companies to their portfolio have a single question on their minds: MercadoLibre vs Shopify: which is best?
Shopify Made E-Commerce Easy For Offline Stores
Getting started in e-commerce used to be difficult – then Shopify came along.
When Shopify launched, brick-and-mortar businesses, start-ups, and merchants of every size could create online storefronts and reach a global marketplace with a few clicks.
As the software advanced, it got easier to integrate physical retail with e-commerce, social media, and individual websites. Today, all of those channels can be combined within the Shopify software, and the platform has expanded from digital payment processing to include shipping solutions and consumer financing options.
Shopify’s pricing structure is designed to make sense for any-sized business, which has brought customers in at a rapid rate. The platform supports 1.7 million businesses around the world, and it is starting to attract attention from large market-leading organizations like Pepsi (PEP) and Netflix (NFLX).
Shopify Stock: Earnings Bonanza
Some wondered whether Shopify could beat 2020’s numbers in 2021, and if so, whether that performance would show in its already high stock price. When Shopify’s Q2 2021 earnings were announced in late July, both questions were answered.
For the second quarter of 2021, Shopify’s revenue increased 57 percent year-over-year to a total of nearly $1.12 billion.
The number of merchants joining the platform went up dramatically, delivering 70 percent year-over-year growth in the Subscription Solutions unit. Merchant Solutions revenue increased by a solid 52 percent.
Monthly Recurring Revenue (MRR) increased 67 percent year-over-year, also due to the growing number of merchants on the platform and the rise in use of Shopify’s POS Pro service for brick-and-mortar retailers. Nearly a quarter of that MRR came from Shopify Plus.
Shopify’s gross profit went up 66 percent year-over-year, from $375 million in Q2 2020 to $620.9 million in Q2 2021.
Adjusted gross profit increased by 64 percent to $627.0 million. Operating income came in at 12 percent of revenue or $139.4 million for the quarter, as compared to 0 percent of revenue or $0.3 million for the same period in 2020.
Adjusted operating income was 21 percent of revenue or $236.8 million for the quarter, which is an increase from 16 percent of revenue or $113.7 million for the second quarter of 2020.
Shopify delivered $879.1 million in net income for the quarter, which comes to $6.90 per diluted share. During the same period in 2020, net income was $36.0 million or $0.29 per diluted share.
Adjusted net income rose to $2.24 per diluted share or $284.6 million, which represents a year-over-year increase compared to second quarter 2020’s $1.05 per diluted share or $129.4 million.
All in all, it was a strong quarter, but share prices didn’t rocket up after earnings were announced. These results were expected, so they were already baked into Shopify’s share price.
However, the company’s growth is expected to continue through 2021 and into 2022. That suggests shareholders will be rewarded in coming quarters.
Shopify Market Share Is 29%
Shopify holds a large portion of the US e-commerce platform market share – a full 29 percent, thanks to its commitment to providing end-to-end e-commerce for merchants of all sizes.
Though there are strong competitors for each of its services – storefront creation, digital payment processing, shipping, financing, and business development – none of Shopify’s competitors offer the same comprehensive ecosystem. That means Shopify’s market share – both in the US and worldwide – is poised for growth.
Those points, combined with the fact that e-commerce is still in its infancy, suggest that Shopify will continue growing quickly. As a result, most investors and analysts agree that Shopify stock is a buy.
MercadoLibre Is The Ebay & Shopify Of LatAm
Latin America’s e-commerce market is growing rapidly – not only because e-commerce is becoming popular worldwide, but because in recent years, mobile devices have given nearly everyone access to the internet.
MercadoLibre is Latin America’s answer to Shopify. It’s a leading platform for digital payment solutions, and it is now diving into fintech.
The fintech aspect of MercadoLibre’s strategy is particularly exciting because there is more opportunity in the Latin American financial services market than in the United States. While the vast majority of US residents use some form of traditional financial products, the situation is exactly opposite in most Latin American countries.
MercadoLibre intends to change that with a variety of online financial services solutions. Some say this division has the potential to outshine MercadoLibre’s core e-commerce business in the very near future.
MercadoLibre Earnings Continue To Be Stellar
Second-quarter 2021 was a strong one for MercadoLibre.
Its tally of unique active users increased by 47.4 percent year-over-year to a total of 75.9 million, and gross merchandise volume (GMV) rose to $7 billion, which equates to growth of 39.2 percent.
More than 244 million items were sold successfully – an increase of 37 percent year-over-year. MercadoLibre’s marketplace saw more than 319 million live listings, and the Mercado Envios business shipped 230.5 million items. That’s an increase of 46.4 percent over the same period in 2020.
Mercadopago, MercadoLibre’s payment service, achieved a total payment volume (TPV) of $17.5 billion. That is 56.3 percent higher than second-quarter 2020. The total number of payment transactions went up by 80.3 percent, for a total of 729.9 million unique transactions over the three-month period.
Mercado Fondo, the company’s asset management product, has more than $810 million in assets under management – and around 19.3 unique clients. The Mercado Credito unit grew its portfolio to more than $800 million, which is five times its total size at the end of second-quarter 2020.
MercadoLibre saw total net revenues of $1.7 billion for the quarter – an increase of nearly 94 percent year-over-year. Commerce revenues went up by 96.4 percent, and fintech revenues grew by almost 89 percent.
The company’s gross profit totaled $753.9 million, and net income for income tax expense came in at $138.9 million – a year-over-year increase of 55.5 percent. MercadoLibre’s net income came in at $1.37 per share or $68.2 million.
Is MercadoLibre Stock A Buy?
MercadoLibre has been around for more than 20 years, but the stock really took off in the past five years. During that period, it gained nearly 800 percent – and most of that came after the 2020 market crash.
MercadoLibre stock benefited from the COVID-19 pandemic, as did other tech stocks focused on web services, streaming video, social media, and e-commerce. However, the company isn’t anywhere close to finishing its growth spurt yet.
Many Latin American economies are entering a new stage of prosperity. Fewer people live in deep poverty, and there is a blossoming middle class that is ready to shop online.
When combined with the fact that those newer members of the middle class are ripe for previously unnecessary financial products, all signs point to a promising future for MercadoLibre. That makes MercadoLibre stock a buy.
Shopify Stock Vs MercadoLibre: Which is Best?
Despite the fact that many consider Shopify stock overvalued, most analysts agree that Shopify stock is a buy.
MercadoLibre is also a popular choice, but it doesn’t have the baggage that comes with being overvalued. When coupled with the potential of its fintech products in the emerging Latin American market, the consensus is that when it comes to Shopify stock vs MercadoLibre, MELI stock is the best buy.
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.