So far, 2022 hasn’t been kind to investors, and it’s been particularly tough on e-commerce stockholders. The pandemic-induced rapid growth of online shopping over the past two years appears to be easing and investors are fleeing the e-commerce sector.
However, despite the short-term headwinds, the macro trend towards greater use of e-commerce is alive and well. According to Statista, global e-commerce retail sales are expected to grow from $5.5 trillion in 2022 to $7.3 trillion in 2025. Two companies particularly well positioned to capitalize on this trend are Etsy (ETSY -1.14%) and MercadoLibre (MELI -3.23%).
Etsy: a one-of-a-kind shopping experience
Etsy operates an online marketplace that connects buyers and sellers around the world. It focuses on unique, handmade products that cannot be found at mass retailers. This exclusivity attracts more and more buyers to Etsy’s website, and these buyers incentivize more sellers to list their wares on the platform, creating a virtuous cycle of growth.
Etsy’s first-quarter 2022 results failed to impress the market, and shares plunged around 20% the day after the company released them. Revenue increased 5.2% year over year. Gross merchandise sales – the total dollar value of all items the company sold in its marketplace – rose a moderate 3.5%. These figures may seem worrying taken in isolation. However, looking at the longer-term trend puts the company’s progress into perspective.
|Revenue||$818 million||$1.726 billion||$2.329 billion|
|Gross Merchandise Sales||$4.975 billion||$10.281 billion||$13.492 billion|
|Growth in gross merchandise sales||26.53%||106.66%||31.23%|
Given the magnitude of the massive increase in revenue and gross merchandise sales over the past two years, it’s understandable that growth in 2022 will be relatively subdued. Another major factor contributing to its slower growth rate is economic uncertainty. High inflation, a myriad of supply chain issues and Russia’s war in Ukraine have created conditions in which many consumers are tightening their purse strings.
Overall, however, Etsy takes the hassle out of small business owners and artists by making it easy and quick to set up online stores and giving them access to a large, established audience. And for shoppers, it has become a go-to destination to pick up gifts for loved ones or shop for items to celebrate special occasions. It’s no surprise that from 2019 to the end of the first quarter of 2022, the number of buyers on the platform more than doubled (from 46 million to 95 million) and the number of sellers almost tripled (from 2. 7 million to 7.6 million).
The company estimates it has a $466 billion market opportunity. Compared to its annual revenue, this gives it a long streak of growth. With stocks trading at a price/sales valuation below 5 – close to a five-year low – Etsy will likely reward new investors handsomely over the long haul.
MercadoLibre: Democratizing e-commerce and financial services in Latin America
MercadoLibre, founded in 1999 in Argentina, was one of the first e-commerce players in Latin America. Operating as a marketplace for buyers and sellers, it has established itself in 18 countries, although it derives the bulk of its revenue from Brazil, Mexico and Argentina. The company is an undisputed leader with around 30% e-commerce market share in the region.
The company has widened its moat by investing in its logistics and shipping network, Mercado Envios, which helps sellers on its platform deliver goods faster. In the first quarter, Mercado Envios shipped 22% more items than in the prior year period, and approximately 55% of those shipments were delivered the same or next day.
MercadoLibre also allows customers to easily pay for their purchases with its Mercado Pago platform. Mercado Pago was originally launched to simplify and digitize its payment transactions, but has evolved into a financial services ecosystem that includes credit cards, installment payments, personal loans and cryptocurrency trading. .
In the first quarter, approximately 81 million unique users took advantage of MercadoLibre’s business and financial services. As more users visit the company’s website and mobile app, its digital real estate is rising in value and ad revenue nearly doubled from the year-ago quarter.
So far, MercadoLibre has weathered the challenges of uncertainty surrounding consumer spending, high inflation and rising interest rates, and reported strong first quarter results. And despite tough comparisons due to the pandemic-induced surge in e-commerce over the past two years, MercadoLibre grew revenue 63% year-over-year in the first quarter. Gross merchandise volume reached $7.7 billion, up 27%. Mercado Pago saw a strong increase in total processed payment volume, up 72% to $25.3 billion. And the company also became profitable on a GAAP basis, recording a net profit margin of 2.9%.
In the wake of the recent market sell-off, MercadoLibre shares are trading at a price-to-sell ratio of around 5, their lowest valuation in the past five years. With its strength in the Latin American market and the opportunity ahead of it, neglecting MercadoLibre will likely prove to be a missed opportunity for investors.