2022 hasn't been kind to investors so far, and it has been especially harsh to holders of e-commerce stocks. The rapid, pandemic-induced growth of online shopping over the past two years seems to be cooling off, and investors are fleeing the e-commerce sector.
However, despite the near-term headwinds, the macro trend toward greater use of e-commerce is alive and well. According to Statista, retail e-commerce sales worldwide are expected to grow from $5.5 trillion in 2022 to $7.3 trillion in 2025. Two companies that are especially well-positioned to take advantage of that trend are Etsy (ETSY 3.51%) and MercadoLibre (MELI 1.85%).
Image source: Getty Images.
Etsy: A one-of-a-kind shopping experience
Etsy operates an online marketplace that connects buyers and sellers around the globe. It focuses on unique and handmade goods that can't be found at mass retailers. That exclusivity attracts more and more buyers to Etsy's website, and those buyers entice more sellers to list their wares on the platform, creating a virtuous growth cycle.
NYSE: ETSY
Key Data Points
Etsy's first-quarter 2022 results failed to impress the market, and shares nosedived by about 20% the day after the company reported them. Revenue grew by a lukewarm 5.2% year over year. Gross merchandise sales -- the total monetary value of all items the company sold through its marketplace -- grew moderately by 3.5%. These numbers may look concerning in isolation. However, looking at the longer-term trend puts the company's progress in perspective.
| Metric | 2019 | 2020 | 2021 |
|---|---|---|---|
| Revenue | $818 million | $1.726 billion | $2.329 billion |
| Revenue growth | 35.56% | 110.86% | 34.97% |
| Gross merchandise sales | $4.975 billion | $10.281 billion | $13.492 billion |
| Gross merchandise sales growth | 26.53% | 106.66% | 31.23% |
SOURCE: ETSY EARNINGS RELEASES.
Considering how massively revenues and gross merchandise sales jumped during the past two years, it is understandable that 2022's growth will be relatively muted. Another major contributing factor 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 where many consumers are tightening their purse strings.
However, in the big picture Etsy is eliminating hassles for small business owners and artists by enabling them to set up online shops with ease and speed, and giving them access to a large established audience. And for buyers, it has become a go-to destination to buy gifts for their loved ones or purchase items to celebrate special occasions. It's no surprise that from 2019 through the end of the first quarter of 2022, the number of buyers on the platform has more than doubled (from 46 million to 95 million) and the number of sellers has almost tripled (from 2.7 million to 7.6 million).
The company believes it has a $466 billion market opportunity. Relative to its annual revenue, that gives it a long runway for growth. With shares trading at a price-to-sales valuation of less than 5 -- close to their five-year low -- Etsy will likely reward new investors handsomely over the long run.
ETSY PS Ratio data by YCharts
MercadoLibre: Democratizing e-commerce and financial services in Latin America
MercadoLibre, founded in 1999 in Argentina, was an early e-commerce entrant in Latin America. Operating as a marketplace for buyers and sellers, it has established itself in 18 countries although it gets most of its revenue from Brazil, Mexico, and Argentina. The company is an unquestioned leader with about 30% of e-commerce market share in the region.
NASDAQ: MELI
Key Data Points
The company has expanded 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 it did in the prior-year period, and about 55% of those shipments were delivered on the same or the next day.
MercadoLibre also makes it easy for customers to pay for their purchases with its Mercado Pago platform. Mercado Pago was originally launched to simplify and digitize its payment transactions, but has grown into an ecosystem of financial services that includes credit cards, installment-based payments, personal loans, and cryptocurrency trading.
In the first quarter, about 81 million unique users took advantage of MercadoLibre's shopping and financial services. As more users visit the company's website and mobile app, its digital real estate is becoming more valuable, and ad revenues nearly doubled from the year-ago quarter.
MercadoLibre has so far defied the challenges of uncertainty around consumer spending, high inflation, and rising interest rates, and reported excellent results for the first quarter. And despite difficult comparisons due to the pandemic-induced surge in e-commerce over the past couple of years, MercadoLibre grew its revenue by 63% year over year in Q1. Gross merchandise volume reached $7.7 billion, up 27%. Mercado Pago saw a major surge in total payment volume processed, up 72% to $25.3 billion. And the company also turned profitable on a GAAP basis, recording a net income margin of 2.9%.
In the wake of the recent market sell-off, shares of MercadoLibre trade at a price-to-sales 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, overlooking MercadoLibre will likely turn out to be a missed opportunity for investors.
MELI PS Ratio data by YCharts
