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Shopify vs. MercadoLibre: Which E-Commerce Stock is a Better Buy?

The E-commerce market continues to grow quickly. Investors looking to take advantage of this growth may consider investing in Shopify (SHOP) or MercadoLibre (MELI). Which stock is currently a better buy?

According to ReportLinker, the global e-commerce market is poised to increase in size to $10.87 trillion by 2025, demonstrating a CAGR of 29% during the forecast period. Consequently, e-commerce companies should capitalize on this growth.

With that being said, today I’ll analyze and compare two e-commerce stocks: Shopify Inc. (SHOP) and MercadoLibre, Inc. (MELI). Founded in 2004, SHOP is an Ottawa-based e-commerce company that provides a cloud-based commerce platform to merchants, allowing them to run their business in various sales channels. 

Based in Buenos Aires, Argentina, MercadoLibre is an e-commerce company that offers its online e-commerce solutions for individuals and businesses primarily in Latin America. It owns and operates Mercado Libre, Mercado Pago, Mercado Shops and others.

Year-to-Date, shares of SHOP have risen 20%, while MELI stock has plunged 27%.

Recent Developments 

On December 16th, Evercore ISI upgraded Shopify rating from “In-Line'' to “Outperform” with a price target of $1,770.00, implying an over 38% upside from Monday’s closing price. Analyst Mark Mahaney views the stock is undervalued, considering forward EV/Sales of 24x and expected 2021-2023 revenue CAGR of 34%. 

On December 13th, MercadoLibre announced the acquisition of a Chilean payment services provider known as Redelcom. This purchase should enhance the company’s Mercado Pago business unit. In addition, this acquisition aims to expand MercadoLibre’s presence in Chile, which presents significant growth opportunities.  

Financial Overview & Analysts Estimates 

In the third quarter, ended September 30th, 2021, Shopify's total revenue has grown 45.9% year-over-year to $1.12 billion, missing, however, Wall Street expectations by $30 million. Its revenue from the Merchant Solutions segment, which accounted for 70% of total sales in Q3, rose 51% year-over-year to $787.5 million, while revenue in the Subscription Solutions segment grew 37% year-over-year to $336.2 million. 

The company’s net income stood at $1.15 billion mainly due to $1.34 billion of unrealized gain on its equity investments, compared to its 3Q2020 net income of $191.1 million. Consequently, SHOP’s Non-GAAP EPS has been reported at $0.81, missing analysts estimates by $0.41.

The company’s EPS is expected to decrease 16.52% year-over-year to $1.32 in its fourth quarter of 2021. However, analysts expect SHOP’s revenue to advance 37.85% year-over-year to $1.35 billion in the current quarter.

On November 4th, MercadoLibre released earnings for the third quarter of 2021. In Q3, the company’s total net revenues increased 61.7% year-over-year to $1.86 billion. However, the company missed analysts' revenue estimates by $30 million. Its gross profit stood 68% higher YoY at $806.6 million, with a margin of 43.4% versus 3Q2020 gross profit margin of 43.0%. Net income grew to $95.2 million in Q3, leading to a GAAP EPS of $1.92, which was well above analysts' consensus of $1.29. 

Total payment transactions came in at $865.7 million, representing a 54.7% year-over-year increase.

Currently, Wall Street expects MercadoLibre's earnings to improve in the fourth quarter of 2021 to $1.03 a share compared to its year-ago figure of ($1.02). In addition, its top line is projected to grow 53.94% to $2.04 billion in Q4.

Comparing Valuations

In terms of Forward P/E GAAP, MELI is currently trading at 385.02x, which is significantly higher than SHOP's 48.93x. When it comes to Forward EV/EBITDA, SHOP’s 198.71x is 107% higher than MELI's 96.01x. 

However, their Forward P/E GAAP and EV/EBITDA multiples are trading well above the sector’s median threshold. 

The Bottom Line 

The global e-commerce industry is estimated to continue strengthening its dominance even after the pandemic is over. While both SHOP and MELI are expected to benefit, I believe MELI is more attractive at current levels because of its superior financials, relatively lower valuation, and higher forward growth rates. 

SHOP shares were trading at $1,360.96 per share on Tuesday afternoon, up $78.79 (+6.15%). Year-to-date, SHOP has gained 20.23%, versus a 24.93% rise in the benchmark S&P 500 index during the same period.

About the Author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.


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