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Better Buy: Jumia Technologies vs. MercadoLibre

In this article I will analyze and compare Jumia Technologies and MercadoLibre to determine which e-commerce stock is currently a better investment.

The e-commerce industry has experienced a significant boost amid the pandemic due to an enormous spike in demand for e-commerce, which enabled customers to meet their daily living needs. Moreover, the analysts expect the e-commerce market to continue to expand quickly in the post-pandemic environment.

According to ReportLinker, the global e-commerce market is estimated to grow to $10.87 trillion by 2025, demonstrating a CAGR of about 29% during the forecasting period. Consequently, e-commerce companies should benefit from this growth in the long term.

In today's article, I intend to analyze and compare two e-commerce stocks, Jumia Technologies AG (JMIA) and MercadoLibre, Inc. (MELI), to determine which is a better buy as of now. 

JMIA is a Germany-based e-commerce company that provides a marketplace platform to merchants, logistics services, and payment services in Africa and internationally. Based in Buenos Aires, Argentina, MercadoLibre is an e-commerce company that offers 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 JMIA have lost 46%, and MELI is down 48%.

Recent Developments 

On May 18th, Lamont Williams, an analyst at Stifel, decreased its price target on Jumia Technologies shares to $9 from $11 following the company’s Q1 report. The analyst noted that the company’s strategic investments to increase platform usage/monetization come at a cost when its markets are still early. Also, the firm kept a “Hold” rating on JMIA stock. 

Financial Overview & Analysts' Estimates 

In the first quarter, which ended March 31st, 2022, Jumia Technologies' total revenue grew 44.2% year-over-year to $47.6 million, missing, however, Wall Street expectations by $2.81 million. JMIA’s revenue from the Marketplace segment, which accounted for 55.46% of total revenues in Q1, rose 8.2% year-over-year to $26.4 million, while revenue in the First Party segment grew 152.4% year-over-year to $19.7 million. 

Its gross merchandise value ("GMV") came in at $252.7 million, representing a year-over-year increase of 27%. Also, the company's orders advanced by 40.5% year-over-year to 9.3 million. However, Jumia's Adjusted EBITDA loss came in at $55.3 million in Q1 compared to a year-ago Adjusted EBITDA loss of $32.6 million. 

The company’s EPS is expected to decrease 51.2% year-over-year to ($0.67) in the second quarter of 2022. However, analysts expect Jumia's revenue to increase 38.39% year-over-year to $55.66 million in the current quarter.

On May 5th, MercadoLibre announced earnings for the first quarter of 2022. In Q1, the company’s total net revenues increased 63% year-over-year to $2.25 billion, driven by the growth of fintech solution services and the increase in gross merchandise volume. Notably, the company topped analysts' revenue estimates by $210 million. In addition, MercadoLibre's first-quarter GAAP EPS has been reported at $1.30, surpassing consensus by $0.19. 

Furthermore, the company's first-quarter Gross Merchandise Volume increased 31.6% YoY to $7.67 billion, while its Total Payment Volume was up 81.2% YoY to $25.32 billion on an FX-neutral basis.

Currently, Wall Street expects MercadoLibre's earnings to grow 55.37% year-over-year to $2.13 a share in the second quarter of 2022. In addition, its revenue is expected to grow 48.64% to $2.53 billion in FQ2.

Comparative Valuation & Growth 

In terms of Forward EV/Sales, MELI is currently trading at 3.93x, which is 3.7x higher than JMIA, whose multiple presently comes in at 1.06x. When it comes to the Forward P/B multiple, MELI's P/B multiple of 16.31x is significantly higher than JMIA's 3.34x. 

Despite relatively a high valuation, MELI is projected to demonstrate higher forward growth rates. For example, its forward revenue growth should stand at 50.18%, which is well above the sector's median of 14.39% and JMIA's respective figure of 22.98%.

The Bottom Line 

Putting it all together, I believe that MELI, at the moment, is a better buy candidate. The company's key operating metrics and forward growth rates look relatively better. Although MELI currently trades with high valuations, its strong growth rates make this premium worth paying.

JMIA shares were trading at $6.32 per share on Wednesday morning, up $0.16 (+2.60%). Year-to-date, JMIA has declined -44.56%, versus a -16.89% 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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