E-commerce platforms have received a significant boost from the COVID-19 pandemic over the last year. The public health crisis has forced people to stay home and rely on online platforms for their shopping needs. Though an ongoing vaccine rollout is encouraging some people to return to traditional brick-and-mortar stores, some observers expect the e-commerce trend to continue even in the post-pandemic world. And, as such, e-commerce companies should continue to flourish on the back of continued innovations and advancements in delivery systems.
Amazon.com, Inc. (AMZN) and MercadoLibre, Inc. (MELI), two prominent global online business service providers, have emerged as lifelines to a public wary of health risks, and have been thriving as a result since the pandemic. The crisis triggered a rapid shift toward the digitization of commerce and trade. As a result, more consumers have been buying products and services online, and more entrepreneurs are adopting digital platforms to meet the demand.
Both stocks have generated significant returns over the past three years. While AMZN returned 125.7% over this period, MELI gained 424.5%. But in terms of the past month’s performance, AMZN is a clear winner with 5.3% returns versus MELI’s 4.8%. But which of these stocks is a better pick now? Let’s find out.
Business Structure and Latest Movements
AMZN is the world’s largest online retailer engaged in the retail sale of consumer products and service subscriptions through its online store. In addition to being a market leader in the cloud computing segment, AMZN has also ventured into various other spaces, most recently into the healthcare segment with the launch of Amazon pharmacy. AMZN also manufactures and sells devices such as Kindle, Fire tablets, Fire TVs, Rings, and Echo. The company operates through three segments – North America, International, and Amazon Web Services (AWS).
AMZN is investing heavily in building fulfilment centers and developing its transportation fleet. The company recently unveiled its plan to open a fulfillment center in Tennessee, which it anticipates opening next year. In December, it revealed its plans to open its first fulfillment center in Carencro and two new fulfilment centers and a new delivery station in Texas. In addition, the company recently purchased its first Boeing (BA) 767-300 aircraft, to serve customers faster. It also purchased 11 aircraft from Delta Air Lines (DAL) and WestJet Airlines to join the Amazon Air cargo network in 2021 and 2022.
MELI is an Argentina-based e-commerce service provider. It operates MercadoLibre Marketplace, an automated online commerce platform that enables businesses and individuals to list merchandise and conduct sales and purchases online, and MercadoPago FinTech, a financial technology solution platform that facilitates transactions on and off its marketplaces by allowing its users to send and receive payments online.
MELI recently closed its inaugural debt offering of $400 million of notes due 2026 and $700 million of notes due 2031. The company intends to use the proceeds to finance ongoing or new projects with social or environmental impacts.
In November 2020, MELI selected AMZN’s AWS as its primary cloud provider to further transform it into a data-driven organization, improve user experiences, accelerate the launch of new services, and support its regional expansion.
Recent Financial Results
In the fourth quarter ended December 31, 2020, AMZN’s revenue increased 44% year-over-year to $125.6 billion. North America contributed 61% to its top line, representing 22% net sales growth. Its operating income for the quarter surged 77% year-over-year to $6.9 billion. The company reported EPS of $14.09, compared to the year-ago value of $6.47.
MELI’s revenue for the quarter ended September 30, 2020 grew 85% year-over-year to $1.1 billion. Its Commerce revenues surged 109.3% year-over-year, hitting $724.5 million, while its Fintech revenues increased 52.3% year-over-year to $391.2 million. Its gross merchandise volume (GMV) reached $5.9 billion, representing an increase of 62.1%. And its EPS came in at $0.28, compared to the year-ago loss of $2.69 per share.
Past and Expected Financial Performance
AMZN’s revenue and total assets have grown at a CAGR of 29.5% and 34.7%, respectively, over the past three years.
The market expects AMZN’s revenue to increase 38.5% in the current quarter (ending March 31, 2021) and 22.8% in the current year. AMZN’s EPS is expected to grow 88% in the current quarter and 13.8% in the current year. Also, its EPS is expected to grow at a rate of 38.4% per annum over the next five years.
In comparison , MELI’s revenue and total assets grew at a CAGR of 43.88% and 52.5%, respectively, over the past three years.
The market expects MELI’s revenue to increase 60.9% in the current quarter and 42.3% in the current year. The company’s EPS is expected to rise 179.5% in the current quarter and 169.2% in the current year. However, MELI’s EPS is expected to grow at a rate of just 20.5% per annum over the next five years.
AMZN’s trailing-12-month revenue is nearly 117 MELI’s. In addition, , AMZN is more profitable with a net profit margin of 5.5% versus MELI’s negative value.
AMZN’s ROE of 27.44% compares favorably with MELI’s negative values.
In terms of forward p/e, MELI is currently trading at 1,364.90x, significantly higher than AMZN, which is currently trading at 68.78x. Also, AMZN is less expensive in terms of trailing-12-month p/s (4.23x versus MELI’s 29.04x).
In terms of trailing-12-month price/cash flow also, MELI’s 96.33x is 287% higher than AMZN’s 24.92x.
AMZN has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. However, MELI has an overall rating of C, which represents Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
In terms of Sentiment Grade, AMZN has an A grade, reflecting greater analyst confidence in its prospects. MELI has a grade of C in this regard.
While AMZN has a Value Grade of C, MELI is graded F, consistent with its stretched valuation multiples. Of 67 stocks in the Internet industry, AMZN is ranked #9 while MELI is ranked #31.
Beyond what I stated above, our POWR Ratings system has also rated both AMZN and MELI for Growth, Momentum, Stability, and Quality. Get all the AMZN ratings here. Also, click here to see the additional POWR Ratings for MELI.
The coronavirus pandemic forced retailers and businesses to migrate online to survive. However, even if the virus’ spread is contained, the trend is here to stay. Entrepreneurs worldwide are prioritizing digital channels and are depending increasingly on internet services to manage their businesses and grow their brands.
Hence, we believe AMZN and MELI are good long-term investments considering their huge customer base, expansion strategies and industry strength. However, AMZN appears to be a better buy now based on the factors discussed here.
AMZN is more affordable compared to MELI and has an edge over its peers due to its large- scale operation. The company has been implementing robust expansion strategies to increase its market reach by developing its transportation fleet, floor space, and logistics efforts. AMZN is a proven winner, and it is uniquely positioned to ride this secular e-commerce trend.
Click here to learn about other top-rated internet stocks.
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AMZN shares were trading at $3,317.34 per share on Thursday afternoon, up $8.70 (+0.26%). Year-to-date, AMZN has gained 1.85%, versus a 4.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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