The COVID-19 pandemic has left an indelible mark on how the retail landscape operates. From changing shopper habits and preferences to fostering cutthroat competition among retailers, players in the retailing space are moving online en masse and bracing for more disruption. Against this backdrop, we think internet retail stocks should keep outperforming the broader market.
With government stimulus measures and the resumption of economic activities, consumer spending will likely be revitalized this year. This should bode well for internet marketplaces that have been thriving already because digital commerce represents an unprecedented and growing level of retail consumer activity. In fact, the surge in online demand could continue for as long as the pandemic persists, adding to what is a much longer-term trend in the increase of internet shopping volume.
The coronavirus pandemic has showcased why online retailers are valuable to consumers and businesses globally. Internet retail companies like MercadoLibre, Inc. (MELI), Fiverr International Ltd. (FVRR), and Liquidity Services, Inc. (LQDT), which have emerged as lifelines to a public wary of health risks, should continue to witness a surge in online shopping traffic. As such, these stocks have the potential to capitalize on powerful long-term trends and grow their sales and profits for many years.
MercadoLibre, Inc. (MELI)
MELI is an online commerce platform in Latin America. The company operates through segments including MercadoLibre Marketplace, MercadoPago FinTech, MercadoFondo, and others. It also enables retailers and various consumer brands to promote their products and services on the Internet by providing branding and performance marketing solutions.
On January 14, the company closed an offering of $400 million in 2.4% notes due 2026 and $700 million 3.1% notes due 2031. MELI intends to use the proceeds from the offerings to finance new projects, promote triple-impact projects across Latin America, and to increase its investments in priority areas.
In November, MELI selected AWS as its primary cloud provider to further transform it into a data-driven organization, accelerate the launch of new services, and support its regional expansion. This should improve its user experience and help MELI sustain its position as a growth engine for Latin America.
MELI’s revenue has increased 85% year-over-year to $1.12 billion for the third quarter ended September 30, 2020. This is attributable to commerce net revenues that continued accelerating and hit their highest historical growth rate. MELI’s gross profit rose 68.9% from the year-ago value to $480.19 million over this period. The company’s gross merchandise volume increased 62.1% to $5.9 billion.
The consensus EPS estimate of $0.35 for the quarter ending March 30, 2021 represents a 179.5% improvement from the year-ago value. Moreover, MELI has an impressive earnings surprise history: it beat consensus EPS estimates in three of the trailing four quarters. A consensus revenue estimate of $1.05 billion for the next quarter represents 60.9% growth from the same period last year. The stock has gained 194.7% over the past year.
How does MELI stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating.
You cannot ask for better. The stock is ranked #3 of 69 stocks in the Internet industry.
Fiverr International Ltd. (FVRR)
Headquartered in Tel Aviv, Israel, FVRR is an online marketplace that allows sellers to market their services and buyers to buy them. Its platform includes approximately 300 categories in eight verticals, including graphic and design, digital marketing, writing, video and animation, among others.
Last week, FVRR announced that it will make its debut in an ad during Super Bowl LV on February 7. The brand’s debut on the largest global advertising stage should generate buzz and represent a major opportunity for the company to introduce and promote its business to the world in a unique and creative way.
On November 19, FVRR announced its international expansion in Latin America, with launches in both Brazil and Mexico. After successful entries into the key markets of Europe, this new expansion drive should help FVRR benefit from more efficient buyer acquisition and conversion.
FVRR’s revenue has increased 88% year-over-year to $52.3 million in the third quarter ended September 30, 2020. Its GAAP gross margin rose 440 basis points from the prior-year quarter to 83.4%, while its adjusted EBITDA margin increased 2360 basis points year-over-year to 8%. The company’s gross profit grew 98.3% from the year-ago value to $43.64 million over this period.
A consensus EPS estimate of $0.01 for the quarter ending March 31, 2021 represents a 112.5% increase year-over-year. Moreover, FVRR beat the Street’s EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $57.73 million for the next quarter represents a 73.7% increase from the same period last year. The stock has gained 764.3% over the past year.
FVRR’s strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with an “A” for Trade Grade and Peer Grade, and a “B” for Industry Rank.
Liquidity Services, Inc. (LQDT)
Founded in 1999, LQDT is an e-commerce marketplace that enables buyers and sellers to transact in an automated environment. The company’s marketplaces include govdeals.com, liquidation.com, go-dove.com, and AllSurplus.com. It offers products such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment.
On January 14, in partnership with Louisiana Chemical Equipment Company, LQDT announced the sale of two hydrocracker reactors in South Korea through its newest online auction marketplace, AllSurplus.com. This sale should enhance the company’s strong liquidity position and boost its revenue and profitability in the coming months.
LQDT’s GovDeals segment revenue for the third quarter ended September 30, 2020 has increased 31.3% year-over-year to $10.9 million. The company reported net income of $5.45 million compared to a loss of $5.22 million in the quarter ended September 30, 2019. Consolidated GMV increased 24.8% from the year-ago value to $196.9 million over this period.
The consensus EPS estimate for the next quarter ending April 30, 2021 represents a 26.6% improvement year-over-year. Moreover, LE beat the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $241.05 million for the next quarter represents a 10.6% increase year-over-year. The stock has gained 198.2% over the past year.
It is no surprise that LQDT is rated “Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Industry Rank and a “B” for Peer Grade. Among the 45 stocks in the Internet – Services industry, it is ranked #19.
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MELI shares were trading at $1,931.23 per share on Friday afternoon, down $8.96 (-0.46%). Year-to-date, MELI has gained 15.28%, versus a 2.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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