With these two e-commerce companies making moves recently, it begs the question: Is MercadoLibre or Etsy a better investment right now?
MercadoLibre (NASDAQ: MELI) and Etsy (NASDAQ: ETSY) are some of the alternative investment options for those that do not want to invest in the likes of e-commerce behemoths Amazon and Alibaba. Competition has been expanding over the past few years as the entire e-commerce sector seems determined to replace traditional brick and mortar stores; thanks to COVID-19 it is one step closer to a becoming reality.
After a full year of restrictions, consumer habits have changed. Online shopping is now an important aspect of commerce in general. Thus, MercadoLibre, Etsy, and other e-commerce platforms still have plenty of room to grow. Currently, two of these stocks have been making moves, so we ask if MercadoLibre or Etsy is the better investment right now.
MercadoLibre: the bull vs the bear
MercadoLibre is often called the Amazon of Latin America, providing many of the same services that its American counterpart does with an ecosystem of six integrated services including its Marketplace, MercadoPago payments solutions, advertising programs, and MercadoEnvios shipping. Each and every one of these helping to create a more streamlined service.
Currently, however, investors have a couple of worries with regards to this company. Firstly, the easing of restrictions will mean less traffic to the MercadoLibre Marketplace, thus less revenue generated by advertising and shipping. In consequence, its top-line growth is expected to shrink from the 70% it saw in 2020, to around 40% this year.
Secondly, Amazon's recent foray into Brazil could spell increased competition for the current Latin American e-commerce leader. In particular, there has been an increased number of Brazilians signing up for Amazon Prime; indeed Amazon announced in November that Brazil had the fastest-growing number of subscribers. Yet, increased competition is not always a bad thing and often signifies that a market is healthy and strong. MercadoLibre has a secure foothold in Brazil and across the wider Latin American continent. Amazon's expansion should not yet be too much of a concern for investors.
Furthermore, MercadoLibres's strongest segment is its payment solutions sector MercadoPago. Indeed, since 2019 it has brought in more revenue outside of MercaoLibre's Marketplace than through it. In 2020 it processed $50 billion in 1.9 billion transactions, up 129% year-over-year. Of that amount, just under $30 billion came from outside its Marketplace. Thus, even if MercadoLibre's e-commerce sector slows down as predicted, its payments solutions service will continue to grow as an increasingly popular way to pay for many things among Latin American communities.
Etsy: the bull vs the bear
Searching for a unique, hand-made, or personalized gift will ultimately take you to Etsy.com. Over the past year, in particular, consumers have flooded the site searching and buying goods that are both local and different from what might be found on large brand websites -- a trend that's likely to accelerate in the coming years as local, sustainable trends continue.
Much like MercadoLibre, Etsy has a range of services and tools, however, these services are more specifically directed towards helping entrepreneurs start, grow, and manage their own businesses upon the Etsy platform. COVID-19 certainly helped its business grow and it became a top pandemic stock with its share price dipping low in March 2020, then around a year later, hitting an all-time high of $251. Since then, its valuation has pulled back around 22%, showing a little volatility.
Presently, the pull-back could be a bit of a relief for several analysts who believe that the stock is overvalued and that in the long-term it will ultimately have lower returns than its business growth. As for the sellers, there has been backlash this year against Etsy's mandatory changes to seller fees, including those for advertisements. For small businesses, this could create a slurry of unforeseen costs that could seriously affect the margins of their businesses.
However, those who remain bullish on Etsy see the long road of potential that this stock is currently showcasing. With its ability to adapt to global and local trends, Etsy has only just scratched the surface of its possibilities in the long run.
So, which is a better investment right now?
Both these companies have strong bull cases, whilst their bear cases only add some food-for-thought. Whilst MercadoLibre is likely to face increased competition in the future from Amazon, its strong foothold in the Latin American continent is not likely to be challenged anytime soon. For Etsy, it might have some issues going forwards with regards to the seller's fees, but for a long-term investment, it is a great option as it has an adaptable and flexible business model.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free access now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
