The e-commerce sector is expected to see significant growth this festive season, driven by strong household finances, increased online shopping and the growing influence of social media and branded direct stores. These trends, along with business search behavior, present attractive investment opportunities in the booming e-commerce market.
Therefore, to get ahead of the holiday boom, investors should consider strong e-commerce stocks such as MercadoLibre, Inc. (MELI) and Shopify Inc. (MELI).
The upcoming holiday season is expected to significantly benefit e-commerce, with early shopping trends and a focus on travel and experiences indicating strong transaction volumes. In response, brands are adapting marketing strategies to integrate popular themes and increase audience engagement. As a result, US e-commerce revenues are predicted to increase by $657.8 billion, or 53.8%, between 2024 and 2029.
Notably, online retail sales in the US are expected to reach $1.2 billion this year, representing a $108 billion (9.8%) increase over last year. This growth is driven by increasing internet penetration, Gen Z consumers, competitive discounts, the influence of social media and the rise of buy now, pay later options, which are driving consumer spending and improving opportunities of investment.
Considering these favorable trends, let’s examine the fundamentals of the two e-commerce stocks mentioned above.
MercadoLibre, Inc.MELI)
Headquartered in Montevideo, Uruguay, MELI operates online commerce platforms in Latin America. It operates in two segments: Mercado Libre Marketplace and Mercado Pago FinTech platform. The company offers an automated online marketplace for buying and selling, as well as a financial technology platform for online transactions and payments.
In terms of gross profit margin over the past 12 months, MELI’s 54.70% is 47.4% higher than the industry average of 37.11%. Its Capex/Sales of 3.71% over the last 12 months is 24.5% higher than the industry average of 2.98%. Furthermore, the stock’s trailing 12-month return on total assets of 6.98% is 71.9% higher than the industry average of 4.06%.
During the second fiscal quarter ended June 30, 2024, MELI’s net revenues and interest income increased 41.5% year over year to $5.07 billion. The company’s gross profit increased 29.2% from the year-ago quarter to $2.37 billion.
In the same quarter, its operating income was US$726 million, an increase of 8.5% compared to the previous year. Additionally, its net income and earnings per share increased 102.7% and 103.1% from the prior year’s figures to $531 million and $10.48, respectively.
Street expects MELI’s earnings per share for the quarter ending September 30, 2024 to increase 36.9% year over year to $9.80. Its revenue for the same quarter is expected to grow 39.7% year over year to $5.25 billion. It has surpassed earnings per share estimates in each of the last four quarters. Over the past year, the stock has gained 62.9%, closing the last trading session at $2,066.04.
MELI’s POWR Ratings reflect its strong fundamentals. POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an ideal degree.
MELI has a B grade in Growth, Momentum, Sentiment and Quality. In the B-rated Internet industry, it is ranked 25th out of 52 stocks. To see MELI’s ratings for Value and Stability, click here.
Shopify Inc.BUY)
SHOP is a commerce company that provides commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, Asia-Pacific, Australia, China and Latin America. The company’s platform allows merchants to display, manage, market and sell their products through various sales channels and manage products and inventory, process orders and payments.
In terms of return on total capital over the last 12 months, SHOP’s 6.27% is 124.6% higher than the industry average of 2.79%. Likewise, its trailing 12-month net profit margin of 16.40% is 352.7% higher than the industry average of 3.62%. The stock’s trailing-12-month asset turnover ratio of 0.74x is 18.8% higher than the industry average of 0.62x.
SHOP’s revenues for the second quarter ending June 30, 2024, increased 20.7% year over year to $2.05 billion. Its adjusted gross profit increased 24.6% from the year-ago quarter to $1.05 billion. Adjusted net income and adjusted net income per share attributable to SHOP shareholders were $345 million and $0.26, reflecting annual increases of 93.8% and 85.7%, respectively.
For the quarter ending September 30, 2024, SHOP’s earnings per share and revenue are expected to increase 12.5% ​​and 23.2% year over year to $0.27 and $2.11 billion, respectively. It has surpassed consensus EPS estimates in each of the last four quarters. Last year, SHOP shares rose 55.8%, closing the last trading session at $80.27.
SHOP’s POWR Ratings reflect this optimistic outlook. It has an A grade for Sentiment and a B for Momentum. SHOP is ranked 19th out of 26 stocks in the Internet Services sector. To access additional SHOP ratings for Growth, Value, Stability and Quality, click here.
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MELI shares traded at $2,064.08 per share on Friday afternoon, down $36.13 (-1.72%). Year-to-date, MELI has gained 31.34%, versus a 21.48% increase in the benchmark S&P 500 index during the same period.
About the author: Abhishek Bhuyan
Abhishek began his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More…
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