2 Ecommerce Stocks Down Over 50% to Buy Now

2022 hasn’t been a good year for investors, and it’s been particularly tough for e-commerce stockholders. The rapid, pandemic-driven growth of online shopping over the past two years appears to be cooling, with investors fleeing the e-commerce sector.

However, despite the near-term headwinds, the macro trend towards greater e-commerce adoption is alive and well. According to Statista, global e-commerce retail sales are expected to grow from $5.5 trillion in 2022 to $7.3 trillion in 2025. Two companies are particularly well positioned to capitalize on this trend Etsy (ETSY -1.14%) and MercadoLibre (MELI -3.23%).

Image source: Getty Images.

Etsy: A unique shopping experience

Etsy operates an online marketplace that connects buyers and sellers around the world. It focuses on unique and handcrafted goods not found in mass retail. This exclusivity is attracting more and more buyers to Etsy’s site, and those buyers are enticing more sellers to list their wares on the platform, creating a virtuous cycle of growth.

Etsy’s first-quarter 2022 results failed to impress the market, and shares plunged about 20% the day after the company reported them. Revenue grew a meager 5.2% year over year. Gross merchandise sales — the total monetary value of all items the company sold through its marketplace — rose a modest 3.5%. Taken in isolation, these numbers can be worrying. However, if you look at the long-term trend, the company’s progress is put into perspective.

Metric 2019 2020 2021
revenue $818 million $1.726 billion $2.329 billion
sales growth 35.56% 110.86% 34.97%
Gross sales of goods $4.975 billion $10.281 billion $13.492 billion
Gross merchandise sales growth 26.53% 106.66% 31.23%

SOURCE: ETSY INCOME PUBLICATIONS.

Considering how much revenue and gross merchandise sales have jumped over the past two years, it’s understandable that growth in 2022 will be relatively muted. Another important factor behind the slower growth rate is economic uncertainty. High inflation, a host of supply chain issues and Russia’s war in Ukraine have created conditions for many consumers to tighten their wallets.

Overall, however, Etsy takes the hassle out of small business owners and artists by allowing them to set up online stores easily and quickly, and giving them access to a large established audience. And for shoppers, it has become the go-to place to buy gifts for loved ones or to buy items to celebrate special occasions. No wonder that from 2019 to the end of Q1 2022, the number of buyers on the platform more than doubled (from 46 million to 95 million) and the number of sellers almost tripled (from 2.7 million to 7.6 Millions). ).

The company believes it has a $466 billion market opportunity. In relation to its annual turnover, this gives it long-term growth prospects. With stocks trading at a price-to-sales multiple of less than 5 — close to their five-year lows — Etsy will likely reward new investors well over the long run.

ETSY PS Ratio Chart

ETSY PS Ratio data from YCharts

MercadoLibre: Democratizing E-Commerce and Financial Services in Latin America

Founded in Argentina in 1999, MercadoLibre was an early e-commerce entrant in Latin America. As a marketplace for buyers and sellers, it has established itself in 18 countries, although it derives most of its revenue from Brazil, Mexico and Argentina. The company is an undisputed leader with an e-commerce market share of approximately 30% in the region.

The company has expanded its moat by investing in its logistics and shipping network, Mercado Envios, which helps sellers on its platform deliver goods faster. In the first quarter, Mercado Envios shipped 22% more items than the same period last year, and about 55% of those shipments were delivered on the same day or next day.

MercadoLibre also makes it easy for customers to pay for their purchases using its Mercado Pago platform. Mercado Pago was originally founded to simplify and digitize its payments, but has evolved into a financial services ecosystem that includes credit cards, installment payments, personal loans and cryptocurrency trading.

In the first quarter, around 81 million unique users used MercadoLibre’s shopping and financial services. As more users visit the company’s website and mobile app, its digital properties are becoming more valuable, and ad revenue has almost doubled from the year-ago quarter.

MercadoLibre has so far defied the challenges of uncertainty surrounding consumer spending, high inflation, and rising interest rates to report excellent first-quarter results. And despite difficult comparisons due to the pandemic-driven surge in e-commerce in recent years, MercadoLibre grew its first-quarter revenue 63% year over year. Gross merchandise volume reached $7.7 billion, up 27%. Mercado Pago saw a significant 72% increase in total payment volume processed to $25.3 billion. And the company turned profitable on a GAAP basis, too, posting a 2.9% net income margin.

Following the recent sell-off in markets, shares of MercadoLibre are trading at a price-to-sales ratio of around 5, its lowest valuation in the last five years. Given its strength in the Latin American market and the opportunity ahead, looking at MercadoLibre will likely turn out to be a missed opportunity for investors.

MELI PS ratio chart

MELI PS Ratio data from YCharts

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