MercadoLibre(NASDAQ: MELI) and PDD(NASDAQ: PDD) are two of the fastest growing e-commerce companies in the world. MercadoLibre is the top e-commerce company in Latin America, while PDD is the third largest player in China.
Both stocks have skyrocketed since their debuts. MercadoLibre went public in 2007, and it's surged more than 11,370% from its IPO price of $18 to about $2,037 recently. PDD went public at $19 in 2018, and it's rallied more than 610% to around $135.
Image source: Getty Images.
MercadoLibre and PDD both dazzled investors with their rapid growth, expanding ecosystems, and soaring profits. But which one is the better stock to buy right now?
The differences between MercadoLibre and PDD
MercadoLibre operates its marketplace in 18 countries across Latin America, but it generates most of its revenue in Brazil, Mexico, and its home market of Argentina. It was initially a third-party marketplace that relied on external merchants, but subsequently launched its first-party marketplace and built its own logistics network. The company also locked in customers with its own digital payment platform, Mercado Pago, and its associated fintech services.
PDD's namesake platform, Pinduoduo, only operates in China. It originally offered both first-party and third-party marketplace services, but it phased out first-party services in 2021. It also provides an online agricultural platform which directly connects farmers to shoppers, and it owns Temu, a popular cross-border marketplace that helps Chinese sellers reach overseas buyers.
Which company is growing faster?
From 2018 to 2023, MercadoLibre's revenue grew at a compound annual growth rate (CAGR) of 59% in USD terms. PDD's revenue rose at an even higher CAGR of 80% in RMB terms and 79% in USD terms -- but PDD's growth has been more volatile.
Revenue Growth | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
MercadoLibre | 60% | 73% | 78% | 49% | 37% |
PDD | 127% | 111% | 62% | 28% | 84% |
Data source: MercadoLibre and PDD. USD terms.
MercadoLibre's growth accelerated in 2020 and 2021 as the pandemic generated strong tailwinds for its e-commerce and digital payment businesses. But like many other e-commerce leaders, it lost momentum as those tailwinds dissipated.
PDD's revenue surged in 2019 and 2020 as its discount marketplace gained hundreds of millions of customers across China's lower-tier cities. It encouraged those shoppers to team up across social networks to score bulk discounts.
But in 2021 and 2022, China's draconian COVID-19 lockdowns curbed the country's economic growth. Those macro headwinds, along with stiff competition from top competitors Alibaba and JD.com, caused its growth to cool. In 2023, its growth accelerated again as China's macro environment recovered.
Both companies should continue growing for the foreseeable future. From 2023 to 2026, analysts expect MercadoLibre's revenue to grow at a CAGR of 27% in USD terms. They expect PDD's revenue to rise at a CAGR of 36% in RMB terms.
MercadoLibre's robust growth should be driven by the ongoing expansion of its e-commerce marketplace into new regions and the stickiness of its fintech ecosystem, which surpassed 50 million monthly active users for the first time in its latest quarter. PDD's growth should largely be fueled by its market share gains against Alibaba and JD in China, its continued dominance of the online agriculture market, and Temu's expansion in the U.S. and other overseas markets.
Which company is more profitable?
MercadoLibre and PDD were both unprofitable went they went public. But MercadoLibre turned profitable in 2021, and its net income rose at a CAGR of 244% in USD terms over the following two years. Those soaring profits were driven by its economies of scale, which diluted its logistics and payment processing costs. PDD also turned profitable in 2021 after it shut down its low-margin first-party business. Its net income grew at a CAGR of 178% in RMB terms from 2021 to 2023.
From 2023 to 2026, analysts expect MercadoLibre's net income to grow at a CAGR of 49% in USD terms as PDD's net income increases at a CAGR of 42% in RMB terms.
Based on those expectations, MercadoLibre and PDD trade at about 42 times and 10 times next year's earnings, respectively. MercadoLibre might still seem reasonably valued relative to its growth potential, but PDD looks dirt cheap for two reasons: it stunned investors with a warning of a near-term slowdown and rising expenses in its latest quarter, and the tensions between the U.S. and China are still driving many investors away from Chinese growth stocks.
Which stock is a better buy right now?
I personally own shares of MercadoLibre instead of PDD, but MercadoLibre might be due for a breather after rallying more than 60% to new record highs over the past 12 months. PDD's stock also rose more than 40% during that period, but its valuations are still too cheap to ignore. So if you only want to own one of these high-growth e-commerce stocks right now, PDD might be the better pick for investors who can stomach a lot of near-term volatility.
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Leo Sun has positions in MercadoLibre. The Motley Fool has positions in and recommends JD.com and MercadoLibre. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
