The 3 E-Commerce Stocks That Are Often Overlooked

The pandemic has caused the e-commerce stocks last year to skyrocket to unprecedented heights. Shopify Inc SHOP and Etsy Inc ETSY profited from the trend, with Amazon.com, Inc. AMZN taking the throne. But, their stocks could rise even higher this year as online retail is here to stay. Along these three solid long-term investments, overseas e-commerce companies such as MercadoLibre Inc MELI, Baozun Inc BZUN, and Pinduoduo Inc PDD are just as attractive yet are frequently overlooked.

MercadoLibre

MercadoLibre is the largest e-commerce company in Latin America that operates in 18 countries. Its three top markets are Brazil that contributed 65% to its total revenue last quarter, Argentina that accounted for 19%, followed by Mexico at 12%. At the end of 2015, its registered userbase grew from 144.6 million to 320.6 million by the end of 2019, while it added 46.8 million more during the first nine months of 2020.

MercadoLibre is benefiting from the shift from physical to online stores across Latin America, rising internet penetration rates, and its first-mover's advantage in the market. These favorable trends are offsetting recessions and brutal currency headwinds across the region. In 2019, MercadoLibre saw robust growth across its top markets, with overall revenue rising 60%. It grew another 63% YoY during the first nine months of 2020 as more people shopped online throughout the pandemic.

Baozun

Baozun is an e-commerce services company that helps overseas companies such as Nike Inc NKE and PepsiCo, Inc. PEP establish their e-commerce platforms in China. Large brands use its services to avoid hiring local teams or having to build their own infrastructure. Baozun generates most of its revenue from such big customers by providing an end-to-end platform that handles all of their operations, logistics, IT and marketing needs, saving them the need to hire local teams or build their own infrastructure.

Baozun stabilized its earnings growth by gradually replacing its "distribution-based" model with an asset-light "non-distribution" model that lets clients ship orders directly to customers. Revenue rose 35% in 2019 and grew another 22% YoY during the first nine months of 2020. Growth was hampered by trade wars which caused some overseas companies to review their dependence on China, and China's faster recovery from the pandemic, which limited its overall boost to online sales.

Pinduoduo

Having served 731 million active buyers over the past twelve months, Pinduoduo is the third-largest e-commerce company in China. It follows Alibaba Group Holding Ltd BABA and JD.Com Inc JD. Although it was founded only half a decade ago, it rapidly expanded by encouraging shoppers to team up on bulk purchases and take advantage of extreme discounts. Its approach appealed to China's lower-tier cities and turned it into a leading platform for shipping fresh fruits and vegetables.

Alibaba and JD both launched their own discount marketplaces to combat Pinduoduo's growth, but their efforts did not succeed to hamper its growth rate. In 2019, its revenue soared 130%. During the first nine months of 2020, it went more up 70% YoY. Pinduoduo's stock has more than quadrupled over the past 12 months. Looking ahead, Alibaba's antitrust issues could bring more sellers to Pinduoduo that were previously locked in by the giant.

Outlook

COVID brought a spike in the annual growth of e-commerce as retail closures led consumers to shift their spending online. Everybody knew that retail digitalization was coming but no one knew exactly when. It did not only arrive, but it did so with a bang. The challenge now is to manage that explosion as there will be no certainty before a new normal arrives. The only certainty is that there is no going back, both in 2021 and beyond.

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