Exploring the Business Variances Between Both Companies
MercadoLibre navigates its marketplace across 18 Latin American countries, predominantly concentrating on Brazil, Mexico, and its native Argentina. Initially reliant on external vendors, it transitioned to hosting its marketplace and constructing an exclusive logistics network. The enterprise further cemented customer loyalty with its proprietary digital payment system, Mercado Pago, coupled with additional fintech facilities.
PDD’s core platform, Pinduoduo, operates exclusively within China. While initially providing both first-party and third-party services, the organization phased out the former in 2021. Pinduoduo also manages an online agricultural platform connecting farmers directly with consumers, and it owns Temu, a prominent cross-border marketplace connecting Chinese sellers with international buyers.
Determining the Pace of Growth for Each Entity
From 2018 to 2023, MercadoLibre exhibited a revenue growth rate, measured by CAGR in USD terms, of 59%. In comparison, PDD saw a higher revenue surge, boasting a CAGR of 80% in RMB and 79% in USD terms. However, PDD’s growth trajectory veered towards increased volatility.
| Revenue Growth | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| MercadoLibre | 60% | 73% | 78% | 49% | 37% |
| PDD | 127% | 111% | 62% | 28% | 84% |
Data Source: MercadoLibre and PDD, in USD terms.
While MercadoLibre’s growth surged in 2020 and 2021, buoyed by the pandemic-induced tailwinds in their e-commerce and digital payment sections, this momentum waned as market conditions shifted. PDD, during 2019 and 2020, experienced robust revenue growth as its discounted marketplace enticed millions of customers in China’s less urbanized regions to collaborate via social platforms for bulk discounts.
However, in 2021 and 2022, China’s stringent COVID-19 lockdowns coupled with competitive pressures from Alibaba and JD.com dampened PDD’s pace. By 2023, the company regained momentum as China’s economic setting recuperated.
Evaluating Profitability for Both Entities
Initially unprofitable at their public debuts, both MercadoLibre and PDD transitioned to profitability. MercadoLibre achieved this feat in 2021, realizing a net income CAGR of 244% in USD terms over the subsequent two years, propelled by economies of scale that mitigated logistics and payment processing expenses. In 2021, PDD also turned profitable after discontinuing its low-margin first-party sector, observing a net income CAGR of 178% in RMB terms from 2021 to 2023.
Analysts anticipate MercadoLibre’s net income to experience a 49% CAGR in USD terms from 2023 to 2026, while foreseeing PDD’s net income to grow at a 42% CAGR in RMB terms during the same period.
Comparative to their growth prospects, MercadoLibre and PDD are currently valued at approximately 42 times and 10 times next year’s earnings, respectively. Despite MercadoLibre’s potential growth prospects, PDD presents an enticing proposition with appealing valuations due to near-term slowdown warnings and escalating expenses driving investments away from Chinese growth stocks amidst U.S.-China tensions.
Final Verdict: A Personal Take on the Better Investment Opportunity
While I currently hold MercadoLibre shares over PDD, the former’s substantial market rally exceeding 60% over the past year might prompt a period of consolidation. PDD’s stock, although having appreciated by over 40% in the same timeframe, still appears markedly undervalued. Therefore, for investors seeking exposure solely to one of these high-growth e-commerce stocks, PDD’s valuation merits a closer inspection.