Despite these concerns, MercadoLibre’s stock has risen more than 40% over the past twelve months, trading at a feverish 47 times trailing earnings. It’s clear that investors still expect big things from this sprawling e-commerce giant that dominates some of the fastest growing economies in the world.
The rising dragon of the East
E-commerce is one of the hottest businesses in China, yet it is one that Amazon and eBay Inc (NASDAQ:EBAY) have failed to scratch. eBay attempted to break into the market in 2003 by acquiring EachNet.com, the country’s dominant consumer-to-consumer website, and managed to reduce its 90% market share to 10% before it sold it. Amazon entered China by acquiring online bookstore Joyo.com in 2004, but hasn’t had much more success than eBay – recent reports state that Amazon’s Chinese market share is at less than 1%.
eBay and Amazon both ran into a brick wall in China – Internet giant Alibaba Group, which owns Taobao, the country’s largest consumer-to-consumer (C2C) site, and Tmall, the largest business-to-consumer (B2C) site. Alibaba controls 95% and 44% of the C2C and B2C markets, respectively, making it extremely tough for any competitors, domestic or foreign, to compete. Alibaba also uses its own payment platform, Alipay, which is similar to eBay’s PayPal, across its e-commerce sites.
Last quarter, Alibaba’s earnings more than tripled to $669 million and revenue surged 71% to $1.4 billion – numbers that should make Amazon and eBay blush and get investors excited about its upcoming IPO.
The Foolish bottom line
Although eBay Inc (NASDAQ:EBAY) lacks Amazon’s exciting technologies, MercadoLibre’s high exposure to emerging markets, or Alibaba’s incredible top and bottom-line growth in the world’s most populous nation, it is still a robust investment in my book. eBay is trading at a much more reasonable forward P/E of 16.6, compared to Amazon’s ratio of 95.9 and MercadoLibre’s 30.3.
I believe that eBay got ahead of itself when it offered its lofty two year projections back in March, but its long-term growth potential is still intact. I also expect PayPal’s importance as a mobile payment platform to become more apparent over the next few quarters, as more merchants adopt it as an alternative payment method to credit cards. In other words, I believe that this is a classic case where long-term investors should buy the dips as myopic ones panic.
The article It’s Time To Stop Worrying About This E-Commerce Giant originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, eBay, and MercadoLibre. The Motley Fool owns shares of Amazon.com, eBay, and MercadoLibre. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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