Feb 22, 2021 (IAM Newswire via COMTEX) -- As COVID-19 started its relentless march across the globe, investors sought rescue from the economic downturn in e-commerce, Big Tech and fintech. With that in mind, the Canadian commerce giant Shopify /zigman2/quotes/209033712/composite SHOP -0.04% and Latin America disrupter MercadoLibre /zigman2/quotes/200678442/composite MELI -0.48% profited from the new world that the outbreak created. Shopify just revealed it doubled sales for third consecutive quarter.
Many great businesses start by solving a critical problem and Shopify did just that. It was created after co-founders, one of them being the current CEO, found it surprisingly difficult to build an online store for their snowboard business so they shifted their focus from selling snowboards to software.
Today, this platform provides an end-to-end solution for merchants, allowing them to build and manage a retail business across physical and digital channels. Shopify also went a step further to help merchants accept digital payments and connect with their customers.
Unlike Amazon /zigman2/quotes/210331248/composite AMZN +0.60% , Shopify empowers merchants to build their own stores, grow their own brand, and develop relationships with their customers. In other words, Shopify puts its merchants first. In an attempt to exploit this growth driver, Amazon just revealed it recently bought its competitor Selz that helps small businesses build online store, only confirming the e-commerce titan sees Shopify and its mentality as a growing threat.
Although it is based in Canada, more than half of its clients were in the United States as of December 31, 2019 and as e-commerce takes on the world, there’s no reason for Shopify not to do the same.
Adjusted earnings were $198.8 million, or $1.58 a share, in the fourth quarter compared to $50 million, or 43 cents a share to prior year's quarter. They exceeded FactSet estimate of $1.26 a share. Revenue was $977.7 million in the quarter which is up 94% from a year ago, greatly exceeding analysts’ forecasts of $913.1 million.Operating income came to $112.5 million compared to a loss of $30.1 million from a year ago. Adjusted operating income amounted to $200 million, making 20% of revenue. Subscription solutions revenue jumped 53% to $279.4 million, mostly due to more merchants coming on board. Merchant solutions revenue surged by 117% to $698.3 million. Monthly recurring revenue from ongoing customer service subscriptions was $82.6 million as of December 30 [th] .
MercadoLibre has disrupted more than one industry in Latin America. Although it began as an e-commerce marketplace in 1999, but it has since expanded into digital payments, credit solutions, logistics, among other markets as it has developed a comprehensive ecosystem in 18 countries.
MercadoLibre is the leader both when it comes to e-commerce and digital payments markets in the Latin America with its developed network being a durable long-term advantage that makes it difficult for new entrants to rise up to.
Before the pandemic, MercadoLibre was already a thriving business with a big market opportunity, but like Shopify, its went on fire in 2020. The best part is that it has plenty of opportunity left as the percentage of people with internet access in the company’s core markets, Brazil, Mexico, and Argentina, is much lower than in the U.S., pulling e-commerce adoption down but Latin American e-commerce sales surged over 36% last year, making it the fastest growing region in the world. According to eMarketer, online sales are expected to grow from $84 billion in 2020 to $116 billion by 2023 which is an annual rate of 12%.
Additionally, the growth in e-commerce should also fuel digital payments and since a large portion of the Latin American population is unbanked, this could translate to high demand for the company’s Mercado Pago fintech solutions, whether by providing payment processing services for merchants or prepaid cards and mobile wallets for consumers. All in all, there's no one who can benefit more than the region's market leader.
Despite smashing estimates, Shopify warned that growth would slow in 2021 as the world starts leaving the pandemic behind. Both companies were big beneficiaries of the outbreak and drive to online shopping but the ongoing rollout of vaccines will likely result in a more normalized pace of growth. But at the end of the day, both Shopify and Mercado Libre are well-positioned to benefit from a new normal, their performance just might not be as mind-blowing as the one during the pandemic.
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