The e-commerce space has grown rapidly in recent years, and the pandemic has accelerated this trend. However, there is still considerable room for growth. According to some estimates, the market will be worth $17.53 trillion by 2030 and will see a compound annual growth rate of 15.1% until then.
The opportunity is huge, and while many stocks are struggling in this lucrative sector, a few are standing out. Let’s look at three of them: Amazon (AMZN -4.77%), MercadoLibre (MELI -5.08%)and Etsy (ETSY -4.06%).
Amazon leads the retail e-commerce segment in the US, with an estimated 37.8% market share as of June. That’s well ahead of second place Walmartwhich held a 6.3% stake.
Amazon’s valuable brand name allows it to attract customers who often stay for the perks. The company offers free one-day or two-day shipping on thousands of items, which are typically cheaper than what customers can find on other platforms. According to an annual study by research firm Profitero, Amazon has been the cheapest online retailer for five years in a row.
Like many e-commerce specialists, Amazon benefits from the network effect as the value of its platform grows with more users. Online retailers looking for a broad customer base will gravitate towards the largest platforms, and Amazon is one of them. And as the number of merchants on its website increases, it attracts more customers.
Amazon will benefit from increasing e-commerce adoption thanks to the solid lead it already has. And those who invest in this company get more than just their e-commerce business. Amazon’s high-margin cloud computing unit is in overdrive. The company is also a leader in the cloud industry, a market that’s on a solid growth trajectory.
Amazon hasn’t escaped the recent downturn unscathed. The e-commerce sector is hit particularly hard. But with leadership in two major industries that are ripe for growth, the tech giant can turn things around and return to its market-leading ways, making it an excellent stock to buy and hold for a while, especially at current levels .
MercadoLibre has earned its nickname “the Amazon of Latin America” by becoming the largest e-commerce player in the region. It tops all online marketplaces operating in Latin America in terms of monthly visits. And just like the original Amazon, MercadoLibre benefits from a network effect — a key reason why it should remain at the top of the pecking order where it operates.
Newcomers who want to challenge MercadoLibre will need to make significant upfront investments. Offering perks like one-day shipping requires building or acquiring the necessary infrastructure in different countries. That costs time and money. MercadoLibre has already done so – and continues to do so.
In addition, MercadoLibre offers an entire ecosystem of services. The company runs a fintech platform called MercadoPago, a service that allows sellers to ship their orders across Latin America known as Mercado Envios, and Mercado Shops that allows merchants to create online storefronts.
All of these free services allow MercadoLibre to provide traders and sellers with everything they need to be successful, making it difficult for them to give up. The tech giant also benefits from high switching costs. MercadoLibre will benefit from increasing e-commerce penetration in Latin America, where it is lower than other countries like the US and China.
The company has years of growth ahead of it. Don’t focus on the past year it has struggled in the market.
Etsy’s business differs slightly from that of its competitors, as the company’s platform focuses primarily on vintage and handmade goods. On the one hand, this can be seen as a bad thing as the pool of items sold on the platform is much smaller than usual – only a limited number of items are handmade.
However, Etsy’s focus on this small niche is actually a strength. The company has become the go-to place for buyers and sellers in this category, giving it a network effect with those interested in handmade items.
Etsy has suffered this year as sales growth rates have slumped, a familiar story on Wall Street with companies that excelled in the early days of the pandemic. The good news is that Etsy still has a lot of empty space in its target market. The company estimates a total addressable market of $2 trillion, of which it has captured a tiny 2.6% market share.
Etsy isn’t the only company in this space, and it won’t be the only one capitalizing on this large, growing market. However, it’s one of the key players in it, and thanks to the competitive advantage it’s built up, it’s well-positioned to make steady progress while growing its revenue and profits. Etsy’s share price will follow suit.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny holds positions at Amazon. The Motley Fool has positions in and recommends Amazon, Etsy, MercadoLibre, and Walmart Inc. The Motley Fool has a disclosure policy.