Forget Amazon: This E-Commerce Stock Has More Runway Ahead

There's no denying Amazon (NASDAQ: AMZN) is one of the market's best stocks of all time. Shares have gained an incredible 119,778% since their 1997 initial public offering, in step with the e-commerce giant's business growth.

There's also no denying the company's highest-growth days and the stock's biggest gains are now in the rearview mirror. Amazon's sheer size makes for ever-tougher comparisons.

Unfortunately, you can't go back in time to place a bigger bet on Amazon. However, you could step into a stake in a company that's currently where Amazon was about 10 to 15 years ago. MercadoLibre (NASDAQ: MELI) has much more growth runway ahead of it than Amazon itself does.

MercadoLibre' target market is undergoing a major evolution

MercadoLibre is solely focused on building its e-commerce business in Latin America, which has yet to give rise to an overwhelming market leader.

That leader is increasingly looking like MercadoLibre though. That's why the company is often referred to as "the Amazon of Latin America," although the description doesn't quite do it justice. MercadoLibre's digital payments platform makes it look a lot like PayPal as well. Logistics, digital advertising, and point-of-sale equipment are also in its wheelhouse, making the Amazon of Latin America an incredibly diverse company.

And the company's various businesses are benefiting from the same basic headwind: South America's growing access to broadband connectivity, and mobile connectivity in particular.

Numbers from S&P Global Market Intelligence put the matter in perspective. As of the end of last year, only about half of Latin America and the Caribbean's residents had access to at-home broadband. That's up from the 30% penetration rate from just 10 years prior and far more than the 5% penetration from just 10 years before that. Those numbers put the region's broadband penetration rate at the same pace as that seen in the United States ... 10 years ago.

And as was the case in North America, look for e-commerce to follow this proliferation of high-speed connectivity in South America.

Mobile phone penetration is growing in the region as well. Market research outfit GSMA estimates 69% of the continent's residents owned mobile phones as of 2021, up from 2017's figure of 67% and 2010's 56%. Like their counterparts to the north, Latin America's growing mobile crowd should increasingly fall in love with the convenience of mobile shopping and their mobile wallets. Mordor Intelligence believes Latin America's mobile payment market will grow at an annualized pace of 24.5% through 2028.

It's already happening, in fact. Americas Market Intelligence expects Latin America's e-commerce volume to grow 22% annually between now and 2026 following this year's incredible growth pace of 27%.

MercadoLibre is leading the charge

MercadoLibre is plugged into this tailwind to be sure, but it's also capturing more than its fair share of it. Insider Intelligence reports the company's share of Latin America's e-commerce market now stands at a market-leading 21% after three years of grinding growth.

That doesn't sound like a dominant share, and it's well below Amazon's nearly 40% market share in the U.S. Do know, however, that's roughly where Amazon's share of the U.S. e-commerce market stood around 2014.

Perhaps more important to potential investors, MercadoLibre's growing share of a growing market is translating into impressive financial results. Last quarter's gross merchandise volume was up 32% year over year, while revenue grew 40%.

The International Monetary Fund expects Latin America's economy to grow 2.3% next year, matching this year's respectable pace. The analyst community expects MercadoLibre to deliver revenue growth of about 23% next year, which is in turn expected to drive per-share earnings up from $22.38 this year to $33.47 in 2024. Look for this strong sales growth to last through 2027 too -- analysts certainly are, anyway.

Data source: StockAnalysis.com. Chart by author.

In the meantime, the company continues to expand its payment technology's reach.

Although the relatively new app only handles about 5% of the region's digital payments right now, last quarter's total payment volume soared 47% year over year; the addition of credit cards and new payment features to its mobile payment and banking app has proven to be a real boon to the results. Moreover, this modest market share sets the stage for strong growth going forward.

And importantly, unlike Amazon, MercadoLibre is melding its e-commerce platform with its payment platform now before one has a chance to grow any more without the other. Consumers won't have much time or reason to become comfortable with a rival mobile wallet.

Is this a risk-free pick? No, there's always risk when investing. The parallels between last decade's Amazon and MercadoLibre are hard to ignore though, and that paints a bullish picture for MercadoLibre stock.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and PayPal. The Motley Fool recommends the following options: short December 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.