To The Moon

Pinduoduo Plunges Over 28% Post-Earnings, While Several E-Commerce Stocks Soar Year-to-Date

$Pinduoduo Inc.(PDD)$   shares plunged 28.5% yesterday after the company posted earnings that missed forecasts and delivered a bleak outlook.

All major e-commerce firms have now reported their second-quarter results, highlighting a stark contrast in performance. $Amazon.com(AMZN)$   and $JD.com(JD)$   have fallen 6% and 2% respectively this month, while Sea, MercadoLibre, and $Shopify(SHOP)$   have jumped more than 20%.

Year-to-date, $Sea Ltd(SE)$   has soared 105%, $Coupang (CPNG.US)$ has advanced over 40%, $eBay (EBAY.US)$ has increased more than 35%, and MercadoLibre has gained over 25%, all significantly outpacing the S&P 500's 17.8% rise.

Global e-commerce sales are forecast to hit $6.3 trillion in 2024, marking an 8.8% year-over-year increase, according to eMarketer. By 2027, sales are expected to reach $7.9 trillion. The share of e-commerce in total retail sales is projected to rise by 1.5 percentage points to 22.6%.

The e-commerce market is set to continue its robust growth, but which companies will sustain their momentum and deliver standout results? Let’s take a look at the top-performing e-commerce stocks of the year.

Sea

Singapore-based Sea Ltd. operates Shopee, Southeast Asia's leading e-commerce platform with a 50% market share.

In a region where logistics infrastructure is underdeveloped, Shopee boasts the largest logistics network. With Southeast Asia's population on the rise and per capita disposable income increasing, there is significant room for e-commerce penetration growth.

Shares of the company have rebounded significantly from the post-pandemic low of $34.35 touched in mid-January, yet remain below the two-year high seen in mid-2023 and are still several multiples away from the historic peak in 2021.

E-commerce accounts for 70% of Sea's revenue. After a slowdown in 2023, growth resumed in 2024. Second-quarter e-commerce revenue reached $2.82 billion, marking a 33.7% increase.

Additionally, net income for the second quarter was $80 million, with a net profit margin of 2.1%. This marks a return to positive net profit margins after three consecutive quarters of losses.

However, it is important to note that the competitive landscape of Southeast Asia's e-commerce market is far from stable. Shopee is currently facing intensified competition. TikTok has already entered Indonesia and Thailand, while Temu has yet to make its move into the Southeast Asian market.

JPMorgan upgraded Sea to Overweight following its second-quarter results, citing potential positive earnings revisions across all three major business segments. "We particularly expect significant improvements in e-commerce profitability as Sea leverages its leading market share and stable competition to increase take rates, enhance sales and marketing efficiency, and benefit from higher growth," JPMorgan stated in the report.

Coupang

Coupang, South Korea's largest e-commerce company, commands a 25% market share in the country's online retail sector through its platform, Coupang Marketplace.

The company went public in March 2021, with shares surging over 40% on debut to a peak of $69. However, it faced a prolonged decline, with shares consolidating at lower levels. This year, the stock has rebounded significantly, reaching its highest level in two years.

Coupang's Product Commerce division, which includes its primary South Korean e-commerce and logistics operations, generates around 88% of the company's net revenue. The remaining revenue stems from Developing Offerings, which features Farfetch, Taiwan e-commerce, Coupang Eats, streaming services, and fintech. This segment is grappling with mounting losses.

In Q2 2024, the Product Commerce segment reported an adjusted EBITDA of $530 million, up $122 million year-over-year, with an 8.2% margin. In contrast, the Developing Offerings segment posted a negative adjusted EBITDA of $200 million.

Coupang's price-to-earnings ratio is 39x. Given the substantial losses from the Developing Offerings segment impacting the profitability of the core business, the PE ratio doesn't seem particularly high. 

Overall, the company's profit margins continue to improve. In Q2 2024, its gross margin reached 29.3%, up 310 basis points year-over-year.

Despite its strong e-commerce performance, Coupang faces potential risks including a sluggish South Korean economy, ongoing losses in its development division, and intensifying market competition. Alibaba’s AliExpress and Pinduoduo’s Temu are ramping up their investments in the South Korean market.

MercadoLibre

MercadoLibre, often dubbed "the Amazon of Latin America," is headquartered in Uruguay and has been serving customers in the region for over 25 years. 

Despite facing challenges such as regulatory hurdles, political instability, and high inflation, MercadoLibre has thrived in the tough Latin American market. The company boasts over 218 million customers across 18 countries, making it an integral part of the region's e-commerce ecosystem.

MercadoLibre's primary operations are in Commerce and FinTech, accounting for 59% and 41% of its business, respectively. Commerce has been accelerating growth over the past seven quarters, reaching a 53% increase in Q2 2024.

Brazil remains MercadoLibre's largest and most profitable market, with revenue rising 51.2% year-on-year in the second quarter, the highest growth among its regions. Mexico followed closely with a nearly 66% increase in revenue, while Argentina saw a modest 1% rise compared to the previous fiscal year, reversing the over 20% year-on-year decline from the prior quarter.

These figures underscore MercadoLibre's regional strengths and its ability to gain market share in a highly competitive environment.

Following the release of its second-quarter earnings, MercadoLibre's shares surged to an all-time high.

JPMorgan reiterated its Overweight rating on MercadoLibre following the company's second-quarter earnings report, setting a year-end 2024 price target of $2,400, implying a 20% upside. 

JPMorgan expects MercadoLibre to continue demonstrating robust GMV growth in 2024 and 2025, alongside margin expansion. Additionally, it anticipates increased advertising penetration in the coming years, which should further boost margins.

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