In the popular e-commerce market will Wish’s IPO give it the space to grow, or is this sector too crowded for a newcomer to flourish?
Sept. 8, 2020
This week, the U.S.-based e-commerce company, Wish, filed to go public. A popular low-budget retail app, it sells anything from toys to AirPod knock-offs. But in a market that is heating up for tech stocks, is there room for the e-commerce sector to welcome a new IPO?
Whilst top market leaders such as Amazon and Alibaba are out of Wish’s league, it could be in the competing realm for Shopify, Mercado Libre, and Sea Limited. So let’s look at these three public companies and see how they fit into this crowded market.
Shopify’s Q2 earnings saw $714 million in revenue, a 97% increase from the year-earlier — analysts had predicted revenue to be sitting around $513 million. Shopify stated that the pandemic has encouraged the shift of consumer habits to digital stores and as a consequence, its report stated a 71% increase from Q1 of new stores created on its platform.
Shopify is all about the merchant and its recent deal with Walmart now allows its U.S. merchants to sell products on Walmart’s website. Throughout the pandemic, it has also added new features including gift cards, express themes, and tipping options to help its users manage low traffic to the best of their abilities.
The Canadian-based e-commerce company is now also looking at customer-focused services. Facebook launched its feature ‘Shops’ in May which allows direct integration with the likes of Shopify, BigCommerce, and WooCommerce. This platform will give broader access to support and communication for customers through Instagram, Whatsapp, or Facebook.
With consumers in mind, Shopify’s newly named ‘Shop’ app will allow consumers to like and follow brands, track orders, and find merchants in their area. Shopify is a dominating force in merchant facing services, but it seems it is now setting its sights on the consumer.
In line with the e-commerce market trend, Mercado Libre (NYSE: MELI) posted higher than expected Q2 earnings. Its unique active users grew 45.2%, now sitting at 51 million for the quarter, whilst its revenue at $878 million increased 61% year-over-year. The number of items sold this quarter increased more than 100% year over year with 178 million items sold on the platform.
Mercado Libre occupies much of the Latin American e-commerce market. This is a niche market where a dominant position can be beneficial as many of its countries are in the process of increasing digitization for many of their day-to-day services. Mercado Libre has been focusing on its digital software development with 10% of its revenue being spent on IT. Additionally, its more recent acquisitions have all been software related, including this year’s buy, Lagash — a digital products developer.
Mercado Libre is well-positioned to take advantage of the eventual conversion of the Latin American digital payment market. Its own payment platform, Mercado Pago, handles more than just payments, but also mobile payment gateways, credit cards, and more. In the future, if this e-commerce giant makes gains in another continent perhaps there is a possibility of it competing with the likes of Amazon.
Sea Limited has seen a 93% increase in its total revenue year-on-year, increasing from $665 million to $1.2 billion. Its e-commerce sector only contributes to $510 million of that revenue, which incidentally is up 187% year-on-year. For the other $716 million, Sea Limited generated that revenue through its digital entertainment sector — of which the hugely successful ‘Free Fire’ mobile game has boosted its quarterly active users by 61% to just under 500 million.
Sea Limited has conquered most of Southeast Asia and Taiwan and it operates through 3 main arenas: Shopee in e-commerce, which lead to the development of SeaMoney in financial services, and Garena in digital entertainment. Much like Mercado Libre, it has become a market leader in both e-commerce and digital finance within the Southeast Asian region. Therefore, the Singaporean company is well-positioned to reap the benefits as digital payment technologies become more popular over the next few years.
In 2019 the internet economy in Southeast Asia reached $100 billion, and is expected to triple by 2025. As Sea Limited operates mainly in this region, investors will want to watch for any buying opportunity. In particular, Tencent — its largest backer and mentor — has been having problems with its popular app WeChat, which has now been banned by the U.S. and India. Any pullback in Sea Limited Stock due to this could be considered a buying opportunity for this high-potential market.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.