MercadoLibre (MELI 0.69%) and PDD Holdings (PDD 8.03%) are recognized as two of the fastest-growing e-commerce companies globally. MercadoLibre is the leading e-commerce company in Latin America, while PDD is the third-largest player in China.
Both companies have experienced substantial stock price increases since their initial public offerings (IPOs). MercadoLibre, which went public in 2007 at an IPO price of $18, has surged over 11,370% to approximately $2,037. Similarly, PDD, which went public in 2018 at $19, has rallied over 610% to around $135.
MercadoLibre and PDD have impressed investors with rapid growth, expanding ecosystems, and increasing profitability. This raises the question of which stock is currently the better investment.
### Differences Between MercadoLibre and PDD
MercadoLibre operates in 18 countries across Latin America, with its primary revenue streams coming from Brazil, Mexico, and Argentina. Initially, the company relied on a third-party marketplace but has since developed its first-party marketplace and its own logistics network. Additionally, MercadoLibre has integrated customers into its ecosystem with Mercado Pago, a digital payment platform, and its related fintech services.
In contrast, PDD’s platform, Pinduoduo, operates exclusively in China. Originally offering both first-party and third-party marketplace services, it phased out first-party services in 2021. PDD also runs an online agricultural platform connecting farmers directly with shoppers and owns Temu, a popular cross-border marketplace enabling Chinese sellers to reach international buyers.
### Growth Comparison
Between 2018 and 2023, MercadoLibre’s revenue grew at a compound annual growth rate (CAGR) of 59% in USD terms. PDD’s revenue growth during the same period was higher, with an 80% CAGR in RMB terms and 79% in USD terms, though PDD’s growth has been more volatile.
MercadoLibre experienced accelerated growth in 2020 and 2021 due to the pandemic, which boosted its e-commerce and digital payment businesses. However, the company’s growth rate slowed as pandemic-related tailwinds diminished.
PDD saw significant revenue growth in 2019 and 2020, driven by a surge in customers from China’s lower-tier cities who were attracted to its bulk discount offerings. However, in 2021 and 2022, China’s strict COVID-19 lockdowns and heightened competition from Alibaba and JD.com slowed PDD’s growth. In 2023, PDD’s growth rate rebounded as China’s macroeconomic environment improved.
Analysts project continued growth for both companies. From 2023 to 2026, MercadoLibre’s revenue is expected to grow at a CAGR of 27% in USD terms, while PDD’s revenue is anticipated to increase at a CAGR of 36% in RMB terms. MercadoLibre’s growth will likely be driven by the expansion of its e-commerce marketplace and its fintech ecosystem, which recently surpassed 50 million monthly active users. PDD’s growth is expected to come from market share gains over Alibaba and JD in China, dominance in the online agriculture market, and Temu’s expansion in international markets, including the U.S.
### Profitability Comparison
Both MercadoLibre and PDD were unprofitable at the time of their IPOs. MercadoLibre became profitable in 2021, with net income growing at a CAGR of 244% in USD terms over the next two years, primarily due to economies of scale that reduced logistics and payment processing costs. Similarly, PDD turned profitable in 2021 after discontinuing its low-margin first-party business, with net income growing at a CAGR of 178% in RMB terms from 2021 to 2023.
Forecasts suggest that from 2023 to 2026, MercadoLibre’s net income will grow at a CAGR of 49% in USD terms, while PDD’s net income is expected to increase at a CAGR of 42% in RMB terms.
MercadoLibre and PDD are trading at approximately 42 times and 10 times next year’s earnings, respectively. While MercadoLibre appears reasonably valued given its growth potential, PDD is considered undervalued due to a recent warning of near-term slowdown and rising expenses, as well as ongoing U.S.-China tensions impacting Chinese growth stocks.
### Conclusion
Although owning shares in MercadoLibre might be favorable, especially after its significant rally over the past year, PDD appears to be a potentially more attractive investment at present. Despite a 40% rise in the last year, PDD’s valuations remain low, making it a compelling option for investors willing to navigate near-term volatility.
