In this article, I evaluated two internet stocks, Meta Platforms, Inc. (META) and MercadoLibre, Inc. (MELI), to determine which has the potential for better returns. We believe META is the better investment for reasons explained throughout this piece.
The internet has impacted nearly every aspect of our lives, transforming how we communicate, work, learn, shop, manage our finances, and access entertainment. As of October 2023, there were approximately 5.3 billion internet users worldwide, accounting for 65.7% of the global population. Of this total, about 4.95 billion or 61.4% of the global population, were social media users.
Social networking is one of the most popular online activities globally. A surge in sales of internet-accessible electronic devices like smartphones and tablets would increase time spent on social media platforms. According to Grand View Research, the global social networking app market is expected to reach $310.37 billion by 2030, growing at a CAGR of 26.2%.
With the rise of internet usage, a vast digital landscape unfolded, presenting numerous opportunities for commerce. In recent years, e-commerce platforms emerged, offering a virtual marketplace where consumers can browse and buy items at the click of a button. The immense potential of e-commerce is reshaping the retail industry and redefining consumer behavior globally.
IMARC Group projects the global e-commerce market to reach $70.90 trillion by 2028, exhibiting a CAGR of 27.4% during the forecast period (2023-2028). Growing adoption of various e-commerce and online retail platforms, increased expansion in cross-border trade opportunities, and the development of secure digital payment systems are primary factors driving the market’s growth.
Supportive government initiatives to make the internet widely accessible and the availability of high-speed internet would boost the internet industry’s prospects.
The Broadband Equity, Access, and Deployment (BEAD) Program allocates $42.45 billion from President Biden’s Bipartisan Infrastructure Law to expand high-speed internet access by funding planning, infrastructure deployment, and adoption plans.
Further, widespread digital transformation of various industry verticals requires high-speed, reliable internet, driving the demand for broadband services. The global broadband services market is expected to grow at a CAGR of 9.7% from 2023 to 2030 to reach $875.10 billion.
The internet industry’s promising growth outlook should bode well for META and MELI.
META is a clear winner in six-month price performance, with 29.8% returns compared to MELI’s 1.8% gain. META climbed 109.3% over the past nine months compared to MELI’s 10% gain. In addition, META’s 234.8% gain over the past year is higher than MELI’s gain of 44.2%.
However, here are the reasons why we think META could perform better in the near term:
Recent Financial Results
For the third quarter that ended September 30, 2023, META’s revenue increased 23.2% year-over-year to $34.15 billion. Its income from operations rose 142.7% from the year-ago value to $13.75 billion. The company’s net income and EPS came in at $11.58 billion and $4.39, increases of 163.5% and 167.7% year-over-year, respectively.
Furthermore, as of September 30, 2023, the company’s cash and cash equivalents stood at $36.89 billion, compared to $14.68 billion as of December 31, 2022. Its current assets were $78.38 billion versus $59.55 billion as of December 31, 2022.
MELI’s net revenues increased 39.8% year-over-year to $3.42 billion for the third quarter that ended September 30, 2023. Its income from operations rose 131.4% from the year-ago value to $685 million. Also, the company’s adjusted EBITDA was $820 million, an increase of 108.7% from the prior year’s period.
In addition, the company’s net income came in at $359 million and $7.16 per common share, up 178.3% and 179.7% year-over-year, respectively. Its cash and cash equivalents were $2.17 billion as of September 30, 2023, versus $1.91 million as of December 31, 2022.
Past And Expected Financial Performance
META’s revenue and EBITDA have grown at respective CAGRs of 17.1% and 15.4% over the past three years. Its net income and EPS have increased at CAGRs of 5.6% and 8.8%, respectively. Additionally, the company’s total assets have grown at a CAGR of 13.9% over the same time frame, while its levered free cash flow has improved at 28.5% CAGR.
Analysts expect META’s revenue and EPS for the fiscal year (ending December 2023) to increase by 14.2% and 66.5% year-over-year to $133.18 billion and $14.30, respectively. Likewise, the company’s revenue and EPS for the fiscal year 2024 are expected to grow 12.9% and 20.9% from the previous year to $150.33 billion and $17.28, respectively.
Over the past three years, MELI’s revenue has grown at a CAGR of 62.9%. Its EBITDA has improved at a CAGR of 733.8% over the same timeframe. Also, the company’s total assets and tangible book value have increased at CAGRs of 6.6% and 40.9%, respectively, over the same period.
For the fiscal year ending December 2023, MELI’s revenue and EPS are expected to grow 31.4% and 103.5% year-over-year to $13.84 billion and $19.39, respectively. Also, analysts expect the company’s revenue and EPS for the next year 2024 to increase 22.2% and 38% year-over-year to $16.91 billion and $26.77, respectively.
Profitability
META’s trailing-12-month revenue is 10.5 times what MELI generates. Moreover, META is more profitable, with a trailing-12-month gross profit margin of 80.12% compared to MELI’s 56.33%. Also, META’s trailing-12-month EBITDA margin and net income margin of 42.58% and 23.42% are higher than MELI’s 16.61% and 6.23%, respectively.
In addition, META’s trailing-12-month ROA and ROTC of 15.53% and 16.53% are higher than MELI’s 6.65% and 13.47%, respectively. META’s trailing-12-month levered FCF margin of 23.19% compared to MELI’s 7.70%.
Valuation
In terms of trailing-12-month non-GAAP P/E, META is currently trading at 26.59x, 68% lower than MELI, which is trading at 83.05x. META’s trailing-12-month EV/EBITDA multiple of 13.87 is lower than MELI’s 31.92. Also, META’s trailing-12-month Price to Book and Price/Cash Flow of 5.42x and 11.69x are lower than MELI’s 27.60x and 13.70x, respectively.
Thus, META is relatively more affordable.
POWR Ratings
META has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. Conversely, MELI has an overall rating of C, translating to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. META has a grade of B for Sentiment, whereas MELI has a C grade.
Of the 57 stocks in the Internet industry, META is ranked #2, while MELI is ranked #27.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Growth, Momentum, Quality, and Value. Click here to view META ratings. Get all MELI ratings here.
The Winner
From how we communicate and shop to how we work and entertain ourselves, the internet has profoundly impacted every aspect of our lives. Digital trends like growing social media usage, a surge in e-commerce platforms, the adoption of remote work and online learning tools, and the rising use of digital payments create growth opportunities for companies offering internet-based services.
Therefore, internet stocks META and MELI are expected to benefit significantly from the industry’s bright prospects. However, MELI’s relatively low profitability, elevated valuation, and bleak near-term prospects make its rival, META, the better buy now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Internet industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
META shares rose $2.36 (+0.76%) in premarket trading Thursday. Year-to-date, META has gained 159.14%, versus a 11.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
Selecting the Best Internet Buy: Meta Platforms Inc. (META) vs. MercadoLibre (MELI) StockNews.com
