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Global e-commerce sales for 2019 are expected to be up 17.9% from the previous year, to $3.46 trillion.

That number sounds huge, but it's less than 15% of total retail sales. As more consumers move their purchases online, this medium is expected to reach 22% of all retail spending by 2023. MercadoLibre (NASDAQ: MELI), the Latin American e-commerce specialist, and the online juggernaut Amazon (NASDAQ: AMZN) are primed to benefit from this growth. 

Amazon was founded five years before MercadoLibre, but it has grown much bigger since it started in a more established and tech-oriented market. Its revenue is more than 100 times larger than its smaller, regionally focused counterpart.

Note: MRQ=most recent quarter. Data from Yahoo! Finance, company earnings reports, and annual filings. Table by the author.



Both companies have expanded beyond their e-commerce beginnings. Amazon moved into cloud storage in 2006 as it realized its in-house infrastructure services could be sold to other companies.

MercadoLibre ventured into payment services in 2003 to enable its customers who didn't have a bank account or credit card to buy online. The Latin American specialist is growing faster, but Amazon is still putting up impressive growth for its size.

Amazon has become the dominant online retailer in the U.S. by focusing relentlessly on the customer, gobbling up smaller companies to enhance its ecosystem, and facilitating sales for a huge third-party fulfillment network.

Its international business is also massive, with $72 billion in trailing 12-month revenues -- this alone would land it in 42nd place on the Fortune 500 list.

Amazon has also built a huge logistics network that ships 46% of its orders. With 2.5 billion packages shipped per year, it rivals FedEx's 3 billion annual packages and could overtake the overnight-freight company and even UPS in a year or two. Its size has created a tremendous network effect, making it the place for consumers and sellers to be and further fueling its e-commerce growth. But its size is starting to be a problem.

Amazon has come under government scrutiny in the U.S. and Europe for the advantage it has being a reseller's platform and having its own brand of goods. Being the top dog in the U.S. has led some prominent politicians to call out its alleged monopolistic advantages over smaller players.

While these political issues are certainly newsworthy, more concerning are the questionable practices and cracks starting to show in its core business. The practice of using its third-party seller data to create its own products (Amazon-branded products showing up first in search results) is leading to criticism. And fake reviews and counterfeit products showing up on the platform are starting to taint the brand. These could become worse as the company gets even bigger.

On the plus side, Amazon has numerous growth levers in addition to its e-commerce business: online advertising, the Alexa technology platform, physical stores, its AWS cloud services, and even healthcare. Given all of this optionality, this mega-cap company has plenty of ways to grow. 

MercadoLibre has always focused on Latin America. It opened in Argentina in 1999, and it has since expanded to 18 countries across the region. Brazil is its largest source of revenue at 65%, followed by Argentina and Mexico. These top three countries make up 95% of MercadoLibre's revenue stream.

The company has grown despite the region's low usage of credit cards and bank accounts. Instead of viewing this as a stumbling block, it saw an opportunity and created a payment service that has become a huge source of growth and revenue.

In its most recent quarter, its payment platform facilitated $7.6 billion in transaction value, growing 94% from the previous year. Non-marketplace revenue, led by its payments platform, is now almost half its total revenue and growing faster.

But the company has only started to tap the full opportunity of the Latin American market. The table below shows that the population of its top three markets exceeds that of the U.S. These countries have high internet usage, but the percentage of online buyers still pales in comparison to that of the U.S.

Source: MercadoLibre business overview presentation from Q2-2019. Data based on 2018. Table by the author.

MercadoLibre has its risks, too. Amazon is starting to grow its competitive footprint in Brazil, and the region is known to be a challenging place to do business with less stable governments, economies, and currencies. But the company has a tremendous track record and brand recognition, and it is poised to take advantage of the region's 96% of goods that are still purchased in retail shops.

Both of the companies are proven operators with plenty of opportunities still ahead, so this is a difficult choice.

A quick look at the metrics that point to whether a stock is a bargain at the moment seems to give the nod to Amazon, with a reasonable price-to-sales ratio and a price-to-operating cash flow metric that is lower than its historical averages.

But the challenges that Amazon faces with its enormous size are getting harder for shareholders to ignore. With Latin America in the early stages of discovering the convenience of online commerce and electronic payments, MercadoLibre is the better buy today, even if the financial metrics suggest it is currently selling at a premium to Amazon.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Withers owns shares of Amazon and MercadoLibre. The Motley Fool owns shares of and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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