These companies operate on three different continents and offer investors both diversification and growth, but are they a good buy?
At MyWallSt, one of the Six Golden Rules is to diversify, which includes geographically. Widening one’s exposure means that the risk to political or economic events in a particular region will be reduced. We delve into three stocks that could be a good investment today.
Jumia (NYSE: JMIA) is an African company that operates an online marketplace, logistics, payment services, and more in twelve African countries. It went public in 2019 and has had a turbulent start to life on the public markets.
Africa has a vast population of roughly 1.2 billion people, and the majority of the $4 trillion of annual spending in Africa is offline, leaving a massive runway for growth. It pivoted its business model, which was heavily reliant on one-off purchases in electronics where growth was slowing to everyday products. Rather than attempting to sell more, it is focusing instead on enabling businesses to move online. It is also leveraging its logistics network and opened to third parties to capture the shift to e-commerce in the region.
Jumia had mixed results in Q4 2020 as it continues to cut costs to reach breakeven and focus on its asset-light third-party marketplace. Its gross profit increased by 12% year-over-year (YoY) in fiscal 2020 to $33.1 million, with losses decreasing by 47% YoY due to cost-cutting measures and increasing margins. It also has a strong cash position of roughly $713 million.
However, COVID-19 had a negative impact due to disruptions. Revenue and gross merchandise volume (GMV) have decelerated by 15% and 23%, respectively, as it has pivoted. However, management has stated that this is “largely by choice”, and the company appears to be making steps in the right direction but is a high-risk investment.
Sea Limited (NYSE: SE) is a company with three main divisions; Garena in digital entertainment, Shopee in e-commerce, and SeaMoney in digital financial services. The company is founder-led, with Forrest Xiaodong Li at the helm.
Sea Limited operates in the seven markets of Southeast Asia and Taiwan, where there is a population of approximately 585 million people. There is an emerging middle class and increasing numbers using the internet, which is benefitting the company.
Sea Limited doubled revenue in 2020 to $4.2 billion fuelled by its gaming and e-commerce divisions. Garena’s hit game ‘Free Fire’ was the most downloaded game globally in 2020. It had 620 million users and 72 million paying customers in Q4 2020, up 119% YoY, and this profitable division accounted for approximately 50% of revenue in 2020.
Shopee is the leading e-commerce solution by GMV in the region at $119.5 billion, an increase of 112% YoY and revenue of $2.2 billion, up 160% YoY. The expanding number of buyers and sellers on the platform strengthens the network effect.
SeaMoney continues to grow in the largely underbanked region, and total payment volume exceeded $7.8 billion in 2020. Quarterly paying users for its mobile wallet services surpassed 23.2 million and is an exciting area for it to exploit.
A risk is the large proportion of revenue coming from ‘Free Fire’, and it will need to continue to engage users to grow. It is also unprofitable, with a loss of $524 million in 2020, and faces strong competition from Alibaba in the region.
MercadoLibre (NASDAQ: MELI) is the dominant e-commerce player in Latin America and operates a payment division, MercadoPago. It went public in 1999 and operates in a market with over 600 million people, more than double that of the U.S. It is the largest of the three companies with a valuation of roughly $76 billion with less risk.
MercadoLibre reported stellar results for 2020, with revenue up 148.5% YoY to $1.3 billion. GMV grew by 110% to $6.6 billion and TPV increased by 134% 10 $15.9 billion on a currency-neutral basis. Despite the acceleration due to COVID-19, e-commerce and banking penetration remains well below that of other markets such as the U.S. and means there is further upside.
MercadoLibre continues to expand and is re-investing in the business and continues to grow market share in countries like Mexico. It is also investing in logistics to help fuel growth and plans to double its workforce this year.
Perhaps the most significant risk is both the political and economic instability in the region. If this were to hit its core market in Argentina in particular, it could have an adverse effect. Companies like Amazon also pose a threat despite its inability to gain market share in the region. MercadoLibre was also unprofitable in 2020, with a net loss of $707 million.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.