Ecommerce: A Play in Multiple Acts

Ecommerce is powerful and evolving rapidly. Many leaders in this field are transforming themselves by moving into adjacent businesses that we think give them potential for second and third “acts” that lengthen and expand their runways for growth. The increasing role of digitalization is broadening the sources of innovative technology beyond the usual suspects. This phenomenon is suggested by the successes of companies like DoorDash, Sea, and MercadoLibre, each of which is well into its second, if not its third or fourth act.


Research Analyst

Sr. Portfolio Manager
Research Analyst

Research Analyst

Sr. Portfolio Manager
Research Analyst


May 2021

In early December, investors got a chance to buy a piece of DoorDash, one of the breakout businesses of 2020. Throughout the year, the company became a household name and established itself as the market-share leader in the U.S. food delivery market. Its annual gross order volume (GOV) grew 207 percent in 2020 as the spread of the coronavirus pandemic curtailed restaurant activity and fueled the rise in takeout, with delivery evolving into the main connection between restaurants and their consumers.

DoorDash was able to expand its restaurant options and improve its local logistics experience, which we have found to be the most expensive and time-consuming part of the food delivery process but the key to customer satisfaction. In 2020, the company leaned into this competitive advantage, reporting deliveries of more than 800 million orders, 23 percent faster than its average 2017 delivery time.

DoorDash has become one of the success stories of the pandemic era. From its early days as a private company, we placed a premium on DoorDash’s ability to tackle last-mile delivery. When the pandemic hit, the company was able to use these local logistics skills to take market share from its competitors by offering access to a greater number of restaurants and faster and more reliable delivery than its competitors. Once it achieved this market-share leadership status, DoorDash pivoted to its second act. It added grocery and convenience-store delivery, quickly attaining the top market-share position in convenience, a critical consumer preference, whose value we believe was underappreciated by the market as well as competitors, based on our research into consensus estimates.

We believe DoorDash presents an example of the kind of flexibility, durability, and adaptability companies will need not only to survive this pandemic but to prosper when life returns to normal. By extending new services and products to an existing client base and repurposing existing infrastructure, DoorDash was able to create a secondary driver of growth, or second act. In our view, businesses that can succeed in creating these new drivers of growth are best positioned for market leadership and future growth.

Beyond Big Tech

Digitalization is creating new ways of doing things in ecommerce, finance, life sciences, and education and enabling some companies to grow at a much faster pace. We believe that this explosion of innovative technologies will power the next wave of exponential growth, and subsequent wealth creation, once generated by the big U.S. and Chinese companies of the technology industry. Companies, such as DoorDash, that can drive and/or take advantage of the disruptive forces that are transforming businesses and society, in our view, are best positioned for this kind of exponential growth. But to figure out how to thrive post-pandemic and gain a leading position in this fast-changing world, we believe businesses are going to have to envision the future. In our view, tomorrow’s ecommerce leaders will need to conceive of and produce products and services that today’s consumer and businesses have yet to consider.


Ecommerce has been one of the main beneficiaries of the changed behavior adopted as consumers and businesses reordered their personal and professional lives during the pandemic. Our research has shown that in many cases businesses that can deliver groceries, entertainment, takeout, office supplies, prescriptions, pet food, and exercise equipment have seen their orders soar.

Ecommerce’s share of retail spending has been growing about by 1 percentage point each year since 2000. At the beginning of 2020, that share was at 16 percent and by April 2020, it had soared to 27 percent.1 That’s a decade’s worth of growth in less than one year. While we don’t expect penetration will remain at this level, we also don’t expect it to fall back to 16 percent; our research shows that the pandemic cemented new consumer habits, and that many expect to continue to shop online and do so more frequently even after the pandemic ends. More importantly, as consumers make more and more purchases online, we believe that ecommerce companies that are able to extend into adjacent businesses, leveraging consumer mindshare, technological know-how, and data we believe will be best positioned to become the next great internet franchises, leveraging multiple engines of growth. In other words, in our view, the pandemic acted as an accelerant, enabling faster growth and solidifying market leadership positions for the businesses that will lead the next phase of innovation and, for investors, wealth creation.

Through our long history of investing in ecommerce businesses, our domain knowledge has enabled us to find earlier-stage companies, such as DoorDash, that we believe are poised to become leaders in the marketplace of the future. While many understand the pandemic’s effect on ecommerce adoption, we believe this secondary, ecosystem-driven growth, or second-act ability, demonstrated by companies, such as DoorDash, remains underappreciated by many. In other words, we believe in many cases the market has undervalued companies because they have not factored the growth potential for second acts into future valuation expectations.

These so-called second acts make a company more durable and provide it a longer runway for growth. We have seen how important durability, adaptability, and flexibility can be during a crisis. Companies that can harness synergies—such as by repurposing existing infrastructure to start a new and different business or layering a food delivery network on top of a ride-sharing business—can drive new growth without additional overhead or customer acquisition costs.

DoorDash Delivery Model Improves Unit Economics Over Time

Contribution Profit as a Percentage of Marketplace Gross Order Volume (GOV), by Cohort


2016 cohort 2017 cohort 2018 cohort graph
Source: Company filings, data as of 9/30/20. Contribution profit represents the incremental profit generated for each product/unit sold after deducting the variable portion of the firm's costs.

Sea’s First Pivot

We were an early investor in Singapore-based Sea. We initially bought the company for our Emerging Markets Growth strategy at its 2017 public offering and have since purchased it in many of our portfolios.2 The company, now a leading emerging markets internet company, used its early success in its gaming business, Garena, to fund its ecommerce (Shopee) and digital payments (Sea Money) platforms.

Sea’s founder and chief executive, Forrest Li, realized early on that if the company were going to serve the evolving digital needs of the Southeast Asian consumer, it would have to expand into new digital businesses outside of gaming. However, in the time before and after the company went public, the market was largely focused on Garena’s gaming business but in our view did not factor the potential of the company’s growing ecommerce platform Shopee into expectations for future value.

For us, our key insight was the opportunity we saw in Sea’s second act—ecommerce (and beyond). Because of low internet penetration and ecommerce adoption rates in the region, we believed Shopee’s prospects were immense. However, what really powered its growth in ecommerce and gave the company early success in this second act was familiarity with Southeast Asian markets, their demographics, and their emerging technology needs. This familiarity, combined with on-the-ground execution and cash flows from gaming, all became key factors that allowed the company to create a powerful network effect, connecting buyers and sellers in a virtuous circle of scale begets scale. Of course, once at scale, we find that network effect businesses, such as Sea, are often able to defy the traditional laws of mean reversion for much longer than a non-platform business because the value of the network grows as each user is added, while the cost of acquiring each additional user declines.

Shopee has now emerged as the clear ecommerce leader in terms of market share in Southeast Asia, was most downloaded shopping app in the region, and was among the top three downloaded apps worldwide, according to App Annie.3

Expected Growth in Southeast Asia’s Ecommerce Market ($ – Billions)

2019 2025 CAGR graph
Source: Deliberate Capital, Corbin and Grayden, November 2020.

Necessity: The Mother of Invention

MercadoLibre’s story is a bit different. Founded in 1999, the Argentine company is now the largest, in terms of market share, ecommerce and financial technology company in Latin America. As in Southeast Asia, ecommerce adoption rates in Latin America are still low, leaving a significant growth potential. In Latin America, the lack of an established logistics infrastructure is one of the main barriers to the spread of ecommerce. This means current shipping costs can be high—as much as $8 per package—and delivery time is long with packages sometimes taking several weeks to arrive.

To reduce the cost of shipping to merchants, MercadoLibre launched its MercadoEnvios service in 2013 through which it negotiated a volume-based discount directly with the postal carriers and passed on the savings to merchants. To increase the speed of shipping, in 2017 MercadoLibre launched its own managed network services to directly handle warehousing and shipping using technology. Thanks to its ability to deliver products to consumers fast and cheaply, MercadoLibre became a main beneficiary when the spread of the coronavirus forced the accelerated adoption of ecommerce in Latin America. As a result, MercadoLibre’s gross market value (GMV) consistently grew more than 100 percent on a year on year basis for last three quarters of 2020.

MercadoLibre’s second act was one born of necessity. In Latin and South America, as in many developing markets, cash is still the chosen medium of exchange. Fraud is rampant, and there is little trust in traditional banking systems. If its ecommerce business was to be successful, MercadoLibre had to create an electronic payments system that would be accessible to the region’s large population of unbanked and underbanked. To do so, MercadoLibre followed the lead of U.S. ecommerce pioneers, who made online shopping possible for customers without credit cards. It launched Mercado Pago in 2003 to process online payments. In subsequent years, this payments business has spawned numerous systems that support buy now/pay later programs as well as consumer and merchant loans.

Over time, we expect the network effects to take hold and the financial applications to sprawl in line with the buyers and sellers of the ecommerce platform. The original ecommerce business is expected to get stronger and the financial offshoots can provide numerous new runways for growth, while still bolstering the core ecommerce business. While the payments business is still in its early phase, the company is working to expand next-generation services, such as cardless payments, credit, asset management, and insurance. We expect that use rates should improve as the features become more developed. Over time, we believe MercadoLibre has the potential to become the largest financial institution in Latin America.

Shopee Powered by SeaMoney

Sea has launched a similar financial business, SeaMoney, which is the digital payments arm of Shopee. Sea faced many of the same challenges as MercadoLibre as it sought to create a fast and convenient payments system for more than 140 million people throughout the region who don’t have access to traditional banking services, let alone more modern digital payments systems. While SeaMoney’s value currently lies in payments for Shopee, it provides the infrastructure for Sea’s future growth into other financial ventures. In the fourth quarter of 2020, Sea’s mobile wallet services had some 23.2 million users and total payment volumes exceeded $2.9 billion. The Southeast Asian digital payments market is expected to reach $1 trillion by 2025, accounting for half of all payments in the region.4 Against this backdrop, we believe SeaMoney has the potential to be a significant business on its own.

Sea further extended its fintech reach when it secured a digital banking license in Singapore, which will enable it to make further inroads into financial services by making loans and taking deposits. It also launched Sea Capital, after acquiring a Hong Kong-based investment manager, Composite Capital. Sea Capital will be a platform to manage Sea’s overall investment efforts and support the broader Sea ecosystem.

Fast Forward

For MercadoLibre’s ecommerce division, grocery remains the next frontier. Thanks to the lockdowns necessitated by the pandemic, ecommerce companies have finally begun to make inroads into this lucrative space that is fraught with logistical challenges. Online commerce started with standardized and harder to find products and has systematically moved down the value chain, targeting the market segments, such as groceries, that will move necessities online and draw in greater number of people with less disposable income. In most markets, consumers spend 30 percent to 40 percent of their retail budget on groceries. In emerging markets, that percentage is even higher. If MercadoLibre can succeed in grocery sales, we believe its total addressable market will increase meaningfully.

DoorDash, while it has taken a wildly different path, has also moved toward delivery for groceries as well as convenience stores, which we expect will account for about 15 percent of DoorDash’s GOV in 2021. Sea’s Shopee unit, on the other hand, is taking a more global approach, launching its app in Brazil and Mexico. It has also established an artificial intelligence unit, Sea AI Labs, to focus on computer vision, machine learning, and multimedia analysis. The initiative should strengthen Sea’s innovation and research capabilities to drive further development in the digital economy.

Finding the Future

Companies, such as DoorDash, are opening the way to the marketplace of the future in which consumers and businesses increasingly demand convenience, speed, selection, and safety. In the first stage of ecommerce, the challenge was getting everything online and reducing friction in terms of price and selection. While these challenges are far from met, moving forward we expect that companies will place an even greater emphasis on convenience. Of course, the definition of convenience has evolved throughout the history of the retail industry. The original supermarkets brought vendors together, so consumers could get their meat, dairy, produce, and baked goods in one place. The large box stores added grocery to their mix of discounted hardware, linens, clothing, cosmetics, and electronics. As retail has evolved, the winners have been those that offer consumers more variety at lower prices and in the most convenient way possible. Convenience and low cost are sometimes opposing forces, but companies that can offer both will have a competitive advantage.

Along with convenience and cost, we expect personalization will also be critical to ecommerce success. As companies succeed in getting everything online, the shopping experience, with so much choice, can become overwhelming. We see this as an opportunity for ecommerce companies to move toward more personalization with an increasing aim at individual curation. We saw early examples of this when books first went online, as the seller would suggest other titles based on preferences. We should expect to see such suggestive marketing increase as ecommerce companies adopt various forms of artificial intelligence to see what customers and consumers with similar profiles have purchased and browsed. This also presents marketplaces that have already built audiences of consumers with the opportunity to charge merchants to pay-for-placement, an additional—and high-margin—revenue stream.

Whether in ecommerce or digital payments, we expect that the businesses that succeed in repurposing their underlying technology stack or their direct relationship with their customers to ride these second and third waves will be more likely to profoundly transform the customer experience and create the enduring businesses of the future.

1 Galloway, Scott, Post Corona: From Crisis to Opportunity. Page xvii, Bank of America, U.S. Department of Commerce, Shawspring Research.
2 We first invested in Sea for our Emerging Markets Growth (EMG) strategy on December 18, 2017. See the Emerging Markets Quarterly Report for purchase dates for all holdings.
3 App Annie July 1, 2020;
4 Google, Temasek, Bain &Company, e-Conomy SEA 2020;


The companies identified represent a subset of current holdings in Sands Capital portfolios to illustrate examples of highly innovative ecommerce platform businesses that have created new drivers of growth through the creation of vertical businesses. They were selected based on addition to portfolios within the past 24 months, early Sands investment in the business, weight of positions held at the time of publication (April 8, 2021), to reflect our high conviction in the businesses, and geography to comprise different cultures and trajectories of ecommerce penetration. Sands Capital Management is the second largest institutional owner of Sea, eighth largest of MercadoLibre and fifth largest of DoorDash as of December 31, 2020. DoorDash is held in Select Growth and Global Growth. MercadoLibre is held in Emerging Markets Growth and Global Growth. Sea is held in Select Growth, Emerging Markets Growth, Global Growth, and Global Leaders.

The views expressed are the opinion of Sands Capital Management and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed were current as of the date indicated and are subject to change. This material may contain forward-looking statements, which are subject to uncertainty and contingencies outside of Sands Capital’s control. Readers should not place undue reliance upon these forward-looking statements. There is no guarantee that Sands Capital will meet its stated goals. Past performance is not indicative of future results. A company’s fundamentals or earnings growth is no guarantee that its share price will increase. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. There is no assurance that any securities discussed will remain in the portfolio or that securities sold have not been repurchased. You should not assume that any investment is or will be profitable. GIPS® Reports and additional disclosures for the related composites may be found in the Sands Capital GIPS Report. PT 20210048

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