Dominating a Massive Market
MercadoLibre, with its e-commerce and fintech operations, has become an integral part of the daily lives of over 1.8 million families in Latin America. Operating in 18 countries, the company’s services have emerged as the primary income source for millions of households. The growth of MercadoLibre parallels the rapid expansion of internet penetration in Latin America. With the internet reaching 81% of the population in 2023, up from a mere 3% in 2000, MercadoLibre’s stock has witnessed a staggering surge of over 6,000% since its IPO in 2007. However, the company’s 50 million active buyers and 49 million fintech users still represent a fraction of Latin America’s total population of around 660 million. Claiming the title of the most visited e-commerce site in Latin America, MercadoLibre attracts over 440 million monthly visits as of April 2023.
Growth Optionality Abounds
MercadoLibre possesses numerous avenues for continued growth:
1. Geographic Expansion: While Brazil, Mexico, and Argentina collectively account for 96% of the company’s revenue, MercadoLibre envisions steady geographic expansion, anticipating long-term benefits over the coming decades.
2. Off-Platform Payments: Although initially designed to facilitate transactions on its e-commerce platform, MercadoLibre’s fintech unit now experiences almost three times more total payment volume (TPV) from off-platform sources. This rapid growth of TPV off-platform, which includes peer-to-peer payments, in-store purchases using Mercado Pago, and bill payments, has surged by an astounding 145% in the most recent quarter alone.
3. Advertising: The platform’s advertising revenue has consistently grown by over 70% for six consecutive quarters. Currently, ads represent 1.7% of the company’s total gross merchandise volume (GMV), contributing to its net income margin of 10% in the last quarter.
4. MELI+: The newly designed MELI+ program offers customers free shipping on items exceeding $6, along with subscriptions to popular services such as Disney+, Star+, and Deezer for approximately $4 per month.
5. Credito: With its credit card offering exceeding $1 billion in TPV, MercadoLibre’s credit portfolio has grown by 70% and continues to expand. The company provides personal loans to individuals, working capital, and e-commerce loans to its business ecosystem. Notably, its credit revenue minus bad debt and funding costs resulted in a net interest margin after losses rate of 37%, demonstrating early profitability in this segment.
In its latest quarter, MercadoLibre achieved a revenue growth of 40% (which would have been an impressive 69% without foreign exchange headwinds).
Burgeoning Profitability and Reasonable Valuation
MercadoLibre presents an enticing proposition to investors by combining increasing profitability with immense growth potential. The company has consistently improved its net profit margin for seven consecutive quarters. Despite its recent success, MercadoLibre’s current price-to-sales (P/S) ratio remains below its historical averages. To put this into perspective, if MercadoLibre maintains its 10% net income margin over one year, its P/S ratio would equate to 67 times earnings. Given its reasonable valuation, the company’s steady profitability improvement, and a plethora of untapped growth opportunities, MercadoLibre stands out as one of the top growth investments to consider.