MercadoLibre (NASDAQ: MELI) stock has tripled over the past five years. The Latin American e-commerce and fintech leader impressed investors with its rapid sales growth, expanding margins, and soaring profits. It gained more shoppers throughout the pandemic and kept growing even as inflation rattled its core markets.
But is it too late to buy MercadoLibre stock today? Let’s take a fresh look at its business to decide.
It’s still a hypergrowth company
MercadoLibre was founded nearly 25 years ago, but it’s still growing rapidly. From 2013 to 2023, its gross merchandise volume (GMV) increased at a compound annual growth rate (CAGR) of 20%, its total payment volume (TPV) delivered a CAGR of 54%, and its total revenue saw a CAGR of 41%. That growth was driven by the expansion of its online marketplace and Mercado Pago payments platform across 18 countries.
The company’s early-mover advantage gave it an edge against its regional and overseas competitors, many of which struggled to scale up their logistics networks across Latin America’s less developed infrastructure and challenging terrain. Rising income levels and internet penetration rates further amplified its growth.
Over the past year, MercadoLibre’s GMV, TPV, and revenue all surged by high double-digit and triple-digit rates on a currency-neutral basis. That growth was mainly driven by its three largest markets: Brazil, Argentina, and Mexico.
|
YOY Growth Rate |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
Q1 2024 |
|---|---|---|---|---|---|
|
GMV |
43% |
47% |
59% |
80% |
71% |
|
TPV |
96% |
97% |
121% |
153% |
86% |
|
Revenue |
58% |
57% |
69% |
83% |
94% |
Data source: MercadoLibre. Currency neutral terms. YOY = year over year.
In the first quarter of 2024, its unique active buyers increased 15% year over year to 53 million as its number of fintech monthly active users (MAUs) — who use its Mercado Pago payments platform, Mercado Crédito lending services, crypto trading tools, and Mercado Coin token — rose 36% to 49 million. It also continued to expand its Prime-like MELI+ service (which offers retail and digital streaming services for either loyalty points or monthly fees) to lock in more customers and widen its moat.
Unlike many other hypergrowth e-commerce and fintech companies, MercadoLibre has stayed profitable on a generally accepted accounting principles (GAAP) basis over the past three years. Its margins grew as it sold more profitable products on its first-party marketplace and expanded its higher-margin third-party marketplace, credit business, and advertising platform. Economies of scale further diluted its logistics, payment processing, and marketing costs as it grew its market share.
It still has plenty of room to grow
MercadoLibre has had a great run, but the Latin American e-commerce market could still expand at a CAGR of 19% from 2023 to 2028, according to Mordor Intelligence. From 2023 to 2026, analysts expect the company’s revenue to rise at a CAGR of 24% — even as it faces fierce currency headwinds across its top markets (especially Argentina) — as its GAAP EPS increases at a CAGR of 48%.
For comparison, analysts expect Amazon — which has struggled to loosen MercadoLibre’s grip on the Latin American market — to grow its revenue at a CAGR of 11% from 2023 to 2026 as its EPS increases at a CAGR of 37%.
Based on those estimates, MercadoLibre trades at 49 times forward earnings, while Amazon has a lower forward multiple of 39. Looking further ahead, MercadoLibre and Amazon trade at 27 and 24 times their 2026 earnings, respectively.
In other words, MercadoLibre’s stock isn’t cheap, but it could still have plenty of upside potential as the Latin American e-commerce market expands. It doesn’t have a higher-margin cloud business like Amazon to lean on, but the ongoing expansion of its third-party, fintech, advertising, and crypto businesses should consistently boost profits.
It’s not too late to buy MercadoLibre stock
For now, the main challenges for MercadoLibre are inflation, currency devaluation issues, and other macro headwinds in Latin America. The strength of the U.S. dollar, which is being propped up by high interest rates, is exacerbating that pressure.
Yet MercadoLibre has plenty of upside potential. It can still expand beyond its three core markets as income levels and internet penetration rates rise across the region, and it could gobble up smaller competitors and enter even more adjacent markets. It’s definitely not too late to buy this growth stock, but it could remain volatile over the next few years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.
Is It Too Late to Buy MercadoLibre Stock? was originally published by The Motley Fool
