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mercadolibre (NASDAQ:Meri) is the largest e-commerce company in Latin America, and its title has been compared to: Amazon. But the similarities go deeper. MercadoLibre may not have a cloud computing business, but it has developed an ecosystem of services that support the market and create further monetization opportunities.
MercadoLibre’s decision to follow Amazon’s blueprint has paid off tremendously for investors. Over the past 10 years the stock price has risen 1,500% and compounded at an annual rate of 31%. This means that his $10,000 invested in MercadoLibre in March 2014 is now worth more than $152,000 to him.To give you some context, $10,000 is S&P500 At the same time, it is now worth about $28,000.
Despite this performance, MercadoLibre’s market capitalization is only $75 billion, 24 times smaller than Amazon, and select Wall Street analysts still view the company as a worthy investment. There is. For example, Marcelo Santos JP Morgan Chase and Andrew Reuben morgan stanley selected this stock as a top pick for 2024. Read more about the so-called “Amazon of Latin America”.
MercadoLibre is a leader in the Latin American e-commerce market
MercadoLibre hosts Latin America’s largest e-commerce and payments ecosystem. The Company’s online marketplace leads its competitors in unique visitors and page views in all major regions, and accounts for approximately 29% of online retail sales across the region. However, Morgan Stanley expects this number to reach 31% by 2027, meaning the company is still gaining market share.
MercadoLibre’s scale creates a network effect, a virtuous cycle that draws more sellers and consumers into its ecosystem over time. This happens because each consumer increases the value of the marketplace to sellers, and each seller increases the value of the marketplace to consumers. But like Amazon, the company powers its flywheel with adjacent logistics support, advertising services, credit products, and payment processing.
These adjacent solutions make the market even more attractive and MercadoLibre has been a huge success overall. With the fastest and most extensive distribution network in Latin America, he ranks as the third largest digital advertiser in the region. Additionally, the company’s financial services subsidiary (Mercado Pago) is the leading fintech platform in Argentina, Mexico, and Chile as measured by monthly active users, and his second largest fintech platform in Brazil.
MercadoLibre reports accelerated growth in fourth quarter
MercadoLibre looked strong in the fourth quarter. As shown in the chart below, total revenue increased by 42% to $4.2 billion as growth accelerated across the commerce and fintech sectors. Meanwhile, generally accepted accounting principles (GAAP) net income was flat at $165 million. However, this was due to one-time charges related to tax disputes in 2014 and 2022, and net income excluding these charges increased 166% to $383 million.
The chart below shows quarterly revenue growth for the Commerce and Fintech sector in 2023. Note that commerce sales accelerated sequentially throughout the year, while fintech sales accelerated sequentially in the second half of the year.
One thing this chart doesn’t convey is the momentum MercadoLibre has achieved with specific subsidiaries. Specifically, the company’s logistics network handled 94.4% of its shipments in the fourth quarter, up from 93.6% last year. Additionally, MercadoLibre achieved approximately 50% of its shipments in the quarter, up from 43% a year ago. Finally, advertising services revenue growth has exceeded 70% for seven consecutive quarters, excluding exchange rate effects.
These numbers show that MercadoLibre has been successful in deepening its relationships with merchants, which means that the underlying network effects are actually strengthening.
MercadoLibre stock is reasonably priced compared to growth prospects
Going forward, MercadoLibre will have three particularly important growth engines: e-commerce, financial services and digital advertising. Quantifying these opportunities, Straits Research says online retail sales are expected to grow at 8% per year through 2032, and digital payments revenue is expected to grow at approximately 17% per year through 2031. Meanwhile, the digital advertising market is expected to grow nearly 16% annually through 2030, according to Grand View Research.
To be clear, these are global estimates. Growth in Latin American countries is likely to slow, given that the regional economy is expected to expand at a slightly slower pace than the global economy, according to the World Bank. Investors should also note that MercadoLibre generated 22% of its revenue last year from Argentina, 53% from Brazil and 21% from Mexico. I mention that because Argentina’s economy is currently suffering from hyperinflation.
Despite that risk, Wall Street expects MercadoLibre to grow revenue by 20% annually over the next five years. However, there are several reasons why that estimate could be low. First, Latin American economies may grow faster than expected. Second, MercadoLibre does not yet charge merchants for fulfillment services, which could unlock significant monetization avenues at some point in the future. Finally, eMarketer believes that the company will lead the world in advertising revenue growth in his 2024. Its momentum could snowball as MercadoLibre gains influence in the retail industry similar to Amazon.
In any case, even if the Wall Street consensus turns out to be correct, the current valuation of 5.4 times sales looks reasonable. Patient investors should feel comfortable buying a small position in this growth stock today.
Should you invest $1,000 in MercadoLibre now?
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Motley Fool’s Ascent. Trevor Jennewine has positions at Amazon and his MercadoLibre. The Motley Fool has positions in and recommends Amazon, JPMorgan Chase, and MercadoLibre. The Motley Fool has a disclosure policy.
1 Monster growth stocks, up 1,500% in 10 years, will still be top buys in 2024, according to some Wall Street analysts
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