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Latin America’s economy slumped in 2023, but World Bank economists expect growth to pick up in 2024 and 2025 as inflation slows and interest rates fall. This should help boost business and consumer spending across the region, and few businesses will benefit more. mercadolibre (Meri 0.21%).
Another tailwind is also starting to take shape.of S&P500 (SNPINDEX: ^GSPC) It has recovered from its bear market lows and recently climbed to record highs. Some investors believe the index is already in a bull market.
The S&P 500 has returned an average of 169% over the past 10 bull markets, and many stocks will rise even more in the next bull market. That could certainly be a tailwind for MercadoLibre.
MercadoLibre is Latin America’s largest e-commerce company
MercadoLibre operates Latin America’s largest online commerce and fintech ecosystem. Its marketplace is the most visited digital shopping destination in the region and the market leader in terms of revenue. Additionally, management says Mercado Pago, the company’s complementary payments business, is the No. 6 but fastest-growing acquisition company.
This scale is an important competitive advantage for two reasons. First, as the ecosystem expands, it creates powerful network effects that make the marketplace more attractive to sellers and customers. Second, it gives MercadoLibre a data advantage. The company processes millions of transactions every day, each time improving its ability to prevent fraud and deliver financial services such as merchant loans and consumer credit products.
On that basis, MercadoLibre has naturally become the region’s largest retail advertiser, as it has the ability to engage with customers and obtain shopper data unlike other Latin American retailers. In fact, that part of the company’s business is growing rapidly. Ad revenue has grown at more than 70% over the past six quarters, and Insider Intelligence believes MercadoLibre will be the fastest growing ad technology company in 2024.
MercadoLibre has further strengthened its commercial leadership with significant investments in its logistics capabilities. The company provides shipping and fulfillment services to sellers and fast and reliable shipping to buyers, making the market more attractive. Its value proposition resonates with both parties. MercadoLibre’s logistics network handled a record 94.2% of all shipments in the third quarter, with nearly 80% of those shipments delivered within his 48 hours.
In short, MercadoLibre is Amazon (NASDAQ:AMZN) Blueprint. It started with its core e-commerce business and then expanded into adjacent areas such as payments, logistics, and digital advertising. This strategy should continue to benefit both companies. However, Amazon is worth about 20 times more than MercadoLibre. Much of this conflict has to do with Amazon’s cloud computing business, which MercadoLibre is lacking (for now).
MercadoLibre reports strong growth in third quarter
Mercado Libre looked strong in Q3. Total revenue increased 40% to $3.7 billion, reflecting 45% revenue growth in the Commerce business and 33% revenue growth in the FinTech business. Additionally, GAAP net income increased 178% to $359 million as margins widened by nearly 5 points. The improvement in profitability was primarily driven by higher interest income (due to higher interest rates) and improved asset quality across the credit portfolio.
Management also provided notable comments on the financial results. MercadoLibre recently launched streaming platform Mercado Play and short video platform Mercado Clips, both of which are creating new advertising opportunities. The company also relaunched its Meli+ loyalty program during the third quarter with more attractive shipping benefits and access to streaming video content, including Disney+. Walt Disney.
I won’t go into too much detail, but these moves are reminiscent of Amazon’s Prime Video platform and Prime membership program.
MercadoLibre stock is trading at a fair price
By the end of the 2010s, retail e-commerce sales are expected to grow at 8% per year, digital payments revenue at 21% per year, and the ad tech market at 14% per year, according to analysts. . Although these are global projections, investors may assume a similar trajectory for Latin America, as regional economic expansion is expected to match global economic expansion.
MercadoLibre should grow faster than the market average in all three cases due to its size and brand prestige. In fact, Wall Street consensus calls for annual revenue growth of 24% over the next five years. With this forecast, the current valuation of approximately 6.4 times sales seems reasonable. This multiple discounts the average sales of 8.8 times over the past three years, which is a fair price for a company like Amazon a decade ago.
Patient investors can feel confident buying this growth stock today. MercadoLibre may not become a $1.6 trillion company like Amazon right away, but it certainly has the potential to double in value over the next decade.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Trevor Jennewine has worked at Amazon, MercadoLibre, and Walt Disney. The Motley Fool has positions in and recommends Amazon, MercadoLibre, and Walt Disney. The Motley Fool has a disclosure policy.
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