What to Know Before Buying MercadoLibre Stock
Key Points
MercadoLibre has a huge e-commerce presence in Latin America and a growing fintech business.
Its regions are behind the U.S. in both of these segments, but they're growing quickly.
MercadoLibre stock is well-priced right now.
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MercadoLibre (NASDAQ: MELI) stock has been a top performer for years, beating the market in almost any time period. However, the company's not so well-known in the U.S., since it operates in Latin America. If you've been considering investing in this powerhouse e-commerce giant, here's what you need to know.
What does MercadoLibre do?
MercadoLibre operates an e-commerce marketplace headquartered in Uruguay and serving 18 Latin American countries, including Argentina, where it got its start. It's similar to Amazon, and it has its own membership program called Meli+. It also has its own logistics network that gets deliveries to customers quickly. Same or next-day deliveries increased 28% year over year in the third quarter, although the total isn't as high as it has been in the past. That's because Meli+ members get to choose a delivery day that could be more convenient than next-day shipping.
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As a service for its customers, MercadoLibre developed a digital payments app called MercadoPago that has now grown into a massive fintech business. In addition to digital payments, it offers digital banking capabilities, credit cards, and other financial services. The company has applied for a bank charter in Mexico, where it plans to build the largest digital bank in the country.
How is it performing?
MercadoLibre's sales growth has decelerated over the past few years, but there's still plenty of momentum. Revenue increased 49% year over year in the third quarter (currency neutral), with gross merchandise volume (GMV) up 35% and total payment volume (TPV) up 54%.
There are numerous growth drivers, given its large and diverse business. Unique active buyers increased 26% over last year to 76.8 million, and items sold increased 39% in Q3. Items sold per unique buyer increased 11%, which is especially impressive when you consider how many new buyers there were.
In the fintech business, monthly active users increased 29% over last year, and the total credit portfolio increased 83%. Its acquiring business, which is merchant services, increased 32%.
MercadoLibre is highly profitable, too. Operating income increased from $557 million to $724 million in the quarter, and the company generated $206 million in adjusted free cash flow.
What are MercadoLibre's opportunities?
The company has massive long-term opportunities as its service regions embrace technology. Latin America is underpenetrated in e-commerce and is a good decade behind where the U.S. is today, with only about 15% of retail happening online.
It's a similar story in fintech, where there is a large underbanked population that needs digital options. Both of these segments have a long growth runway as more people get online, and MercadoLibre keeps expanding its addressable market by launching new products.
MercadoLibre also has a growing media business, and like Amazon, it uses its marketplace for advertising.
Is MercadoLibre stock a good value?
MercadoLibre stock trades at only 16 times trailing 12-month free cash flow, and it could be an excellent addition to a growth-centered portfolio at a great price.
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Jennifer Saibil has positions in MercadoLibre. The Motley Fool has positions in and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.
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