Latin American e-commerce giants MercadoLibre (Nasdaq: MELI) reported a strong first quarter earnings last week. Revenue rose 35% to $3 billion, and earnings jumped 205% to $3.97 per diluted share. Those results are especially impressive in light of the challenging economic environment, but MercadoLibre still has a long way to go for growth.
Latin America has one of the fastest growing internet penetration rates in the world, leading the way for strong consumer adoption of e-commerce and digital payments, as well as corporate adoption of digital advertising. Those tailwinds could translate into fivefold returns for MercadoLibre shareholders over the next decade. This means that $200,000 invested in stocks today could be worth $1 million by 2033.
Here’s what investors should know.
MercadoLibre dominates e-commerce in Latin America
MercadoLibre is often described as “.Amazon Latin America.” This comparison is imperfect, but it conveys the strong competitive position and brand authority that MercadoLibre has developed in the region. In fact, the company runs the largest online commerce and payments ecosystem in Latin America. Its marketplace receives nearly four times the number of visitors than its closest competitor, and it accounts for 20.9% of regional e-commerce sales in 2022.
Better yet, MercadoLibre is expected to be up 21.6% regionally. e-commerce sales in 2023, according to eMarketer. In other words, the company is still gaining market share. That speed hints at a powerful network effect. Sellers are drawn to the market with the most buyers because it has the greatest purchasing power, and buyers are drawn to the market with the most sellers because it offers the greatest selection. Each new market participant adds momentum to that virtuous cycle, which should keep MercadoLibre ahead of the competition for the foreseeable future.
This portends strong growth in the coming years. E-commerce currently accounts for just 11% of total retail sales in Latin America, but this figure is expected to reach 20% by 2026.
MercadoLibre Has Many Thriving Side Businesses
MercadoLibre solidifies its leadership in e-commerce with adjacent solutions. It provides logistics services through its Mercado Envíos subsidiary, and its wide fulfillment footprint allows the company to offer faster shipping than any competitor. This makes its marketplace a more compelling option for buyers and sellers, intensifying the underlying network effect.
MercadoLibre also provides digital advertising solutions through its Mercado Ads subsidiary. As the operator of the most popular online marketplace in Latin America, MercadoLibre has two things every advertiser needs: engaged consumers and shopper data. Mercado Ads makes use of those assets, and business is booming. Ad revenue soared 62% in the first quarter, and this momentum should continue in future quarters. Latin America is currently the fastest growing digital advertising market in the world.
Lastly, MercadoLibre offers a wide range of fintech products. This includes business loans, consumer loans and credit cards through its Mercado Crédito subsidiary, as well as payment processing and digital wallet services through its Mercado Pago subsidiary. Those financial services take advantage of low bank account and debit card penetration rates in Latin America, and its fintech business is booming. Mercado Pago, the third most popular digital wallet among Latin American consumers, saw a 40% increase in fintech revenue in the first quarter.
MercadoLibre shareholders could see fivefold returns by 2033
According to Statista, retail e-commerce sales in Latin America are expected to grow by 14% annually through 2027, and digital payment volumes are expected to grow by 15% annually over the same period. Those tailwinds could translate into fivefold returns for MercadoLibre shareholders.
MercadoLibre currently has a Market capitalization of $61 billion. That figure would have to increase fivefold by 2033 at a rate of 17.5% every year. This seems possible in light of the company’s growing addressable market, and the fact that its market capitalization has grown 32% annually over the past five years.
With that in mind, if MercadoLibre can grow revenue at 20% annually over the next decade — a reasonable assumption considering annual revenue growth of 54% over the past five years — its market capitalization could grow fivefold. while its price-to-sales ratio That drops down to 4.4 times sales, which is a more reasonable multiple than its already reasonable valuation of 5.8 times sales. This makes this growth stock a shout buy,
I want to give one last warning. Very few people have the financial means to safely invest $200,000 in a single stock. Investors should never sacrifice portfolio diversification for the sake of big profits. But the potential for five times returns is compelling regardless of the initial amount invested.
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John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, a subsidiary of Amazon. trevor genevine Amazon.com and MercadoLibre have positions. The Motley Fool has posts at Amazon.com and MercadoLibre and recommends it. A in The Motley Fool Disclosure Policy,
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