MELI Stock Showing Massive Growth, and Holds Promise for More

Mecardo Libre (MELI), with its impeccable business model and excellent online marketplace, had kind of revolutionized the commerce industry across Latin America.

However, the company fell victim to market volatility, and has lost more than 30% of its valuation in the past six months, and around 20% year-to-date.

Companies with strong fundamentals are often rewarded by stock markets in the long run. MELI is one such stock with long-term prospects. The market is quite optimistic about the future of the MELI stock, and many analysts believe that this stock might deliver over 10x return over the coming years.

Mercado Libre is an Argentina-based company managing and operating online marketplaces dedicated to e-commerce and online auctions. The company manages one of the largest e-commerce platforms in Latin America, serving 18 countries in the region, and is also one of the top fintech players in Latin America, having millions of active users on its fintech platform.

The company operates across two segments: Commerce and Fintech. The Commerce segment provides platforms to Latin America-based customers to purchase goods and services, and to merchants to advertise their listings. The Fintech segment provides e-wallets for consumers, with payment services taking advantage of the online sales over its Commerce segment. 

Mercado Libre not an overnight sensation. It has been around since 1999, and has heavily invested in building its logistics, distribution, and market presence across Latin America.

By the end of 2021, it had over 82 million unique active users among fragmented populations and emerging economies. With this large user base, the company will now be able to generate more insights from the collected user data, and implement further improvements for users.

This will also provide a huge opportunity for the company to increase its market share in the mobile payment application market. I am bullish on the stock.

Huge Growth Potential

The e-commerce industry has been enjoying significant benefits since the onset of the pandemic.

Over 72% of people in Latin America and the Caribbean use the Internet at this time. Out of them, 68% are into online shopping. These figures are only expected to move up.

MELI is often termed the ‘Amazon of South America.’ Moreover, it is believed that banking infrastructure is still lacking in Latin American countries, with states like Mexico and Argentina having only 15% and 19% penetration rates as of 2020.

MELI’s payment system, Mercado Pago, is in a perfect position to provide these regions with the much-needed payment services, and high payment volume growth.

The company’s QR code payment services, launched a few years back, also has the first-mover’s advantage in Argentina.

Great Financials

MELI has shown excellent revenue growth over the years. Back in 2018, the company’s annual revenue had shown an 18.34% growth compared to 2017, while in 2019, the annual growth rate increased to 59.5% compared to 2018. In 2020, when the pandemic hit, the company’s revenues showed a huge 73% growth compared to that of 2019.

In the fourth quarter of 2021, revenues hit a record $2.1 billion, signifying a 74% year-over-year growth. Its Commerce segment revenues showed 56% growth, and Fintech revenues increased by more than 70%.

The growth rates might have been fueled by the 32% growth in gross merchandise volume, and the 25.5% increase in the successfully sold items.

After witnessing a decelerating rate in its revenues over the last two quarters, this re-acceleration has given the company its much-needed strength back.

Due to such revenue growth, MELI was able to experience a $23-million income from its operations, compared to the loss of $25.1 million it had generated a year ago. Moreover, its net loss before income tax expense was also 23% lower compared to last year.

MELI stock has a Strong Buy consensus rating on TipRanks, based on nine unanimous Buys assigned over the past three months. The average Mercado Libre price target of $1,559.44 suggests 51% upside potential.

Bottom Line

MELI is currently doing better than ever before, and perfectly fits the criteria of a growth stock. Its growth has increased largely in recent years, and its Fintech business is also picking up gradually.

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