Argentinian eCommerce and fintech player, MercadoLibre (MELI), has established itself as a juggernaut in the Latin American region. It wrapped up another blockbuster quarter, marked by accelerating growth for its fintech arm. Moreover, growth in its eCommerce business remains elevated as well, a testament to its incredible execution. Additionally, its stock trades at around 5.1 times forward sales, which is more than 60% lower than its 5-year average. Therefore, we are bullish on MELI stock.
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MercadoLibre is an eCommerce giant that specializes in the Latin American region and is often touted as ‘the Amazon of Latin America.’ Like Amazon, it started off as an eCommerce pure-play but has now moved into different areas to create a holistic digital ecosystem. MercadoLibre has operations in close to 18 countries in the Latin American region.
Furthermore, its fintech solution, MercadoPago, has quickly become the fastest-growing segment of the business. It started off as a payment facilitator for the company’s eCommerce wing but has now significantly evolved from its relatively limited role.
The elevator pitch for MercadoLibre is that the market opportunity for the business is enormous. It has built a powerful and trusted brand, which offers multiple growth avenues for its business segments. It is poised to grow across multiple industries for years to come, making it a safe long-term wager.
MercadoLibre Had a Tremendous Second Quarter Showing
MercadoLibre wrapped up another quarter with monumental results. Its revenues surged to $2.6 billion, while analysts expected it to post $2.51 billion. The sales figure represents a massive 57% growth on an FX-neutral basis. Moreover, its whopping gross merchandise volume of $8.6 billion grew over 26% on an FXN basis (foreign exchange-neutral) from the prior-year period.
Despite the challenges in its retail environment, all three firm segments produced remarkable results. Mexico’s results show signs of acceleration after a challenging first quarter. With over 41 million unique buyers in the second quarter, it’s clear that engagement levels have held firm despite macroeconomic troubles.
MELI’s letter to shareholders reads, “Our ecosystem is powerful, even during challenging times, delivering improvements across our different geographies and business units.”
Additionally, MercadoLibre’s adjusted earnings per share came in at $2.43, significantly ahead of estimates of $1.96. Moreover, operating margins grew to 9.6% in the second quarter, posting a record $250 million in operating income. Analysts expect EPS for the third quarter to be 25% higher than last year.
Fintech Leads the Way for MELI Stock
Perhaps the most heartening thing from MercadoLibre’s second quarter results was its robust fintech results. Revenues from the segment exceeded the $1 billion mark for the first time in a quarter, accounting for roughly 46% of company revenues.
With the challenging economic situation, it was obvious that eCommerce sales were going to take a substantial hit. However, its incredible fintech performance has more than made up for the loss in sales from the eCommerce segment. Unique fintech users grew a healthy 26% from the prior-year period, driven by greater engagement in QR and digital account transactions in virtually every geography.
Total payment volumes (TPV) shot up to $30.2 billion, an 84% expansion on an FXN basis. Close to $1.3 billion in transactions took place during the quarter, growing by a massive 73%. Where the company is currently excelling, which could become a major growth catalyst for the foreseeable future, is its off-platform payments.
As stated earlier, MercadoPago is more than just a digital payments platform for its eCommerce arm. Off-platform payments constitute a superb 70% of total TPV, growing faster than on-platform payments.
MELI continues to manage its risk exposure to credit effectively, perhaps the biggest factor of its success. Its credit portfolio has been growing at an impressive pace, and with only 55% of Latin Americans having a bank account, the opportunity for further expansion is unbelievable.
What is the Target Price for MELI Stock?
Turning to Wall Street, MELI stock maintains a Strong Buy consensus rating. Out of 11 total analyst ratings, 10 Buys, one Holds, and zero Sells were assigned over the past three months. The average MELI price target is $1,255.91, implying 42.6% upside potential. Analyst price targets range from a low of $990 per share to a high of $1,690 per share.
Final Word – MELI Stock will Continue Growing Fast
MercadoLibre has been one of the fastest-growing tech businesses over the past several years. Its revenue has grown by double-digits over the past five years, while forward EPS estimates continue to grow with every passing quarter. With the market pull-back, it’s attractively valued as a leader in its primary markets. As it builds strong economic moats through its network, technology, and logistics, it will continue to grow at an above-average pace.
Naturally, the expansion of off-platform fintech has been the most impressive part of its recent results. The firm’s second-quarter results have reaffirmed the belief that MercadoPago is a superstar in the company’s business portfolio. It will continue to grow rapidly as MELI expands its digital presence across key markets. Moreover, with the stock trading at multi-year lows, it’s an ideal time to consider MELI stock.
