MercadoLibre's (MELI -1.05%) stock has rallied 154% over the past five years as the S&P 500 rose 85%. The Latin American e-commerce and fintech leader has impressed investors with its rapid growth, widening moat, and rising margins.
But can MercadoLibre continue growing as its biggest markets grapple with inflation? Let's review its growth story in four simple charts to see if it's still worth buying.
Image source: Getty Images.
1. Its customer base is still growing
MercadoLibre was founded in 1999, and it quickly established an early-mover advantage in Latin America's nascent e-commerce market. By expanding its logistics network across challenging terrain and rural areas with limited infrastructure, it prevented its regional and overseas competitors from gaining much ground while it scaled up its online marketplace across 18 Latin American countries. It also locked in its shoppers with its Mercado Pago digital payments platform.
Today, MercadoLibre generates most of its sales in its three largest markets -- Brazil, Argentina, and Mexico -- and its number of total unique users has nearly tripled since it started disclosing that key performance metric (which measures its growth across its marketplace and fintech ecosystems) in 2019.
Data source: MercadoLibre. Chart by author.
2. Its gross merchandise volume is soaring
As MercadoLibre gained more active users, its gross merchandise volume (GMV) -- or the total value of all of the products sold across its marketplace -- grew at a compound annual growth rate (CAGR) of 29% from 2018 to 2023.
Data source: MercadoLibre. Chart by author.
Like many other online marketplaces, MercadoLibre generated strong GMV growth throughout the pandemic as more people shopped online. But unlike Amazon and other e-commerce giants, MercadoLibre didn't suffer a severe slowdown after the economy started to reopen.
E-commerce sales are still rising faster in Latin America than in the U.S. and other developed markets. According to Mordor Intelligence, the Latin American e-commerce market could expand at a CAGR of 19% from 2023 to 2028.
3. It's processing plenty of payments
MercadoLibre's total payment volume (TPV) increased at a CAGR of 58% from 2018 to 2023 as Mercado Pago locked in more shoppers. Its expansion into third-party websites and brick-and-mortar stores amplified its growth.
Data source: MercadoLibre. Chart by author.
MercadoLibre also continued to expand its fintech ecosystem with Mercado Crédito's lending services, cryptocurrency trading tools, and even its own Mercado Coin digital currency. That's why the total number of monthly active users (MAUs) across its entire fintech ecosystem grew 36% year over year to 49 million in the first quarter of 2024.
4. Its operating margins are expanding
The bears once claimed that MercadoLibre would never generate consistent profits as it poured billions of dollars into the capital-intensive expansion of its logistics network and fintech platform. But despite those challenges, MercadoLibre's annual operating margin turned positive in 2020 and continued to rise to a record high of 14.5% in 2023. It has also stayed firmly profitable on a generally accepted accounting principles (GAAP) basis since 2021.
Source: YCharts
MercadoLibre's margins rose as it sold more profitable products on its first-party marketplace, expanded its higher-margin third-party marketplace, and generated more revenue from its higher-margin credit and advertising divisions. It also diluted its logistics, payment processing, and marketing costs with economies of scale as it grew its market share.
Is it the right time to buy MercadoLibre's stock?
From 2023 to 2026, analysts expect MercadoLibre's revenue to grow at a CAGR of 24% in USD terms, even as its currency headwinds rattle its largest markets. They also expect its earnings per share to increase at a CAGR of 48%.
We should take those estimates with a grain of salt, but they suggest that MercadoLibre will remain a top player in Latin America's expanding e-commerce and fintech markets for the foreseeable future. Its stock might seem a bit pricey at 47 times forward earnings, but I believe it's still worth buying because its strengths easily justify its premium valuation.
