MercadoLibre development history in 4 simple charts

MercadoLibre‘S (NASDAQ: MELI) over the last five years, the company’s shares have increased by 154%. S&P500 increased by 85%. Latin America’s e-commerce and fintech leader has impressed investors with its rapid growth, widening moat and expanding margins.

But can MercadoLibre continue to grow as its largest markets struggle with inflation? Let’s look at its growth history in four simple charts to see if it’s still worth buying.

1. The customer base continues to grow

MercadoLibre was founded in 1999 and quickly established itself as a pioneer in Latin America’s emerging e-commerce market. By expanding its logistics network into challenging terrain and rural areas with limited infrastructure, it prevented its regional and foreign competitors from gaining a large foothold while simultaneously scaling its online marketplace in 18 Latin American countries. It also attracted customers thanks to its Mercado Pago digital payment platform.

Currently, MercadoLibre generates the majority of its sales in its three largest markets – Brazil, Argentina and Mexico – and its total unique visitors have almost tripled since it began disclosing this KPI (which measures a company’s growth across its market and fintech ecosystems) in 2019 .

2. Its total merchandise value increases rapidly

As MercadoLibre gained more and more active users, its gross merchandise volume (GMV), or the total value of all products sold on the marketplace, grew at a compound annual growth rate (CAGR) of 29% from 2018 to 2023.

Like many other online platforms, MercadoLibre generated strong GMV growth during the pandemic as more people shopped online. But unlike Amazon and other e-commerce giants, MercadoLibre did not experience a major slowdown as the economy began to reopen.

E-commerce sales in Latin America continue to grow faster than in the US and other developed markets. According to Mordor Intelligence, the e-commerce market in Latin America is expected to grow at a CAGR of 19% from 2023 to 2028.

3. Processes tons of payments

MercadoLibre’s Total Payment Volume (TPV) grew at a CAGR of 58% between 2018 and 2023 as Mercado Pago attracted more customers. Expansion into third-party websites and brick-and-mortar stores fueled its growth.

MercadoLibre continued to expand its fintech ecosystem with Mercado Crédito lending services, cryptocurrency trading tools, and even its own digital currency, Mercado Coin. Therefore, the total number of monthly active users (MAU) across the fintech ecosystem increased by 36% year-on-year to 49 million in the first quarter of 2024.

4. Operating margins are growing

Bears once claimed that MercadoLibre would never generate consistent profits as it pumped billions of dollars into capital-intensive expansion of its logistics network and fintech platform. However, despite these challenges, MercadoLibre’s annual operating margin turned positive in 2020 and continued to grow in 2023, reaching a record high of 14.5%. As of 2021, MercadoLibre also maintains high profitability under generally accepted accounting principles (GAAP).

source: YCharts

MercadoLibre’s margins increased as it sold more profitable products in its own market, expanded its higher-margin third-party market, and generated more revenue from its higher-margin credit and advertising divisions. As it expanded its market share, it also reduced logistics, payment processing and marketing costs, achieving economies of scale.

Is this a good time to buy MercadoLibre shares?

Analysts expect MercadoLibre’s revenues to grow at a CAGR of 24% in USD from 2023 to 2026, despite unfavorable currency conditions in its largest markets. They also expect earnings per share to grow at a CAGR of 48%.

These estimates should be taken with a pinch of salt, but they suggest that MercadoLibre will remain a leading player in Latin America’s emerging e-commerce and fintech markets for the foreseeable future. Its shares may seem a bit pricey at 47 times forward earnings, but I think it’s still worth buying as its strengths easily justify the higher valuation.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun holds positions in Amazon and MercadoLibre. The Motley Fool holds positions in and recommends Amazon and MercadoLibre. The Motley Fool has a disclosure policy.