MercadoLibre (MELI) Delivered Weak Profits Due to Heavy Investments in Logistics

Stock (Symbol)

MercadoLibre (MELI)

Stock Price

$1730

Sector

Data is as of

Expected to Report

Company Description

Mercado Libre Inc is a Uruguay-based e-commerce business facilitator of Argentinian origins.

The e-commerce products enable retail and wholesale via Internet platforms designed to provide users with a portfolio of services to facilitate commercial transactions.

The Company’s geographic coverage includes 18 countries of Latin America.

The primary offer is an ecosystem of six integrated e-commerce services: the Mercado Libre Marketplace, the Mercado Libre Classifieds service, the Mercado Pago payments solution, the Mercado Credito financial solutions, the Mercado Envios logistic solutions including shipping, the Mercado Ads advertising platform and the Mercado Shops digital storefront solution. Source: Refinitiv

Sharek’s Take

MercadoLibre is the largest online commerce platform in Latin America and gives users a portfolio of services to do commercial transactions. The company is like South America’s combination of eBay, PayPal, and Shopify rolled into one. Here’s a quick rundown of the company’s history:

• 1990’s: MercadoLibre’s founder went to college at Stanford where he made relationships to gather funding for this new endeavor which was to be the eBay of South America.
• 1999: MerdadoLibre launched in Argentina (where Internet usage there was low at the time).
• 2001: eBay took a 20% stake in MercadoLibre and the two companies and developed a working relationship.
• 2003: MELI launched its FinTech division Mercado Pago. an online payment platform that facilitates transactions on and off the marketplace.
• 2007: MELI had its IPO.
• 2013: launched Merado Enviios logistic service.
• 2016: eBay sold all its shares of MELI.
• 2017: launched Mercado Credito, a credit solution for online merchants and consumers.

Here are some business highlights from last qtr:

• Commerce — Mercado Libre: 
  • Revenue grew 51% year-over-year (YOY) in US dollars.
  • 59% of total company revenue.
  • Gross Merchandise Volume (GMV) increased 34% year-over-year in USD.
  • Items sold grew 28%.
  • Unique active buyers grew 21%.
• FinTech — Mercado Pago & Mercado Credito:
  • Revenue grew 25% in US dollars.
  • 41% of total company revenue.
  • Total Payment Volume (TPV) grew 34% YOY.
  • FinTech Monthly Active Users grew by 35% to 56.2 million.
  • Assets Under Management grew 93% YOY to $7.9 Billion.
  • Credit Portfolio grew 77% to $6.0 billion US dollars.
    • Merchant Portfolio grew 64%
    • Consumer Portfolio grew 37%
    • Credit Card Portfolio grew 172%

MELI’s numbers are exceptional, especially profit estimates for the years ahead. Analysts give the company an Estimated Long-Term Growth Rate of 38%. This company looks a lot like Amazon did when its profits began rolling in. Analysts estimate MELI’s profits to grow from $20 a share in 2023 to maybe $100 in 2028. A 45 P/E on $100 in profits would get this stock from around $1750 to $4500. MELI is a top holding in the Aggressive Growth Portfolio and Growth Portfolio.

One Year Chart

The Est. LTG is 38%, and the P/E is just 38. I think the stock is a bargain here. I think company growing profits at 38% long-term might hyopothetically have a P/E around 60.

Quarterly profit growth is often erratic. We have to accept this.

Earnings Table

Here’s geographic revenue growth from last qtr:

• Brazil: +41% revenue growth yoy, 55% of total company revenue.
• Mexico: +44% revenue growth yoy, 22% of total company revenue.
• Argentina: +14% revenue growth yoy, 19% of total company revenue.
• Others: +39% revenue growth yoy, 4% of total company revenue.

Annual Profit Estimates are down slightly this quarter:

2024: $33.71
2025: $45.25
2026: $61.70
2027: $77.86
2028: $99.89

Qtrly Profit Estimates are for 157%, 11%, 4%, and 45% profit growth the next 4 qtrs. Analysts think MELI revenue will grow 33% next quarter. Profit estimates are down as the company invests in its credit business, which increases upfront provisions. MELI is also investing in shipping.

Fair Value

I’m pricing MELI on a price-to-sales basis as profits are low right now.

2014: 10
2015: 8
2016: 8
2017: 11
2018: 9
2019: 12
2020: 11
2021: 9
2022: 4

This qtr, the stock sells for 4x 2024 revenue estimates, my Fair Value is 5x 2025 revenue:

Current:4 x $20.4 billion revenue est = $88 billion market cap
$88 billion / 51 million shares = $1730

2024 Fair Value:
5 x $25.3 billion revenue est = $126 billion market cap
$126 billion / 51 million shares = $2493
Upside/Downside: +44%

2025 Fair Value:
5 x $30.9 billion revenue est = $154 billion market cap
$154 billion / 51 million shares = $3046
Upside/Downside: +76%

Bottom Line

MercadoLibre (MELI) has been a wild stock the past five years.

MercadoLibre suffered a hiccup last quarter as management decided to invest to grow. Amazon did this 2-3 decades ago and it worked out spendidly for them. 

MELI ranks 2nd in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.

Power Rankings

2 of 30

Aggressive Growth Portfolio

2 of 15

Conservative Stock Portfolio

N/A