The Latin American economy is expected to bounce back in 2024 and 2025, according to World Bank economists. This positive outlook is due to the moderation of inflation and the decrease in interest rates. One company that stands to benefit from this growth is MercadoLibre (MELI), the largest e-commerce company in Latin America.
In addition to the favorable economic conditions, MercadoLibre also has another advantage working in its favor. The S&P 500 recently reached a new record high, signaling the start of a new bull market. Historically, stocks have performed well during bull markets, and MercadoLibre is poised to capitalize on this trend.
MercadoLibre’s success can be attributed to its position as the leading online commerce and fintech ecosystem in Latin America. Its marketplace is the most popular digital shopping destination in the region, generating significant revenue. The company’s payments business, Mercado Pago, is also experiencing rapid growth and is now the sixth-largest acquirer in the market.
The scale of MercadoLibre’s operations gives it a competitive edge. Its expanding ecosystem creates a network effect that attracts both merchants and customers. Additionally, the company’s vast amount of transaction data allows it to prevent fraud and offer financial services such as merchant loans and consumer credit products.
Furthermore, MercadoLibre has become the largest retail advertiser in Latin America, thanks to its ability to engage customers and gather shopper data. Its advertising revenue has grown by over 70% in the last six quarters, and it is projected to be the fastest-growing ad tech company in 2024.
To enhance its position in the market, MercadoLibre has heavily invested in logistics capabilities. It offers shipping and fulfillment services to merchants, ensuring fast and reliable delivery to buyers. In fact, its logistics network handled a record 94.2% of all shipments in the third quarter, with nearly 80% of those shipments delivered within 48 hours.
Taking a page from Amazon’s playbook, MercadoLibre has expanded into adjacent areas such as payments, logistics, and digital advertising. This strategy has paid off, as evidenced by the company’s strong growth in the third quarter. Total revenue increased by 40%, driven by sales growth in both the commerce and fintech businesses. Additionally, GAAP net income rose by 178%, primarily due to higher interest income and improved asset quality.
Looking ahead, analysts expect MercadoLibre to outperform the market average in terms of sales growth. With a current valuation of about 6.4 times sales, the stock appears reasonably priced. While it may not reach the valuation of Amazon, which is worth about 20 times more, MercadoLibre has the potential to multiply its value several times over the next decade.
In conclusion, MercadoLibre is well-positioned to benefit from the expected economic growth in Latin America. Its dominant position in e-commerce, fintech, and advertising, coupled with its investments in logistics, make it a compelling growth stock for patient investors.
Note: John Mackey, former CEO of Whole Foods Market and a member of The Motley Fool’s board of directors, has positions in Amazon, MercadoLibre, and Walt Disney. The Motley Fool also has positions in and recommends Amazon, MercadoLibre, and Walt Disney.