Latin America’s Ecommerce Force: MercadoLibre

Ticker: MELI
Sector: Consumer Discretionary
Industry: Broadline Retail
Headquartered: Uruguay
Moat: Wide – Network Effect, Scale, Switching Costs

Action at date of this post

Accumulate as of 06.07.2024
This is technically a buy opinion. Accumulate means if you are an investor that buys periodically then keep buying. If you do not own it, but are looking to buy, this is an indication to open a position of no more than 25% of your intended, total position then accumulate shares over a set time frame.

MercadoLibre Fair Value Analysis

I do a fair value analysis on every stock in two ways. The first is the Discounted Cash Flow (DCF) method which I use for most stocks. I also run the Peter Lynch Fair Value method on stocks as well which shows more as an intrinsic value number than a fair value number. I like running both as there are times where one way is more meaningful than the other depending on the stock.

MercadoLibre Corporate Overview

MercadoLibre, founded in 1999 by Marcos Galperin, is the leading e-commerce and technology company in Latin America. Headquartered in Buenos Aires, Argentina, it operates in 18 countries including Brazil, Mexico, and Colombia. The platform offers a wide range of services, such as an online marketplace for buying and selling goods, Mercado Pago for digital payments, Mercado Envios for logistics solutions, and Mercado Crédito for consumer and merchant credit

Its marketplace allows businesses and individuals to sell products across diverse categories, from electronics to clothing. MercadoLibre has grown rapidly due to the increasing internet penetration and mobile adoption in the region, becoming a significant player in Latin America’s digital economy. The company is known for its user-friendly interface, secure transaction system, and innovative financial solutions, making it a cornerstone of e-commerce in the region.

MercadoLibre Segment Analysis

While the company operates different businesses and receives revenue from varied sources (Ecommerce, payments, shipping, advertising, etc…), it reports in four country-based segments. See below.

MercadoLibre Moat Source

Mercado’s wide moat is underpinned by a strong network effect and also supported by switching costs and scale.

MercadoLibre Growth Outlook

MercadoLibre, the leading e-commerce and fintech company in Latin America, has a promising growth outlook driven by several key factors. As the region’s dominant player, it operates in 18 countries, including Brazil, Argentina, and Mexico.

The e-commerce sector in Latin America is set to continue its rapid growth, a trend accelerated by the COVID-19 pandemic, which entrenched online shopping habits. MercadoLibre is poised to benefit from this shift, especially as internet and smartphone penetration increase. Its fintech arm, MercadoPago, is also expanding robustly, offering services like point-of-sale systems, credit options, and asset management, tapping into an underpenetrated market.

To enhance delivery efficiency and customer satisfaction, MercadoLibre has been heavily investing in its logistics network, including fulfillment centers and last-mile delivery solutions. This robust infrastructure is crucial for maintaining its competitive edge and supporting future growth.

MercadoLibre continues to innovate with new services such as Mercado Shops, which allows merchants to create branded online stores, and Mercado Envios, which streamlines shipping processes. These initiatives attract more sellers and enhance the overall ecosystem, fostering sustained growth.

While MercadoLibre’s prospects are strong, it faces challenges from economic volatility, political instability, and competition from both local players and international giants like Amazon. Navigating these risks requires continuous innovation and strategic investments.

MercadoLibre The Numbers

With steady gross margins and growing ROIC, management has been doing a fine job of building the company. Manageable debt and reasonable balance sheet has helped the company to navigate the always murky economic landscape of Latin America. Underpinning it all has been envious revenue growth and what seems to be an ever expanding moat.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing this post, the author does have a position in MELI.