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MercadoLibre: Expanding E-Commerce Behemoth, with Risks Attached

Stock MarketsSep 28, 2021 06:00PM ET
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© Reuters. MercadoLibre: Expanding E-Commerce Behemoth, with Risks Attached

MercadoLibre (NASDAQ:MELI) is the most comprehensive ecommerce ecosystem in Latin America in terms of unique visitors and page views.

It has a strong footprint in 18 countries, including Brazil, Argentina, Mexico, Chile, and Peru. The company facilitates commerce through its marketplace platform, which empowers users to buy and sell in most of Latin America.

Its other services include fintech solutions, advertising, e-store setup, and loan financing.

Due to its diversified operations and ever-expanding e-commerce model, the company is often referred to as the Amazon (NASDAQ:AMZN) of Latin America.

The stock has rallied by 63.3% over the past year, and shares could have more upside ahead. Still, risks persist, and since the potential upside does not seem to scream a buying opportunity, I am neutral on the stock. (See MELI stock charts on TipRanks)

Rapidly Growing Results

In Q2 2021, MercadoLibre's gross merchandise value grew 46% in local currency to $7 billion. Items sold surpassed 244 million on the platform, producing $1.7 billion in net revenue during the quarter, a 102.6% increase year-over-year.

MercadoLibre's growth remains therefore incredibly strong, with little to no signs of slowing down.

As far as its fintech business goes, Total Payments Volume (TPV) advanced 72% year-over-year to $17.5 billion, while credit originations reached $703 million, a 429% year-over-year improvement.

These are very impressive growth numbers for a relatively huge company (market cap of $84 billion) with MercadoLibre's payment solutions, especially, showing huge potential. The company's solutions are quite close to that of PayPal (NASDAQ:PYPL), and are not necessarily constricted within MercadoLibre's. Specifically, in Q2, around 60% of TPV occurred outside of MercadoLibre's e-commerce platform.

As its fintech ecosystem grows, MercadoLibre's offering of investment accounts should also bolster the company's financials. There are now more than 19 million customers in the company's asset management product.

The reason MercadoLibre's leading position in Latin America could result in unlocking a great potential here is that the population in Latin America is significantly unbanked. In Brazil, around 10% of the adult population does not even have a bank account. In Argentina, less than 50% of all adults have a bank account. Hence, there is an incredibly large untapped market for the company to capture.

Valuation And Risks

MercadoLibre is currently trading at around 13 times its forward sales, which is not a crazy-high multiple considering its ongoing expansion.

Analysts essentially price the company at 28 times its FY2025 potential net income, which is a rather reasonable pricing estimate.

That said, there are some risks not to be ignored. The first is regarding foreign exchange rates. Not only are MercadoLibre's revenues subject to various Latin American currencies, which are often very volatile, but U.S. investors face another conversion to USD before getting the company's final results.

Further, Latin America as a whole poses increased business environment risks versus the rest of the world, due to its still emerging status among its stronger global peers.

Wall Street's Take

Turning to Wall Street, MercadoLibre has a Strong Buy consensus rating, based on nine Buys, zero Holds, and zero Sells assigned in the past three months. At $1,998.89, the average MELI price target implies 18.8% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

MercadoLibre: Expanding E-Commerce Behemoth, with Risks Attached

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