Table of contents:

Quick Stock Overview
Mercado Libre by the numbers.

1. Executive Summary
A brief discussion of Mercado Libre and its potential appeal to value investors.

2. Extended Summary
A more detailed explanation of Mercado Libre’s history and competitive position.

3. The Regional Giant
How Mercado Libre became the dominant actor of e-commerce in LATAM.

4. Mercado Libre’s Future Potential
The growth potential of Mercado Libre, its fintech segment, and the path to superapp.

5. Financials
Mercado Libre by the numbers: balance sheet, cash reserves, and valuation.

6. Conclusion
Why Mercado Libre is worth a closer look.

Quick Stock Overview

Ticker: MELI

Key Data

Industry: E-commerce / Fintech
Market Capitalization ($M): $55,945
Price to sales: 5.9
Price to Free Cash Flow: 35.9
Dividend yield: -
Sales ($M): 998
Free cash flow/share: $31.38
Equity per share: $32.43
P/E: 207
ROIC: 9.1%
ROE: 16.6%

1. Executive Summary

E-commerce has taken over the world… at least the Western world and China. Other regions are just getting started. Even with the pandemic giving remote buying a significant boost, some areas of the world are only now reaching a point where e-commerce is starting to overtake brick-and-mortar retail.

One such region is Latin America. It is home to 656 million people, double the US population. It is also quickly developing and modernizing.

One company you might have never heard of is dominating Latin America’s e-commerce market: Mercado Libre.

It follows the simple but powerful model of imitating Amazon, while also adapting to the peculiarity of its home market. As a result, it has managed to absolutely outmatch Amazon and its other regional competitors in its home market.

The stock has now cooled off since the pandemic highs. If it was “just” the Amazon of Latin America, it would be an attractive investment, but not more than that. But it is also leading the fintech revolution in a region where half of the population has no bank account.

So Mercado Libre is best described as early Amazon + early Paypal merged into one company, with the potential to grow into THE tech company of the region and become the first LATAM super app.

In this report, we will take a deeper look at what has made the company successful and at its growth potential.

2. Extended Summary: Why MELI?

The Regional Giant

Mercado Libre has come to completely dominate e-commerce in the LATAM region, which offers one of the world’s greatest growth opportunities for e-commerce.

It has managed to keep out foreign giants like Amazon and eBay, as well as out-compete local alternatives, using a mix of imitation and a talent for solving the problems specific to South America, notably logistics and payment.

Logistics is now a solid moat, and payment has turned into a second profit center with even more growth on the horizon than e-commerce.

Mercado Libre Future Potential

The e-commerce segment is still growing fast and has the potential to do so for the next 10-20 years. The fintech section is highly profitable and growing at 50-60% per year, and is likely to become the source of the majority of net income for the company.

The Mercado Libre ecosystem is the best candidate for creating the first LATAM super app, imitating the success of companies like Alibaba and Tencent in China.

Financials

The company’s growth metrics are impressive, and it is strongly profitable and free cash flow positive. Debt is reasonable. Valuation is relatively high compared to free cash flow and sales, but still at a level that makes sense when taking into account the growth of the fintech segment.

3. The Regional Giant

A Difficult Start

If you would have had to guess where the Amazon of Latin America would be founded, you could have given a few reasonable guesses. Maybe Mexico for its proximity to the USA. Or Brazil, by far the largest country in the region.

You would probably not have expected it to come from is the perpetually dysfunctional Argentina. Since Mercado Libre was founded in 1999, Argentina has defaulted on its debt in 2001 and went through several debt restructurings in 2005, 2010, and 2015. It defaulted again in 2020 and might be headed for another round of hyperinflation.

Stock Spotlight

Mercado Libre (MELI) Stock Analysis

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