Latin America’s Digital Titan: Why MercadoLibre Is a Must-Have in Your Portfolio!
The Growth Engine Fueling Latin America’s Digital Economy!
MercadoLibre (MELI)
Business profile:
Name: MercadoLibre, Inc (MELI)
Industry: E-commerce, FinTech, Logistics
History: Founded in 1999 by Marcos Galperin, MercadoLibre started in Argentina and has since grown into the leading e-commerce and digital payments company in Latin America. It now operates in 18 countries, including Brazil, Mexico, and Argentina, which are its largest markets.
Size: $104 billion
How does MELI make money? MercadoLibre is like Latin America’s Amazon. It offers a powerful ecosystem of services that help people and businesses buy, sell, and pay online. The majority of revenue comes from Brazil, Mexico and Argentina accounting for 95% of total revenue and Brazil alone for 52%.
Its main services include:
MercadoLibre Marketplace: Connects buyers and sellers online.
MercadoPago: A FinTech platform for online payments and money transfers.
MercadoEnvios: Logistic services, ensuring fast and efficient deliveries.
MercadoCredito: Offers credit solutions to consumers and businesses.
MercadoShops & MercadoAds: Digital storefronts and advertising services to enhance sellers' reach.
MELI Competitive position:
MercadoLibre has a dominant 20% market share of Latin America's e-commerce industry and is rapidly expanding, thanks to its first-mover advantage and unmatched logistics network in the region. The company’s ecosystem of services, from payments to delivery, makes it hard for new players to compete, securing a significant moat in Latin America.
MercadoLibre’s tech investment is massive. Its R&D budget has grown from $917 million in 2022 to $1.599 billion in 2023, focusing on product and tech innovations to stay ahead. Their integrated system of e-commerce, FinTech, and logistics offers customers a seamless digital experience.
MercadoLibre’s product capability is a game-changer! They offer everything: the largest online marketplace in Latin America, MercadoPago for easy payments, MercadoEnvios for fast deliveries, and MercadoCredito for business and consumer loans. Add MercadoAds for advertising and MercadoShops for building online stores, and you’ve got a powerful, all-in-one digital ecosystem. MercadoLibre is leading the e-commerce revolution in Latin America!
MELI capital allocation: Proper allocation of capital is a management's number one job. MercadoLibre (MELI) excels at turning earnings into free cash flow, driving sustainable growth and value creation.
Capital intensity shapes a business’s costs, risk appetite, growth, and financial health. MELI is striking the right balance to ensure resources fuel long-term profitability and sustainability.
MELI is trading at a premium, and its price-to-free-cash-flow ratio requires a closer look. Adjustments like the $1,502 million change in accounts payable and non cash item of $1,841 billion significantly lower the true cash flow, highlighting the need for careful analysis to get an accurate picture. In this case, the PE ratio is more accurate to use, which means investors are paying $67 for $1 of MELI’s earnings.
Solid balance sheet with $6,891 Billion in cash and $2,2 million in total debt, supported by robust free cash flow of $5.6 billion. However, this has not been adjusted for the $1,502 million change in accounts payable and non cash item of $1,841 billion in the cash flow statement.
MELI stands out with a significantly stronger free cash flow margin than Amazon and eBay, proving its financial efficiency and power to fuel long-term growth. We also find that profitability metric suggest its outperforming the industry as whole, including the rivals.
MELI leads the pack with a higher gross profit margin than Amazon and eBay, highlighting its strong profitability and competitive edge in e-commerce!
MELI outshines Amazon and eBay with its superior operating margins, showcasing its efficiency and dominance in the Latin American e-commerce market!
MELI Management: Marcos Galperin, born on October 31, 1971, in Buenos Aires, comes from a prominent family that owns SADESA, one of the world’s largest leather companies. As the founder and CEO of MercadoLibre, he remains a key driving force, owning 7.5% of the company and focusing on long-term growth and innovation. Before launching MercadoLibre in 1999 while at Stanford Business School, Galperin gained valuable experience at Argentine oil giant YPF and as a summer intern at JPMorgan. His leadership has been instrumental in shaping MercadoLibre into a Latin American powerhouse! His leadership style is similar to how he builds his companies which are stories of chance, time, dimension, possibility and delusion. You can see those principles drive the company's growth to become a leader in the region.
Performance: MercadoLibre has consistently compounded at 27.44% in the last 17 years which outperformed the NASDAQ significantly.
Historically, MELI has been a remarkable performer, delivering a total return of 7,099% (CAGR 28.31%), outpacing Amazon’s CAGR of 25.14% despite Amazon’s higher total return of 8,314%. MELI’s growth is nothing short of extraordinary!
Growth prospect : MercadoLibre is a powerhouse in Latin American e-commerce, reaching 148 million users—one-fifth of the region’s population—and empowering 3.2 million sellers on its thriving platform. It’s driving the digital economy in Latin America! The company is aggressively investing in logistics, fintech, and expanding its platform to solidify its competitive advantage. It aims to replicate successful strategies from markets like China and the U.S.
Latin America’s e-commerce market is booming, projected to nearly double from $509 billion in 2023 to $923 billion by 2026, with Brazil, Mexico, and Argentina leading the charge as rising internet access and smartphone adoption fuel this exciting growth!
Latin American Market Growth: The region’s e-commerce is forecasted to grow at a 19% CAGR from 2023 to 2028, and MercadoLibre is perfectly positioned to lead this charge.
MELI’s revenue growth has been 54% annually over the last 6 years. Expected to grow another 40.52% in 2024.
Expansion beyond its core markets (Brazil, Mexico, and Argentina) offers tremendous growth opportunities in smaller countries where it has just started to tap.
Risks:
Economic Instability: Latin America is known for political and economic volatility, especially in Argentina, which affects profits and operations.
Currency Risks: Depreciation of local currencies like the Argentine Peso is a big challenge, despite MercadoLibre’s efforts to hedge.
Rising Debt & Receivables: MercadoLibre's credit business has seen rising defaults, and its debt-to-equity ratio is high, though manageable with its strong cash flow.
SCC views: MercadoLibre’s product capability is truly extraordinary—and it’s your gateway to the untapped digital economy of Latin America! Covering 18 countries, this powerhouse offers everything. For investors, MercadoLibre is valued at premium but with quality comes a price. It offers a rare chance to tap into high-growth opportunities across a region known for volatility but brimming with potential. MercadoLibre represents a unique opportunity to invest in the booming e-commerce and FinTech sectors of Latin America.Its dominance in the region, paired with strong growth and a proven business model, makes it a compelling option for long-term investors. While there are risks, particularly due to economic instability, the company’s powerful logistics and tech-driven moat offer substantial upside potential for those willing to embrace its vision of leading digital commerce in an emerging market. The company's premium valuation is well-deserved, reflecting its exceptional quality and strategic exposure to one of the world's fastest-growing region.
SCC’s view: Buy
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Risk Disclosure: This content is for informational purposes only and does not constitute investment advice. Investing carries risk, including potential loss of principal. Always consult with a professional financial advisor to evaluate your risk tolerance and financial goals before making any investment decisions.