Is it time to consider Mercado Libre?

Investment Analysis Clubs Saul’s Investing Discussions
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Hello Fools,

Mercado Libre (MELI) announced earnings after the market closed on November 4. The results were outstanding, showing the business accelerating strongly across segments. They were good enough to make me wonder if the company is worth considering here as a hypergrowth company. Full disclosure: I’ve held shares for years and it has grown to be my largest holding.

The company operates in eighteen nations in Latin America and consists of several distinct but well integrated business areas:
-An online marketplace, Mercado Libre Marketplace, somewhat akin to Amazon or Ebay.
-A logistics and delivery arm, Mercado Envios, somewhat akin to Fedex or UPS.
-A fintech arm, Mercado Pago, a payments and banking platform somewhat akin to PayPal.
-A recently created asset management arm, Mercado Fondo, that already has over $500M under management.

You can read the earnings report at: https://seekingalpha.com/pr/18071697-mercadolibre-inc-report… but here are a few highlights that lead me to think this might be good stock for this group to consider:

Net Revenues of $1,115.7 million, up 148.5% year-over-year on an FX neutral basis
$14.5 billion Total Payment Volume, up 161.2% year-over-year on an FX neutral basis
$5.9 billion Gross Merchandise Volume, up 117.1% year-over-year on an FX neutral basis

In my view the company continues to execute exceptionally well in a challenging area with a massive total addressable market that includes a growing middle class. Their stated goals are to Democratize Commerce and Generate Financial Inclusion. They are succeeding admirably in ways that have wide benefit for both shareholders and customers where they do business. They were recently ranked one of the best companies to work for anywhere in the world. Shares have appreciated ~130% in the past year, but I suspect we may look back a few years from now and think they were still cheap now. Looking forward to kicking the tires with this group.

Regards,

Dorset

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Thanks for the review, Dorset. I’ve always assumed it did not meet the criteria of this board, similar to APPS, because it is not a new big growth story and is not really a software product for sale. Appreciate the writeup. That is ridiculous, almost unbelievable growth.

Extraneous:
I happened to buy MELI in August from a mechanical screen of 10 stocks I run based on Tom Bowley’s aggressive growth criteria (EarningsBeats.com, Stockcharts.com frontage). It happens to be one of the last 2 I’ve held through to earnings without “profit latching” out in the recent unpleasantness.

APPS exploded this spring in a different segment of that social media / online marketplace segment. But I had not held on to that one. And I just hold my nose at what APPS does, not interested.

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Hi Dorset,

Thank you for introducing it to the board.
I’ve been considering for a while but eventually the insatiably of the region and its currency risk just scare me away.
You can clearly tell from the huge difference of their USD basis growth and their FX neutral basis growth.
If those are not your major concerns, maybe you can even consider SEA, a south east Asia based E commerce company. They also own Garena, one of the largest online gaming platform in the world.

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Agree the growth acceleration was impressive. Though gross margin fell from 48.6% to 43.0%. That’s a pretty big drop. The main reason I see listed is: “Gross Profit decrease resulted from an increase in
shipping operating costs as we opened new centers.”

FYI, -Chris
long, 4% position

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In my view the company continues to execute exceptionally well in a challenging area with a massive total addressable market that includes a growing middle class. Their stated goals are to Democratize Commerce and Generate Financial Inclusion. They are succeeding admirably in ways that have wide benefit for both shareholders and customers where they do business. They were recently ranked one of the best companies to work for anywhere in the world. Shares have appreciated ~130% in the past year, but I suspect we may look back a few years from now and think they were still cheap now. Looking forward to kicking the tires with this group.

Regards,

Dorset

It’s one of my largest positions. It’s dominant competitive position, widening moat and massive, growing TAM with minimal penetration at this time makes it a long term investment for me.

I’m puzzled why ecommerce has not been more popular here. AMZN’s too big for our hyper growth preferences but continues to deliver strong growth. Smaller emerging players like SE, MELI and SHOP all continue to excel. Even ecommerce related stocks like PINS and SNAP are breaking out. Although out of bounds here, China offers a few big winners as well.

The acceleration from the pandemic should subside and valuations might contract but these seem to be lasting winners.

Dave

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It’s a 2.5% holding for me and I’m very happy with it. The FX neutral growth rates have always been outstanding with this company but yes Pandemic has helped this year particularly with profitability.

It’s up 387% since my purchase back in 2017 when it was probably a ~1.5% position on initiation and I’ve got no plans to do anything but hold this one. I own it alongside a 20% holding in Shopify, 5% holding in Ali Baba and now finally a 0.5% holding that I am building up in SEA.

eCommerce is the largest TAM in the world besides the finance/payments industry and has the most visible and safest and longest multi-decade runway given its tailwinds. Terminal growth rates aren’t even going to be a thing for decades to come with this one.

There has to be room in the market for more than just Amazon.

Regards
Ant

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MELI is an 8.1% holding for me. I originally bought it in 2017, then sold half when it wasn’t doing well (my mistake), and after finding this board I added to my position twice in 2020 because MELI is one of my highest conviction stocks, long term.

I view the instability in the region as a huge moat! Ditto for the cultural differences. I doubt any company from outside the region can compete head to head with MELI in all, or even some, of its business areas let alone in all, or even most, of the countries in which MELI operates.

PA67

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I’m very happy with my trio of e-commerce stars over the past few years, especially since the pandemic started I think it was a no brainer.

ETSY, SE, and MELI are early stage with wide moats, excellent network effects, etc. I love the payment element with SE and MELI as well, especially the higher margins. If Apple and Amazon have taught us anything, it’s that a sticky Platform with multiple revenue streams can really dominate for a long, long time.

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I’m very happy with my trio of e-commerce stars over the past few years, especially since the pandemic started I think it was a no brainer.

ETSY, SE, and MELI are early stage with wide moats, excellent network effects, etc. I love the payment element with SE and MELI as well, especially the higher margins. If Apple and Amazon have taught us anything, it’s that a sticky Platform with multiple revenue streams can really dominate for a long, long time. – FoolishJeff (emphasis added)

I bolded that one statement by Jeff because it is really, really important. And, frankly, overlooked often. I’ve watched a lot of frantic activity on this board as folks cluster around one potential winner after another. Sometimes it pays off, sometimes it’s just another SQUIRREL! that distracts attention from other known companies with proven performance… that few people seem to buy.

Too bad…

SE and MELI are two of those big platform companies that have done very, very well for shareholders. Outstanding performance… without having to constantly be on the lookout for competition (or other issues) that could kill/wound the investment.

“Amazons” Of Their Markets?

MELI: Up 14X in five years, Up 5X in two years, $72B market cap, Latin America

SE: Up 15X in two years (shorter history), $90B market cap, SE Asia

Buy, put aside, not obsess about what’s going on, perhaps make millions of $$$ over the years. I was beating the drum on MELI on this board last month, saying the shares will be $10k in not so many years and it’s up 30% in the last month. SE will do well too. There are quite a few increasingly wealthy folks in SE Asia to drive that long term growth!

Disclosure regarding our portfolio:
MELI 4.9%
SE 9.5%

Note to self: Add more MELI, the above disclosure says it’s under-represented. :slight_smile:

Rob
Rule Breaker Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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Rob, I don’t understand this comment - " I’ve watched a lot of frantic activity on this board as folks cluster around one potential winner after another. Sometimes it pays off, sometimes it’s just another SQUIRREL! that distracts attention from other known companies with proven performance… that few people seem to buy".

Thanks to the help from this board this year I have bought ZM @ 89.0794, CRWD @ 38.6468, OKTA @ 99.4 DDOG @ 33.995 SQ @ 52.3591 NET @ 28.18 LVGO @ 50.9442 (sold LVGO @ 134.6772) TTD @ 164.6762 FSLY @ 39.955 (Sold FSLY @ 89.655) and have had the confidence to hold thru the drama(ZM)even adding during the negative talk.

People were all talking about liquidating their portfolios (TMFMonkey and others) Saul was saying buy buy buy and I listened. I have not been participating in any frantic activity just buying more shares based on growth and execution at earnings and selling when the story changes which so far only LVGO and FSLY have fell into that category.

All buys this year and have and are paying off very well. I have 60% of the portfolio in the stocks discussed here, some I bought before Saul (NET and LVGO)and other I have held while other sell, so I am not participating in HERD mentality, for example, I also have some Cannabis 20% and REITS 20% not discussed here but all have gains for the year that make MELI look average especially after today.

Thanks to Saul for all the great info on this board. Note to self add more NET.

Mitch

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Addendum: Thanks for the kind words, but I cannot share details of my personal portfolio at this time beyond what is revealed in my profile. Why? You may remember that the LVGO/TDOC merger was recently consummated. I ended up with a lot of cash and I’m trying to figure out WHERE TO PUT THE EXTRA CASH right now. Due to Fool Rules for folks like me, I can’t buy/sell anything for a couple business days after mentioning any company. So, until next week, I can’t buy/sell TDOC, MELI or SE. I don’t want to block out any other companies right now while I’m deciding what to do.

Thanks for your patience. :slight_smile:

Rob
Rule Breaker Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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Rob, I don’t understand this comment - " I’ve watched a lot of frantic activity on this board as folks cluster around one potential winner after another. Sometimes it pays off, sometimes it’s just another SQUIRREL! that distracts attention from other known companies with proven performance… that few people seem to buy".

The truth is that we don’t really know what people are buying because it’s a minority of folks who share their monthly portfolios, and those same people tend to drive the discussion (this is an observation, by no means a complaint. I am happy to learn from the experts). I hold MELI and have also engaged in some “frantic” activity around a few companies whose stocks were rising and I kept buying on the way up (these have included FSLY, DDOG, ZM, CRWD, NET), which is what I learned to do on this board. And, I can only speak for myself, but I imagine there are others here who are learning about what investing style and approach works best for them and might be experimenting with Saul’s method in part of their portfolio while also holding companies like MELI (but not talking about them). I don’t have the stomach to run a super concentrated portfolio. Still, I have learned to make sure that my allocations reflect my conviction levels, which is why I’ve added to MELI twice this year.

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The truth is that we don’t really know what people are buying because it’s a minority of folks who share their monthly portfolios, and those same people tend to drive the discussion… – Penz

The key phrase from my post relating to your question is: I’ve watched a lot of frantic activity on this board as folks cluster around one potential winner after another. Not to belabor the obvious… I’m referring to those who are posting, not people who are not posting.

Rob
Rule Breaker Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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“Frantic” is the wrong word (definition below). The connotation is firmly negative. I think it is safe to say on behalf of everyone on this board that if you feel actions are frantic, look within and question why that is. Speaking for myself, if I feel like I’m anything but calm when acting then I do not take the action. I question why that feeling is coming up for me and answer that before taking another step.

fran·tic /'fran(t)ik/
adjective
wild or distraught with fear, anxiety, or other emotion.

“she was frantic with worry”

Similar:
panic-stricken
panic-struck
panicky
beside oneself
at one’s wits’ end
berserk
distraught
overwrought
worked up
agitated
distressed
frenzied
wild
frenetic
fraught
fevered
feverish
hysterical
mad
crazed
out of control
uncontrolled
unhinged
out of one’s mind
maniacal
demented
desperate
in a state
in a tizzy/tizz
wound up
het up
in a flap
in a cold sweat
tearing one’s hair out
having kittens
in a flat spin
swivel-eyed

Opposite:
calm

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OK, RUN.

Feel free to use any combo of words that denote an ongoing inspection of a company to the extent that sometimes a call goes out to stop the thread. :slight_smile:

Maybe “intense interest from a crowd that results in a lot of repetitive observations”? :slight_smile:

Don’t fret. Don’t take offense. It’s a great board. A lot of wonderful contributors. Don’t worry, be happy… https://www.youtube.com/watch?v=d-diB65scQU

Rob
Rule Breaker Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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