MercadoLibre keeps chugging along

Investment Analysis Clubs Saul’s Investing Discussions
1

MercadoLibre reported earnings today of $5.15 which is up 57% yoy vs $4.13 expected, and Revenues are up 57% YOY to $3.4B.

  • Total payment volume using its payment app increased to $ 30.2B, up 89% YOY
  • Total Payment Volume $42.1B, up 96.6% YOY
  • Credit portfolio $3.3B up 21% YOY. The profitability increasing and bad loans stable
  • Gross Merchandize Volume $10.5B

58% of their growth came from Mexico and Brazil. IMO, reasons for the growth is that geopolitically, these are better countries to do business with than China, Latin America has growing populations, internet penetration is low compared to other parts of the world, and large unbanked populations. The internet penetration for Mexico is about 66% and Brazil is about 67%. The unbanked population of Mexico is about 63% and Brazil is about 30%.

MELI provided strong results throughout the pandemic, but I experienced significant pain with MELI the last two years. In '21 I was down 24% and in '22 I the stock was down an additional 22%. I did well with MELI in '22 through the judicious use of options, but switched to holding the shares of the stock in '23. MercadoLibre is up about 47% on the year and 10.4% today.

MercadoLibre has been punished historically because of fears of Amazon and SEA Limited competition as well as post pandemic drops in business. Those fears have never materialized as business problems, and MercadoLibre remains as strong as ever. For these reasons, you can buy this stock for a price to sales ratio of 5.2. It’s PE is 95, BUT it’s margins are steadily increasing, and it’s PEG is about 1.7. These are high due to investments needed to build out the businesses. Those ratios are expected to rapidly improve.

Maybe you should consider investing with me in MELI, it’s now my largest holding at about 20.1%.

Best,
bulwnkl

85 Likes
2

Hi Bulwnkl

Agreed MercadoLibre has proved a solid performer and has bounced after its results back to near its 12 month high, (which is still 35% down from its Covid-19 peak).

eCommerce growth continues to be resilient and the fintech growth maintains its LatAM penetration on and off the commerce platform.

The major story in the Q2 results beyond the hyper growth in revenues of 57% (FX neutral terms) was clearly the massive move in operating margin up to 16.3% margin from 11.2%. Advertising grew 70% to 1.6% of GMV as an added bonus.

MercadoLibre is a 4% holding for me (up 200% since initial purchase).
Ant

28 Likes
3

Any,
Thanks for joining in the comments. I think that you are spot on. Margin is key.
Best,
Brian

1 Like
4

In other news - Pedro Arnt, the CFO and probably the most prominent member of the MercadoLibre C-suite, left and has joined the other Uruguay/Buenos Ares neighbourhood fintech player dLocal as Co-CEO. He had 24 years of tenure at MercadoLibre and was highly respected.

It is good validation of dLocal which itself is still in hyper growth and all but removes the concerns surrounding the short attack allegations and Argentina regulatory friction. Results and the announcement of the appointment sent the shares up 35%. Pedro Arnt talked at length of the “diligence” he performed on the company before taking the position. He’s there to “scale” the business.

I’m sure MELI will continue to do fine without him but he was a CEO in waiting so some leadership rethink will be required over the medium term I guess as well as adjustments in the Finance area.

(I continue to hold both).
Ant

34 Likes