I have owned MELI for some time. MELI as many of you are aware is the e-commerce leader in South America, based in Brazil. MELI has grown recently in the mid/high 30% range. The combination of growth rate and value is very appealing in my opinion.
MELI is quite scaled, with annual revenue that will likely exceed 13B, more than most companies on this board other than the mega caps (NVDA, TSLA, etc). It has a bit under 5B in operating cash flow in the last 12 months.
By comparison, its growth rate is similar to crowdstrike (CRWD), but it generates 4x more cash flow and 4x more revenue. Also MELI is valued at 7x trailing sales versus 30x for CRWD. Thus the market caps are similar with MELI’s being about 13% higher than CRWD.
I have watched this company for about 5 years. It has been stellar operationally. There has only been 1 qtr in the last 23 quarters where revenue did not grow Q on Q, and that was a highly seasonal result (A Q1 that was slightly lower than a Q4 for a retailer whose largest quarters are always Q4–also this was also the Covid Q1). Aside from this, clockwork.
It has fended off formidable competitors, such as SEA, who made a highly publicized attempt to enter the market and they were driven off without as much as a hiccup for MELI.
MELI stats:
Market cap 89B
Sales TTM 13.2B
Recent growth rates 35% in USD (in FX neutral terms much higher)
Cash from ops TTM 4.75B
Key watch outs:
Argentina is 20% of revenue and has previously been growing fast, the economic and geopolitical challenges have been discussed previously on this board.
A fintech lender, the company has significant credit risk. Reserve policy seems conservative and has seen stable delinquencies for the past 5 quarters.
MELI reports Q4 earnings on Feb 22 (estimated). I’m a buyer.
Nice one Rob. As another long term holder, I continue to find the investment case for MELI compelling.
Just to draw out a few points of context:-
Whilst MercadoLibre compares favourably with Crowdstrike on a valuation basis and level pegging on USD growth rates, both are close to all time highs. Crowdstrike has retaken and has been setting its own new all time highs recently but MercadoLibre isn’t far behind - setting new 52 week highs and remains only 15% back from its all time high. So this valuation gap isn’t a result of diverging share price movement.
As any holder of other eCommerce stocks will know (whether it be Shopify or Amazon etc), the latest Q4 results have been very strong for eCommerce and I don’t expect MercadoLibre to be left behind in this re-acceleration.
MercadoLibre’s operational performance goes from strength to strength. Whether it be off platform TPV growth and Fintech penetration, to strengthening credit performance or the successful roll out of its Advertising business - there is a relentless momentum at play in the face of an extraordinarily long runway ahead.
There have been a number of articles unpicking the MercadoLibre operational performance and prospects on Seeking Alpha recently; linked below for those with access…
Marcos Galperin, a graduate of Stanford Graduate School of Business, founded Mercado Libre in 1999 with a vision to build an e-commerce company focused on serving the nascent but fast- growing Spanish and Portuguese-speaking markets in Latin America. In the spirit of a Silicon Valley start-up, the company was started in a garage in Buenos Aires (Argentina).
Yeh they were started in Buenos Aires, Argentina but they had the foresight to relocate central business operations to Uruguay (the Switzerland of South America) as political economic stability in Argentina looked as though it was about to take a turn for the worse.
This is yet another example of a the calibre of their enterprise leadership and mastery of the local LatAm business environment.
Rob,
I have been happily holding MELI since April, 19, 2017. I agree with your and Ant’s points. My only mistake with MELI has been to continuously trim my holdings to invest in other ideas. It’s now 22.5% of my holdings.
The great results have been great in spite of currency and inflation headwinds. I don’t expect the dollar to be in a perpetual state of strength against Latin American currencies. If currency strength shifts even a little bit towards the Latin American currencies, I think we will see returns going from superb to unbelievably good.
MELI reported today and the stock is down 8% after hours, after being up just shy of 5% during the regular session.
By the numbers:
Revenue was 4.261B, up 42% Y/o/Y in USD (in constant currency 83%)
Cash from operations 1.928B up 75% y/o/y in USD
Diluted share count - down 1% y/o/y (share count hasn’t increased materially since 2019)
Stable credit delinquencies
In other words, continues like clockwork, with even accelerating growth rates.
Market reaction is likely due one-time non-cash charges of 351M of continent tax liabilities from prior periods (320M was a legal proceeding from 2014 that was a tax dispute, and 31M was also a contested prior tax ruling from 2022). Certainly something not to like, but worth 9B of market value? I say NO
I added modestly after hours in my account where I do more short term trade moves. Stock will probably fall further tomorrow and if it does, I’ll buy more. I sold SNOW to fund the purchase (SNOWs numbers have been not as good recently).
From my perspective, thesis fully intact, but I realize those of you who might have bought on the basis of my original post may want to throw tomatoes.
Sorry I was lazy and should have included more metrics in my original post.
P/S trailing is now 6.3 (based upon closing price of 1817)
P/OCF trailing is just under 18 (based upon closing price of 1817)
Company generated 5.1B of operating cash flow in 2023
Not the same industries, but if you look at other popular stocks P/OCF: CRWD 68, ZS 53, SNOW 103, MNDY 46, CELH 42, ELF 151, NET 132, IOT 712, BILL 26, TTD 68, DDOG 65 – only noted to give perspective on how low MELIs is
Here’s the investor presentation and earnings call transcript.
This was a stonking quarter, massive reaccelerating across the board. ER questions were pointed on operations and shipping and logistics and “moving parts” but this was an incredible Q4 report. Most of the tax issue was known and certainly didn’t warrant an 8% sell off. Having said that it had just smashed its own 52 week high in during hours.
Of particular note:
GMV was up 79% in constant local currency
Revenues were up 83% in constant local currency
TPV was up 153%
TPV off platform up 182%
Credit past dues >90 days dropped from 29.6% to 18.7%
Commerce take rate went from 17.3% to 18.7% (Shopify is at 3%)
Ads business continues to deliver impressive results, growing revenues at an accelerated pace. During 2023 we onboarded almost 50,000 new advertisers
In Fintech Services… The increased engagement with our products resulted in Mercado Pago achieving the milestone of surpassing 50 million active users in a single quarter.
Euromonitor shows that Mercado Libre is the main source of income for 1.8 million families in the region and that for 54.4% of users in the region, Mercado Pago was the first digital payment method available to them
Ant,
Thanks. Good summary. The elephant in the room are the one-off costs, which were the result of Brazilian court decision and inflation costs that were not all passed on to Argentina totaling $351M. My notes includes:
Net Rev $4.26B vs. an analyst estimate of 4.12B
Operating Margin without the the tax cost dropped from 18.2% to 13.4%. MELI said that was due to promotional spending. Margins are expected to recover sequentially. My guess is that the additional revenue was purchased during the Black Friday sale in Brazil and Buen Fin in Mexico.
Argentina saw slower growth. MELI did not fully pass on inflation costs where annual inflation surpassed 200%.
I don’t remember a quarter that had one offs of a court ruling and inflation impair earnings so badly. I’m not that worried about the tax ruling. I would be worried if there were ongoing issues of governments trying to fleece MELI. Inflation hitting earnings is a periodic problem that MELI is adept at handling. So long as these are not ongoing issues, I plan on staying the course. Part of my thesis is that MELI can competently manage currency, inflation, and legal systems in South America. I think this is a one off situation, so I plan to stay the course.
Thanks to everyone for the work on this one. I’ve only owned briefly due to the currency effects and all the moving parts, but it’s certainly an interesting and well-run company.