Team Rule Breakers
Team Rule Breakers has a five-year price prediction of $3,426 for MercadoLibre (NASDAQ:MELI), and shares trade near $1,730 today -- implying a near-15% annualized return.
The Motley Fool first recommended it in February 2009, when Rule Breakers picked it at a split-adjusted $14.13, with that recommendation up more than 12,300% since.
Optionality is a wonderful thing, and MercadoLibre is proof of how well it can work.
Since its founding, MercadoLibre has had to solve two problems: getting goods to customers affordably and helping unbanked shoppers pay for them.
Mercado Pago began as a way to pay on MercadoLibre's site. It's since become far bigger than that. In the second quarter, it generated $22 billion in e-commerce sales and $101 billion in total payment volume -- almost 4 times the e-commerce business.
- A first-mover lead paying off: MercadoLibre's early lead in e-commerce and payments has produced a $16.4 billion credit portfolio, with a net interest margin above 20% after losses.
- But that same growth has created new risk: Most of that credit portfolio is unsecured consumer debt, and net debt has climbed 68% to $6.4 billion over the past year. Those profits hold up only while borrowers keep paying -- a downturn in core markets could turn them into losses fast and drain cash from e-commerce growth.
As CEO Ariel Szarfsztejn told analysts on the August call, "This is one flywheel each side making the other one more valuable." That's true, but the sword of optionality can cut both ways.