What happened

Shares of MercadoLibre (MELI 1.22%) soared 174.5% in 2020, according to data provided by S&P Global Market Intelligence.

Shares of the Latin American e-commerce company have been steadily climbing in the past three years but shot up significantly last year due to the pandemic, and are now trading close to an all-time high.

Woman sitting on sofa, holding credit card while typing on her laptop.

Image source: Getty images.

So what

The COVID-19 pandemic has significantly accelerated the take-up of e-commerce and online payments in Latin America, and MercadoLibre's numbers demonstrate this impressive growth. For the first nine months of 2020, the number of unique users nearly doubled from 39.6 million to 76.1 million. Gross merchandise volume, a measure of activity on the company's e-commerce platform, surged by 62% year over year to $5.9 billion. And total payment volume on Mercado Pago, its payments portal, almost doubled from $7.6 billion to $14.5 billion.

MercadoLibre's financials have improved tremendously as a result of this influx of users. For the nine months ended Sept 30, revenue climbed by 63% year over year to $2.6 billion, while the company logged net income of close to $50 million, a sharp reversal from the $118 million net loss it booked during the same period last year. 

Now what

The company is building on its powerful network effect to increase the number of users and merchants on all its platforms. CFO Pedro Arnt described how its shipping service, Mercado Envios, helped to increase its penetration rate during the company's most recent quarter, with a 74% overall adoption rate. The company is focused on continuous improvement and has scaled its network into more areas to help lower shipping costs and improve delivery times.

MercadoLibre has just issued its first offering of senior secured notes, worth around $1 billion, which will be used as working capital for expansion and to refinance its existing convertible notes.

The future looks bright for the business as online commerce and payments have become a structural trend that is here to stay. With its strong network effect in place, MercadoLibre looks set to soar to greater heights in 2021.