MercadoLibre (NASDAQ:MELI) operates the leading online marketplace and fintech platform in Latin America. Its business has already benefited significantly from digitization, as consumers have shifted away from cash and traditional retail.

Not surprisingly, shareholders have done quite well. MercadoLibre stock is up 400% over the last three years, easily outperforming the broader market. Even so, three numbers give me confidence that MercadoLibre is still a great long-term investment. Here's what you should know.

1. Accelerating gross merchandise volume

More consumers around the world are shopping online, and Latin America is no exception. In fact, according to eMarketer, e-commerce sales in Latin America surged 37% last year -- growing more quickly than in any other part of the world.

Investor looking at city skyline; the image is overlaid with upward trending arrows.

Image source: Getty Images.

Notably, MercadoLibre is Latin America's most popular online retailer. During the 12 months ended in March 2021, its marketplace received 5.1 billion unique visitors; by comparison, Sea Limited's Shopee took second place with 3.4 billion.

That popularity has been a significant advantage, powering a steady uptick in gross merchandise volume (GMV, the value of all goods sold). In fact, MercadoLibre's GMV growth has accelerated in recent years. 

MercadoLibre

2018

2019

2020

Q1 2021

GMV growth

6%

12%

50%

77%

Data source: MercadoLibre SEC filings.

This acceleration indicates two things. First, MercadoLibre is gaining traction with Latin American users, spinning the flywheel that powers its marketplace. As more consumers shop on the platform, merchants benefit from a wider audience; and as more merchants sell on the platform, consumers benefit from greater selection. 

Second, MercadoLibre's GMV grew more quickly than the e-commerce industry last year, meaning the company gained market share. Put another way, MercadoLibre captured a greater percentage of total retail spend (and consumer data), further strengthening its ability to outmaneuver rivals.

2. Accelerating total payment volume

MercadoLibre operates in 18 countries in Latin America, but Brazil, Argentina, and Mexico account for the vast majority of revenue. Notably, many people in these countries don't have access to a bank account, and even fewer have access to a debit card.

In March 2021, debit card penetration was just 59% in Brazil, 41% in Argentina, and 25% in Mexico -- in all cases, far less than 80% in the U.S. Of course, without access to electronic payment options, it's quite difficult to shop online.

To address that problem, MercadoLibre launched Mercado Pago in 2003. This fintech platform allows consumers to fund digital wallets with cash deposits at convenience stores, enabling them to make purchases both on and off the MercadoLibre marketplace.

Not surprisingly, the convenience of cashless transactions has driven strong adoption. In fact, growth in total payment volume (TPV) has accelerated in recent years.

Mercado Pago

2018

2019

2020

Q1 2021

TPV growth

34%

54%

75%

82%

Data source: MercadoLibre SEC filings. 

Notably, TPV is the primary determinant of MercadoLibre's fintech revenue. As such, the accelerating growth is a good sign. And once again, it underscores the flywheel effects that power MercadoLibre's business.

As more consumers adopt the digital wallet, merchants benefit from a wider range potential buyers; and as more merchants join the network, consumers benefit from increased acceptance. In the coming years, that dynamic should be a strong growth driver, but there's still one more number investors need to see.

3. Low internet penetration

Not surprisingly, accelerating growth in GMV and TPV has translated into strong financial results. MercadoLibre has grown revenue and free cash flow at a rapid pace in recent years, a feat made all the more impressive by the limited internet access in Latin America. 

 

2018

Q1 2021 (TTM)

CAGR

Revenue

$1.4 billion

$4.7 billion

71%

Free cash flow

$133.2 million

$682.9 million

107%

Data source: MercadoLibre SEC filings. TTM = trailing 12 months. CAGR = compound annual growth rate.

Currently, MercadoLibre serves a population of 638 million people in Latin America, but only 57% have internet access, and just 31% shop online. By comparison, over 90% of the U.S. population actively uses the internet, and 69% shop online.

However, infrastructure in Latin America is improving and those numbers are trending upwards. In the years ahead, as more people gain internet access, e-commerce and digital payments should become increasingly popular. That puts MercadoLibre in front of an expanding market, and as the leader in both cases, the company is well positioned to capitalize on that opportunity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.