Down 20% Since Earnings, Is MercadoLibre a Smart Buy Now?

Latin American e-commerce and fintech company MercadoLibre (MELI -0.93%) plunged after its third quarter earnings report, despite solid numbers throughout the business. With the stock now down by 20% in the past month, Fool.com contributors Matt Frankel and Dan Caplinger take a closer look in this Fool Live video clip, recorded on Nov. 18. 

Matt Frankel: Dan, I was looking at MercadoLibre's numbers and I'm sitting here scratching my head why the stock is down so much recently, so maybe you could shed a little bit of light on that.

Dan Caplinger: Yeah. I was kind of surprised too because a lot of people have been taking a look and Mercado Libre and I heard one characterization as being dead money in 2021. It is down 15% year-to-date. Essentially flat from where it was a year ago, from a stock price perspective, but its business is still running really strong. Just taking a look at the third quarter numbers that came out earlier this month, we got 78.7 million users of the core marketplace product and $7.3 billion in gross merchandise volume, that was up 24% year-over-year.

The marketplace sold 260 million items. It has also done a really good job of building out an ecosystem that supports the entire e-commerce, its franchise overall. It's Mercado Envios product. It's handled shipping and logistics over the network. Two hundred and forty eight million items shipped that's up 32%. The payment service Mercado Pago, up 44% with total payment volume $20.9 billion, 866 million transactions occurring on Mercado Pago for the quarter, up 55% year-over-year. An increasingly more and more of those transactions happening independent of the rest of them MercadoLibre platform. Basically people using the payment service as a way to move money even when it has nothing to do with MercadoLibre transaction.

Off-platform payment volume up 59% and the number of digital accounts using the platform doubling year-over-year. It started to expand into other areas, it's built up an asset management business. That business is starting to approach the one billion dollar mark in assets under management. Its credit extension service, Mercado Credito, portfolio is up to $1.1 billion about quadruple, where it was just 12 months ago. That's translated into a big sales gain, 66% year-over-year, net income up more than six fold from where it was a year ago.

Basically what you're seeing is, extensive strength in key markets for MercadoLibre, Brazil and Argentina. That's where a lot of the revenue growth has come from. You're seeing a little bit more in terms of cost pressures in other areas like Mexico. But overall, the growth store here is totally intact. The story I like to tell people is, I totally whiffed on Amazon (AMZN 0.07%) in the late '90s, early 2000s, I could never wrap my head around the valuation. The valuation just never made sense to me and it's because I couldn't really see what Amazon would be able to turn itself into in the course of 20, 25 years into the behemoth that it is right now. 

I try not to make the same mistakes twice, and I see the same potential in MercadoLibre, as much as the stock has risen over the years, it still has a market cap, it's less than four percent of Amazon's market cap. But its user base in Latin America is about a quarter of the size of Amazon's consumer user base. I see a huge amount of growth potential in that area just because the Latin American economy is evolving, it's growing, it's tapping into global growth. It's the sort of place that I see growing in a long-term way, at a faster pace than what you're going to see in the U.S. and much of the rest of the developed world and so I just see this. Even some people set up $75 billion market cap.

That's huge for a company that's almost unknown among U.S. consumers. But serving such a large portion of the world's population in Latin America, I think that you ignore MercadoLibre's potential at your peril. That's a big part of why I've been a shareholder.