MercadoLibre (MELI -1.79%) had an incredible 2020, finishing the year up 193% and trouncing the S&P 500's 18% return. However, 2021 has been a different story. As of Dec. 27, shares of MercadoLibre were down 21% in 2021 while the S&P 500 had gained 26%.
Whereas last year seemed like a nonstop party for shareholders, the past 12 months have been a sobering return to reality. As we head into a new year, the question is whether 2022 will be a continuation of the current trend, or feature a recovery for MercadoLibre as an investment.
Image source: Getty Images
The stock price suffered, but the business has not
MercadoLibre offers several e-commerce and financial platforms to users, primarily in Latin America. These platforms are broken down in financial reports as commerce and fintech segments, with commerce representing approximately two-thirds of total revenues. Despite the lackluster 2021 stock performance, MercadoLibre is still putting up impressive results. In Q3, revenue for the first nine months of the year grew from $2.6 billion to $4.9 billion, a year-over-year increase of 87%. Breaking that down further, all geographic segments saw growth, with "other countries" -- the smallest geographic segment by percentage of revenue -- growing the most at 121%. This segment consists of 15 countries, and growth here signals how much more opportunity remains in Latin America.
The chart below shows growth in the key performance indicators that MercadoLibre refers to in its financial reports over the first nine months of 2020 and 2021. While it's common for the stock to react quarter to quarter as these metrics fluctuate, it's clear that over the past year the business has been executing on all the metrics it uses to evaluate its own progress.
| Metric |
Q3 2020 |
Q3 2021 |
Change |
|---|---|---|---|
|
Unique active users |
113 million |
225 million |
99% |
|
Gross merchandise volume |
$14 billion |
$20 billion |
43% |
|
Number of successful items sold |
490 million |
727 million |
48% |
|
Number of successful items shipped |
435 million |
686 million |
58% |
|
Total payment volume |
$34 billion |
$53 billion |
56% |
|
Total volume of payments on marketplace |
$14 billion |
$20 billion |
43% |
|
Total payment transactions |
$1 billion |
$2 billion |
100% |
Data source: Company filings.
MercadoLibre's performance is also broken down by geography. On the third-quarter earnings call, management highlighted its Q3 gross merchandise volume (GMV) growth in Brazil, Mexico, and Argentina; those figures were 28%, 34%, and 37% respectively. Interestingly, it was only recently that some major brands became available on its platform: specifically, Nike and Sony's Playstation in Brazil, and Apple, Samsung, and Asics in Mexico. The recent addition of these major brands shows how early it still is for MercadoLibre, and how much growth should still be ahead for the commerce business.
A buying opportunity in 2022
MELI PS Ratio data by YCharts
As the chart above indicates, despite MercadoLibre's continued strong performance, shares have sold off enough that the company now trades at approximately the same price-to-sales (P/S) ratio as it did during the low point of the pandemic crash. For comparison, Sea Limited -- another e-commerce powerhouse that has recently entered the Latin American market -- trades at a P/S of 14.
Only time will tell if 2022 is the year we see MercadoLibre's stock recover. However, for investors with a long-term horizon, the sell-off of MercadoLibre's stock over the past year should be viewed as a tremendous buying opportunity. There's likely to be more volatility, as well as continued challenges from the pandemic over the next several quarters. However, MercadoLibre is still the dominant e-commerce and fintech company in Latin America, and it has plenty of room to grow.
