What happened
Shares of Latin American e-commerce giant MercadoLibre (MELI 2.48%) gained 14% in December, according to data provided by S&P Global Market Intelligence. The stock had tanked in November, when management issued new shares and financial stocks were hit hard by worries over the omicron coronavirus variant. The price bounced back in December as it began to look like most of the initial fears about how the new wave of the pandemic would impact the company had been overblown.
So what
MercadoLibre, like many e-commerce companies, demonstrated outstanding performance at the beginning of the pandemic. It consistently posted year-over-year revenue growth and total payment volume (TPV) growth of over 100%, and at times of more than 150%. The company's stock delivered commensurate gains, rising by 170% in 2020. But decelerating growth and some losses caused investors to think again, and MercadoLibre shares lost 20% in 2021.
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That's not to say things are looking down for the company -- in November, it delivered another outstanding earnings report. For the third quarter, its revenue increased by 73% year over year, TPV increased by 59%, and net income increased from $15 million in the prior-year period to $95 million. A week after the earnings release, MercadoLibre announced a secondary equity offering of 1 million shares, priced at $1,550 per share. Management said it would use the $1.55 billion it raised for "general corporate purposes." The market reacted negatively to the offering, which came as the stock price was already falling, and at a time when inflation was becoming a huge issue.
Positive sentiment crept back up in December. The stock got a boost when management announced it was launching an anti-counterfeit alliance in partnership with companies including Levi Strauss, Under Armour, and Victoria's Secret. It also announced the acquisition of Chilean payments company Redelcom, which will expand its fintech reach in that country.
Now what
While the world is reopening to a large degree and people are getting back to shopping in stores, MercadoLibre isn't letting up in its growth efforts. It operates in 18 Latin American countries that give it a huge addressable market, and both of its segments, e-commerce and digital payments, continue to post solid performances.
Despite its drop last year, MercadoLibre's stock price is well above its pre-pandemic price, but its valuation now sits at a more palatable price-to-sales ratio of 9. After climbing back in December, the stock should keep gaining in 2022.
