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Why MercadoLibre Fell by 19.5% in 2021

By Royston Yang – Jan 11, 2022 at 5:14AM

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The Latin American e-commerce company is expanding its presence in Chile through the acquisition of a payment network business.

What happened

Shares of MercadoLibre (MELI -0.36%) fell by 19.5% in 2021, according to data provided by S&P Global Market Intelligence.

For context, the tech-heavy Nasdaq Composite index gained 22.2% last year. Shares of the Latin American e-commerce company have underperformed the index even as the business continues to scale up.

Parcel with Brazil flag in shopping cart on laptop

Image source: Getty images.

So what

The bulk of MercadoLibre's 2021 decline occurred in the last two months of the year, after the Federal Open Market Committee unveiled the minutes of a meeting at which it made clear that it was ready to tighten the Fed's loose-money policies and start raising benchmark interest rates if inflation continued to run rampant. In response to the prospect of higher interest rates, investors have lately been selling high-growth stocks like MercadoLibre lower.

The company's financial numbers were impressive by any standards. In the first nine months of 2021, net revenue surged by 86.6% year over year to $4.9 billion, while net income more than doubled to $129.4 million. MercadoLibre's operating metrics were equally outstanding -- gross merchandise volume on its e-commerce platform rose by 23.9% year over year to $7.3 billion, while total payment volume on its Mercado Pago platform jumped by nearly 44% to $20.9 billion, accompanied by a 54.7% rise in total payment transactions.

Now what

During its most recent conference call, Chief Financial Officer Pedro Arnt detailed MercadoLibre's expansion plans. The company built an additional fulfillment center in Mexico, and will expand the facility in the next few months, which will help it steadily improve delivery times. Also in Q3, the company signed an agreement to acquire Cango, a specialized logistics technology company. By combining Cango's network with its own, the company has increased its network capability, and is now able to reach buyers and sellers more quickly. During the quarter, almost 80% of items sold were delivered within 48 hours.

MercadoLibre also acquired Redelcom last month to strengthen its operations in Chile. Redelcom is a payment network that connects small and large businesses while accepting payments from all credit and debit cards issued by either national or international banks. It also provides tools for merchants to manage their finances, and offers a myriad of services such as bill payment and cellphone recharges. With this purchase, MercadoLibre hopes to beef up its digital financial solutions within the country and reach out to a wider customer base.

Royston Yang has no position in any of the stocks mentioned. The Motley Fool owns and recommends MercadoLibre. The Motley Fool has a disclosure policy.

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