MercadoLibre's (MELI 2.59%) valuation is the cheapest that it has been since 2016 on a price-to-sales basis. Is it a buy now? In this segment from "The Future of Fintech," recorded on Feb. 3, Motley Fool contributors Danny Vena and Jason Hall break down the financials behind this Latin American fintech giant.
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Danny Vena: Just quickly, Mercado Libre is the largest e-commerce and digital payments ecosystem in Latin America. It provides an e-commerce platform, logistics and delivery services, cross-docking, digital payments, digital wallet, both consumer and merchant credit, and more. Now, this serves a largely cash-based economy, where roughly 50 percent of the population doesn't have a bank account or credit card. That's where its Fintech Solution, Mercado Pago comes in, where it evolved on the platform as a way for folks who didn't have a credit card to make e-commerce purchases. It has since expanded beyond its own platform to other online sales platforms, and also now made the jump to brick and mortar retailers because it became so popular.
Now, I'm not going to bury the lead here, we have been seeing slowing both in e-commerce and in the digital payments spaces. I'm going to be watching closely to see how MercadoLibre fares. Now, I don't think it deserves to answer Jason's question, a 45 percent or 50 percent haircut or wherever. As of market close yesterday, it was 45 percent. I haven't looked at the stock today, but no, I don't think its business is worth that much less than what it was here just a few months ago. Now, just to look back at what its third-quarter revenue was, grew 73 percent year-over-year, gross merchandise volume on the platform up 30 percent, fintech grew even faster, total payments volume grew 59 percent, off-platform payments volume grew 79 percent. [inaudible 02:47:18]
Jason Hall: Danny, I just want to pause you on that one. That's the big one. That's Mercado Pago, more money is being spent off Mercado Libre than on Mercado Libre. It's incredible.
Danny Vena: Exactly right. The reason for that is if you think about it, there are a limited amount of growth available on the platform because it's tied directly to the number of purchases. Last time I knew somewhere in the neighborhood of North of 90 percent of all of the purchases on Mercado Libre's platform used Mercado Pago. The big growth area is the fact that they have become the de facto digital payment source in Latin America because so many people have used it for so long. Folks were able to use it to pay their cellphone bills and to pay their utilities that now, other brick and mortar merchants are saying, "I want to accept Mercado Pago in my store because so many people have been asking about it." That's where all of that growth has been coming from. In fact, it wasn't too long ago, the company put up five successive quarters of triple-digit year-over-year off-platform total payment volume growth.
Now, it slowed down just a little bit, but that shouldn't detract from the fact that that is a huge accomplishment. Now, management doesn't provide guidance, as we mentioned earlier. But analyst consensus estimates are calling for revenue growth of 54 percent and the company to swing to a profit. Now, if you look at the top line there, revenue growth was 73 percent year-over-year in the third quarter. With everything that's going on in the space, a lot of analysts are looking for a huge slowdown or deceleration in that revenue growth. Now, just to drive home a point, Mercado Libre's valuation is the cheapest that it has been on a price-to-sales basis. That's price-to-sales ratio right now is eight. That's the lowest that it's been since 2016 and it's down from the forties. That gives you an idea of just how much that stock is on sale.