Shares of MercadoLibre (MELI 4.59%) have been crushed, falling over 43% from their all-time highs set in September 2021. Inflation and interest rate fears have stoked the broad-based tech stock sell-off, and MercadoLibre has fallen along with it.
But it operates in Latin America, where U.S. inflation is relatively unimportant. The company's fourth-quarter earnings proved that these fears didn't dampen its business success. Despite being worth over $56 billion, the e-commerce and payments giant continued to grow rapidly. Fourth-quarter revenue jumped 60% year over year to $2.1 billion, and the company put up other impressive figures, with $83 million in net income and $392 million in free cash flow for the year.
NASDAQ: MELI
Key Data Points
MercadoLibre has dominated e-commerce and fintech in Latin America for many years, and this continued growth only helped it maintain that lead. Despite this control in the region, however, MercadoLibre still has plenty of room to expand, which is why I think the company could continue to give investors spectacular returns over the next decade.
Image source: Getty Images.
Financial services are heating up
Mercado Pago, the company's financial services segment, drove the total quarterly revenue increase of $804 million year-over-year. Fintech revenue jumped 70% in Q4, and it now represents 37% of total revenue.
The fintech segment had over 51 million active users in 2021, and they are increasing their usage. The company's activity really shined, however, with its off-platform total payment volume (TPV), which represents the usage of Pago outside of the MercadoLibre ecosystem. This figure for Q4 grew 75% year over year to $16 billion. This shows that it is being widely adopted for all aspects of life -- not just on MercadoLibre -- signaling strong growth potential as Latin America continues to adopt fintech.
Mercado Credito, the company's loan business, also performed well this quarter. Credito's loan portfolio was worth $1.7 billion in Q4 -- which grew 254% compared to the year-ago period -- and 7.4 million consumers have an active loan. Importantly, the company's defaulting loans are decreasing relative to the total number: 24% of loans are past due, compared to 28% in the third quarter of 2021.
The company's financial services also include its Mercado Fondo asset management, which reached $1.2 billion in funds under management with over 22 million customers.
Brazilians can also buy, sell, and hold cryptocurrency with MercadoLibre, its newest service. The company does not have much material revenue from this new segment yet but is investing in creating a better consumer interface in the region for managing crypto.
Continued logistics improvements
MercadoLibre is more than just a strong fintech platform. The company's biggest business, e-commerce, thrived in the fourth quarter, growing revenue 56% year over year. Buyers are also increasing their usage on the platform: The company sold 288 million items in the fourth quarter and consumers bought an average of 14% more items compared to the year-ago quarter.
It's one of the largest e-commerce businesses in Brazil, Mexico, and Argentina thanks to the company's in-house logistics service, Mercado Envios. It shipped almost 90% of all MercadoLibre goods in Q4 and dominates the logistics space at large. The company reported that Envios has a market share of 40% in its core geographies, helped in part by Mexico, where it ships 67% of all goods in the country. Like Mercado Pago, it dominates its industry, and as the region continues to adopt e-commerce, it will likely benefit from these tailwinds.
Envios has invested heavily in reducing delivery times for MercadoLibre products, and it did not disappoint in the fourth quarter. Nearly 60% of its MercadoLibre products were delivered on the same day or the next, compared to just 45% in the year-ago period. Even in a difficult geographic environment, the company can deliver products at speeds that Amazon (AMZN 1.43%) -- one of the largest e-commerce businesses in the world -- can.
A huge opportunity
The company has reported over 82 million active users across its business segments for the quarter, but it's still relatively small in the grand scheme of things. Latin America has a population of 635 million, and e-commerce penetration sits at only 10% in the region. This could continue expanding as the region modernizes, and MercadoLibre would be poised to benefit immensely from it.
Shares are down over 40% from their all-time highs, and that has brought the company's valuation down to 7.9 times sales, the lowest since 2016. At these levels, MercadoLibre seems like a no-brainer investment considering the major tailwinds, along with its industry leadership and growth. I plan to increase my position in this company over the coming months, and you might want to consider doing the same.
