This E-Commerce Stock Just Can't Stop Growing

With its most recent earnings report, MercadoLibre (MELI 1.96%) continues to flourish in Latin America. In this segment of "3 Minute Stocks Updates" on Motley Fool Live, recorded on March 2, Fool.com contributors Brian Withers and Toby Bordelon discuss the e-commerce giant's noteworthy revenue numbers and its potential for further expansion.

Brian Withers: Moving onto MercadoLibre, M-E-L-I. Like other e-commerce companies, Mercado's growth has been slowing from its incredible coronavirus-fueled 2020. Top-line revenue grew to $2.1 billion. That's up 74% on a currency-neutral basis, 60% when you are using U.S. translated rates. To me, this is still pretty darn amazing. A majority of this revenue, $1.4 billion, around 2/3 comes from their e-commerce engine, so that's where I'm going to focus.

CEO [actually CFO] and founder Pedro Arnt shared some stats on how the investments in the fulfillment network are paying off. These improvements continue to solidify MercadoLibre's moat in the region and that's why I'm really excited about this company for the long term. Let's dive in.

Gross merchandise value, the sum of all sales on their platform for Q4 was almost $8 billion. That's up 32%. They had 40.5 million unique buyers in the quarter. Items purchased per buyer grew 14% year-over-year and was 50% higher than pre-pandemic highs. It looks like to me that customers are now hooked in a big way after the coronavirus.

In Q4, they had 300 million live listings on their e-commerce platform. That's up from 275 million last quarter or last Q4. Sales from official stores, these are large brands in the Latin American region represented over 23% of the gross merchandise value in the fourth quarter. The remainder comes from an array of mid and long-tail sellers.

The company reached almost 5% of their total gross merchandise value with first-party fulfillment. They're starting to get into first-party fulfillment. It's still small at 5% though. Eighty percent of deliveries in the Q4 were made in 48 hours and close to 60% were made same day. That's Amazon (AMZN 1.30%)-level performance.

The company is able to now handle bulky items like home appliances and furniture. The company has ramped up its network of pick-up and drop-off points called MercadoLibre Places, 90% of places are enabled for both pick-up and drop-off and they started the technology to roll out to receive returns from buyers through these places. Just think of like how you can return your Amazon packages to Kohl's, it's the same idea.

The MercadoLibre Places span Brazil, Mexico, and Argentina, which are their top three regions which account for more than 90% of their revenue, and Chile and Colombia. All of these numbers really point to me to where MercadoLibre is building out a massive moat with their fulfillment engine in the region. I like these guys for the long term.

Toby Bordelon: Yeah. It looks pretty good, Brian. But you did say the majority of revenue is still from e-commerce. I'm wondering, I look out 10 years. Is that what this company is? Are they just e-commerce and is that a concern for you? Or do they have the ability usually like Amazon has and get that good AWS-type SaaS business going? Or maybe that doesn't matter or maybe there's still a lot of growth left and traditionally e-commerce that it doesn't matter, what do you think?

Withers: Yeah. Let's take a look at e-commerce in the region and get some numbers around how big that is. It's a great question by the way. Here's something that the company shares almost every quarter. They didn't update it for this quarter, but it's still pretty much the same. This is the opportunity in the region.

You look at 652 million people in Latin America, that's more than twice what we have in the U.S., 407 million of those are internet users. This is quite a connected region and almost 250 million are online shoppers. If you look at that number, the active users, they're on the right, the 82 million. That's just active users of MercadoLibre's platform. Just given current online shoppers and current internet users, there is a potential for this company to grow even bigger with its e-commerce platform.

Let's dive into some of the countries and see what that looks like. You got Brazil, Argentina, and Mexico here, compared with China and the U.S. Certainly, the GDP is nowhere in comparison to these two massive countries. But let's look at the internet users and online buyers for these three, their largest revenue countries which make up over 90% of revenue.

Internet users is 272 million compared with the U.S. at 292 million. It's almost the same size as the U.S. for the number of internet users and online buyers 145 versus 207 million in the U.S. There's a bigger gap there. There's potential for online buyers to almost double to get to the internet users as folks get more and more comfortable with e-commerce.

Let's look at market share in the different regions. This is website and app visits in the different countries. Like Argentina, it's clearly the No. 1 with 78% of visits in September of 2021. Brazil, it's 28%, Chile, it's 31%. There's even an opportunity for MercadoLibre as it executes its fulfillment and gets really good at fulfilling things in 24 hours.

I forgot to mention that 80% of the deliveries in these top countries here were free to the buyers. I think that's a big opportunity for people to come to MercadoLibre. I still see a ton of opportunity in the e-commerce space in Latin America for MercadoLibre to continue to grow.