MercadoLibre (MELI -1.96%) posted its first-quarter report on May 5. The Latin American e-commerce leader's revenue rose 63% year over year (YOY) to $2.25 billion, which beat analysts' estimates by $210 million. It generated a net profit of $65 million, compared to a net loss of $34 million a year ago, and its earnings of $1.30 per share beat analysts' expectations by $0.19.
Those numbers were impressive, but MercadoLibre's stock barely budged after the report and remains down about 30% for the year. Like many other e-commerce stocks that soared during the pandemic, MercadoLibre lost its momentum as investors fretted over a post-lockdown slowdown, inflationary headwinds, and rising interest rates.
But did investors overreact and toss out the baby with the bathwater? Let's review MercadoLibre's growth rates and valuations to find out.
Image source: Getty Images.
How fast is MercadoLibre growing?
On a constant currency basis, MercadoLibre's gross merchandise volume (GMV) rose 32% YOY to $7.7 billion, its total payment volume (TPV) surged 81% to $25.3 billion, and its total revenue grew 67%. Its unique active users increased 16% to 81 million.
MercadoLibre's growth decelerated slightly in the first quarter, which wasn't surprising since more brick-and-mortar businesses reopened over the past year as the lockdown measures were relaxed, but it was still impressive considering how challenging the YOY comparisons were.
|
Growth (YOY) |
Q1 2021 |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
|---|---|---|---|---|---|
|
GMV |
114% |
46% |
30% |
32% |
32% |
|
TPV |
129% |
72% |
59% |
73% |
81% |
|
Unique Active Users |
62% |
47% |
3% |
11% |
16% |
|
Revenue |
158% |
103% |
73% |
74% |
67% |
Data source: MercadoLibre. Constant currency terms. YOY = year over year.
These numbers indicate there's still plenty of room for MercadoLibre to grow, even as formidable new competitors like Sea Limited's Shopee expand across Latin America.
MercadoLibre's fintech ecosystem, which blossomed from its payments platform Mercado Pago, is also growing beyond its main marketplace. Its off-marketplace TPV, which includes payments it processed for third-party businesses, surged 139% and accounted for 68% of its total TPV.
On a two-year compound annual growth rate (CAGR) basis, which smooths out its growth spurt during the pandemic, MercadoLibre's GMV grew 73% in constant currency terms in the first quarter -- compared to 71% growth in the fourth quarter and 75% growth a year ago.
Those robust growth rates make MercadoLibre one of the world's fastest-growing large-cap e-commerce companies. Amazon (AMZN -1.35%) reported a two-year CAGR of 25% (in revenues) in its latest quarter. Shopify's (SHOP -2.04%) GMV grew at a CAGR of 57% over the past two years.
Expanding gross and operating margins
Many e-commerce companies, including Amazon and Shopify, expect their margins to decline this year as they ramp up their spending.
MercadoLibre has also been pouring a lot of cash into the expansion of its managed fulfillment network and fintech services, but its gross and operating margins have remained remarkably stable over the past year.
|
Period |
Q1 2021 |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
|---|---|---|---|---|---|
|
Gross Margin |
43% |
44% |
43% |
40% |
48% |
|
Operating Margin |
7% |
10% |
9% |
1% |
6% |
Data source: MercadoLibre. Constant currency terms.
During the conference call, CFO Pedro Arnt attributed the expansion of its gross margins to "better operating leverage over our cost base" -- which indicates that economies of scale (especially for fulfillment) are kicking in. Arnt also said the margins for its advertising business were improving.
The outlook and valuations
MercadoLibre didn't provide any guidance for the full year, but analysts expect its revenue to rise 39% as its net income jumps 342%. Next year, they expect its revenue and net income to grow 34% and 78%, respectively. We should take those estimates with a grain of salt, but MercadoLibre's record revenues and gross profits in the first quarter suggest it could easily hit those targets.
Based on those expectations, MercadoLibre's stock trades at less than five times this year's sales. Amazon and Shopify are both growing slower than MercadoLibre, and the former trades at two times this year's sales, while the latter trades at six times this year's sales. In other words, MercadoLibre seems very reasonably valued at under $1,000 per share.
MercadoLibre is still a solid buy
MercadoLibre's first-quarter earnings report was strong, and its stock would have rallied if the market wasn't weighed down by rising interest rates and other macroeconomic headwinds. Therefore, its stock could remain volatile over the next few months -- but investors who accumulate some shares today might reap some massive rewards over the next few years as e-commerce penetration rates rise across Latin America.
