The novelty of online shopping and digital payments has worn off to some degree, but both industries are still growing quickly. Cash accounted for 21% of in-store payment volume in 2020, but that figure will fall to 13% by 2024, according to WorldPay. Similarly, online sales accounted for just 18% of total retail sales in 2020, but that figure will rise to 24% by 2025, according to eMarketer.
Those trends should be a tailwind for MercadoLibre (MELI -1.27%) and Adyen (ADYE.Y 0.33%), and shareholders of both stocks could see significant returns in the years ahead.
Here's what you should know about these two monster growth stocks over the next decade.
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1. MercadoLibre
MercadoLibre is the leading e-commerce retailer in Latin America. Its marketplace saw 668 million monthly visitors last year, nearly four times more than the next closest competitor. MercadoLibre's success can be attributed to its first-mover status and its portfolio of integrated services, including logistics, financing, advertising, and payment processing.
The fintech business, Mercado Pago, has been particularly successful. It has expanded beyond the marketplace, allowing sellers to accept digital payments through third-party websites and brick-and-mortar locations. That's particularly noteworthy because bank account and debit card penetration remain relatively low in Latin America.
Collectively, MercadoLibre's ecosystem of services makes its platform sticky, and that translates into pricing power. In the first quarter, its commerce take rate (revenue as a percentage of gross merchandise volume) expanded 170 basis points to 16.7%, and its fintech take rate (revenue as a percentage of total payment volume) expanded 60 basis points to 3.8%.
Financially, MercadoLibre is firing on all cylinders. Revenue skyrocketed 69% to $7.9 billion over the past year, and the company generated a GAAP profit of $3.67 per diluted share, up from a loss of $0.31 per diluted share in the prior year. More importantly, shareholders have good reason to believe that momentum will hold in the coming years.
According to Statista, online retail sales in Latin America will reach $160 billion by 2025, up from $85 billion in 2020. That uptick in e-commerce also implies strong growth in digital payments. As the largest online commerce and payments ecosystem in Latin America, MercadoLibre should benefit greatly. And with the stock trading at five times sales -- near its cheapest valuation in the last decade -- now looks like a good time to buy.
2. Adyen
Digital payments are complicated. Omnichannel merchants work with several intermediaries -- gateways, processors, acquirers -- to accept cards and digital wallets, and the situation usually gets more complex with additional geographies. Adyen simplifies things by bundling those services into one solution. Its platform integrates with websites, mobile apps, and point-of-sale hardware, allowing merchants to manage all payments across every sales channel from a single interface.
Building on its ability to unify transaction data, Adyen also provides adjacent solutions for fraud prevention and revenue optimization. Collectively, the company's suite of services has helped it win big customers like McDonald's and Etsy.
Last year, Adyen's payment volume soared 70% to 516 billion euros and revenue rose 46% to 1 billion euros. Even more impressive, EBITDA jumped 57% to 630 million euros, showcasing the operating leverage built into Adyen's business model. Similarly, free cash flow (FCF) climbed 53% to 567 million euros. That equates to a monster FCF margin of 56%, highlighting Adyen's impressive profitability.
Going forward, the company is well-positioned to maintain that momentum. Global payment card volume is expected to grow at roughly 6% per year to reach $79 trillion by 2030. As that trend plays out, Adyen's ability to simplify digital payments should bring more merchants to its platform. That's why this growth stock is a smart buy.
