What happened

Shares of MercadoLibre (MELI 1.09%) surged 27.8% in July, according to data provided by S&P Global Market Intelligence.

With this rise, the e-commerce company's shares have decreased their year-to-date decline to 39%.

A person holds a credit card while looking at a smartphone.

Image source: Getty images.

So what

It wasn't too long ago that the Nasdaq Composite index plunged into a bear market, dragging down the stock prices of a wide variety of growth companies. Last month saw a remarkable recovery for the technology stock index as it regained some ground, rising by 12.3% for the month to recoup some of its losses. MercadoLibre's shares were carried along with the improved sentiment as investors' risk appetite for growth stocks increased once again.

Not that MercadoLibre was in any danger of its growth declining. The Latin American e-commerce and payments company has posted strong growth all the way, with its first quarter of 2022, ended March 31, registering a 67% year-over-year jump in revenue to $2.2 billion. Gross merchandise value (GMV) and total payment volume (TPV) surged 32% and 81% year over year, respectively, to $7.7 billion and $25.3 billion.

Now what

The company is showing no signs of slowing down, with its recent second-quarter earnings ticking all the right boxes. Net revenue surged 56.5% year over year to a new record high of $2.6 billion, continuing MercadoLibre's run of revenue increases. GMV and TPV continued their upward climb, rising by 26.2% and 83.9% year over year to $8.6 billion and $30.2 billion, respectively. Unique active users on its platform went from 76 million in the second quarter of last year to 84 million, and payment transactions have leapt by close to 73% year over year to 1.26 billion. 

The e-commerce company is relying on its fintech arm to launch more financial services to engage its customers while improving its user interface. Digital account TPV grew faster than company-level TPV, roaring upward by 167% year over year to $9.4 billion. Total assets under management increased almost 30% year over year and in Mexico, MercadoLibre obtained a license to operate its fintech products, allowing customers there to view it as a full-fledged digital bank capable of offering a suite of payment services.

The future looks bright for the company as it scales up its services and continues to grow both its GMV and TPV. The key risk that investors should look at is the credit originations part of the business, where the non-performing loans ratio has hit 31.4% in the current quarter for the over-90-day cohort of customers. If not properly controlled, this could spiral into a crisis for the company as it aggressively expands its consumer loans and credit card business.