Market downturns are part and parcel of investing, but no one said they were easy to get through. With prices falling around you, it can be tough to decide which investments merit your attention and which you should just discard and move on. However, if the selection is made right, you can feel confident that the business can not only withstand tough business conditions but also deliver impressive returns once the economy has found its footing again.
MercadoLibre (MELI -10.38%) is one growth stock you can buy and hold without worry. The e-commerce cum digital payments firm has only continued to grow throughout the pandemic and has also demonstrated that it can expand its range of services to garner more customers. The company is the largest e-commerce outfit in Latin America, and its reputation and track record should enable it to continue dominating the digital landscape in the region.
Let's look at what makes MercadoLibre such a compelling stock to own.
Solid top-line growth with free cash flow
MercadoLibre has demonstrated stellar top-line growth over the last 10 years that has seen revenue increase every year without fail. Revenue started at $298.9 million in 2011 but has soared 24-fold to $7.1 billion in a decade. This works out to be an impressive 37.2% compound annual growth rate over this period and attests to the strength of the company's platform that has endeared more and more people to it. This growth has continued into the first half of 2022 (1H2022) when net revenue climbed 57.3% year over year to $4.8 billion.
More importantly, MercadoLibre has demonstrated its ability to generate healthy free cash flow. Free cash flow generation ensures that the company is not reliant on debt to fund its expansion and operations, leaving it vulnerable to the interest rate increases occurring now. The e-commerce giant generated $355.6 million of free cash flow in 2021 and $935.4 million in 2020 and has continued to chalk up free cash flow of $437 million for 1H2022.
The growing scale of its platform
The operating metrics and key performance indicators for MercadoLibre have also risen in tandem with the company's financials. Gross merchandise volume, or GMV, measures the volume of activity on the company's e-commerce platform, while total payment volume, or TPV, looks at the level of payments flowing through the business. Comparing the second quarter of 2019 versus the most recent quarter in 2022, GMV has surged more than twofold over the last three years from $3.4 billion to $8.6 billion. TPV has done even better, soaring more than fourfold over the same period from $6.5 billion to $30.2 billion.
MercadoLibre has reported other eye-popping numbers along with its GMV and TPV. The number of payment transactions has increased nearly sevenfold from 181.6 million to 1.26 billion, while the number of items sold and shipped has more than tripled over the same period to 275 million and 264 million, respectively. These numbers are proof that MercadoLibre has enjoyed a big jump in the adoption of its e-commerce and payment platforms, and has also managed to grow its user base significantly, thereby increasing its dominance and strengthening its economic moat.
Expanding its suite of services
The great news is that the company is not standing still even after these successes but is continuously thinking of ways to enhance its platform and expand its suite of products and services to further cement customer loyalty. On the e-commerce front, MercadoLibre has introduced fast and free shipping for 75% of its GMV while also improving its user interface for category searches. These efforts have resulted in increased stickiness and improvements in shopping conversion rates.
For its payments platform Mercado Pago, QR payments are enjoying rapid growth in Argentina and Brazil, with digital wallet usage seeing increased adoption. More financial services are being pushed out, with more users taking up credit loans through the platform, and total assets under management have grown by 30% year over year in the three countries of Argentina, Brazil, and Mexico. MercadoLibre is also increasing merchants' access to credit, with its loan book for the second quarter of 2022 jumping by over 230% year over year as the company added a whopping 272 million loans.
Strong numbers and an entrenched position
MercadoLibre not only boasts strong numbers on many fronts but also has the right characteristics to make the company a long-term winner. It has proven resilient during crises and has also steadily increased its service offerings, thereby inviting more users onto its platform and then locking them in with great service and attractive offers. Although the e-commerce company has been expanding for more than a decade, it still has a long runway to capture more business and enjoys a large and growing addressable market in the region it operates.