MercadoLibre (MELI -1.79%) has been one of the few e-commerce companies that have held up relatively well during this stock market downturn. While e-commerce stocks around the world have fallen by 40%, 50%, or even 80% year to date, MercadoLibre is down a little more than 30% over the same period. That's a better performance than even Amazon (AMZN -1.64%), which has fallen 45% this year. 

What's the reason behind MercadoLibre's relative resiliency? The key could be the company's top-line growth. While many e-commerce companies have seen top-line expansion slow and even halt, 2022 has been remarkable for MercadoLibre: Year-over-year revenue growth has remained above 40% this year. 

The primary driver behind this Latin American company is not its e-commerce side but its exciting fintech business, Mercado Pago. Here's why long-term investors should get excited about the potential Pago has to offer. 

Person paying with their phone.

Image source: Getty Images.

Pago is taking the wheel

MercadoLibre is known for its dominant e-commerce operations in Latin America, especially in Brazil, Mexico, and Argentina. The company had roughly 20% e-commerce market share in the region in 2021, according to Statista. This makes sense, considering the company sold more than 284 million items totaling $8.6 billion in the third quarter alone. However, MercadoLibre's real revenue improvements come from the fintech side of its business, Mercado Pago. 

Pago has gained incredible traction in Latin America. It now has 41.6 million active users, compared to 31.6 million just one year ago. As a result, fintech revenue soared. In the third quarter, it shot 115% higher year over year to $1.2 billion. In the third quarter of 2021, Pago generated roughly half of the revenue that MercadoLibre's e-commerce segment did, but now, it is generating almost 84%.

The likely cause of this increased penetration is the company's success outside of its own platform. Off-platform total payment volume (volume facilitated outside of its e-commerce site) rose 122% year over year in the third quarter, and it now represents 72% of total payment volume.

So what does that mean? Using a fintech platform outside its natural ecosystem demonstrates how much consumers rely on it. Just like you might use Apple Pay to buy groceries, using Pago on other platforms besides MercadoLibre signals sustainable adoption.

Same geography, different story

What's appealing about MercadoLibre's fintech segment is that it benefits from the tailwinds pushing its e-commerce business but doesn't have the saturation the other segment has.

Latin America has one of the fastest-growing internet penetration rates worldwide, meaning that consumers in the region are adopting these digital technologies at a rapid rate. And with 41.6 million active accounts, Pago has barely scratched the surface of its entire opportunity, considering there are 650 million people in Latin America.

The level of competition in the fintech space is also much lower than in e-commerce. Fintech start-up and venture investments in Latin America have just started to ramp up, and while that could pose a risk over the next decade, it gives Pago a notable head start to gain market share while these emerging players achieve scale.

Conversely, MercadoLibre's e-commerce business is fighting against large multibillion-dollar players like Amazon and Sea Limited's (SE 2.03%) Shopee, among others. 

Buy Pago, get the rest free

MercadoLibre trades at just 4.9 times sales, the company's cheapest valuation since 2009 (aside from July 2022). But its fintech business might deserve a much higher premium, given its adoption in an emerging space.

If you believe Mercado Pago alone should be valued at 11 times trailing-12-month sales, Pago would be almost a $46 billion company by itself. Comparatively, MercadoLibre's total market capitalization is just $47 billion.

In other words, investors are getting MercadoLibre's e-commerce segment almost free at today's prices, assuming this valuation for Pago. 

MercadoLibre is in a fantastic position today. It is the top dog in two industries that are rising in popularity, and it's capturing the benefits. With much more room to run during the coming years, investors could see lucrative returns over the long haul. And at today's valuation, investors are getting this high-quality company at a significant bargain.