After riding high during the pandemic-induced lockdowns, Amazon has fallen on hard times. The e-commerce pioneer grew revenue by just 9% in 2022, a far cry from its 44% growth in early 2021. The recent results were weighed down by its enormous size, decelerating growth, and economic headwinds. While there's certainly an argument that Amazon stock is still a buy, some investors are ready to move on.
Amazon isn't the only successful e-commerce platform, and those looking for a company with better growth prospects should take a look at MercadoLibre (MELI -0.45%). While the company isn't a household name in the U.S., it has rightfully earned the moniker of "the Amazon of Latin America." Net revenue soared 49% in 2022, but even that doesn't tell the whole story. Stripping out foreign currency movements, MercadoLibre grew revenue by 56.5% in the fourth quarter.
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Show me the money
Just as Amazon's business has grown beyond its humble digital retail roots, so too has MercadoLibre expanded into adjacent business opportunities. In addition to selling merchandise on its e-commerce platform, MercadoLibre offers website building, shipping, logistics and fulfillment, and -- its biggest growth driver -- payment processing.
MercadoPago, MercadoLibre's payment system, is modeled after PayPal and was born, in many ways, out of necessity. Cash is still the preferred payment method in much of Latin America and credit cards aren't nearly as widespread as they are in the U.S. As a result, MercadoPago has grown like gangbusters. In fact, it became so popular as a payment method, other merchants begged MercadoLibre to use it on their own online stores. Eventually, MercadoPago made the leap to brick-and-mortar stores, supercharging its growth.
In the fourth quarter of 2022, MercadoLibre's total payment volume (TPV) reached almost $36 billion. While on-platform payments grew an impressive 44%, off-marketplace transactions soared 121%. That also marked the fourth consecutive quarter of triple-digit-percentage off-platform growth.
Double trouble
While payments was the headliner last quarter, MercadoLibre's e-commerce business was also remarkably robust. Gross merchandise volume (GMV), which represents the value of products sold on its platform, grew to $9.6 billion, up 35% year over year, and accelerating sequentially from $8.6 billion and 32% growth. Furthermore, the number of items sold increased 11% year over year to 320.9 million, showing that consumers are increasingly willing to buy higher-cost items on the site.
The company's shipping and fulfillment network, Mercado Envios, is helping to fuel this robust e-commerce performance. In 2022, Mercado Envios surpassed more than 1 billion items delivered for the first time. The segment now accounts for 43% of MercadoLibre's shipments.
Many opportunities remain
In its letter to shareholders, MercadoLibre pointed out some of its accomplishments over the past year: Processing more than $100 billion in payments, booking over $10 billion in revenue, shipping more than 1 billion items, and generating $1 billion in income from operations. Notably, all of these achievements were firsts for the company. MercadoLibre generated $2.94 billion in operating income last year, up from $965 million in 2021, driven by an expanding operating margin. The company's growing scale and leverage should continue to send more profits to the bottom line.
Furthermore, MercadoLibre continues to expand into ancillary businesses. The company offers both merchant and consumer loans, credit cards, cross-docking services, warehouse storage, advertising, a digital wallet, and more. Considering its ongoing strong performance, investors have every reason to believe its success will continue.
That said, MercadoLibre stock is not for the faint of heart. During the recent downturn, the stock lost as much as two-thirds of its value, as fair-weather investors feared the worst and fled, even as the company continued to prosper. Furthermore, some investors will balk at its valuation, as MercadoLibre is currently selling for 3.7 times next year's sales, when a reasonable price-to-sales ratio is between 1 and 2. However, given its impressive growth and increasing scale, I would argue that's a small price to pay for this world-class e-commerce and fintech platform.
That's why I'm confident MercadoLibre stock is a buy.
