It's not easy to find a company putting up strong growth in both revenue and profits, especially in today's challenging business climate, but MercadoLibre (MELI -1.45%) seems to be the exception to that rule.

The online marketplace, which focuses on Latin America, just delivered a stellar fourth-quarter report. Revenue was up 56.5% on a constant-currency basis to $3 billion, and the bottom-line growth was even more impressive. The company posted a record operating margin of 11.6% as operating income jumped from $24 million to $349 million. What's more, it flipped a per-share loss of $0.92 in the quarter a year ago to a $3.25 per-share profit.

How did MercadoLibre do it? And can the company keep up its success? Let's find out.

MELI Revenue (Quarterly YoY Growth) Chart

MELI Revenue (Quarterly YoY Growth) data by YCharts.

As you can see from the charts above, that surge in profits is significant for MercadoLibre. The revenue growth is in dollars, so it's slower than constant-currency growth.

What's behind the bottom-line performance

MercadoLibre's business is scaling up in a number of areas as it's built several increasingly profitable businesses on top of its core e-commerce operations.

The company saw its gross margin expand 852 basis points to 48.6% thanks to lower first-party e-commerce sales as a percentage of total revenue, higher first-party gross margins, and lower costs from mobile point of sale (mPOS) business.

Meanwhile, its fintech business continues to grow at a blistering pace, with total payment volume growing 80% on a currency-neutral basis to $36 billion. Its off-platform business was another bright spot with payment volume up 121% on a currency-neutral basis.

The company also noted strong growth in its point-of-sale business in Mexico and Brazil, which is tied to brick-and-mortar stores. Management said on the earnings call that it sees opportunity in the brick-and-mortar payments where it has a low penetration rate.

A woman shopping online with a credit card.

Image source: Getty Images.

MercadoLibre is also building out its credit business, which reached a total portfolio size of $2.8 billion, though the company has pumped the brakes on originating loans as it's being cautious at this stage of the credit cycle. 

Meanwhile, its ads business is also gaining leverage as ad revenue improved to 1.4% of gross merchandise value (GMV), and the company is stepping up its investments in the high-margin business that neatly complements its e-commerce marketplace.

Management also said it's launching its own demand-side platform (DSP) in 2023 after it developed its own ad server last year to automate the insertion of display ads and enhance the bidding process for ads.

Finally, its core e-commerce business is seeing solid growth as the company is grabbing market share after the bankruptcy filing of Americanas, a top competitor in Brazil, and Mexico has seen strong volume growth. 

Its logistics business, Mercado Envios, is also scaling well with fulfillment penetration reaching 43% in the quarter, meaning 43% of its orders are fulfilled through its own logistics network, and the network shipped more than 1 billion items in 2023.

Why it's a buy

MercadoLibre doesn't provide quarterly guidance, but the strong growth is especially notable because it comes at a time when peers in North America like Amazon and Shopify are struggling, seeing growth significantly slow since the pandemic boom.

By contrast, MercadoLibre has continued to deliver strong growth, and with profit margins ramping up and a number of its businesses reaching scalability, the future looks bright, especially considering the wide-open market in Latin America.

As services like payments, ads, logistics, and credit continue to scale, MercadoLibre's profit margins should improve, and with free cash flow reaching $2.5 billion in 2022, the stock is looking reasonably priced.

With a unique set of complementary businesses and a valuable network of competitive advantages, there's a lot of growth potential remaining for MercadoLibre.