MercadoLibre (MELI -0.81%) is often characterized as the Amazon (AMZN -0.17%) of Latin America, a fitting description given the similarities between the two companies. Both companies helped popularize e-commerce in their respective geographies, though Amazon has admittedly grown into a global phenomenon. Both have reinforced their leadership with logistics support and digital advertising technology.

MercadoLibre currently has a market capitalization of $60 billion, a mark Amazon first reached in December 2009. At the time, Amazon stock traded at a split-adjusted $6.93 per share, but it has since skyrocketed 1,290%. That means Amazon shareholders have seen their money grow almost 14-fold in little more than 13 years.

MercadoLibre could produce similar returns in the future. It may not happen as quickly, given the economic differences between the U.S. and Latin America, but shareholders could certainly see their money grow tenfold over the next decade. Here's why.

MercadoLibre has a strong competitive position

MercadoLibre runs the largest online marketplace in Latin America. It receives 4 times more visitors than the closest competitor, and it accounted for 21% of retail e-commerce sales in the region last year. The scale creates a powerful network effect. Merchants naturally gravitate toward the platform with the most buyers, and buyers naturally gravitate toward the platform with the greatest selection (i.e., the most sellers). That virtuous cycle gives the company an advantage.

But MercadoLibre has supercharged the network effect by providing several adjacent services that make its marketplace more compelling. The chronology of the business is detailed below:

  • 1999: MercadoLibre opened its online marketplace in Argentina, Brazil, Mexico, and Uruguay.
  • 2000: The marketplace expanded to Chile, Colombia, Ecuador, and Venezuela.
  • 2003: MercadoLibre launched its payment processing business, Mercado Pago.
  • 2004: The marketplace expanded to Peru.
  • 2006: The marketplace expanded to Costa Rica, Dominican Republic, and Panama.
  • 2009: MercadoLibre debuted its digital advertising business, Mercado Ads.
  • 2013: MercadoLibre introduced its logistics business, Mercado Envíos.
  • 2015: The marketplace expanded to Bolivia, Guatemala, and Paraguay.
  • 2017: MercadoLibre launched its financing business, Mercado Crédito.

Mercado Pago was originally designed to support payments on the marketplace. It solved the problem of low bank account and debit card penetration in Latin America, providing consumers with a way to transact online. But tremendous popularity has since allowed Mercado Pago to gain acceptance with third-party merchants beyond the marketplace, and it now ranks as the third-most-popular digital wallet in the region.

Mercado Crédito provides merchant loans, consumer loans, and credit cards, capitalizing again on the limited access to financial services in Latin America. Mercado Envíos provides warehousing and fulfillment solutions to merchants, and its expansive footprint allows MercadoLibre to offer faster shipping than any competitor. Finally, Mercado Ads provides ad tech tools that help merchants run campaigns and engage buyers on the marketplace.

MercadoLibre is more profitable than Amazon

MercadoLibre delivered solid financial results last year, especially in the context of a difficult economy. Gross merchandise volume (GMV) rose 22% to $34.4 billion, outpacing the broader e-commerce industry, meaning MercadoLibre continued to gain market share. In turn, revenue rose 49% to $10.5 billion, and the company reported a generally accepted accounting principle (GAAP) operating profit of $1 billion, representing an operating margin of 9.8%. Amazon has never achieved an operating margin that high.

Of course, some investors prefer to measure profitability with free cash flow (FCF), but the picture stays the same. MercadoLibre generated FCF of $48.88 per share last year. Amazon has never come anywhere close to that figure. In fact, Amazon has never topped $3 in FCF per share.

Investors should also be aware of a few less obvious metrics. MercadoLibre saw its take rate expand across both business segments. Its commerce take rate (i.e., commerce revenue as a percentage of gross merchandise volume) increased 20 basis points to 17.3% due to higher shipping fees and ad revenue. And its fintech take rate (i.e., fintech revenue as a percentage of total payment volume) increased about 50 basis points to 3.73% due to higher financing fees and credit revenue. Those metrics indicate that more merchants and consumers are adopting adjacent solutions, meaning MercadoLibre is monetizing its business more effectively.

Finally, many technology companies have adapted to economic uncertainty by reducing their head counts, but MercadoLibre has avoided layoffs and it plans to continue hiring. In other words, while companies like Amazon hired too aggressively in the last few years, MercadoLibre showed more discipline. That should give investors confidence in the management team.

MercadoLibre has a big market opportunity

Latin America has one of the fastest-growing internet penetration rates in the world, paving the way for rapid adoption of e-commerce, digital payments, and digital advertising. MercadoLibre is perfectly positioned to benefit from those trends given its popularity and profitability.

In Latin America, retail e-commerce sales are expected to increase at 14% annually to $250 billion by 2027, while digital payments volume is expected to grow at 15% annually to $575 billion, according to Statista. Additionally, digital ad spend jumped 35% to $21 billion last year, and investors should also expect double-digit growth in that market for many years to come.

On that note, shares of MercadoLibre currently trade at 5.7 times sales, a discount to the five-year average of 12.5 times sales, and a fair price given the potential upside. If MercadoLibre can increase revenue at 26% annually over the next decade -- a reasonable estimate given its annualized growth of 54% over the past five years -- its share price could increase tenfold over the next decade without any change in the price-to-sales ratio.

That creates a compelling buying opportunity for patient investors.