Despite the recent bear market, growth stocks have stayed on the minds of many investors, and some took advantage of lower share prices to add to their positions. The loyalty has paid off, as many growth stocks have begun to make a comeback.
One of these comeback stocks is MercadoLibre (MELI 3.09%). It has more than doubled from its 52-week low after losing more than two-thirds of its value in the bear market. Despite that increase, it is likely not too late to invest in MercadoLibre (which means "free market" in English). Here's why investors should continue to buy the internet and direct marketing retail stock.
Massive growth
During the 2022 bear market, many e-commerce-oriented companies experienced a slowdown as consumers returned to offline shopping. However, the slowdown that hit peers like Amazon left MercadoLibre largely untouched.
In 2022, revenue of $10.5 billion rose 49% year over year. Admittedly, e-commerce slowed as gross merchandise volume of $34 billion increased by 21%, a slowdown from the 35% rise in 2021. The fastest growth came from MercadoLibre's fintech segment Mercado Pago, as total payment volume of $124 billion surged 60% higher over a one-year period. That exceeded the 55% increase in 2021.
Moreover, MercadoLibre turned a profit of $482 million in 2022, well above the $83 million earned in the previous year. Although operating costs increased at a faster pace than revenue, limiting the cost of revenue growth to 30% helped boost the company's operating income.
Synergies
MercadoLibre also drives growth by capitalizing on synergies from its interconnected segments. It launched Mercado Pago to help its unbanked and cash-oriented customer base buy online. The service became so popular that the company opened Mercado Pago to customers not buying on the MercadoLibre site.
Additionally, it runs a logistics segment called Mercado Envios that stores, packages, and ships items sold online. Also, if sellers or customers are short on cash, they can obtain loans through Mercado Credito. And like Amazon, MercadoLibre has become a force in digital advertising by leveraging its site to post online ads.
That interdependence gives MercadoLibre a formidable competitive advantage. Even though Amazon and Sea Limited sell in some of MercadoLibre's markets, the lack of available fintech or logistics services can leave these peers at a disadvantage.
Solving problems
MercadoLibre further bolsters that competitive edge in a unique way. Conditions such as high inflation, political turmoil, and uncertain rules can make doing business in Latin America difficult.
However, MercadoLibre thrives by addressing such challenges. Before Mercado Envios, same-day and overnight delivery were not widely available in the region. But thanks to Mercado Envios, some Latin American countries have available shipping services that more closely resemble those in the developed world.
As previously mentioned, the company brought fintech to the unbanked through Mercado Pago. Still, the fintech segment also helps customers with high inflation. It operates an investment arm called Mercado Pago, which allows investors to earn low-risk gains. This has helped its customers better keep up with inflation in its home market of Argentina, where inflation now tops 100%.
Admittedly, such mitigation efforts may stop working if inflation continues to worsen. This is a significant concern for MercadoLibre since 24% of company revenue came from that country in 2022. But considering its market presence in Latin America, recession resistance, and ability to cope with regional challenges, the company can probably work through such issues long term.
Consider MercadoLibre
Given the company's rapid growth and synergies, MercadoLibre stock appears ready to soar. While it did not escape the bear market, it has maintained rapid growth in an increasingly challenging business environment.
Admittedly, competition and economic turmoil will likely remain a concern in Latin America. But with the company's powerful ecosystem and its ability to solve problems, MercadoLibre should produce massive growth for years to come.
