In 2013, Venezuela was the third-largest market for Latin American e-commerce and financial technology (fintech) company MercadoLibre (MELI -1.01%), at 18% of total net revenues. Moreover, it was the company's fastest-growing geography. But today, MercadoLibre barely has a presence in Venezuela due to geopolitical issues.
If you told me that a company would lose its third-largest and fastest-growing market, I would assume that company would be performing poorly. However, that's not the case with MercadoLibre. The company's revenue is up more than 2,400% over the past decade.
As the chart above shows, MercadoLibre's stock has surged along with its business, gaining more than 1,200% during the last 10 years. That means for every $1,000 invested in 2013, investors would have over $13,000 now.
Here's why MercadoLibre has been such a great stock and why it can still be a great stock in the future.
What's worked for MercadoLibre
Serial entrepreneur Bill Gross of Idealab says timing is the single biggest reason that start-ups ultimately succeed or fail -- a bigger factor than the business model or even the idea itself. In other words, one can have a great idea. But if the market isn't ready for it, then it could fail to catch on.
Personally, I believe MercadoLibre was the right idea in the right place at exactly the right time.
Regions like the U.S. and Europe were early to adopt e-commerce and fintech solutions. By comparison, lack of internet infrastructure in Latin America, along with a large, bank-less population, hindered adoption. But that started to change with the advent of the smartphone -- and MercadoLibre was there to capitalize on the early waves of adoption.
I'd say adoption for e-commerce and fintech is well underway in Latin America today. In 2022, MercadoLibre's e-commerce platform handled over $34 billion in gross merchandise volume. Its fintech segment, Mercado Pago, oversaw over $120 billion in total payment volume.
For perspective, MercadoLibre had just $1.6 billion in gross merchandise volume in 2012. Its total payment volume was a paltry $525 million. In other words, volume for merchandise and payments is up 21 times and 235 times respectively in just 10 years. And as these two business segments have scaled massively, MercadoLibre's financial results have skyrocketed. This has made the stock a big winner.
MercadoLibre's ongoing opportunity
There are several reasons to believe MercadoLibre could still be a good investment going forward.
First, MercadoLibre can still grow its platform because adoption trends in Latin America are ongoing. For example, Morgan Stanley estimates that e-commerce possibly accounts for about 11% of total commerce in Latin America today. But that could increase to 16% by 2025. In short, MercadoLibre is still riding powerful growth trends.
Second, I believe MercadoLibre has a competitive advantage that will allow it to remain among the top beneficiaries of adoption trends: Its infrastructure. The company has a shipping and logistics division called Mercado Envios that operates in eight countries, providing a network of third-party shipping partners, warehousing services, and fulfillment. And Mercado Envios is pretty good at what it does.
Image source: Getty Images.
As of the fourth quarter of 2022, 94% of orders on MercadoLibre's e-commerce platform were being handled by its managed logistics network, showing a clear preference for the service. That's likely due to the incredible speed of Mercado Envios compared to other options in Latin America. According to management, 76% of orders are delivered within 48 hours, and over half of orders are delivered same-day or next-day.
That level of service is hard to match, let alone beat. That's why I believe MercadoLibre is advantageously positioned for growing e-commerce and fintech adoption in Latin America.
To be clear, MercadoLibre is still investing in its business to fortify its position in the market. In Q4 alone, it spent $112 million on capital expenditures to grow its logistics network. It appears the strong is getting stronger.
However, before you get the idea that it's burning cash by investing back in its business, investors should note that MercadoLibre is growing and investing in growth while maintaining profitability. In 2022, the company had just over $1 billion in operating income and almost $500 million in net income.
MercadoLibre survived the loss of the majority of its business in Venezuela because the pervasive growth trends of the Latin America region were overwhelming in its favor. I believe those trends are still in its favor. And given its scale, ongoing investment, and profitability, I believe it's well positioned to keep growing and rewarding shareholders from here.
