Growth investing is hot again. Investors who took a break last year and leaned toward safer stocks in a volatile economy are now more confident in the market and are back to putting their money in riskier, high-growth stocks.
One growth stock to consider now is MercadoLibre (MELI 3.09%). The Latin American e-commerce powerhouse has demonstrated incredible performance, makes a profit, and has a huge market opportunity ahead. Here are three reasons to buy it today.
1. E-commerce is accelerating again
MercadoLibre has several businesses today. It began as an e-commerce business similar to Amazon, and that's still its core segment today. Operating in 18 Latin American countries, the company has its biggest markets in Argentina (where it's headquartered) as well as Brazil (the largest Latin American country by population) and Mexico.
Despite its longtime dominance in these countries, MercadoLibre continues to grow at a fast pace. E-commerce sales growth was decelerating after lockdowns ended and people returned to physical shopping. It's accelerating again, however, as customers integrate in-person and digital shopping.
In the 2023 second quarter, gross merchandise value (GMV) increased 47% over last year, surpassing $10 billion for the first time. In Argentina, GMV increased 119% over last year. Unique buyers continue to increase, up 17% over last year to 47.6 million, with especially strong growth in Mexico and Brazil.
MercadoLibre has developed an enviable logistics network to get products delivered faster. In the second quarter, same- or next-day deliveries increased to 56% of the total, while 80% were within two days across all regions.
It's not surprising that more sellers are using this network. Volume in the managed network increased to 93.9% of the total, or almost 3 percentage points higher than in last year's second quarter. As MercadoLibre gets more products to more customers faster, it generates loyalty. That should lead to increasing sales for the foreseeable future.
E-commerce in Latin America still lags behind every other region except Africa, but it's expected to grow. It accounted for 13% of total sales in 2022 and is expected to reach 20% in 2026, according to Statista. MercadoLibre is helping to drive that change and is also well-positioned to benefit from it, providing it with years of continued growth opportunities.
2. Fintech is a huge opportunity
But there's a lot more. Fintech is MercadoLibre's fastest-growing segment, and total payment volume increased 97% over last year.
MercadoLibre offers many fintech services, from digital wallets to credit cards and more. Off-platform digital payments, which are payments made outside of the MercadoLibre ecosystem, increased almost 130% in the second quarter. This is a vast opportunity to grow payments in every area and sector in the Latin American economy.
One clue as to where the company is going is its new CFO. Long-time CFO Pedro Arnt is leaving the company, and in his place, management is appointing Martín de los Santos, who is currently senior vice president of the credits division. This move could be a sign of MercadoLibre heading more in the fintech direction, where it has its biggest growth opportunities.
3. Its growing credit business adds to the bottom line
Speaking of credit, the credit division has been an incredible addition to the company's product lineup. The credit portfolio increased 7% over last year in the second quarter to $3.3 billion, and net interest margin is growing.
The company charts credit progress with what it calls NIMAL, or net interest margin after provisions for losses. This expanded to 36.8% in the second quarter, up from 29.8% last year and 30.6% in the first quarter.
MercadoLibre's many fintech services support the expansion of the credit business, such as balances in digital wallets and credit card balances. As MercadoLibre grows these businesses and focuses on high-quality, lower-risk candidates, it should be able to maintain or expand its margins and grow the bottom line.
Finally, as MercadoLibre offers some bank-like services, they do more than add interest. The added cash also funds other activities, allowing the company to enter new areas, launch new products, and generally grow its business.
