MercadoLibre (MELI 3.09%) is among the best-performing e-commerce stocks in the last five years. With a 275% return, the Latin American company has beaten some of the behemoths of this sector -- including Amazon and Shopify -- in delivering returns to investors during this period.
This rising star delivered remarkable growth during the pandemic and even sustained that performance in recent quarters. Let's delve into two reasons MercadoLibre should still be on investors' radar now.
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It has been executing incredibly well
MercadoLibre is probably one of the best growth stocks in recent years. From 2018 to 2022, the e-commerce giant grew revenue from $1.4 billion to $10.5 billion. Just last year alone, revenue surged by a remarkable 50%, while earnings before interest and tax (EBIT) more than doubled from $440 million to $1.0 billion.
Like all e-commerce companies, MercadoLibre benefited from the surge in online shopping when the COVID-19 pandemic hit. But unlike most of its rivals, who have struggled as the global economy has reopened, MercadoLibre has continued to deliver mind-blowing numbers. In the first and second quarters of 2023, revenue surged by 58% and 57% (on a currency-neutral basis). On top of that, profitability also doubled in the second quarter of 2023 to $558 million.
MercadoLibre's strong performance in recent quarters was across regions and segments. For instance, commerce and fintech segments grew revenue by 65% and 48%, respectively, in the second quarter. And all countries delivered revenue growth of more than 20% in that quarter.
These solid financial metrics resulted from strong and sustainable development in user base and wallet share. For instance, active users and marketplace buyers grew 29% and 17% to 109 million and 48 million, respectively, in the latest quarter. Gross merchandise value (GMV) surged even more by 47% on the back of higher spending per user.
The company's success has not been accidental but rather the result of an intense focus on delighting its users over a long period. The company localized its operation to ensure customers feel at ease when using its service, which has helped it gain trust over the long run. It continuously innovates and brings new services -- such as fintech, payment, logistics, etc. -- to its customers.
MercadoLibre is riding on mega tailwinds
When MercadoLibre went public in 2007, it had only achieved $52 million in sales in the prior year. That number has multiplied by about 200 times to reach $10.5 billion in 2022. With such a remarkable growth track record, investors might wonder if the company's growth days were behind it. Fortunately, the answer is no.
Firstly, the Latin American region has a relatively low e-commerce penetration of 11% (e-commerce sales as a percentage of total retail). Comparatively, China has more than 20% penetration. As more consumers access the internet, online shopping will naturally grow. Another way to look at this is that MercadoLibre had 109 million active users in the latest quarter, just a fraction of the more than 600 million population in this region.
Besides, Latin America has a young and growing middle-class population. This favorable demographic presents a tremendous opportunity for MercadoLibre. As more young individuals gain internet access and their disposable income rises, their demand for online shopping will naturally surge. As the leading e-commerce company in this region, the tech company is well-positioned to benefit from this demand increase.
On top of that, the digitalization trend will continue in the region across all industries. As the leading technology company historically focused on innovation and customer delight, MercadoLibre is in a prime position to add new services (in commerce and financial services) in the coming years thanks to its relationship with its users. Fintech, payments, credits, and investments are examples of its prior success in leveraging existing e-commerce relationships to grow customers' wallet share.
What it means for investors
E-commerce companies, in general, have been facing a challenging time for the last few quarters. Yet, MercadoLibre has bucked the trend by delivering outstanding numbers in revenue growth and profitability expansion. Moreover, it is well-positioned to ride multi-year trends, such as the increase in e-commerce and digital services penetration and the growing middle-class population, which will sustain its growth engine for years, if not decades.
All said, it's a company that investors should watch closely.
