MercadoLibre (MELI 3.09%) posted its third-quarter report on Nov. 1. The Latin American e-commerce leader's revenue rose 40% year over year (69% on a constant currency basis) to $3.76 billion and exceeded analysts' estimates by $250 million. Its EPS surged 179% to $7.18 and cleared the consensus forecast by $1.35.
MercadoLibre's stock popped after that massive earnings beat, but is it too late to buy its stock after its year-to-date rally of more than 50%? Let's review its growth rates, longer-term catalysts, and valuations to decide.
Image source: Getty Images.
Its core growth metrics are still accelerating
MercadoLibre's first-mover advantage in Latin America, which it established with the costly expansion of its logistics network over the past two decades, kept it ahead of its regional competitors and prevented overseas challengers like Amazon (AMZN 3.43%) and Sea's (SE 0.05%) Shopee from gaining ground. It also leveraged the growth of its e-commerce platform to expand Mercado Pago, the digital payments platform that now serves as the foundation of its fintech business.
Its year-over-year growth in gross merchandise volume (GMV), total payment volume (TPV), and unique active users all accelerated in the third quarter. All three of those core growth metrics have consistently accelerated over the past year.
|
Metric |
Q3 2022 |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
|---|---|---|---|---|---|
|
GMV Growth (YOY) |
32% |
35% |
43% |
47% |
59% |
|
TPV Growth (YOY) |
76% |
80% |
96% |
97% |
121% |
|
Unique Active Users Growth (YOY) |
11% |
18% |
25% |
30% |
36% |
|
Revenue Growth (YOY) |
61% |
57% |
58% |
57% |
69% |
Data source: MercadoLibre. Constant currency terms. YOY = Year over year.
That growth was driven by its strong GMV growth across its three largest markets: Brazil, Mexico, and Argentina. Its GMV in Brazil and Mexico grew 28% and 34%, respectively, as Argentina's GMV (partly driven by inflation) surged 147%. It partly attributed its growth in Brazil and Mexico to the relaunch of its loyalty program -- which bundles together various streaming video services, Deezer's streaming music services, and free shipping options -- in late August.
MercadoLibre served 120 million unique active users across its e-commerce and fintech platforms in the third quarter, but it still has room to grow. The Latin American e-commerce market could expand at a compound annual growth rate (CAGR) of 19% from 2023 to 2028, according to Mordor Intelligence, as internet penetration rates and income levels continue to rise.
Its gross margins are stable, and its profits are soaring
MercadoLibre was unprofitable for years, but economies of scale kicked in and enabled it to generate consistent profits in 2021 and 2022. Over the past year, its gross margins held steady as its operating margins continued to expand.
|
Metric |
Q3 2022 |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
|---|---|---|---|---|---|
|
Gross Margin |
50.1% |
48.6% |
50.6% |
64.3% |
53.1% |
|
Operating Margin |
11% |
11.6% |
11.2% |
16.3% |
18.2% |
Data source: MercadoLibre. Constant currency terms.
Its scale is diluting its shipping and payment processing costs, while its brand recognition is allowing it to rein in its marketing expenses. It's also selling more profitable products on its first-party marketplace while expanding its higher-margin third-party marketplace. The expansion of its credit business and advertising business are also boosting its margins.
Its stock is still reasonably valued relative to its growth
In USD terms, analysts expect MercadoLibre's revenue to rise 31% in 2023 and 23% in 2024. Those numbers are much lower than its constant currency growth rates because many of its core markets (especially Argentina) are still struggling with intense inflation and the devaluation of their currencies against the U.S. dollar. But with an enterprise value of $64 billion, MercadoLibre still looks fairly cheap at four times next year's sales.
Analysts expect MercadoLibre's EPS to more than double this year and grow another 43% in 2024. Based on those expectations, its stock still looks reasonably valued at 45 times forward earnings. It might not seem like a screaming bargain, but I believe its rapidly expanding operating margins and soaring profits easily justify that higher valuation.
It's not too late to buy MercadoLibre. It had a great run over the past year, but it's still trading more than 30% below its all-time high and has plenty of irons in the fire. The persistent concerns about inflation across Latin America might cap its near-term gains, but I believe it can generate even bigger returns once those headwinds dissipate.
