Is MercadoLibre the Next Big E-Commerce Investment?

Over the years, many top e-commerce companies have created numerous millionaires. For instance, a $30,000 investment in Amazon‘s IPO in 1997 would be worth an astonishing $92 million today. Similarly, a $30,000 investment in Shopify‘s IPO in 2015 would now be around $1.3 million.

Both Amazon and Shopify continue to be reliable long-term investments as the e-commerce sector grows. However, achieving such significant returns again may be a challenge in the next decade. If you’re looking for another possible multibagger in the competitive e-commerce landscape, consider MercadoLibre (NASDAQ: MELI), a rising leader in Latin America.

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MercadoLibre’s Rapid Growth Explained

launcMercadoLibre was founded in 1999 and gained a first-mover advantage in Latin America’s evolving e-commerce market. The company built efficient logistics networks to navigate the region’s challenging landscapes and now operates across 18 countries. A significant portion of its revenue, however, comes from Brazil, Mexico, and Argentina.

The company has strengthened its position by integrating shoppers into its Mercado Pago digital payments platform. This platform is the backbone of its fintech ecosystem, providing credit card, lending, and cryptocurrency trading services. This interconnected system has helped widen the company’s advantage over both local and international competitors.

Between 2013 and 2023, MercadoLibre’s gross merchandise volume (GMV) expanded at a compound annual growth rate (CAGR) of 20%, its total payment volume (TPV) surged at a CAGR of 54%, and its total revenue grew at a CAGR of 41% in USD terms. Furthermore, its number of annual unique buyers increased from 20.2 million to nearly 85 million.

This impressive growth stemmed from increasing income levels and expanding internet access across Latin America, fueling the rise of the region’s e-commerce and fintech platforms. The trend accelerated during the COVID-19 pandemic. According to Grand View Research, the Latin American e-commerce market is expected to maintain a CAGR of 14.6% from 2024 to 2030 as shoppers continue shifting from physical stores to online shopping.

Recently, MercadoLibre applied for a banking license in Mexico, signaling its intent to compete with Nu Holdings in the online-only “neobanking” sector. Approximately 70% of Latin America’s population remains unbanked (World Bank), providing immense opportunities for new digital banking solutions. Grand View Research forecasts that the Latin American neobanking market could grow at a staggering CAGR of 54.8% from 2023 to 2030.

Additionally, MercadoLibre’s profit margins have improved as it has achieved greater economies of scale, reducing logistics and payment processing costs. As a result, the company became consistently profitable in 2021, with net income growing at a CAGR of 244% in the subsequent two years.

Why MercadoLibre Could Shine as an Investment

In the first nine months of 2024, MercadoLibre served 87 million active buyers and 56 million fintech monthly users. Yet, it still has substantial growth potential considering Latin America’s population exceeds 660 million.

Currently, analysts project MercadoLibre’s revenue and net income to grow at CAGRs of 29% and 48%, respectively, from 2023 to 2026. The stock appears reasonably valued at about 41 times next year’s earnings based on these expectations.

If MercadoLibre meets Wall Street’s forecasts and achieves an earnings per share (EPS) growth rate of 25% over the next eight years while trading at around 40 times earnings, its stock price could rise from approximately $1,900 today to $15,200 in ten years. Such a gain could boost its market cap from $96 billion to about $768 billion, although it would remain smaller than Amazon, currently valued at $2.4 trillion.

While MercadoLibre faces challenges from inflation, political issues, and regulatory pressures in Latin America, the company has successfully navigated similar obstacles in the past. Therefore, it may continue to grow in the long run. Investors purchasing MercadoLibre’s stock now and ignoring short-term distractions may see significant long-term benefits.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board of directors. Leo Sun holds positions in Amazon and MercadoLibre. The Motley Fool has investments in and recommends Amazon, MercadoLibre, and Shopify, and also recommends Nu Holdings. The Motley Fool maintains a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.