MercadoLibreit is (NASDAQ: MELI) marketplace receives more than 600 million visits per month. In this clip from “The 5” on Motley Fool live, recorded on January 18, Motley Fool contributor Trevor Jennewine analyzes the financials of the e-commerce powerhouse and explains why the stock might be suitable for growth investors.
Trevor Jennewin: I think most foolish investors know MercadoLibre (NASDAQ: MELI). It is the largest e-commerce and fintech ecosystem in Latin America. They operate in 18 different countries in the region. In addition to this marketplace and fintech platform, the company’s portfolio also includes shipping and fulfillment services, financing, digital advertising tools and software that helps merchants build their own storefronts. in line. MercadoLibre really has this complete ecosystem designed to really facilitate commerce. In terms of inflation the way the business generates revenue it takes a percentage of that gross merchandise volume so the total sales moving through the platform and then when a trader uses the platform fintech, it takes a percentage of the total payment volume. The chart on the right side of the slide shows the company’s GMV and TPV over the past few years, and they also do a year-over-year comparison. You can see that year-over-year, the fintech participation rate has increased slightly, 3% compared to 2.7%. Gross volumes of goods are valued. The participation rate is increasing more rapidly there, 16.7% during the last quarter, against 12.3%. For me, this proof is the value that MercadoLibre creates for its customers. The fact that he is able to withdraw more money means that he must provide some kind of valuable service.
When you look at the company’s competitive edge, MercadoLibre’s marketplace receives around 668 million visits per month, according to the online retailer. The next closest competitor in the region is Amazon (NASDAQ:AMZN), with 169 million visits per month. This amplifies the network effect you get with any marketplace-style business model. Merchants will choose the platform that will reach the most consumers. This means that you are going to have more merchants listing items on MercadoLibre, which serves to improve product selection. It’s convenient because consumers want to shop on the platform that has the best selection of products, which is going to bring more consumers into the market and that creates this flywheel effect that’s building up. Plus all the services I mentioned, shipping, fulfillment, financing, digital advertising tools, this ecosystem is very sticky. The more products a trader uses, the more difficult it becomes to cut ties with MercadoLibre, leading to high switching costs. This is exactly what is happening. In the last quarter, 97% of items were shipped through the company’s logistics business. That’s up from 92% last year. Total payment volume increased by 44%. Gross merchandise volume increased by 24%. The company said its credit portfolio nearly quadrupled in the quarter. Some traders are embracing these services, which makes its platform stickier every time.
The company’s financial performance appears strong, $6.3 billion in revenue in the past year, up 89% profitable on a GAAP basis. They generated $78 million, resulting in a net income of nearly $79 million. That’s up from a loss of $4.1 million the previous year. Negative free cash flow right now mainly due to two different things. Cash payable to customers decreased and credit card receivables increased. None of these things are of particular concern. They are all related to timing. It just means that at the end of the quarter, the most recent quarter ended, MercadoLibre held less money than it owed customers, and it also received less money than it was owed. for credit card payments. The company will eventually get that money. I pay attention to free cash flow. You want this number to be positive and growing. But I’m not too worried that he’s turned negative recently. The stock is down 44% from its high. The company currently has a market capitalization of $55 billion. I think over the next decade the stock could grow fivefold, even tenfold. If you’re looking for a reason to invest in the short term, I think it can work as an inflation hedge, but longer term, I certainly like the company.
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