3 Great Reasons to Buy MercadoLibre

The world has been struggling for the better part of a year now to bring the COVID-19 pandemic under control, and in the process, the daily habits of vast numbers of people have been drastically altered. Obviously, the driving force behind many of those behavioral changes has been the need to practice social distancing. The business world has pivoted quickly to operating more in the online world, and on the consumer side, the use of e-commerce and digital payments platforms has accelerated dramatically.

MercadoLibre (NASDAQ:MELI) has been a strong beneficiary of those trends. Founded in 1999, it now boasts the largest e-commerce ecosystem in Latin America, and it owns an integrated online platform that connects merchants and customers. MercadoLibre was already growing at a steady pace before the pandemic, but its growth has been even more explosive in recent quarters.

Person typing on laptop with ecommerce bubbles around the picture

Image source: Getty Images.

MercadoLibre’s stock has more than doubled since the beginning of the year and recently closed at a new all-time high of $1,485 per share. But the e-commerce revolution that is propelling it higher looks like it’s on course to continue for many years to come. Here are three great reasons why you should add MercadoLibre stock to your portfolio.

1. Strengthening financial performance and cash flow

MercadoLibre’s net revenue hit $1.12 billion in the third quarter, up 85% year over year. Factoring out the effects of currency exchange rates, net revenue would have soared by 148% — its highest growth rate ever.

Net revenue growth also accelerated in the company’s key markets. For the quarter, year-over-year growth rates excluding foreign currency effects hit 260% in Argentina, 112% in Brazil, and 140% in Mexico. This translated to an operating profit of $83 million and a net profit of $15 million, in contrast to the losses it registered on both of those metrics in Q3 2019. Operating cash inflow for the first nine months of 2020 soared nearly three-fold to $926 million, while free cash flow more than doubled to $766.2 million. 

2. Soaring performance metrics

MercadoLibre has also enjoyed an impressive uplift in key performance metrics across its platforms, driven by the acceleration in the adoption of e-commerce. The number of its unique active users nearly doubled from 39.6 million a year ago to 76.1 million. Gross merchandise volume handled through the company’s platforms rose from $3.6 billion a year ago to $5.9 billion in Q3 2020, while the number of items sold more than doubled year over year to 206 million.

Mercado Envios, the company’s logistics solution that provides fulfillment and warehouse services to third-party sellers, continued gaining traction and hit a 64% adoption rate on a consolidated basis, rising to 74% near the end of the quarter. And its integrated online solutions platform, Mercado Pago, added around 7.5 million unique payers, bringing its total to nearly 60 million payers.

Taken together, these statistics demonstrate just how rapidly the adoption of MercadoLibre’s services is proceeding, and give reason to expect that its strong growth should continue.

3. Ongoing service improvements

MercadoLibre continues to strengthen its platform by launching and offering more services for both merchants and customers. By doing so, it can attract more buyers and sellers, retain merchant loyalty, and enhance the “stickiness” of its platforms. In Brazil, for example, the company launched Point Smart, a device that simplifies the selling process for businesses and enables them to better cross-sell their products. The company also lowered its free shipping threshold during the quarter, which helps broaden its customer base and increases the share of marketplace gross merchandise value that falls under this program.

In Mexico, cross-docking was introduced across the company’s network to reduce dependence on commercial carriers. This move helped to free up capacity to manage the increased merchandise volume flowing through the country. The company’s new Flex app was made available in Chile and Colombia, enabling faster shipping; at the same time, fulfillment services were ramped up.

These new initiatives will allow the business to scale up more quickly and help it cope with the surge in volumes and users across the company’s various platforms. By providing a more comprehensive suite of services for merchants and users, MercadoLibre continues to build up its competitive moat and entrench itself even more deeply into the region’s e-commerce ecosystem.

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