MercadoLibre - So Much More Than E-Commerce
Think about some of your favorite companies in the market right now. It probably includes something like Amazon, right? A large, conglomerate-type company that has its fingers in a few pies, but specializes in e commerce and digital sales. And what about something like Square? A digital-first payment platform that's easy to use and easily accessible to retail and business alike? And how about Etsy, that can offer niche items in hard to find places? Now imagine if you could combine those platforms into one and market it to a rapidly-expanding segment of wealthy people? Luckily, we have that. It's called MercadoLibre (NASDAQ: MELI).
Top-line Numbers
Public Debut: 2007
Market Capitalization: $77.7 billion
Headquarters: Buenos Aires, Argentina
2020 FY Revenue: $3.97 billion
1 Year Share Gain: 50.4%
5 Year Share Gain: 928.6%
How Did MercadoLibre Get Started?
MercadoLibre ("free market" in English) has been around awhile. Founded in 1999 by current CEO Marcos Galperin, this was a company started in a dorm room. Galperin was attending Stanford University at the time, and his idea attracted the attention of his Finance professor, Jack McDonald, who helped him find early backers. And find them he did. Out of the woodwork came angel investor John Muse, and later JPMorgan. Next came an investment from eBay in 2001. However, continuing the tradition of horrible business decisions by eBay leadership, the company sold off their ownership stake of MercadoLibre in 2016, only to open their own branded store on the platform the following year.
So What's The Business?
This is going to sound absolutely wild to American investors who have likely never heard of this company, but I wasn't lying in the intro. This company is an actual combination of the business models of Amazon, Etsy, Square and even a little SoFi. They have five main business processes:
MarketPlace - digital commerce for sellers to list their items (Amazon)
Mercado Shops - an overall tool for usability improvements for small businesses (Etsy)
Mercado Pago - digital payment solutions (Square)
Mercado Publicado - an in-house advertising agency
Mercado Credito - the company's credit line banking-style product (SoFi)
They're also now in the nascent stages of expanding into real estate and automobile division with a recurring revenue model. MarketPlace has over 3,000 registered businesses in the system. Mercado Pago processed 1.91 BILLION transactions in 2020, an increase of 129% year over year. This business is absolutely staggering, and its share price has reflected that. In the past 5 years it's crushed the S&P 500:
And just look at the adjusted 5 year return when you compare them to their main competitors:
Will I Invest In MercadoLibre?
MercadoLibre has been on my radar for some time, and is one of those that I'm ashamed of myself for not having invested in immediately. They have a wonderful business that is genuinely frighting in its potential. They've stared down Amazon, Etsy, eBay, Square and Paypal in Latin America and smacked them all away. But why are those companies interested in Latin America in the first place? Because of the new customer base.
The Latin American middle-class has exploded in the past 10 years. It's now estimated that 40-60% of Latin American households are now considered middle-class, due mostly to increasing access to technology jobs in those countries that provide higher salaries. This, in turn, leads to more spending by the newly consolidated segment. This is why MercadoLibre has exploded. It was in the right place at the right time, and ingratiated itself with the right demographic segments in order to take advantage of the rising tides of Latin American capitalism.
I cannot wait to invest in this company. Even at a $77 billion market cap, they have a ton of room to grow along with the middle-class, and the investments they're making into their operating countries they are in only set themselves up for better results in the future. I believe that this is a rocket ship, and Wall Street agrees. The average price target for MELI on the Street is $1.951, a 25% upside in the next 12 months from where we currently sit. However, the fundamentals moving forward are a little daunting. If you can stomach the massive 1,056x Forward Price to Earnings ratio, and you have a long-term time horizon, I think you're set up for one hell of a winner.
Short-term: Long
Long-term: Long
The following article does not constitute investing advice and is for entertainment purposes only. Please do your own research and do not buy or sell anything based purely on what you read here.
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