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Compelling Reasons to Consider Investing in MercadoLibre Inc. (MELI) Stock

Posted on Thursday, February 20th, 2020 by Sean Sechler

Compelling Reasons to Consider Investing in MercadoLibre Inc. (MELI) Stock

Investing in emerging markets stocks can be a risky endeavor if you don’t do your homework. However, one rapidly growing company is making big moves in the e-commerce space and has been rewarding investors with astonishing returns. MercadoLibre (NASDAQ:MELI) is a Latin American e-commerce business that primarily operates in the countries of Brazil, Argentina, and Mexico. It is adding value to people in Latin America in a variety of different ways and the market has taken notice.

After experiencing an incredible performance in 2019 and rewarding investors with a 95% gain, many are wondering if the company can continue to sustain their success. MercadoLibre’s recent Q4 2019 net loss of $54 million, or $1.11 per share, might make some investors hesitant to start a new position. However, when you really dive into the numbers in their earnings report and learn more about how MercadoLibre is adding so much value to Latin American consumers, you start to understand why this company is special. Let’s take a look at 3 compelling reasons to consider investing in MercadoLibre stock below.

Increasing Demand for E-commerce in Latin America

E-commerce has become one of the most profitable businesses on the planet over the past decade. Just one look at the stock prices of companies like Amazon (AMZN) and Shopify (SHOP) will tell you what the market thinks about the prospects of ecommerce. However, the story is a little bit different in Latin America. E-commerce is still catching on there and has a lot of room to grow. There are some Latin American consumers that are still hesitant to shop online or simply aren’t aware of the opportunity that a platform like MercadoLibre provides, but that is changing quickly. This bodes well for MercadoLibre, which features an e-commerce platform that allows people to list their own products online for sale or purchase products from other sellers online.

MercadoLibre’s marketplace listings reached 274 million in Q4 2019, which is a 50.5% year-over-year increase. That means more and more Latin Americans are using the platform to list their products or for shopping every day. The demand really is there, and will surely continue to increase as more and more people experience all that MercadoLibre has to offer.

Mercado Pago Growth

One of the most intriguing aspects of MercadoLibre is that in addition to their e-commerce business line, they are also helping Latin Americans out with digital payments. Many people in Latin America were unable to pay for goods online prior to the existence of services like Mercado Pago, which is MercadoLibre’s payment processing system. Mercado Pago actually experienced a year over year increase of 98.5% in TPV, or total payment volume, as of the Q4 2019 earnings report. $8.7 billion dollars of payments were processed through the Mercado Pago application, which tells us that it is a huge revenue-generating component of their business.

Initially, Mercado Pago was simply used as a means for processing payments on the MercadoLibre e-commerce marketplace. However, a strategic shift occurred in 2015 as management started realizing the widespread demand for electronic payment processing in Latin American countries. They began issuing mobile point-of-sale devices that help businesses all across Latin America to accept digital payments. Mercado Pago is quickly becoming one of the go-to digital payment processing options in the region and is contributing a lot of revenue to the company. This is a trend that should continue in the future as more and more people in Latin America begin digitally processing payments.

Heavy Investment in Sales & Marketing

One of the things that investors keep an eye out for when evaluating a rapidly growing company is whether or not they are investing in sales and marketing. When you look into the latest earnings report for MELI, you begin to realize that investments in sales and marketing were actually one of the main drivers of the $54 million Net Loss. Marketing costs were listed at $146.6 million, which means that management understands what it takes to continue to grow their brand. It’s great to see that MercadoLibre is focused on spreading the word about their company and solidifying their brand as the leading e-commerce business in Latin America.

It seems as though MercadoLibre has only just scratched the surface of scaling their business, and we could see exponential growth in e-commerce going forward in Latin America. Additionally, the rapidly growing Mercado Pago payment platform and heavy investment in sales and marketing give us a few great reasons to keep an eye on this company going forward.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Mercadolibre (MELI)$454.47flatN/A-125.20Buy$698.60
Amazon.com (AMZN)$1,906.59flatN/A82.86Buy$2,358.81
Shopify (SHOP)$357.65flatN/A-322.20Hold$445.00

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