This Digital Marketplace Shares may represent an Exceptional Investment Opportunity for the Next Decade
This Digital Marketplace Shares may represent an Exceptional Investment Opportunity for the Next Decade
Several prominent e-commerce stocks manufactured numerous millionaires over the last few decades. An illustration of this is a $30,000 investment in Amazon's initial public offering (IPO) in 1997 would swell to a staggering $92 million today. An identical investment in Shopify's IPO in 2015 would balloon to approximately $1.3 million.
Despite Amazon and Shopify maintaining their long-term prospects in the booming e-commerce sector, replicating those monumental gains over the subsequent decade might be challenging. Therefore, for those searching for another promising multibagger in the bustling e-commerce industry, they should scrutinize MercadoLibre (MELI 3.92%), the burgeoning market leader in Latin America.
What fuels MercadoLibre's rapid expansion?
MercadoLibre was launched in 1999, leveraging its first-mover advantage in Latin America's nascent and fragmented e-commerce market by constructing reliable logistics networks across the region's complex landscape. Today, it operates in 18 nations, with the majority of its revenue derived from Brazil, Mexico, and Argentina.
MercadoLibre exploited this growth by locking its customers into its Mercado Pago digital payments platform. This platform subsequently formed the backbone of its fintech ecosystem, offering additional credit card, lending, and cryptocurrency trading services. The enlarged stickiness of this ecosystem expanded MercadoLibre's competitive moat against its regional and international competitors.
Between 2013 and 2023, MercadoLibre amplified its gross merchandise volume (GMV) at a compound annual growth rate (CAGR) of 20%, its total payment volume (TPV) at a CAGR of 54%, and its total revenue at a CAGR of 41% in USD terms. Its number of annual unique buyers soared more than four-fold, from 20.2 million to nearly 85 million.
This growth was propelled by ascending income levels and internet penetration rates across Latin America, which fueled the region's e-commerce and fintech platforms. This trend intensified during the COVID-19 pandemic. However, as per Grand View Research, the Latin American e-commerce market could still swell at a CAGR of 14.6% from 2024 to 2030 as more shoppers abandon brick-and-mortar retailers.
Furthermore, MercadoLibre recently submitted an application for a banking license in Mexico, indicating its intention to rival Nu Holdings in the burgeoning "neobanking" market. Roughly 70% of Latin America's population remains unbanked, according to the World Bank, presenting an alluring market for launching new digital banking services. Consequently, Grand View Research forecasts the Latin American neobanking market to surge at a mind-boggling CAGR of 54.8% from 2023 to 2030.
Meanwhile, MercadoLibre's profitability improved as economy of scales diluted its logistics and payment processing expenses. This is why it transitioned into profitability in 2021 and experienced a net income growth rate of 244% over the subsequent two years.
Why could MercadoLibre be a promising investment for the upcoming decade?
MercadoLibre catered to 87 million active buyers and 56 million fintech monthly active users in the initial nine months of 2024. Nevertheless, there is still substantial potential for growth before MercadoLibre saturates Latin America's regional population exceeding 660 million individuals.
Presently, analysts anticipate MercadoLibre's revenue and net income to increase at CAGRs of 29% and 48%, respectively, from 2023 to 2026. Its stock still appears moderately priced in relation to these projections, priced at 41 times next year's earnings.
Assuming MercadoLibre meets Wall Street's expectations, continues to increase its EPS at a robust CAGR of 25% over the ensuing eight years, and maintains a trading multiple of approximately 40 times earnings by the final year, the company's stock price could escalate from about $1,900 today to $15,200 over the next 10 years. Such an eight-bagger increase would lift its market cap from $96 billion to about $768 billion – even so, that would still place it smaller than Amazon, which is currently worth $2.4 trillion.
MercadoLibre's business may be impacted by inflationary, political, and regulatory headwinds in Latin America throughout the subsequent decade. However, the company has weathered numerous such obstacles before, and I believe it can continue to grow for an extended period. Investors who purchase MercadoLibre's stock today and disregard the near-term tumult could reap substantial long-term rewards.
Given MercadoLibre's strong performance and growth potential in Latin America's e-commerce and fintech markets, investors might consider allocating part of their finance portfolio to this stock. With its growing GMV, TPV, and revenue, as well as its expanding financial services offerings, MercadoLibre could potentially generate significant returns over the coming years. In fact, some analysts predict MercadoLibre's stock price to increase significantly, potentially turning an initial investment into a significant gain, similar to early investors in Amazon and Shopify.