MercadoLibre (MELI), the dominant e-commerce platform in Latin America, has experienced a remarkable 62.9% surge in its stock price over the past year. This outperformance eclipses the Zacks Internet-Commerce industry’s return of 36%, the broader retail sector’s gain of 30.3%, and the S&P 500 index’s rise of 31.1%. This impressive growth trajectory is driven by several key factors, including MELI’s burgeoning e-commerce business, robust shipping services, and a strong presence in major markets like Brazil, Mexico, and Argentina. The company is also benefiting from the impressive momentum of its Mercado Pago fintech platform, which enables users to send and receive payments seamlessly.
While MercadoLibre boasts a commanding position in the online retail market of Latin America, it faces growing competitive pressure from e-commerce giant Amazon, which is actively expanding its presence in the region. MELI also contends with competition from retail behemoth Walmart, which is making significant progress in the region, especially in Mexico. Market uncertainties, high inflation, recessionary fears, and weakening macroeconomic conditions pose headwinds for MercadoLibre. Margins are currently under pressure due to increased investments in free shipping, loyalty programs, and improvements in customer service, marketing, and chargebacks, as well as higher maintenance, hosting, and fraud prevention costs.
MercadoLibre’s Long-Term Prospects Hinge on E-commerce Strength
MercadoLibre’s expanding logistics operations are shaping the growth trajectory of its e-commerce business. The company’s growing efforts to enhance the user experience for buyers, backed by an expanding logistics and fulfillment network, are positive signs. MELI has become a natural destination for buyers and sellers by building the fastest and most extensive delivery network in the region and offering the widest assortment of products.
MercadoLibre’s recent introduction of robotics in its distribution center in Cajamar is noteworthy. The company intends to deploy over 300 robots by the end of this year, automating tasks like transporting shelves containing products from storage areas. These robots optimize processing time by 20% and increase total storage capacity by up to 15% per square meter, handling up to 20,000 items and 2,500 shelves daily. This automation helps to streamline repetitive tasks like product sorting.
The company is also gaining traction with its MELI Delivery Day, which helps to reduce last-mile delivery costs. With this option, multiple deliveries at a single address can be consolidated into a single drop. MercadoLibre introduced a concept called slower shipment service, known as SLOW, to bring flexibility to its logistics operations. SLOW offers shipping options for buyers who opt for slower delivery, resulting in a larger and more flexible shipping window for MELI. The company’s efforts to expand beyond LATAM, particularly in the United States, are notable. In the quarter ending in June, MELI launched a fulfillment center in Texas to integrate U.S. sellers into its ecosystem and boost product assortment for customers in Mexico. As a result, customers in northern Mexico receive their orders from the United States within a couple of days, free of charge.
In addition to logistics initiatives, MELI’s efforts to improve product selection are driving growth across verticals, especially in fashion, consumer electronics, apparel, and sports categories. The company has integrated standardized filters across brands and sellers on its commerce platform. Growing momentum across the MELI+ loyalty program is a significant positive. The company remains optimistic about the impact of MELI+ on future growth and customer retention as the user base continues to scale. MercadoLibre has observed that customers who enroll in the program increase their spending and buying frequency and shop across more categories than before enrollment.
Fintech Momentum Drives MELI’s Growth
Solid momentum in MercadoLibre’s Mercado Pago fintech platform and its well-performing credit business are major positives. MercadoLibre’s strong efforts to deliver an enhanced experience to Mercado Pago users are positive. Strength in assets under management and the Mercado Pago credit card is crucial for boosting user engagement of Mercado Pago. The company is leveraging its rich data to cross-sell in the LATAM region and bolster its fintech business. This data also enables MELI to have a better view of credit risks and operate a business that matches the lowest cost-to-serve in the region.
Solid Projections Bode Well for MELI
MercadoLibre’s long-term prospects are expected to benefit from strengthening commerce and fintech businesses. Its leading position in LATAM as an e-commerce and fintech company is anticipated to instill investor optimism in the stock. The Zacks Consensus Estimate for 2024 is pegged at $20.58 billion, indicating year-over-year growth of 42.2%. The consensus mark for 2024 earnings stands at $35.79 per share, suggesting a year-over-year rise of 83.9%. Earnings estimates have moved north by 1.7% over the past seven days.
MercadoLibre Stock Overvalued Right Now
The MELI stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment. MELI is trading at a premium, with a forward 12-month Price/Sales of 4.49X compared with the industry’s average of 1.72X.
Final Note
MercadoLibre’s leading position in Latin America’s e-commerce market, a growing footprint in the fintech domain, and a strong logistic network are key catalysts despite a stretched valuation. However, challenging macroeconomic conditions, persistent inflation, and intensifying competition are concerning for the stock. Hence, existing investors may consider holding their positions in the stock, but new investors should exercise caution, potentially waiting for a more favorable entry point. MercadoLibre currently has a Zacks Rank #3 (Hold).
