Categories Analysis, Retail

MercadoLibre (MELI): Here is a stock to have on your investment radar

The growth in ecommerce is expected to continue even after the pandemic subsides as people get used to the convenience that is inherent in online shopping

MercadoLibre Inc. (NASDAQ: MELI) is one of the stocks that benefited from the COVID-19 pandemic. The Argentine ecommerce company has caught the attention of market experts as it garnered growth from the shift towards online shopping and payments during the health crisis and stands to further benefit from the untapped potential in the Latin American market.

MercadoLibre reported fourth quarter 2020 earnings results a day ago. Revenues of $1.3 billion rose almost 97% year-over-year in USD and 148% on an FX-neutral basis, surpassing market estimates but net loss amounted to $1.02 per share, missing expectations. Despite the earnings miss, the general sentiment over the stock is bullish and experts believe it is one to keep an eye on.

Opportunities

MercadoLibre has a presence in two rapidly growing sectors – ecommerce and digital payments and this itself provides the company with massive growth potential going forward. The COVID-19 pandemic accelerated the shift towards ecommerce in 2020 and this was noticeable even in regions like South America where historically ecommerce penetration was low.

In Q4, MercadoLibre reported gross merchandise volume (GMV) of $6.6 billion, reflecting a growth of almost 70% in USD and 110% on an FX-neutral basis. Mobile GMV rose 271.4% YoY, FX-neutral, reaching 72.1% of GMV. Unique active users grew 71.3% YoY to 74 million while items sold almost 110% to 229.4 million.

The growth in ecommerce is expected to continue even after the pandemic subsides as people get used to the convenience that is inherent in online shopping. The company’s investments in shipping and logistics will also help improve its delivery services and bring down costs. MercadoLibre’s managed network reached a penetration of almost 80% in Q4.

Another area that is expected to see continued growth is digital payments. In Q4, total payment volume (TPV) through the Mercado Pago fintech platform totaled $15.9 billion, up almost 84% YoY in USD and 134% on an FX-neutral basis. Total payment transactions rose 131% YoY to 659.3 million transactions. Online payments TPV grew almost 143% YoY, FX-neutral.

MercadoLibre also sees opportunity in the credit space as a large part of the population in Latin America does not have access to credit cards and there is a growing need to facilitate credit. In Q4, the company’s credit solution Mercado Credito’s portfolio doubled in size YoY to $479 million.

Risks

MercadoLibre faces rising competition in the ecommerce market both from local players as well as from international players like Amazon.com Inc. (NYSE: AMZN). The company needs to maintain its current growth pace for the stock to see gains but this growth could be impacted by a slowdown in ecommerce growth as things normalize in a post-Covid world.

Since MercadoLibre’s operations are widely based in Latin America, the company faces risks from economic and political instability as well as currency fluctuations which are also capable of impacting its operations.

Stock

MercadoLibre’s stock has gained 163% over the past 12 months. TipRanks rates the stock as a Moderate Buy with an average 12-month price target of $2,009.62, which represents an upside of 23% from the current price.

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