About MercadoLibre
We don’t really feel the immediate urge to lay out some semi-elongated introduction of what this company does and how it makes money, so let’s just get straight to the point, shall we?
MercadoLibre is basically Amazon but with its operations largely concentrated in South America, primarily in regions such as Uruguay (where it is reportedly headquartered), Argentina), Brazil, Colombia, Mexico (Central America, but we’ll take it), Peru and Venezuela, along with other nearby geographies as well.
Given what we said about its stark similarities with Amazon, one could likely put two and two together and figure out that MercadoLibre, at its core, is an e-commerce company that maintains, like Amazon, a platform through which it offers an extensive marketplace for consumers across South America and other select regions to purchase and receive practically anything a consumer could want in a product.
The United States has Amazon, China has Alibaba and South America just so happens to have MercadoLibre.
This being the case, it isn’t all that surprising that MercadoLibre generates its revenues through fees generated through its online marketplace (i.e., by charging sales commissions on products that are sold, primarily) and through some other means such as selling ads.
One of the things we initially verified in our recent stock analysis article on Amazon was the fact that trailing twelve month (TTM) net profit margins tend to be fairly unimpressive and low in the e-commerce sector, especially for large operators given the particularly competitive business landscape and plethora of operations and costs associated with simply transporting one good to one person at scale.
Additionally, while Amazon is a rather special case in that it is taking meaningful strides in deepening its presence in other, more profitable segments such as cloud computing and entertainment (streaming and music, primarily), MercadoLibre doesn’t have as much of a footprint, at least, according to the preliminary research we have done, in other sectors and has most of its operational efforts concentrated in the e-commerce and logistics spaces, which has yet to be proven to be a definitely good or bad thing.
That’s where the research must come in.
Research, do your thing.
MercadoLibre’s stock financials
First of all, given the fact(s) that MercadoLibre is just about a $60 billion company with a share price of a rather lofty $1,193.75 (yes, this is the price for just one single share of stock in the entire company) as well as a price-to-earnings (P/E) ratio of 96.83 and no consistent annually distributed dividend offered to its shareholder base at the moment, we can make some general yet useful assumptions and statements about this company.
For example, MercadoLibre’s stock price (NASDAQ: MELI) is seemingly trading at a premium valuation, given the price-to-earnings fair value benchmark of 20 that we continuously harp on (but it is still useful to reference in more cases than none, so chill) and that anything higher than 20 implies that a security is overvalued, which seemingly is the case with MercadoLibre, unless, of course, there is some tangible, meaningful growth behind this company in recent years, which could certainly act as a means of justifying paying a little extra for a slice of ownership in said company.
Additionally, we will also briefly add that we are not beside ourselves at all regarding the company opting to not issue an annual dividend to its shareholders at this stage given the multitude of expenses and other rather significant costs regularly involved in a scaled e-commerce company and its everyday operations.
Moving right over to the company’s balance sheet, MercadoLibre’s executive team is in charge of managing and deploying around $13.7 billion in terms of total assets as well as approximately $11.9 billion in terms of total liabilities, which, to us, is far from shocking given, again, the costs and long list of expenses involved in operating such a business, inventory and logistics-related being just a few of the costs this company takes on the chin.
All things considered, however, given the nature of the e-commerce industry and its relative leadership position serving our neighbors to the south, we feel just fine with the company’s overall balance sheet structure given that it has still found a way to stay total asset-heavy, not to mention that a chunk of its total liabilities are categorized as “total long term debt,” which buys some time for MercadoLibre.
As it relates to the shape of the company’s income statement, primarily, its total annual revenues since 2018, MercadoLibre’s has grown like an absolute weed.
For instance, according to the figures displayed on TD Ameritrade’s platform, the company’s total annual revenues started (in 2018) at a relatively humble $1.44 billion, climbing the following year to almost $2.3 billion, almost $4 billion the year that followed, just north of $7 billion in 2021, leading all the way up to its latest reported total annual revenue figure of around $10.5 billion, as reported in 2022.
It seems as though MercadoLibre has continued expanding into new markets while simultaneously focusing on how it can further penetrate into its already existing markets in South America and Central America as well, which it has seemingly done a fine job in both pursuing and executing.
It is also good to find that e-commerce spending in general has remained strong and growthy, even amidst global supply chain challenges, COVID-19-related issues and general regional and global cutbacks in consumer discretionary spending.
Onto the company’s cash flow statement, MercadoLibre’s net income (referencing since 2018 as well) has seen its fair share of ups and downs, but at the same time, it would almost be unbelievable if this company didn’t experience ups and downs in the recent economic landscape with specific respect to net income generation.
As a sort of reference, the company’s net income in 2018 stood at -$37 million, deepening this trend to the downside to the following year to -$172 million, shredding down some of these losses in 2020, bringing its net income back up to -$1 million, finally attaining some sunlight the next year, reaching $83 million and $482 million in terms of net income in 2021 and 2022, respectively.
This is a great trend, as it is quantifies to a large degree MercadoLibre’s seriousness in becoming net income positive over time and it also highlights its relative economic resilience during and emerging from what has so far apparently been the worst of COVID-19 and the other listed challenges faced by individuals and companies across the globe in recent years.
MercadoLibre’s stock fundamentals
We briefly mentioned our projections regarding this company’s trailing twelve month net profit margin but now seems like a great time to see if we were on the money or off the mark.
Sadly, we were on the money for the most part, however, this company’s TTM net profit margin is certainly not as low as we had initially assumed it to be, specifically displayed as 5.43% to the industry’s average of 0.76%, according to TD Ameritrade’s platform.
Concentrating one’s operations in certain geographies, regions and even sectors can have a positive effect on a business and its ability to turn out a greater overall TTM net profit margin than that of its peers.
Also, it might not hurt to have a strict focus on e-commerce, instead of laying down investments and depending on other less focused revenue streams, as this can easily inhibit a company’s ability to turn a higher, more competitive TTM net profit margin for quite some time, however, this sort of focus has likely served MercadoLibre very well.
From the standpoint of the company’s TTM returns on assets and investment(s), MercadoLibre’s are also both higher than that of the industry’s listed averages, for instance, with its TTM returns on investments standing at 12.1% to the industry’s listed, more mediocre average of 1.79%.
Another seemingly inherent benefit of concentrating one’s operations in one major line of business as opposed to dozens upon dozens.
No offense, Amazon.
Should you buy MercadoLibre stock?
In considering an investment in any sort of company (large or small) that operates primarily overseas, we think it should be at or near the top of every investor’s list to understand anything and everything they can with respect to the laws and potential prevailing corruption or turmoil (or hopefully, lack thereof) in the region(s) in which said company operates.
This is just sort of a general disclaimer that we thought would be worth adding, similar to that which we have mentioned in previous stock analysis articles related to companies that operate mainly overseas.
Looking at MercadoLibre by itself, this company has a very strong presence in the e-commerce sector (again, namely in South America, with a sliver of Central America), notably growing total annual revenues, a comparatively competitive TTM net profit margin and TTM returns on both assets and investments and growing cash flows, at least, in more recent years.
All of this being said, we still think this company’s stock price (NASDAQ: MELI) is a bit full of itself at the moment and especially as the global economy continues gradually slowing, we still feel like we would be overpaying for a company that just isn’t worth overpaying for at this current moment in time.
Putting everything discussed in this article together, we take the most comfort in giving this company’s stock a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.