Most high-growth technology stocks are well off their highs, and Latin American e-commerce and fintech giant MercadoLibre (NASDAQ:MELI) is no exception. In this Fool Live video clip, recorded on April 1, Fool.com contributors Matt Frankel, CFP and Brian Feroldi discuss why this business has so much long-term potential and why investors should take a closer look while it’s on sale.
Matt Frankel: MercadoLibre is about 23% off its 52-week high as I’m speaking. But don’t feel too bad for MercadoLibre shareholders like me — the stock is still up 217% over the past year. Don’t feel too bad for us. MercadoLibre I like for two reasons. We’ll get into the reasons it fell in a minute, but it has two great businesses. It has its e-commerce marketplace, which is often referred to as the Amazon of Latin America — if you’ve heard of it referred to like that — and that business is growing fantastically well.
It’s the leader in its marketplace. Sales on its e-commerce platform more than doubled year over year. It operates in places like Argentina, Brazil — few other markets in Latin America that it’s starting to really grow a presence in. Latin America, MercadoLibre’s target market, has a population that’s about double the size of the U.S. It did a lot of revenue on its platform. It did about $20 billion of merchandise sales on its platform in the past year. That is about 4% of what Amazon did. When you say that their marketplace is the Amazon of Latin America, it doesn’t do the business justice. It would be like Amazon in 2007 or somewhere back then when it was in a much earlier stage of the business.
As if that weren’t exciting enough, MercadoLibre has another side of the business, which is why it’s on my radar — the fintech side of the business called Mercado Pago. This is its payment-processing platform. Think of this like PayPal/eBay relationship. We know PayPal started its life as eBay’s preferred payments processor. That’s how it really gained traction; that’s what it was known for. That was just the way you paid for things on eBay. Over the years, it grew. It started to build some off-platform businesses, they call it, where users would use PayPal in retail stores to pay on other websites, etc. This is what Mercado Pago is trying to do right now.
In the fourth quarter, I mentioned that MercadoLibre sold about $20 billion of merchandise on its marketplace in 2020. Mercado Pago processed payments at an annualized rate of about $60 billion in their fourth quarter. So it’s gaining a whole lot of traction with these off-platform payments. It’s the more exciting growth story of the business. I mentioned that MercadoLibre’s e-commerce business has more than doubled year over year. That’s the more boring part of its business. Mercado Pago actually increased payment volume by over 130% year over year, and off-platform payment volume grew by 150% in the fourth quarter year over year. That’s pretty impressive. It’s like an earlier stage PayPal/eBay relationship, where PayPal started to branch out, and over time, eBay became a drop in the bucket. I don’t know if either the Brians remember a couple of years ago when eBay announced that they were dropping PayPal as their preferred payments processor. Did anyone care? No.
Brian Feroldi: But it really hurt PayPal, didn’t it?
Frankel: Right. [laughs] Least of all. PayPal is an a all-time high. I think at the time, eBay made up about 6% of its sales at that point. The point is that it grew and grew its own entity and it really stood on its own. The payment volume is just really blown up off-platform, and it could be just the beginning. I could see it eventually getting to, like, a PayPal status where MercadoLibre is a significant but not a huge part of the revenue, where hopefully, they won’t drop them as a payment partner. That’s not where I see it going, but where it’s really its own business and the dominant payment processor in its market. To put it in context, Mercado Pago, I mentioned, processed payments at a rate of about $60 billion annualized in their fourth quarter. PayPal’s was over $1 trillion. It’s like investing in Amazon, eBay, and PayPal all in one, all at much earlier stages of their growth cycle.
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