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MercadoLibre (MELI) Gains 3% YTD: How to Play the Stock Now?
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MercadoLibre (MELI - Free Report) shares have grown 3% year to date, underperforming the industry and the S&P 500 index’s rise of 13% and 14.1%, respectively. The MELI stock is also currently trading below its 50-day moving average, indicating a bearish trend.
The company is suffering from market uncertainties, high inflation and weakening macro conditions in Argentina. Mounting expenses related to warehousing and shipping are hurting its margin expansion.
Although MercadoLibre has a strong foothold in the online retail market of Latin America (LATAM), rising competitive pressure from the e-commerce giant Amazon (AMZN - Free Report) , which is making strong efforts to expand its presence in LATAM, is concerning. MELI also faces strong competition from the retail behemoth Walmart (WMT - Free Report) , which is making good progress in the region, especially in Mexico.
Apart from this, the financial services market of LATAM is becoming increasingly competitive with growth of several fintechs. This does not bode well for MercadoLibre’s market position.
MELI Shares Trading Below 50-Day SMA
Image Source: Zacks Investment Research
Nevertheless, MELI’s growing e-commerce business, robust shipping services, and strong presence in Brazil, Mexico and Argentina are constantly driving its rally. Strength in its integrated advertising platform is a plus.
Solid momentum in its Mercado Pago fintech platform, which allows users to send and receive payments seamlessly, is another positive. Growing credit business is also contributing well to the company’s fintech growth.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Given the combination of risks and rewards, a question arises regarding the company's growth sustainability and what investors can expect moving forward. Investors should closely monitor the key metrics, such as gross merchandise volume (GMV), number of successful items sold, number of successful items shipped and total payments volume (TPV), to understand the future trajectory of the company.
Initiatives That Will Boost Long-Term Prospects
MercadoLibre’s solid execution presents a solid long-term opportunity.
Being a well-established e-commerce player in Latin America, the company is well-poised to take advantage of increasing Internet penetration. With its advanced technological and commercial solutions, MELI addresses typical cultural and geographic challenges associated with operating an online commerce platform in this part of the world.
The company’s growing efforts toward delivering enhanced user experience for buyers on the back of an expanding logistic and fulfillment network are positive. MELI has become a natural destination for buyers and sellers by building the fastest and most extensive delivery network in the region, and by offering the widest assortment.
MercadoLibre will continue to invest to strengthen its shipping service, including same-day and next-day shipments, which form the core of its value proposition.
Expanding logistics and shipping services of MELI are expected to drive growth in the number of successful items shipped. The Zacks Consensus Estimate for this metric for 2024 is pegged at 1.62 billion, indicating year-over-year growth of 17.7%.
MercadoLibre is building one of the largest retail media platforms in the LATAM region by leveraging its first-party data to offer advertisers unique audience targeting capabilities and a complete full-funnel strategy.
The company’s efforts to improve product selection are driving growth across verticals, particularly fashion, consumer electronics, apparel and sports categories. It has integrated standardized filters across brands and sellers on its commerce platform.
Growing momentum across the MELI+ loyalty program is a major positive. The company remains optimistic about the impacts 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 prior to enrollment.
These efforts are expected to boost the number of items sold and drive growth in the company’s GMV. The consensus mark for both metrics for 2024 stands at 1.65 billion and $50.8 billion, suggesting year-over-year growth of 17.2% and 13.4%, respectively.
The company’s growing ad initiatives, such as the launch of an automated buying platform for display ads accompanied by live reports and unique insight analysis, enhanced bidding algorithm for product ads, and the introduction of placements on search and product pages for more visibility to sponsored products, are noteworthy.
Coming to the fintech business, MercadoLibre’s strong efforts to deliver an enhanced experience to the Mercado Pago users are positive. Strength in assets under management and Mercado Pago credit card is crucial for boosting user engagement of Mercado Pago. In first-quarter 2024, fintech monthly active users totaled 49 million, up 37.6% year over year.
To bolster its fintech business, the company is leveraging its rich data to cross-sell in the LATAM region. The 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.
A strengthening fintech business is vital for MELI’s TPV growth. The Zacks Consensus Estimate for 2024 TPV is pegged at $221.6 billion, suggesting year-over-year growth of 21.2%.
Conclusion
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 expected to instill investor optimism in the stock.
The company’s strong balance sheet, with a cash and investments balance of $6.25 billion at the end of the first quarter of 2024, coupled with the absence of current and long-term debt, remains encouraging.
The Zacks Consensus Estimate for 2024 is pegged at $19.7 billion, indicating year-over-year growth of 36.1%. The consensus mark for 2024 earnings stands at $33.81 per share, suggesting a year-over-year rise of 73.7%. Earnings estimates have been unchanged over the past 30 days.
However, the near-term prospects of the company are foggy due to the weakening market conditions in Argentina. Margins are currently under pressure due to increased investments in free shipping, loyalty programs, and improvement in customer services, marketing and chargebacks, as well as higher maintenance, hosting and fraud prevention.
Moreover, MELI is trading at a premium with a trailing 12-month P/S of 3.75X compared with the industry’s 1.66X, reflecting a stretched valuation at present.
Image: Bigstock
MercadoLibre (MELI) Gains 3% YTD: How to Play the Stock Now?
MercadoLibre (MELI - Free Report) shares have grown 3% year to date, underperforming the industry and the S&P 500 index’s rise of 13% and 14.1%, respectively. The MELI stock is also currently trading below its 50-day moving average, indicating a bearish trend.
The company is suffering from market uncertainties, high inflation and weakening macro conditions in Argentina. Mounting expenses related to warehousing and shipping are hurting its margin expansion.
Although MercadoLibre has a strong foothold in the online retail market of Latin America (LATAM), rising competitive pressure from the e-commerce giant Amazon (AMZN - Free Report) , which is making strong efforts to expand its presence in LATAM, is concerning. MELI also faces strong competition from the retail behemoth Walmart (WMT - Free Report) , which is making good progress in the region, especially in Mexico.
Apart from this, the financial services market of LATAM is becoming increasingly competitive with growth of several fintechs. This does not bode well for MercadoLibre’s market position.
MELI Shares Trading Below 50-Day SMA
Image Source: Zacks Investment Research
Nevertheless, MELI’s growing e-commerce business, robust shipping services, and strong presence in Brazil, Mexico and Argentina are constantly driving its rally. Strength in its integrated advertising platform is a plus.
Solid momentum in its Mercado Pago fintech platform, which allows users to send and receive payments seamlessly, is another positive. Growing credit business is also contributing well to the company’s fintech growth.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Given the combination of risks and rewards, a question arises regarding the company's growth sustainability and what investors can expect moving forward. Investors should closely monitor the key metrics, such as gross merchandise volume (GMV), number of successful items sold, number of successful items shipped and total payments volume (TPV), to understand the future trajectory of the company.
Initiatives That Will Boost Long-Term Prospects
MercadoLibre’s solid execution presents a solid long-term opportunity.
Being a well-established e-commerce player in Latin America, the company is well-poised to take advantage of increasing Internet penetration. With its advanced technological and commercial solutions, MELI addresses typical cultural and geographic challenges associated with operating an online commerce platform in this part of the world.
The company’s growing efforts toward delivering enhanced user experience for buyers on the back of an expanding logistic and fulfillment network are positive. MELI has become a natural destination for buyers and sellers by building the fastest and most extensive delivery network in the region, and by offering the widest assortment.
MercadoLibre will continue to invest to strengthen its shipping service, including same-day and next-day shipments, which form the core of its value proposition.
Expanding logistics and shipping services of MELI are expected to drive growth in the number of successful items shipped. The Zacks Consensus Estimate for this metric for 2024 is pegged at 1.62 billion, indicating year-over-year growth of 17.7%.
MercadoLibre is building one of the largest retail media platforms in the LATAM region by leveraging its first-party data to offer advertisers unique audience targeting capabilities and a complete full-funnel strategy.
The company’s efforts to improve product selection are driving growth across verticals, particularly fashion, consumer electronics, apparel and sports categories. It has integrated standardized filters across brands and sellers on its commerce platform.
Growing momentum across the MELI+ loyalty program is a major positive. The company remains optimistic about the impacts 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 prior to enrollment.
These efforts are expected to boost the number of items sold and drive growth in the company’s GMV. The consensus mark for both metrics for 2024 stands at 1.65 billion and $50.8 billion, suggesting year-over-year growth of 17.2% and 13.4%, respectively.
The company’s growing ad initiatives, such as the launch of an automated buying platform for display ads accompanied by live reports and unique insight analysis, enhanced bidding algorithm for product ads, and the introduction of placements on search and product pages for more visibility to sponsored products, are noteworthy.
Coming to the fintech business, MercadoLibre’s strong efforts to deliver an enhanced experience to the Mercado Pago users are positive. Strength in assets under management and Mercado Pago credit card is crucial for boosting user engagement of Mercado Pago. In first-quarter 2024, fintech monthly active users totaled 49 million, up 37.6% year over year.
To bolster its fintech business, the company is leveraging its rich data to cross-sell in the LATAM region. The 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.
A strengthening fintech business is vital for MELI’s TPV growth. The Zacks Consensus Estimate for 2024 TPV is pegged at $221.6 billion, suggesting year-over-year growth of 21.2%.
Conclusion
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 expected to instill investor optimism in the stock.
The company’s strong balance sheet, with a cash and investments balance of $6.25 billion at the end of the first quarter of 2024, coupled with the absence of current and long-term debt, remains encouraging.
The Zacks Consensus Estimate for 2024 is pegged at $19.7 billion, indicating year-over-year growth of 36.1%. The consensus mark for 2024 earnings stands at $33.81 per share, suggesting a year-over-year rise of 73.7%. Earnings estimates have been unchanged over the past 30 days.
However, the near-term prospects of the company are foggy due to the weakening market conditions in Argentina. Margins are currently under pressure due to increased investments in free shipping, loyalty programs, and improvement in customer services, marketing and chargebacks, as well as higher maintenance, hosting and fraud prevention.
Moreover, MELI is trading at a premium with a trailing 12-month P/S of 3.75X compared with the industry’s 1.66X, reflecting a stretched valuation at present.
Image Source: Zacks Investment Research
Hence, investors should wait for a better entry point for MercadoLibre, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.