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MercadoLibre Stock Gains 25.7% in a Month: Should You Buy or Wait?
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MercadoLibre (MELI - Free Report) has shown impressive resilience and growth, with its share price increasing 25.7% in the past month. This stellar performance underscores investor confidence in the company's strong fundamentals despite broader economic uncertainties.
MELI’s gain not only compared favorably with the Zacks Internet-Commerce industry’s decline of 1.6% over the same period but also outpaced the broader Zacks Retail-Wholesale sector and the S&P 500’s returns of 2.6% and 2.7%, respectively.
The outperformance can be attributed to MercadoLibre’s robust second-quarter 2024 results that primarily benefited from strong e-commerce and fintech businesses, and growing advertising revenues. It also reflects MELI's continued success in the execution of business strategies and maintaining its leading position in the Latin America (LATAM) e-commerce space.
In the second quarter, total revenues were driven by accelerating commerce and fintech revenues, which grew 53.4% and 27.5% year over year, respectively. Revenues from MELI’s advertising services grew 51% on a year-over-year basis.
One-Month Price Performance
Image Source: Zacks Investment Research
Given such impressive results amid macroeconomic headwinds, the question arises of how investors should play the MELI stock at present.
Expanding Logistic Operations Act as Key Catalyst for MELI
MercadoLibre’s expanding logistic operations are shaping up the growth trajectory of its e-commerce business. Its logistics network plays a vital role in enabling e-commerce across LATAM.
The company’s strong efforts to expand outside of LATAM, especially in the United States, are noteworthy. In the quarter ending in June, MELI launched a fulfillment center in Texas to bring U.S. sellers into its ecosystem in order to boost the assortment of products for customers in Mexico.
On the back of this move, customers in north Mexico are receiving their orders from the United States within a couple of days for free.
In June 2024, MercadoLibre introduced robotics in its distribution center in Cajamar. It intends to deploy more than 300 robots by the end of this year. These robots will manage tasks like transporting shelves containing products from storage areas, which will optimize processing time by 20% and increase total storage capacity by up to 15% per square meter. These robots are capable of handling up to 20,000 items and 2,500 shelves per day, helping automate repetitive tasks like product sorting.
MercadoLibre introduced a concept called slower shipment service with its SLOW in order to bring flexibility to its logistic operations. SLOW offers shipping options for buyers who opt for slower shipping options. With SLOW shipments, the shipping window becomes larger and more flexible for MELI.
The company came up with another innovation called MELI Delivery Day in order to reduce its last-mile delivery costs. With the option of MELI Delivery Day, several deliveries at a single address can be made on a single drop.
MercadoLibre’s growing investment in technology and innovation reflects its commitment to building an efficient logistic network to deliver enhanced shopping experiences to customers.
Fintech Business Strength Drives MELI’s Growth
Solid momentum in its Mercado Pago fintech platform, which allows users to send and receive payments seamlessly, is a major positive. Its solid credit business is contributing well to the company’s fintech growth.
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. In second-quarter 2024, fintech monthly active users totaled 52 million, up 37.3% year over year.
The company is leveraging its rich data to cross-sell in the LATAM region and bolster its fintech business. 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. In the same quarter, TPV surged 86.2% year over year on a FX-neutral basis to $46.33 billion.
Rising Estimates Act as a Positive for MercadoLibre
MercadoLibre’s long-term prospects are expected to benefit from strengthening commerce and fintech businesses.
The Zacks Consensus Estimate for 2024 is pegged at $20.21 billion, indicating year-over-year growth of 39.7%. The consensus mark for 2024 earnings stands at $34.70 per share, suggesting a year-over-year rise of 78.3%. Earnings estimates have moved north by 4% over the past 30 days.
Image Source: Zacks Investment Research
Lofty Valuation Concerns MELI
Despite MercadoLibre's strong fundamentals, its valuation is worrisome. The stock's current price-to-sales (P/S) ratio is significantly higher than the industry average, indicating a stretched valuation. This leaves little room for error and makes the stock particularly vulnerable to any negative developments or earnings misses.
The MELI stock is trading at a premium with a forward 12-month Price/Sales of 4.37X compared with the industry’s 1.73X.
Image Source: Zacks Investment Research
MELI Faces Headwinds
Market uncertainties, high inflation, recessionary fears and weakening macro conditions are headwinds for MercadoLibre.
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.
Although MELI has a strong foothold in the online retail market of 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 intense competition from the retail behemoth Walmart (WMT - Free Report) , which is making good progress in the region, especially in Mexico.
Conclusion
MercadoLibre’s e-commerce strength, on the back of its expanding logistics network, is hard to ignore. Its well-performing fintech business is another positive.
However, challenging macroeconomic conditions, persistent inflation and intensifying competition are concerning. The company’s lofty valuation makes its near-term prospects foggy.
Image: Bigstock
MercadoLibre Stock Gains 25.7% in a Month: Should You Buy or Wait?
MercadoLibre (MELI - Free Report) has shown impressive resilience and growth, with its share price increasing 25.7% in the past month. This stellar performance underscores investor confidence in the company's strong fundamentals despite broader economic uncertainties.
MELI’s gain not only compared favorably with the Zacks Internet-Commerce industry’s decline of 1.6% over the same period but also outpaced the broader Zacks Retail-Wholesale sector and the S&P 500’s returns of 2.6% and 2.7%, respectively.
The outperformance can be attributed to MercadoLibre’s robust second-quarter 2024 results that primarily benefited from strong e-commerce and fintech businesses, and growing advertising revenues. It also reflects MELI's continued success in the execution of business strategies and maintaining its leading position in the Latin America (LATAM) e-commerce space.
In the second quarter, total revenues were driven by accelerating commerce and fintech revenues, which grew 53.4% and 27.5% year over year, respectively. Revenues from MELI’s advertising services grew 51% on a year-over-year basis.
One-Month Price Performance
Image Source: Zacks Investment Research
Given such impressive results amid macroeconomic headwinds, the question arises of how investors should play the MELI stock at present.
Expanding Logistic Operations Act as Key Catalyst for MELI
MercadoLibre’s expanding logistic operations are shaping up the growth trajectory of its e-commerce business. Its logistics network plays a vital role in enabling e-commerce across LATAM.
The company’s strong efforts to expand outside of LATAM, especially in the United States, are noteworthy. In the quarter ending in June, MELI launched a fulfillment center in Texas to bring U.S. sellers into its ecosystem in order to boost the assortment of products for customers in Mexico.
On the back of this move, customers in north Mexico are receiving their orders from the United States within a couple of days for free.
In June 2024, MercadoLibre introduced robotics in its distribution center in Cajamar. It intends to deploy more than 300 robots by the end of this year. These robots will manage tasks like transporting shelves containing products from storage areas, which will optimize processing time by 20% and increase total storage capacity by up to 15% per square meter. These robots are capable of handling up to 20,000 items and 2,500 shelves per day, helping automate repetitive tasks like product sorting.
MercadoLibre introduced a concept called slower shipment service with its SLOW in order to bring flexibility to its logistic operations. SLOW offers shipping options for buyers who opt for slower shipping options. With SLOW shipments, the shipping window becomes larger and more flexible for MELI.
The company came up with another innovation called MELI Delivery Day in order to reduce its last-mile delivery costs. With the option of MELI Delivery Day, several deliveries at a single address can be made on a single drop.
MercadoLibre’s growing investment in technology and innovation reflects its commitment to building an efficient logistic network to deliver enhanced shopping experiences to customers.
Fintech Business Strength Drives MELI’s Growth
Solid momentum in its Mercado Pago fintech platform, which allows users to send and receive payments seamlessly, is a major positive. Its solid credit business is contributing well to the company’s fintech growth.
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. In second-quarter 2024, fintech monthly active users totaled 52 million, up 37.3% year over year.
The company is leveraging its rich data to cross-sell in the LATAM region and bolster its fintech business. 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. In the same quarter, TPV surged 86.2% year over year on a FX-neutral basis to $46.33 billion.
Rising Estimates Act as a Positive for MercadoLibre
MercadoLibre’s long-term prospects are expected to benefit from strengthening commerce and fintech businesses.
The Zacks Consensus Estimate for 2024 is pegged at $20.21 billion, indicating year-over-year growth of 39.7%. The consensus mark for 2024 earnings stands at $34.70 per share, suggesting a year-over-year rise of 78.3%. Earnings estimates have moved north by 4% over the past 30 days.
Image Source: Zacks Investment Research
Lofty Valuation Concerns MELI
Despite MercadoLibre's strong fundamentals, its valuation is worrisome. The stock's current price-to-sales (P/S) ratio is significantly higher than the industry average, indicating a stretched valuation. This leaves little room for error and makes the stock particularly vulnerable to any negative developments or earnings misses.
The MELI stock is trading at a premium with a forward 12-month Price/Sales of 4.37X compared with the industry’s 1.73X.
Image Source: Zacks Investment Research
MELI Faces Headwinds
Market uncertainties, high inflation, recessionary fears and weakening macro conditions are headwinds for MercadoLibre.
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.
Although MELI has a strong foothold in the online retail market of 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 intense competition from the retail behemoth Walmart (WMT - Free Report) , which is making good progress in the region, especially in Mexico.
Conclusion
MercadoLibre’s e-commerce strength, on the back of its expanding logistics network, is hard to ignore. Its well-performing fintech business is another positive.
However, challenging macroeconomic conditions, persistent inflation and intensifying competition are concerning. The company’s lofty valuation makes its near-term prospects foggy.
MaercadoLibre currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.