Thursday, December 1 2022

MercadoLibreit’s (NASDAQ: MELI) the valuation is the cheapest since 2016 based on the price-to-sales ratio. Is it a buy now? In this segment of “The Future of Fintech”, recorded on February 3Motley Fool contributors Danny Vena and Jason Hall break down the finances of this Latin American fintech giant.

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Danny Vena: Very quickly, Mercado Libre is the largest e-commerce and digital payments ecosystem in Latin America. It provides e-commerce platform, logistics and delivery services, cross-docking, digital payments, digital wallet, consumer and merchant credits, etc. Now this serves a largely cash-based economy, where around 50% of the population does not have a bank account or credit card. This is where its Fintech solution, Mercado Pago, comes in, where it evolved on the platform as a way for people who didn’t have a credit card to shop online. It has since expanded beyond its own platform to other online retail platforms, and also made the leap to brick-and-mortar retailers because it has become so popular. .

Now, I’m not going to bury the lead here, we’ve seen a downturn in both e-commerce and the digital payment spaces. I will be watching closely to see how MercadoLibre performs. Now, I don’t think it’s worth answering Jason’s question, a 45% or 50% haircut or whatever. At market close yesterday, it was 45%. I haven’t looked at the stock today, but no, I don’t think his business is worth much less than it was here just a few months ago. Now just to look back at what its third quarter revenue was, it was up 73% year over year, gross merchandise volume on the platform was up 30%, fintech was up even faster, total payments volume increased by 59 percent, off-platform payments volume increased by 79 percent. [inaudible 02:47:18]

Jason Hall: Danny, I just want to interrupt you there. This is the big problem. It’s Mercado Pago, more money is spent on Mercado Libre than on Mercado Libre. It’s incredible.

Danny Vena: Exactly. The reason is that if you think about it, the growth available on the platform is limited because it is directly related to the number of purchases. Last time I knew that somewhere in the North Quarter, 90% of all purchases on the Mercado Libre platform were using Mercado Pago. The big area of ​​growth is the fact that they have become the de facto digital payment source in Latin America because so many people have been using it for so long. People have been able to use it to pay their cell phone bills and to pay their utilities that now other bricks and mortar merchants are saying, “I want to accept Mercado Pago in my store because so many people have asked questions about it.” That’s where all this growth is coming from. In fact, not too long ago, the company recorded five successive quarters of triple-digit year-over-year growth in total non-platform payments volume.

Now that’s slowed down a bit, but that shouldn’t detract from the fact that this is a huge accomplishment. Now the management does not provide advice, as we mentioned earlier. But consensus analyst estimates call for revenue growth of 54% and the company should turn a profit. Now if you look at the revenue there, revenue growth was 73% year-over-year in the third quarter. With everything going on in the space, many analysts are looking for a significant slowdown or deceleration in this revenue growth. Now, just to drive home a point, Mercado Libre’s valuation is the cheapest it’s ever been based on price vs. sales. It’s price-to-sales ratio right now is eight. It’s the lowest since 2016 and it’s down from the 1940s. This gives you an idea of ​​how much that stock is for sale.

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Danny Vena owns MercadoLibre. Jason Hall owns MercadoLibre. The Motley Fool owns and recommends MercadoLibre. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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