MercadoLibre (NASDAQ: MELI) has been a great stock for patient long-term investors but has been in a slump since the company's latest earnings report. In the two months or so since then, MercadoLibre has dropped about 20%.
While the initial decline was due to missed bottom-line expectations and there are some legitimate concerns about profitability, this could be a great time for long-term investors to buy shares. Not only is MercadoLibre's core business growing rapidly, but there are also some major future catalysts that could multiply revenue several times in the coming years.
One thing that is important to mention is that MercadoLibre's share price is in the $1,700 range, so you will need to use a broker that offers fractional share investing to buy $500 worth of his stock. But it can be a great way to put your money to work.
As mentioned, the biggest reason why MercadoLibre fell after earnings is because it missed profit expectations. The company's EBIT margin fell 7.4 percentage points year-on-year in the third quarter, due to a combination of higher growth investments and bad debts. And free cash flow really was negative.
To be clear, this is certainly worth keeping an eye on. But it's important to recognize that MercadoLibre's business is still growing quite rapidly. The e-commerce marketplace sold 28% more items than it did a year ago and added more than 10 million active buyers. Mercado Pago's payment processing business grew 34% year over year and now has more than $200 billion in annual payment volume. And last but not least, the young but impressive credit business now has $6 billion in outstanding loan balances, up 77% from the third quarter of 2023.
First and foremost, MercadoLibre's core businesses could still have tons of room to grow. E-commerce penetration in the US is around 16% of total retail and is even less in the Latin American markets where MercadoLibre operates. The same can be said for the adoption of cashless payments, and there is a large unbanked or unbanked population in this part of the world.
The Latin American market has more than 650 million people, about twice the size of the United States, and with logistics rapidly improving in the region, it will enable many more online buyers and sellers.
It is also important to note that MercadoLibre has several other businesses that are still in the very early stages and have high potential. The company's credit card business, which is part of the credit portfolio mentioned earlier, has almost tripled in size over the past year. The investment platform is still in its infancy and saw assets under management climb 93% in the most recent quarter.
