Shares of e-commerce and fintech company, Mercado Libre (MELI) have soared by more than 17% since the start of the year following an impressive fourth quarter earnings delivery.
Company stock rose by 7.09% in post-earnings trading, reaching an all-time high of $2,260 per share on February 20. Trading has since cooled, with share prices falling by 2.11% in the following weeks, reaching $2,065.94 per share by March.
Analysts have grown increasingly optimistic about the online marketplace, as demand for online shopping in Latin America, the company's core operating region, continues to see strong momentum.
Mercado management reported that the company had its strongest financial year in 2024, recording its biggest Cyber Monday, selling more than seven million products and seeing an overall 34% year-over-year increase.
For growth-focused investors, MELI could bring long-term sustainable growth to portfolios as support for U.S. equities begins to wane due to economic uncertainty, and a wider tech sell-off that has pushed major indices towards correction territory.
Mercado's fourth quarter bottom line delivery impressed analysts with total quarterly revenue of $6.1 billion up 37% year-over-year. Elsewhere, net income of $639 million rose 287.27%, delivering an earnings per share (EPS) of $12.60.
Better-than-expected sales, with Mercado's e-commerce platform seeing over 67 million unique buyers during Q4, and crossing 100 million buyers in 12 months helped boost sales and supported the increased revenue earnings.
Incoming data from the company's earnings report showed that strategic margin expansion through strong execution of cost management for their logistics network, fee collections, and sales and marketing attributed to a stronger operations margin of 13.5%, or 60 bps improvement from a year before.
Income from operations totaled $850 million, which improved 23% year-over-year. In a note to shareholders, management noted that an increase in revenue and operational income was in part to the rapid expansion of credit business availability and increased use of credit cards across the company's portfolio.
Fintech offerings, such as the Mercado Pago credit card are now a vital part of the company's value proposition, helping drive strong performance across most of its business segments, and helping reaffirm the company's ability to secure long-term customers in key markets.
Besides credit provision, Mercado Envios, the logistics arm of the business handled over 1.8 billion items last year, with more than half a billion being shipped in Q4 2024. In total, the company increased its fulfilment orders by 44% year-over-year.
Increased investment in logistical services helped the company reach record-breaking fulfillment in Argentina, Brazil, Chile, Colombia, and Mexico.
Elsewhere on their balance sheet, the company's fourth-quarter earnings show an EBITDA of $972.00 million, which is a 106.81% year-over-year change compared to $470.00 million in Q4 2023.
The latest calculated EBITDA margin for the three months ended December 31, 2024 was 15.89%, and full year EBITDA margin is calculated at 15.89%. Based on the current available data, the company's full year EBITDA was $3.25 billion, with a full year EPS of $63.40 per share.
Looking at the current approach the business is taking by further investing in core business activities such as logistics, and adding more popular categories, such as supermarkets, healthcare, sports, and appliances is helping them reach a wider pool of customers.
In addition to this, stronger consumer spending, with more than half of customers purchasing big ticket items through an installment option is picking up year over year, and allowing the company to build a more robust cash moat.
However, despite the rosy delivery, the company's cash position is less promising than expected. For the 12 months ending December 31, 2024, the company had $3.70 billion in cash, while holding $6.88 billion in debt, leaving Mercado with a net cash position of -$3.18 billion or -$62.80 per share.
On the bright side, the 12 month operating cash flow of $7.92 billion, with total capital expenditures of $860 million leaves the company with a free cash flow (FCF) of $7.06 billion. FCF per share of $139.22 gives Mercado and FCF yield of 6.73%, ranking them 50.48% better than the 1,211 companies in the Retail-Cyclical industry.
Analysts have positioned MELI at Modestly Undervalued with the current GF Value of $2,326.96, and a Price-to-GF-Value of 0.89. This could indicate that despite the recent bullish run, the stock has yet to reach its peak.
A higher Price-to-Earnings (P/E) ratio of 54.80 has pushed analysts to see MELI become a long-term growth stock, with several Gurus taking a buy position on the stock in recent months.
Ken Fisher (Trades, Portfolio), of Fisher Asset Management raised his position by 0.5%, and Jeffries Group took a bullish position, raising their stake by 569% on December 31, 2024. Mario Gabelli (Trades, Portfolio), of GAMCO Investors recently added MELI to his portfolio for the first time, while Ron Baron (Trades, Portfolio), of Baron Funds increased his holdings by 10.95%.
Further valuation data shows MELI's annualized Return on Equity (ROE) for the fourth quarter standing at 61.20%, which is ranked better than 95.41% of companies in the Retail - Cyclical Industry, and higher than the industry median average of 5.93%. The company's strong ROE was largely driven by net income delivery of $2.55 billion.
Something that may stand out to investors is that the company's Price-to-Sale (P/S) ratio is lower than the industry average, and most of its peers.
The calculated P/S ratio of Mercado's revenue per share for the trailing twelve months (TTM) was $409.83, giving a ratio of 5.04. However, revenue per share growth averaged 38.40% in the past 12 months, and 42.40% in the last 3 years.
Similarly, the average revenue per share growth rate for the last five years was 54.10%, and 44.90% per year in the past 10 years. This could show that there remains steady improvement in the company's outlook to bolster revenue per share growth.
Compared to relative market peers such as Amazon (AMZN), Singaporean digital consumer goods company, Sea Ltd. (SE) and the Chinese e-commerce company, JD.com (JD), Mercado delivers an overall better annualized return.
For instance, recent data shows that MELI's year-to-date return of 21.67% is better than two out of three of its closest competitors except for JD with a YTD of 24.47%.
MELI's P/E ratio of 54.80 is relatively high compared to competitors. For one AMZN posts a P/E ratio of 35.83 and JD at 11.85, according to recent valuation analysis. Sea Ltd. delivers a higher P/E ratio of 171.36, however the company's diluted EPS for the trailing twelve months for the period ending December 31, 2024 was $0.73 per share far below MELI.
Perhaps this is most noticeable in the company's outlook on its e-commerce and fintech business. Management is optimistic that increased demand for e-commerce services will continue to allow them to expand product offerings outside of key regions.
More than this, fintech services in Latin America have become an attractive commodity, and Mercado Libre is already in a position to handle larger customer and transaction volumes. Continuous investment in digital infrastructure would increase the company's long-term debt commitments but could be offset by its diversified portfolio.
Consumer trends across much of the company's key operating regions look to provide an encouraging long-term perspective. Not only this, but improved consumer spending and wider portfolio diversification of the company's businesses could help Mercado's cash position, and likely boost earnings potential for MELI.
Mercado Libre provides sustainability, something that many growth-focused investors are seeking in the current market climate. The company holds a steady balance sheet, and substantial cash flow to boost expansion of business operations in the coming years.
Estimates show that MELI could be a strong contender against U.S. rivals. More than this, the progress the company and the stock have made in the last couple of years shows that there is still plenty of room for growth, and long-term opportunities that would benefit the company.
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