MercadoLibre (MELI) reported Q2 2022 earnings of $2.43 a share after the close on Aug. 3. Analysts were expecting $1.93. The Latin American e-commerce and payments giant beat analyst expectations by 50 cents.
On the top line, there was also good news, with revenues of $2.60 billion, $90 million better than the consensus estimate. It’s a much better report than Amazon’s (AMZN) latest results.
Down 34% year-to-date, MELI looks to recoup much of those losses over the final five months of 2022. The company’s shares haven’t traded over $1,000 since March. If you didn’t buy on today’s 15% bounce, you shouldn't worry that you missed the boat.
MercadoLibre could still represent a buying opportunity. Here’s why.
MercadoLibre Is Firing on All Cylinders
While the $90-million revenue beat might not seem like a lot, it’s fair to say that the 56% year-over-year increase in sales, excluding currency, is something to write home about. The revenue generated from an 83.9% YOY increase in total payment volume (TPV) is also worth mentioning.
As the company said in its Q2 2022 press release, “The second quarter of 2022 marked another quarter of records for Mercado Libre: TPV, GMV, Credit Portfolio, Revenues, and EBIT are among the KPIs that have hit historical marks.”
Both its Commerce and Fintech segments are performing at the top of their game.
On the Commerce side of the ledger, its total gross merchandise volume (GMV) in U.S. dollars increased 22% YOY in the quarter. Excluding currency, they jumped 26%. In U.S. dollars, Argentina, Brazil, and Mexico experienced YOY GMV increases of 33%, 28%, and 30%, respectively, in the second quarter.
The average user bought nearly seven items during the quarter. Overall, it sold 275 million items during Q2.
Over at its Fintech segment, one of the highlights was its Credit business, which finished the second quarter with a loan portfolio of $2.7 billion. Of that, 55% were consumer loans, while 20% were credit cards. The credit card book increased by 230% YOY while adding 272 million loans. The margins on its loans in Q2 2022 were 34%, 10 percentage points higher than in Q1 2022.
With 38.2 million unique fintech active users, its Fintech revenue in the quarter went over $1 billion for the first time, growing by 113% YOY on a U.S. dollar basis. Yet, MercadoLibre has barely scratched the surface in the Latin American market.
Even its operating expenses are tracking lower. In the second quarter, its total operating expenses as a percentage of revenues were 28.1%, 160 basis points less than a year ago.
As a result, it set a quarterly record of $250 million in operating income.
By virtually every metric, it’s firing on all cylinders.
Monetizing Fintech Is Driving Growth
Several things stand out about MercadoLibre’s Fintech segment during the second quarter.
For example, over the past four quarters, its Fintech revenue has grown from $561 million in Q2 2021 to $1.19 billion in the latest quarter. The average YOY revenue growth over those four quarters was 93%. On a sequential basis, its Fintech revenue has grown by 20.9% per quarter. Should it keep up this pace of growth, it will get to $5 billion in a quarter within 24 months.
MELI stock is currently valued at 5.9x its trailing 12-month sales of $8.84 billion. If it generates $5 billion in a single quarter from its Fintech business within 24 months, you’ll get the e-commerce business for free.
Much of MELI's future value is based on the continued monetization of its Fintech business. A lot can happen over the next two years, but it does look promising.
Brazil remains its largest market, both for Fintech and Commerce. The country accounted for 56% of MercadoLibre’s $2.6 billion in overall revenue during the quarter. Brazil’s Fintech revenue grew 113.2% YOY to $699 million, while the country’s Commerce revenue rose 20.8% YOY to $752 million. Investors can expect Brazil’s Fintech segment to pass Commerce in the third or fourth quarters.
Interestingly, despite Brazil’s growth, the company said in its Q2 2022 conference call that it sees Mexico -- $428 million in revenue in the quarter, 82.8% higher YOY -- as a potentially more significant and profitable market.
That should tell you all you need to know about MercadoLibre’s future potential.
Buy MELI Despite the 15% Jump
MercadoLibre has plenty of runway for growth. Yet its shares trade at multiples not seen over the past decade. It seems implausible that its growth will suddenly dry up and disappear.
Of course, those who bought in June got a good bargain, but you can’t time the markets. MercadoLibre’s latest results are confirmation the company is on the right path to mega-cap status.
I don’t see any reasons investors will stop buying its shares despite its gaining 45% over the past month. As recently as September 2021, its shares traded for around $2,000.
MercadoLibre’s business has gotten considerably stronger in the 10 months since. Buying now could mean getting growth at a reasonable price.
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