When we talk about long-term growth regions and industries , the savvy investors know that developing economies are where the potential for multi-bag successes are for our portfolios. Growth investors know full-well that regions like Latin America and South East Asia are the new China and India in terms of economies that we can invest in on the ground floor of their digital development. Mercad Llibre (NASDAQ:MELI) has been the poster child for this over the past few years, and has grown from a fintech spinoff from Ebay (NASDAQ:EBAY) to a digital payment and eCommerce leader for one of the fastest growing regions in the world.
How fast is it growing? During Mercado Libre’s recent quarterly earnings call, unique users increased from 39.6 million to 76.1 million as well as a $50 million profit over the first three quarters of 2020 compared to a loss of $118 million, implying a year-over-year change of $168 million. That is some rapid growth to profitability. MELI’s digital payment platform, Mercado Pago, is also showing rapid growth, especially as more people pay for things online during the COVID-19 pandemic. Total payments through Mercado Pago doubled in the most recent quarter from $7.6 billion to $14.5 billion.
Mercado Libre is currently used in 18 countries across Latin America but a majority of its business is used in Brazil, Argentina, and Mexico. One of the main issues with citizens in these regions is that a concrete banking system is just not utilized as much as it is in more developed areas of the world. When a large number of the population do not have organized bank accounts, but do use mobile phones, digital payments and eCommerce become the language of transactions. The economies of this region continue to struggle, but overall, people are switching to the convenience of online shopping.
This sounds a little like Amazon (NASDAQ:AMZN), doesn’t it? Yes! Similar to Amazon as well as Sea Limited (NYSE:SE), which I previously covered in another article, Mercado Libre operates as the go to eCommerce platform in its region. But why doesn’t Amazon penetrate this market? Well, Amazon recently built some new logistic centers in Brazil as a clear sign that they are upping their game in the South American country to increase deliveries and meet the rise of eCommerce demand. As a result, MELI has seen a recent dip in its stock price, combined with the news of a potential coronavirus vaccine available in 2021 from Pfizer (NYSE:PFE).
Some investors may get scared away by the high stock price but rest assured, this should continue to rise through the holiday season and well into 2021. With planned expansion and infrastructure development for other markets such as Chile and Colombia, Mercado Libre should be able to fend off Amazon, at least in the near future, as it continues to develop other arms of revenue like Mercado Pago to offset its dependence on its Mercado MarketPlace platform. When big dips happen, investors should think about buying, as this stock has no signs of slowing down anytime soon.
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