No. of Recommendations: 10
MELI (MercadoLibre Inc) is a Brazilian equivalent of Amazon, but sales mostly localised in Brazil, and the online shopping market something like how the US was in 2002 - so in theory a chance to get in early (the effective transaction volume - for those actually using cards and the habit to shop online - will be several times larger 15 years from today).
They also have a credit card and lending business, which is another immature market in Brazil with a huge runway. They cross-sell new fintech services to their online shoppers, which is easy / convenient to do at the online checkout. “Click to pay only $9 per month for 8 months”. They offer loans like a bank would, and they offer investing services alsoz.
The converse works also - people approach them for loans, banking or investing, and they are then directed to the online shopping when managing their finances online.
This works exactly in Latin America because the fintech market is so immature - so it is extremely effective to offer both fintech and shopping at the same time. The real magic is execution and excellent business management, but the above formulae also contributively led to MELI enjoy explosive growth, which they are still in the midst of.
Amazon tried to get market share in Brazil but failed and effectively pulled out. MELI has competitors but is presently dominant and importantly it isn’t zero sum there as the market is still exploding.
To get an idea of how fast they are growing, their payment volume ia up 35% year on year (in US dollars, not Bazillian currency). And it is accelerating rather than just multiplying at the same rate - their rate of adoption of new customers is actually accelerating year on year.
As for their valuation, you need to look deeper than just looking at their PE, because they are making very large investments particular in their fintech buainsss. The question to ask is “if they stopped investing for future growth, how much cash flow would they be generating”, to get an idea of their observable intrinsic value is. The answer: About 1/25th their market cap in annual cash flow.
Not at all obviously cheap, but an exciting phase of a very well managed business and something to follow with interest.
To end, here are their recent sales per share in USD:
2015 14.79
2016 19.15
2017 29.60
2018 32.53
2019 50.92
2020 79.52
2021 141.18
2022 214.53
2023 300.60
2024 413.68
The price to sales average was 9.0 over those explosive ten years and is 4.2 now, the lowest it has ever traded relative to sales.
- Manlobbi
