MercadoLibre — Q1 2021
A quick breakdown and update of MercadoLibre's most recent financial statements, stock price, valuation, and short interest.
Today we will be reviewing some key financial aspects in relation to MercadoLibre, the Latin America eCommerce giant.
MercadoLibre is Latin America’s largest online commerce and payments ecosystem, whose mission is simple to understand, but incredibly complicated to execute — enable mobile eCommerce and digital payments across all of Latin America (a region with over 635M people). Currently, MercadoLibre offers their technology, tools, and services to 18 unique countries, including Brazil, Mexico, Argentina, Colombia, and Chile.
MercadoLibre doesn’t just offer unique eCommerce and digital payment solutions to the people of Latin America — rather, they pioneered it. Latin America has one of the fastest-growing Internet penetration rates in the entire world, and MercadoLibre intends to be a name that is said for generations.
Now that we have a general sense of what MercadoLibre is and how they operate, let’s get to the reason why you are here: to catch a glimpse of their financials, valuation, and outlook.
In 2020, MercadoLibre racked up $3.973B in revenue, a staggering 73% increase from 2019’s $2.296B. Of course, this is MercadoLibre’s total revenue as a complete enterprise — I’d really like to see the revenue pie chart by business division, but sadly MercadoLibre hasn’t disclosed such information to the public yet. For those unfamiliar, let me briefly outline MercadoLibre’s business divisions:
MercadoLibre — marketplace
MercadoEnvios — logistics solutions
MercadoCrédito — credit solutions
MercadoShops — software-as-a-service solutions and enterprise resource planning
MercadoPago — financial technology services
MercadoLibre Publicidad — advertisements
So, while I’d love to see how each segment contributed to total revenue, I simply cannot quite yet — hopefully one day. Anyways, let’s get back on track here.
As one might expect, COVID-19 gave MercadoLibre a huge boost in buyers, sellers, revenue, profit, and other metrics alike. In Q1 2021, MercadoLibre posted revenues of $1.378B; a 158% increase year-over-year from Q1 2020, when the company tallied $652M in revenue. If MercadoLibre can continue this growth — that’s the big question here — they are on track to do over $5B in revenue for 2021, which is quite incredible considering where they were just a couple years ago.
I’ll let you digest their revenue growth since 2009 by looking at the chart below.
In 2020, MercadoLibre posted gross profits of $1.709B, which significantly beat their profits of $1.102B in 2019. To follow it up, the company enjoyed an impressive Q1 2021, in which they recorded a gross profit of $591M, outpacing Q1 2020 by 88.82%. In fact, MercadoLibre hasn’t recorded a decree in profit quarter-over-quarter since Q2 2018 — it’s been a steady uphill climb. That being said, the company’s gross profit margin has been trending downhill, losing 500bps from Q1 2020 to Q1 2021.
If I were a betting man, I’d guess that margins continue trending down for the foreseeable future as MercadoLibre is rolling out many new products and acquiring users as quickly as possible — they will optimize margins later down the road, similar to Amazon during the last 20 years.
Like most growing companies, MercadoLibre’s operating expenses and cost of revenue continue to climb. Typically, this is nothing to fear, as it’s a good thing when companies are betting on themselves — this is the case with MercadoLibre. Time and time again, they have shown they aren’t afraid to explore new things in a big way. In 2020, MercadoLibre racked up operating expenses of $1.581B; cost of revenue was also steep, coming in at $2.264B.
After adding in the additional income expenses, MercadoLibre posted a net loss of $707,000 in 2020 — not too shabby when you take their net loss of $172M in 2019 into consideration.
MercadoLibre’s profitability is kind of a mixed bag — it’s almost like they’re profitable when they want to be. The company has been floating between being profitable and unprofitable for the last four to five years. Something tells me management has a bigger picture in mind and are aggressively pursuing it at all costs.
As of Q1 2021, MercadoLibre is currently sitting on:
$3.90B in current assets
$5.19B in total assets
$3.20B in current liabilities
$5.23B in total liabilities
Thus, MercadoLibre is roughly even in the assets-to-liabilities ratio.
That said, it is still rather impressive given the spending-spree the company has been on. Here are some notable ventures that the company made in the last three years:
2019 — opened distribution centers in Argentina, Brazil, and Mexico
2020 — announced a new distribution center in Chile and announced a new distribution center and a new software center in Colombia
2021 — announced a $1.8B investment in its Brazilian operations
Now let’s take a look at some useful operating metrics that measure MercadoLibre’s reach, growth, and effectiveness that don’t show up on balance sheets and income statements.
Like I said before, COVID-19 greatly lifted pretty much every single useful operating metric to meteoric all-time highs. To give you a little perspective, I took the liberty of outlining MercadoLibre’s unique active users, total items sold and shipped, and total payments over the last nine quarters. While you will undoubtedly be able to see the effect COVID-19 had on their business, I think you’ll also be able to spot the trend line before the global pandemic.
Now, there are a few things to note here:
At least for now, given the internet penetration rate and the amount of digital banking in Latin America, these levels of operation are not sustainable. Barring another economic shutdown, I fully expect MercadoLibre’s operating metrics to plateau or rise/fall slightly.
Regardless of what the next couple years bring MercadoLibre, the pandemic lifted them to levels that were years away based on projections — this is indisputably good as it allowed the company to expand and invest far more in themselves right now, which will pay dividends in the future.
Like many eCommerce companies, MercadoLibre experiences some seasonality — typically the first quarter of every fiscal year is the company’s worst, often posting less impressive numbers than the last quarter of the previous year.
Lastly, let’s review MercadoLibre’s stock price, valuation, and short interest (as of July 19th, 2021, the time of this article’s writing):
MercadoLibre currently trades at $1,497.27 and is up 55.20% over the past year, via Yahoo Finance.
MercadoLibre has a market cap of $74.64B with 49,852,000 shares outstanding, via Yahoo Finance.
1,410,000 shares are currently being shorted, giving MercadoLibre a short interest percentage of 2.82%, via MarketBeat.
MercadoLibre has a P/E of 2,897.33, a P/S of 16.02, and an EV/EBITDA of 188.25, via Morningstar.
MercadoLibre has an institutional ownership of 79.44%, via Nasdaq.
In my first “Five Minute Financials” over Roku, I compared its valuation to that of not-at-all similar companies, but to high-flying growth stocks (like Roku). It was brought to my attention that maybe this isn’t the best way to compare companies when doing this type of analysis, so I’m going to change my ways going forward.
Now, let’s see how MercadoLibre stacks up against its peers from a valuation standpoint.
Sea (NYSE: SE) has a P/E of N/A, a P/S of 24.19, and an EV/EBIDTA of -4.77.
Amazon (NASDAQ: AMZN) has a P/E of 67.93, a P/S of 4.36, and an EV/EBIDTA of 30.18.
Alibaba (NYSE: BABA) has a P/E of 25.08, a P/S of 5.26, and an EV/EBIDTA of 18.88.
Ozon (NASDAQ: OZON) has a P/E of N/A, a P/S of 6.92, and an EV/EBIDTA of N/A.
JD.com (NASDAQ: JD) has a P/E of 14.72, a P/S of 0.96, and an EV/EBIDTA of 12.26.
I’ll let you be the judge of MercadoLibre’s valuation, but I do feel it’s important to note that:
these companies are all at very different stages of growth and maturity
all of these companies have risks in their own right — whether it be legitimacy, political interference, government regulation, or quality assurance
And with that, our article has come to an end.
I truly hope you enjoyed this issue of "Five Minute Financials" — if you did, please consider subscribing for future financial updates and reviews. If you want to check out my other “Five Minute Financials” click here. If you want to dig deeper into companies, feel free to visit my “Business Breakdowns” page here.
Thanks for reading, it’s been a pleasure. Until next time!
— Nick