The company's extraordinary stockmarket performance reflects its operational performance, which is all the more admirable given that it has been achieved in notoriously difficult and often dysfunctional markets.
South America and its population of half a billion people have the lowest e-commerce penetration in their economy, after Africa. The path to growth therefore remains wide open, as evidenced by the total value of goods sold on MercadoLibre, which has tripled since 2020.
Another substantial opportunity—and one that MercadoLibre has seized—lies in online financial services, particularly payments and credit. Brazil is a pioneer in this area: over the past ten years, the market share of traditional banks has been steadily declining, while that of alternative fintechs is expected to reach 50% soon.
MercadoPago—MercadoLibre's fintech subsidiary—already has 35 million customers, up from 4 million five years ago. Its loan portfolio has reached $9.3bn, a 20-fold increase since 2020.
Some may be concerned about potentially overly aggressive expansion into high-risk credit businesses, especially if the push is intended to compensate for slowing growth in the e-commerce segment. It is true that competition is fierce, and that peers such as Amazon, Temu, and Shopee intend to gain market share by attacking the margins of the leader—i.e. the margins of MercadoLibre.
The increase in cash profit—or free cash flow—for the company in question is expected to slow significantly in 2025 and 2026. At the same time, provisions for bad debts, which reached $1.9bn last year, are expected to approach $2.4bn this year.
However, optimists will point out that MercadoLibre, which has nevertheless increased its revenue sevenfold in five years and remains the fastest-growing e-commerce group in the world, is expected to generate free cash flow of $7.5bn in 2025.
Based on a market capitalization of $110bn, this represents a valuation of only 15x earnings. This is sure to attract the attention of growth investors, even if it remains difficult to apply a typically North American valuation framework to a company operating in Latin America.
