Here is My MELI Investment Thesis
$MercadoLibre(MELI)$ is one of my highest conviction stocks for the next decade.
Revenues are booming, margins are expanding and it's set to benefit heavily from the tariffs.
Here is my MELI investment thesis: 🧵
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2/ MELI is the Amazon of Latin America.
It's literally following the Amazon playbook.
It also started in e-commerce and expanded to fintech that has higher margins, integrating them in one big ecosystem, just like Amazon.
This drives fast growth.
3/ Not just e-commerce and fintech, MELI has many other interconnected businesses:
- Marketplace
- MercadoPago
- MercadoCredito
- MercadoAds
- MercadoEnvios (logistics)
This allows it to create what's called ecosystem lock-in.
Once a user starts using more than one of these services, the smooth integration increases switching costs for the users.
That's a giant moat.
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4/ Result? A diversified revenue stream that is growing fast.
Its fintech arm including MercadoPago and MercadoCredit now generates over $2.6 billion revenue a quarter.
What's even better is that this is a secular growth business with higher margins while e-commerce has been more cyclical with lower margins.
It's just beginning though...
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5/ Both of these businesses are dominating their segments in Latin America.
MELI marketplace is the leading e-commerce platform in the continent with over 35% market share.
MercadoPago is also one of the dominant players in the fintech space alongside $Nu Holdings Ltd.(NU)$ .
These companies have oligopolized the fintech in the Latin America.
Just take a look at this:
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6/ It has a clear catalyst ahead to accelerate growth: Tariffs.
Thinking that the economic war against China will be sustained, American companies are rapidly near-shoring in Latin America.
7/ Despite rapid growth, there are still opportunities ahead.
E-commerce penetration is currently around 14% in LatAm. For reference, it's above 25% in the US.
Market research firms project that penetration will reach to 18% by 2028, creating additional $60 billion GMV.
MELI will be the largest beneficiary.
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8/ Fintech also remains a great opportunity across the continent.
Despite the growth of fintech in the recent years, 60% of the Latin American population is still either unbanked or underbanked.
This means that there is still a very long runway ahead of MercadoPago for fast growth.
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9/ Its balance sheet is rock solid.
MELI has just $2.8 billion in long-term debt against $4 billion equity.a
Wh has just $2.8 billion in long-term debt against $4 billion equity.
What's better is that its EBITDA can pay all the long-term debt under a year.
Its balance sheet can weather any storm.
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10/ Valuation is attractive.
MELI can easily grow revenues 25% annually in the next 5 years.
This gives us $67 billion revenue in 2030.
Given that its margins are rapidly expanding because of the contribution from fintech, we can assume that it'll reach 15% net margin by 2030.
This gives us $10 billion net profit in 2030.
At 25 times earnings, we have a $250 billion business, more than double of today's valuation.
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