MercadoLibre: Riding A Supersonic Growth Wave

Investment Thesis - MercadoLibre's stock (NASDAQ:MELI) has seen a 20.5% price increase since early May, outperforming the U.S. stock market's 8% return during the same period [2] - The company reported impressive Q2 earnings, with significant growth across key metrics, indicating strong growth momentum [3][7] - The stock remains attractively valued according to valuation analysis, leading to a "Strong Buy" rating [2] Recent Developments - On August 1, MELI released its quarterly earnings, surpassing consensus revenue and EPS estimates, with revenue growth accelerating by 49% YoY [3] - Adjusted EPS more than doubled from $5.16 to $10.48 [3][4] Latest Quarter's Earnings - Q2 2024 earnings report highlights: - EPS Normalized Actual: $10.48 (Beat by $2.14) - Revenue Actual: $5.07 billion (Beat by $389.51 million) [4] Financial Performance - Cash from operations grew YoY from $1,412 million to $1,882 million, with levered free cash flow reaching approximately $850 million, doubling from the previous year [5] - The balance sheet improved significantly, with a cash pile of $6.9 billion and net cash position rising from $945 million to $1,467 million [5] Growth Metrics - MELI demonstrated strong growth across all products and services, with Commerce and Fintech both showing robust performance [7] - In Commerce, Brazil and Mexico saw over 30% YoY growth in gross merchandise value (GMV), with items sold increasing by 29% and unique buyers by 19% [8] - Fintech's monthly active users grew by 37% YoY, reaching 52 million, and assets under management increased by 86% YoY [10] Market Position - MELI's operations span major Latin American economies, reducing geographic concentration risks, with Brazil's e-commerce market expected to grow at a 14.3% CAGR by 2026 and Mexico's at 12.4% CAGR [12] - The Latin American fintech market is projected to grow at a 29% CAGR by 2030, providing a favorable environment for MELI's growth [12] Profitability - The company improved its net income margin YoY, driven by an increase in the Commerce take rate from 18.4% to 23.5% [13] Valuation Update - MELI's stock has rallied by 59% over the last twelve months, significantly outperforming the broader U.S. stock market [14] - Current valuation ratios indicate that MELI is attractively valued compared to historical averages [14] DCF Analysis - A discounted cash flow (DCF) model suggests a fair value of $185 billion for MELI, indicating an 85% upside potential compared to its current market cap [17]