3 Factors That Keep Driving MercadoLibre's Strong Growth

Last year was a difficult one for MercadoLibre (NASDAQ: MELI), but the Latin American e-commerce giant has, so far, made 2019 look easy. The stock price has more than doubled as management made good on its promise to return to profitability, helping put the market's fears to rest.

And this may just be the beginning for MercadoLibre. There are a number of demographic and operational drivers that could push the company to even greater all-time highs over the rest of 2019 and for years to come. Here are three factors investors should make note of as they gauge the massive opportunity ahead for MercadoLibre.

A young woman holding a wooden spoon while looking at a tablet on a kitchen counter with fresh produce.

Image source: Getty Images.

1. Many Latin American consumers are just now getting online

One mistake investors can make is to base their investment decisions on their own experience and not consider that life may be starkly different outside that experience. U.S. consumers take the internet for granted. A Pew Research study found that a whopping 90% of Americans regularly go online to search for information, get news, make digital purchases, and connect with friends and family members. 

Latin America, in contrast, has been a little slower to join the internet community. Broadband penetration reached just 45% of households in the region last year, up from 43% in 2017, according to GlobalData. That number is expected to climb to 50% by 2020, an 11% jump in just two years. This will provide a greater pool of online consumers for MercadoLibre's services.

2. E-commerce sales are just getting started

Online purchases in the U.S. currently account for more than 10% of all retail sales, but that's not the case in Latin America. Digital sales made up just over 3% of total retail sales in the region in 2018. E-commerce adoption is soaring in Latin America, nearly doubling during the past five years. 

MercadoLibre is perfectly positioned to capitalize on this growth. Data from May 2018 shows MercadoLibre's e-commerce site had more than 56.3 million unique desktop visitors (more than its next three competitors combined), according to market research company eMarketer. This includes bigwig digital sellers like and Alibaba, as well as local favorite B2W digital. 

3. Electronic payments are just ramping up

Being an online sales portal has long been MercadoLibre's bread and butter, but another business is growing much more quickly. MercadoPago -- the company's payment service inspired by PayPal -- could potentially outgrow its flagship e-commerce business.

In the first quarter, total payment volume -- which represents the total amount of payments processed by MercadoPago -- was $5.6 billion, up 83% year over year in local currency. More importantly, MercadoLibre's payment services have become the industry standard in Latin America and have been adopted by a growing number of merchants, both on and off MercadoLibre's platform.

Additionally, MercadoPago is being deployed by an increasing number of brick-and-mortar retailers as a sure sign of the massive reach of the service. Off-platform payments grew to $2.5 billion last quarter, gaining quickly on the $3.1 billion in on-platform payments. Finally, the number of payment transactions has hit triple-digit year over year growth for six consecutive quarters, most recently up 251%. 

Investor takeaway

With so many demographic and operational tailwinds, it's easy to see why MercadoLibre's soaring business could just be getting started. The company has a long runway for potential growth, so investors shouldn't let recent stock price gains dissuade them from what appears to still be a strong investing opportunity.

The stock price will likely continue to be volatile, but MercadoLibre will continue to exploit a massive opportunity and continue to reap profits for investors for years to come. 

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon, MercadoLibre, and PayPal Holdings. The Motley Fool owns shares of and recommends Amazon, MercadoLibre, and PayPal Holdings. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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