The video provides an updated analysis of Mercado Libre (Melly), focusing on the speaker's increased conviction in the company and its recent Q1 2025 earnings results. Melly is highlighted as a leading e-commerce and fintech company in Latin America, benefiting from strong regional trends in digital commerce, payments, and advertising. The speaker reviews key Q1 metrics, including overall revenue growth (37% YoY), total payment volume (43% YoY), and gross merchandise volume (17% YoY). A detailed breakdown of the Commerce, Fintech (Mercado Pago), Advertising, and Acquiring segments reveals significant growth, particularly in fintech and advertising, with new initiatives like the Mercado Play streaming app expanding advertising inventory. The speaker emphasizes Melly's strategy of reinvesting profits back into growth, notably the credit portfolio, which is driving acceleration in the fintech segment. Using a projected 25% net margin potential, the speaker values Melly at approximately 22.7 times profit potential based on trailing 12-month revenue, arguing that the stock remains undervalued given its high growth rate (37%+ annually) and business quality. The speaker has significantly increased their Melly position, making it their fifth-largest holding, and intends to buy more on dips.
Mercado Libre (Melly) Q1 2025 Update: Growth, Valuation, and Investment
0:00 Investment Position: The speaker has significantly increased their Mercado Libre (Melly) position, making it the fifth-largest holding in their portfolio due to high conviction.
0:08 High-Quality Business: Melly is described as one of the best and highest-quality businesses the speaker has encountered, leading to increased investment before Q1 results despite prior coverage starting when the stock was around $1,300 (it has since doubled).
0:49 Patreon Deep Dive: A more in-depth analysis of Melly is available to Patreon members.
1:09 Company Overview: Melly is the leading e-commerce and fintech company in Latin America, also exposed to trends in digital advertising and streaming.
1:26 Market Opportunities: Latin America's e-commerce market is projected to reach $1 trillion by 2030 (17% CAGR), digital payments $349 billion (22% CAGR), and digital advertising $93.5 billion (16% CAGR).
1:54 Leadership in Trends: Melly is a leader in these key trends, with a growing 53% market share in retail media ad spending in Latin America.
2:08 Advertising Growth: Ad revenues are projected to hit $1.4 billion this year (40% growth) and $1.9 billion next year (35% growth), indicating market share gains.
3:28 Commerce Business: Melly is taking market share from physical stores (which still account for ~85% of retail spend) and has less than 5% of the region's total retail market, indicating a long growth runway.
3:48 Country Performance: Argentina saw impressive FX neutral GMV growth of 126% YoY and sold items growth of 52% YoY.
4:01 Category Growth: Supermarket items sold grew 65% YoY regionally, accelerating faster than other categories.
4:08 Logistics Investment: The logistics network is critical for long-term growth and bringing offline retail online.
5:10 Advertising Expansion (Mercado Play): Melly launched the Mercado Play app on smart TVs (over 70 million in the region), offering 15,000+ hours of free content supported by ads, expanding advertising inventory beyond the marketplace.
5:44 Advertising Growth Rate: Advertising revenue grew 50% YoY on an FX neutral basis in Q1. Melly sees significant opportunities as they are still early in their display and video advertising plans.
5:57 Competitive Advantage: Melly's first-party data is a unique asset and major competitive advantage in digital advertising.
6:51 Fintech (Mercado Pago): Monthly active users reached 65 million, growing 31% YoY, with Brazil, Mexico, and Chile growing faster than the total.
7:05 Value Proposition: Mercado Pago attracts users by offering yields on deposits that match or exceed benchmark rates from day one with immediate liquidity, disrupting incumbent banks that offer inferior yields.
7:22 Cost Advantage: Melly's lower cost structure as a digital bank allows them to offer attractive yields profitably.
7:28 Credit Portfolio Growth: The credit portfolio grew 75% YoY to $7.8 billion, with strong growth in Brazil, and is a main growth driver.
9:14 Acquiring Business: Melly cross-sells fintech services to e-commerce merchants. FX Neutral acquiring TPV grew close to 30% YoY in Brazil, 50% YoY in Mexico (for the ninth consecutive quarter), and 144% YoY in Argentina.
9:43 Market Share Gain: Acquiring market share is rising consistently across major markets, but from a relatively low base, providing significant runway.
10:54 Reinvestment Strategy: Melly historically operates near break-even, reinvesting profits into growth (e.g., $3 billion into the credit portfolio in 2024). This makes valuation challenging.
11:14 Profit Potential Valuation: The speaker estimates Melly's profit potential at a 25% net margin based on current business scale if it were optimized for profit rather than growth.
11:57 Growth Rate Acceleration: US dollar growth rates show acceleration in the fintech business (43% in Q1 2025 vs 22% in Q1 2024) and slight acceleration overall (37% vs 36%). TPV and Acquiring TPV growth rates are also accelerating.
12:51 Investment Payoff: The acceleration in fintech growth is attributed to significant investments, particularly in the credit portfolio, validating the reinvestment strategy.
13:29 Credit Revenue: Quarterly credit revenue hit $1.15 billion in Q1 2025, nearly 10x since Q1 2021 (72% CAGR). Trailing 12-month credit revenue is ~$4 billion (63% CAGR since 2021).
14:11 Fintech Revenue: Trailing 12-month fintech revenue was $9.4 billion as of Q1 2025, compounding at ~57% annually since 2020. Fintech revenue growth has been accelerating recently.
14:35 Commerce Revenue: Trailing 12-month commerce revenue is $13 billion, compounding at ~15% annually since 2020, though growth has decelerated slightly but remains strong (17% YoY in Q1).
14:54 Valuation: Trailing 12-month revenue is $22.3 billion. Applying a 25% profit potential margin implies $5.6 billion in annual profits.
15:25 Price-to-Profit Potential: With a market cap of $127 billion, the stock trades at ~$127B / $5.6B = 22.7 times profit potential.
15:40 Investment Conclusion: The speaker finds the 22.7x profit potential multiple attractive for a company growing at 37%+ annually, with high quality, a long runway, and a great track record.
16:25 Buying Strategy: The speaker has been consistently buying the stock and intends to buy more on any future dips.
16:39 Portfolio Allocation: Melly is now 8% of the speaker's total portfolio value.
17:07 Conclusion: Melly is a fantastic business expected to grow for decades.
17:09 Patreon Plug: Final plug for the Patreon for portfolio access, real-time trades, content, and community.