MercadoLibre is presented as a possible buy versus megacap tech stocks

MercadoLibre is compared with megacap tech stocks

The Motley Fool says the Magnificent Seven — Nvidia, Apple, Amazon, Alphabet, Microsoft, Meta Platforms, and Tesla — tend to give investors a sense of stability because they are already among the world’s most valuable companies and still show growth. The article also mentions Space Exploration Technologies, saying it is not part of that group but still fits the megacap category. It says the market expects a great deal from SpaceX because it is relatively young and uses newer technology, and it puts the company’s value at $1.8 trillion.

The article then turns to MercadoLibre, saying the stock had recently fallen 38% from its highs. The Motley Fool argues that smaller companies can sometimes offer more upside because they have more room to expand, and says MercadoLibre could be the stronger stock to buy in November.

Revenue and operating metrics are growing quickly

According to The Motley Fool, MercadoLibre is growing faster than all of the Magnificent Seven, though not as fast as SpaceX. The article says the company is also cheaper, which it presents as a reason it may have more room to rise. In the second quarter, revenue increased 50% from a year earlier, which the article describes as the fastest growth in almost four years.

The Motley Fool says that result came from a larger base and during a difficult economic period, with high inflation across many of the 18 countries MercadoLibre serves. It also reports that gross merchandise volume rose 44% year over year. The company said 78% of shipments, excluding those customers selected to receive more slowly, were delivered within 48 hours. Unique active buyers increased 26%, total payment volume grew 56%, assets under management rose 68%, and monthly active users increased 30%.

Latin America leaves room for expansion

The article says Latin America still trails other regions in e-commerce and digital finance, which gives MercadoLibre years of growth potential. It says the company sees its combined commerce and finance platform as the way to capture that opportunity. Management said the two businesses "creates a flywheel" in which each business strengthens the other, and that deeper engagement helps turn that into a lasting competitive advantage.

The Motley Fool says the company measures this flywheel through engagement. In the second quarter, items per purchase rose 14% year over year, and the ratio of daily active buyers to monthly active buyers reached a record high.

Profitability has been pressured by investment

The article says profits have come under pressure over the past two quarters because management is spending to support future growth. It compares that reaction with criticism directed at artificial intelligence stocks as they invest heavily, but says MercadoLibre’s situation is different because it is not funding a new technology. Instead, the company is improving its existing business and trying to win more market share.

As an example, The Motley Fool says MercadoLibre lowered its free-shipping threshold in Brazil from R$79 to R$19, increasing shipping costs. Brazil is its largest market, and management said, "We believe investing boldly today is the right response to seize" the long-term opportunity. The article closes by saying the long-term outlook looks strong and that MercadoLibre is a good stock pick right now.