And as all this is happening, MercadoLibre's financial fortitude is starting to weaken. In general, over time, any investor would like to see the cash balance blue line and free cash flow yellow continually going up and to the right, while debt red goes down and to the right.
MELI MercadoLibre Inc Stock Analysis, Price & History | Morningstar
In fact, MercadoLibre's net cash position the difference between the blue and red lines ended at its lowest point in three years. A big part of that is because MercadoLibre is investing heavily to gain market share and thwart Amazon and Walmart more on that below. Those three forces -- an expensive stock, competition, and a stagnant financial position -- present real threats that serious investors need to consider.
But I'm still a big believer in the company. I believe anyone wishing to invest in Latin America should strongly consider adding shares themselves. The first reason for this is pretty simple to understand: The person running MercadoLibre -- founder and CEO Marcos Galperin -- will only succeed if I and my fellow shareholders succeed. As of the company's most recent proxy statement, Galperin owned 4 million shares.
Additionally, I'm always a huge fan of investing in founder-led companies.
These organizations represent a founder's life's work. Founders are intrinsically motivated to create the most value -- for shareholders, employees, customers, and society alike -- possible over the long run. That's a dynamic I want to be a part of. But skin in the game alone is no reason to invest in a stock. A much bigger consideration has to do with two forces:. MercadoLibre has both of these things in spades.
Why MercadoLibre Stock Climbed 10.7% in March
Let's start with optionality. While not officially designated in company publications, Galperin has defined his company's mission as being "[to] take the hassle completely out of commerce There are lots of ways to accomplish this goal. The company started off in the simplest way possible: creating a marketplace to connect buyers and sellers. That business was protected by the network effect : With each additional seller listing on MercadoLibre, potential buyers were incentivized to join. This drew in more sellers -- creating a virtuous cycle.
Here's how well that's functioned over time. Not only has growth been robust, it's actually accelerating!
If the competition wanted to steal business, it would have to create a marketplace that was so good, it could overcome the fact that there's already a location where Latin Americans can reliably go to buy goods online. But the company hasn't stopped there. It's next-biggest line of businesses -- the one that Wall Street is so excited about -- is MercadoPago.
This e-payment solution has been wildly popular in Latin America. It benefits from both network effects and high switching costs.
As more vendors accept MercadoPago, it incentivizes users to adopt it -- creating the same virtuous cycle referenced above. It doesn't stop there, though. Because so many Latin Americans are unbanked, MercadoPago represents one of the only ways to buy things online right now. While that particular advantage may not last forever, the combination of these two moats have let to booming MercadoPago payments over the past decade.
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