Investing

Here's Why MercadoLibre Will Likely Announce a Stock Split in 2024

Gerelyn Terzo

Published: May 9, 2024 12:31 pm

Investors are having a good year so far, thanks largely to growth stocks. As valuations continue to rise, it would not be shocking to see more boards of directors pursue stock splits.

One stock that’s ripe for a potential split is MercadoLibre (Nasdaq: MELI), a Montevideo, Uruguay-based online e-commerce and payments behemoth whose stock has been on a tear of late. After a 10.4% year-to-date advance, MercadoLibre stock has been meandering around the $1,700 per share level, fueled by some tailwinds in the Latin American market.

MercadoLibre stock appears to be on its way to revisiting its 52-week high of $1,825. Performance has been buoyed by strong demand in markets like Brazil in Mexico, helping to offset challenges in Argentina, where the company’s business remains resilient. While no company wants their stock to be cheap, a split is a sign of strength. Splitting MercadoLibre shares at these levels could usher in a new wave of investors who are otherwise deterred by the lofty price point.

Market Perception

With a market cap of $85.6 billion, MercadoLibre is Latin America’s second-biggest publicly traded company. It has been around since the late 1990s and has since expanded to operate in over a dozen Latin American markets. 

MercadoLibre has its share of challenges and operates in a hostile environment in Argentina’s competitive fintech market. According to Bloomberg, banks have complained to regulators about alleged “abusive conduct” surrounding fintech subsidiary Mercado Pago, the parent company’s digital payments platform used by merchants.

Basically, MercadoLibre’s payments ecosystem has a target it on its back, not least for dominating Argentina’s digital payments market. Rivals are upset that Pago, which boasts nearly 50 million monthly active users, is dominating market share in the South American nation, where three-quarters of transactions are reportedly completed. The Central Bank of Argentina is now requiring that merchants who support in-store QR codes must accept payments from other providers, opening up the market for more providers to gain share. But it’s not likely to slow this payments giant down.

Revenue and Breakthroughs

In Q1, MercadoLibre, which has 218 million users, reported a 71% year-over-year jump in profits to $344 million coupled with a healthy margin of 7.95 fueled by its performance in Mexico and Brazil, where it has been heavily investing. Earnings are forecast to increase by 80% in 2024 after growing twofold last year. Q1 revenue increased 36% to $4.3 billion amid strong gross merchandise volume (GMV) growth, particularly in Brazil and Mexico even on strong comparisons from the prior-year period. Tax costs weighed on results somewhat, causing investors to pressure the stock.

The company has earmarked $2.5 billion in capex to be directed toward the Mexico market this year where it will expand its warehouses and logistics infrastructure while bolstering access to its loans. Looking ahead, MercadoLibre sees opportunities to capture more buyers and increase the frequency of transactions as more merchants pivot to online in addition to continued demand for its fintech services owing to the “digitization of cash.” 

History and Ticket Price

In its 25 year history, including over a decade as a listed company, MercadoLibre stock has never been split. As a company growing profits and revenue hand over fist, the stock price is likely to continue rising toward its all-time high of $1,984. Before it crosses the physiologically sensitive $2,000 level, a split could be on the table. MercadoLibre’s board is likely to consider the benefits of splitting the stock to make it a more realistic option to investors over stocks like Visa (NYSE: V) on the payments side or Amazon (Nasdaq: AMZN) as a growth play. 

Nearly a dozen Wall Street analysts have a “buy” rating on MELI stock with an average price target of $1,884. At the current stock-price level of approximately $1,700, a five-for-one stock split would bring shares down to a more approachable $340 per share for investors. While management hasn’t tipped its hand to any such plans, given their growth ambitions, it would not be shocking if a MercadoLibre stock split is on the table in 2024.