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Motley Fool: The of Latin America

MercadoLibre generates revenue from multiple sources, such as its marketplace, advertising services, logistics solutions and mobile payments.  (Courtesy MercadoLibre)
MercadoLibre generates revenue from multiple sources, such as its marketplace, advertising services, logistics solutions and mobile payments. (Courtesy MercadoLibre)

MercadoLibre (Nasdaq: MELI), often referred to as “the of Latin America,” is the leader in one of the fastest-growing e-commerce markets in the world.

The company has reported phenomenal revenue growth for a long time, and investors have reaped the rewards. Over the past five years, revenue has grown more than 500%, with shares rising around 950% in that period. If you think it’s too late to jump on board, consider its recent performance: In the second quarter, currency-neutral revenue doubled over year-ago levels.

MercadoLibre generates revenue from multiple sources, such as its marketplace, advertising services, logistics solutions and mobile payments. It currently has 75 million unique active users across its platform. Management is investing aggressively to grow its user base: Operating expenses, including product development and marketing, increased 79% last quarter. That’s putting pressure on profits, but it should boost growth in users, buying frequency and revenue.

MercadoLibre looks expensive, with a recent forward-looking price-to-earnings (P/E) ratio of 370, but its earnings can increase once management slows its high marketing spending. Investing in the growth of e-commerce seems like a smart move, and MercadoLibre is a promising way to do it. (The Motley Fool owns shares of and has recommended MercadoLibre.)

Ask the Fool

Q: What are equity investments? – R.T., Franconia, New Hampshire

A: In the financial world, “equity” often refers to stocks, while “fixed-income” generally refers to bonds. So a global equity mutual fund will focus on stocks from around the world, while a fixed-income analyst is one who studies bonds.

Q: I want to invest in Chinese companies, but I’m worried that it might be dangerous to do so. – S.N., Santa Fe, New Mexico

A: Chinese companies are very attractive to many investors because the Chinese population is so massive – recently around 1.44 billion people, versus about 333 million for the United States. That means China has more than four times as many consumers to buy goods and services.

Investing in any foreign company can be risky, though, especially if you don’t have a good grasp of local rules and regulations and the reliability of information about companies in that country, along with an understanding of political, economic and societal happenings there. China has recently tightened restrictions on many of its big tech companies, for example, and may crack down further. China’s largest ride-sharing company, DiDi Global, had its app removed from app stores and was not allowed to register new users. Some Chinese business executives have disappeared from public view for months.

A less risky way to invest in China is by investing in non-Chinese companies that do a lot of business there. Nike, for example, got about a fifth of its fiscal 2021 brand revenue from “Greater China” (which includes Hong Kong and Taiwan), with that revenue growing by 24% year over year. More than a quarter of Starbucks’ company-owned stores are in China, and Pfizer gets about 6% of its revenue from there.

My smartest investment

Back in the 1990s, I bought 300 shares of internet service provider MindSpring Enterprises for about $7 per share, spending a total of $2,100. I invested because I was a customer and liked how they did business. I sold 100 shares when they hit $30, recovering my full initial investment. (I’m not sure that was smart.) Several years later, my remaining shares were worth more than $28,000! Not a bad return, eh? – B.N., Tampa, Florida

The Fool responds: That investment turned out well for you. Whether you should have sold the 100 shares early is a matter of opinion – and temperament. Yes, had you hung on, you’d have ended up with much more money. But at the time, you couldn’t know just how the shares would do in the coming years. By recouping your original investment amount, you made sure you wouldn’t lose money on the stock and that any further gains would be gravy. You played it a bit safe, but there’s nothing wrong with that.

Finding companies whose business practices you admire is a great start – just be sure to study their financials, risks and growth prospects as well.

MindSpring merged with EarthLink Network in 2000. That created the second-largest ISP in America at the time, with almost 3 million subscribers – though still far behind America Online, which had around 18 million, per a New York Times report.

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