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Why MercadoLibre Was Rising 16% This Week

What happened

Shares of MercadoLibre (NASDAQ: MELI) soared 16.1% higher this holiday-shortened week compared to where they closed last Friday, according to data from S&P Global Market Intelligence.

While the shares marched steadily higher by 3% Tuesday through Thursday, on Friday they rose nearly 6% after MercadoLibre announced it began offering life insurance in Brazil. The e-commerce company has been called the "Amazon of Latin America," but more recently has expanded into new verticals, primarily fintech services through its Mercado Pago app.

Image source: Getty Images.

So what

Although retail is still MercadoLibre's biggest unit, generating $1.27 billion in revenue in the first quarter, fintech is its fastest-growing segment and is on track to overtake e-commerce in the coming quarters.

This past May MercadoLibre said its fintech business saw revenue double from the year-ago period to $971 million while commerce growth was up 40% -- respectable, but not on par with its services unit.

Adding life insurance to a growing list of financial offerings such as consumer loans and credit cards should continue to solidify MercadoLibre's operations at the top of the Latin American market. It is continuously bringing more consumers into its ecosystem and now claims 81 million active users at the end of the first quarter, up from 70 million one year ago.

Now what

Mercado Pago accounted for 45% of MercadoLibre's revenue in Brazil, which is its biggest market, generating $1.2 billion. Argentina is the second-largest market with $518 million in revenue, followed by Mexico with $364 million.

Reuters reports the fintech app started off as a digital wallet just two years ago, but has quickly grown beyond those confines, first offering extended warranties on consumer electronics and mobile phones before moving into payments, where it offers theft protection. MercadoLibre says it has sold over 1 million policies on just those two options alone.

The life insurance being offered will soon have accident insurance as well, which ought to boost service volumes on the app.

Total payment volume through Mercado Pago jumped 81% in the first quarter to $25.3 billion, and volume is now more than three times greater than what MercadoLibre sees through its e-commerce portal.

Despite the potential for significant future growth, MercadoLibre's stock is down 45% in 2022 and 62% below its 52-week high, even after the 16% gain this week.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.


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