Will MercadoLibre or SoFi Technologies be the better investment for the upcoming five year period? 7investing CEO Simon Erickson compares the two stocks in today's Summer Stockpicking Challenge matchup.
July 12, 2023
Welcome to our 7investing Growth vs Income Summer Stock Challenge!
We are on a quest to find the best current stock opportunity for investors. All month we are pairing popular stocks from both “growth” and “income” style investing up in matchups to determine which will provide the greater upcoming five-year return. We’ve included a voting poll at the bottom of this article: help us determine which of these stock represents the better opportunity for investors!
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In this “Growth Style, Round 1, Matchup 3” bracket, our #4-ranked Latin American e-commerce platform MercadoLibre (Nasdaq: MELI) squares up against our #5-ranked digital banking provider SoFi Technologies (Nasdaq: SOFI).
Which of these two stocks will provide the better investment return over the next five years?
Let it $SNOW ! Snowflake upset $NVDA yesterday.
MercadoLibre: 5 Year Investing Return: 259%
SoFi Technologies: 5 Year Investing Return: (17%) (SPAC IPO June 2021)Which company will be better for investors over the next 5 years?
— 7investing (@7investing) July 12, 2023
MercadoLibre is Latin America’s largest online marketplace. It connects more than 81 million online buyers with 1 million online merchants – to buy and sell items, facilitate payments, and coordinate the deliveries for nearly $40 billion USD worth of goods sold across 18 countries.
Achieving that level of success has required two decades of dedicated investment. MercadoLibre has spent billions of dollars on building a best-in-class digital payments platform (“MercadoPago”, similar to PayPal) and a vast logistical infrastructure (“MercadoEnvios”). Latin America’s population is still relatively new to e-commerce, and MercadoPago has brought a much-needed element of trust to placing digital transactions. The shipping of commercial packages often takes 40 days or more in most South American countries, yet MercadoEnvios’ average delivery time is a day and a half.
MercadoLibre is more than just a company quietly doing its own thing; it is democratizing commerce for the entire continent.
Its metrics clearly demonstrate that it has gotten a respective bang for its internally-invested buck. Gross merchandise volume increased 43% to $9.4 billion USD in the first quarter (FX neutral), while revenue was up 58% to $3 billion and payment volume increased 96% to $37 billion.
Investors should be aware that MercadoLibre has begun extending credit to many of its best selling vendors and buying customers, which will induce financial risk to its balance sheet. Brazil’s Finance Ministry also recently gave exemption to import duties levied for e-commerce purchases of up to $50 USD. This regulatory change could open the door to increased competition from international vendors, including Sea Limited’s Shopee (here’s our take on what investors need to know about this recent regulatory change).
Yet MercadoLibre’s massive investments in digital payments and two-day shipping will be extremely hard to replicate or to displace. E-commerce tends to result in winner-take-most regional monopolies, and MercadoLibre is very clearly wearing Latin America’s crown.
SoFi Technologies is a digital banking innovator with an extremely ambitious leader at the helm.
Its rapidly-growing deposit base — made possible by its low cost structure and the ability to offer high interest rates to attract new customers — is giving it a lucrative pool of capital to use for new loans. Initially positioned as a provider of student loan refinancing, SoFi has aggressively introduced new products through its popular app to serve borrowers with multiple solutions, including car loans, home loans, and personal loans. The company whose name is literally “Social Finance” is looking to build a lending relationship with you through every phase of your life.
That ambition has led SoFi CEO Anthony Noto to publicly claim that his company “won’t stop until it becomes a Top 10 financial institution in the US.”
That might sound like an audacious goal for a company who just hit the public markets through a SPAC IPO two years ago. But when you look at the numbers, it’s actually succeeding quite well.
According to the Federal Reserve, there are 2,118 financial institutions who currently hold a US banking charter. SoFi obtained its own charter in early 2022 and was ranked #449 on the list at the time. A year later (March 2023), it has already moved all the way up to #114 and had amassed $13 billion of total assets. It’s looking like its ranking will improve even further in the Fed’s next update, as SoFi just reported $22 billion of assets in its own Q1 quarterly report.
For anyone keeping score, America’s 10th largest financial institution is currently TD Bank — who holds around $400 billion of total assets. If Noto & Co. can continue to add $10 billion or more in new deposits each quarter, it just might break into the Top 10 by the end of the decade. Investors should take note that SoFi is growing up quickly and maturing into one of America’s most important financial institutions.
Will MercadoLibre or SoFi be the better investment for the upcoming five year period? Cast your vote in our live poll below!
Let it $SNOW ! Snowflake upset $NVDA yesterday.
MercadoLibre: 5 Year Investing Return: 259%
SoFi Technologies: 5 Year Investing Return: (17%) (SPAC IPO June 2021)Which company will be better for investors over the next 5 years?
— 7investing (@7investing) July 12, 2023
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