Summary
Highlights
The market is taking a slight breather, but still near all-time highs. The video will focus on two incredible companies, MercadoLibre and Booking Holdings, whose stock prices have seen significant drops. The speaker acknowledges that these stocks are expensive per share but emphasizes their long-term potential as core holdings in a retirement portfolio.
MercadoLibre is a key pillar in the speaker's retirement portfolio, valued at $110-111 billion. Despite strong past performance, the stock is currently experiencing a 15% drawdown. It trades at a premium due to high growth expectations (over 30% top and bottom line CAGR). The recent dip is attributed to increased competition from Amazon, particularly in Brazil, and economic uncertainties in Argentina. MercadoLibre has responded by expanding its loyalty program with streaming services, cash back, and free shipping, and plans to add more fulfillment centers in Brazil. Its robust ecosystem and infrastructure are highlighted as key strengths, enabling it to navigate economic challenges and emerge stronger. MercadoLibre leads in expected e-commerce revenue growth for next year and is rapidly gaining market share in digital banking in Mexico with Mercado Pago.
MercadoLibre's business is almost equally split between commerce and fintech revenue, both growing over 50% compounded for the past six years. While gross profit margin has decreased from its peak, it remains strong at 51.5%, with free cash flow margin near 30%. Revenue is expected to grow 26-27% next year and 22% in fiscal 2027, with EPS growing even faster (49% in fiscal 2026, 35% in fiscal 2027). Historically, buying MercadoLibre when it dips below its 200-day moving average has proven successful, as it tends to recover rapidly. The company is praised for its strong management, track record, and future prospects.
Booking Holdings is a $70 billion company, currently trading at approximately $5,200 per share. The stock has performed exceptionally well post-pandemic, though it's currently experiencing a 10% drawdown from its peak. It boasts strong margins, with a forward PE of 22 times and expected revenue growth of nearly 10% and EPS growth of 17.1% compounded for the next two years. A key question arises regarding the impact of AI, particularly OpenAI's integration with direct apps like Booking.com. The speaker discusses the economics of these partnerships and whether travel platforms are being forced to participate or if it's a beneficial deal. Booking Holdings aims to enhance direct consumer interactions, expand vertical offerings, grow geographically (Asia and US), strengthen fintech, and employ a disciplined financial strategy. Generative AI is seen as a critical enabler for its 'connected trip' vision, moving towards personalized, one-transaction itineraries with intelligent trip management.
Booking Holdings is a fundamentally strong business experiencing continued revenue and EPS growth, with EPS growing faster than revenue. Gross profit margins are consistently high at 85-86%, and free cash flow margins are strong at 36.9%. The company is well-diversified geographically, with the majority of its revenue coming from outside the United States, although it aims for growth in the US and Asia. Merchant revenue has been increasing, while agency revenue has slightly decreased. Total gross bookings have grown at an 18.5% CAGR over the past three years. Similar to MercadoLibre, Booking Holdings' stock has historically bounced back quickly after dipping below its 200-day moving average, suggesting a buying opportunity during dips.
Both MercadoLibre and Booking Holdings are identified as high-quality businesses experiencing temporary stock price pullbacks due to what the speaker considers overreactions. The speaker owns MercadoLibre and considers both excellent long-term investments.