Mercado Libre Investment Thesis

Mercado Libre blog
Mercado Libre blog

Keynote: Mercado Libre is both the Amazon and PayPal of Latin America. They operate e-commerce marketplaces in 18 countries of the region, and their fintech solutions allow users in many of these markers to send and receive payments. Their services cut across credit, payment, retail, logistics and classifieds. With a first-mover advantage, large market and growing revenues, we are betting on this company to continue to grow Long into the future. 

Key facts: 

Revenue: $3.7 billion 

GMV: $7.03 billion

Revenue Growth rate: 73.04%

Countries of operation: 18

Compétition: Amazon

Details

Mercado Libre is the largest eCommerce and payment ecosystem in Latin America that enables businesses, merchants, and individuals to list merchandise and conduct sales and purchases online. It operates marketplaces across 18 countries. Mercado LLC offers six integrated e-commerce services. 

The MercadoPago FinTech, a fintech solution platform, which facilitates transactions on and off its marketplaces allows its users to send and receive payments. The company also offers Mercado Fondo that allows users to invest funds deposited in their Mercado Pago accounts; and Mercado Credito that extends loans to certain merchants and consumers. In addition, it provides Mercado Envios logistics solution that enables sellers on its platform to utilize third-party carriers and other logistics service providers, as well as fulfilment and warehousing services for sellers. Further, the company provides Mercado Libre Classifieds, an online classified listing service, where users can list and purchase motor vehicles, real estate, and services. 

Latin America is still at an early stage in the digital transformation of retail activities, this is an economic moat that raises optimism that the company would continue to grow revenue as digitization improves. With eCommerce activities expected to reach almost 10%  by the end of 2021 and 16% by 2025. The global e-commerce market is expected to expand at a compound annual growth rate (CAGR) of 16% between 2021 to 2026. Mercado faces competition from the likes of Amazon, whose market share in Latin America has doubled over the past five years to around 4%. 

Mercado though on a clear course to enjoy unprecedented growth in its eCommerce business, its fintech business (Mercado Libre’s Mercado Pago, a digital wallet that lets its users send and receive payments over the internet, as well as offering banking functions like its virtual checking account and credit services.) could even be bigger and drive Mercado to deliver even better returns to investors in the long run. As the financial infrastructure in Latin America is underdeveloped with banking penetration rates are under 90% throughout the region.

The company’s fintech revenue has grown over the years, 59% in 2019 and 47% in 2020, reaching $1 billion through the first six months of 2021, an 81%  increase over 2020, and a notable acceleration in growth.

Mercado Libre has benefited from the pandemic, which pushed consumers to adopt e-commerce and digital payments more quickly, with a GMV of $7.03 bn as of H1 2021 and projected revenue of 6.8bn for FY2021 the business is larger and growing faster than before COVID. The company has strong operating momentum, and the emergence of digital banking in Latin America could mean that Mercado Libre’s growth is far from over.