A Member of Pat McKeough’s Inner Circle recently asked for his advice on MercadoLibre, a rapidly-expanding e-commerce company that specalizes in 18 countries across the Latin American market.
Pat likes the company’s steady revenue rises as well as its relatively recent profitability. It’s also well-diversified in its payment systems and solutions and serves a market with lots of growth opportunities in multiple areas. However, Pat does caution that doing business in Latin America poses special risks.
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MercadoLibre Inc. (Symbol MELI on Nasdaq; www.mercadolibre.com), hosts online commerce platforms and offers payment systems and solutions across Latin America. Based on its unique visitors and page views, the company is a market leader in e-commerce in 18 Latin American countries. They include Brazil, Argentina, Colombia, Chile, Ecuador, Costa Rica, Peru, Mexico, Venezuela and Uruguay.
MercadoLibre’s services are designed to provide mechanisms for its users to buy, sell, pay for, and collect on e-commerce transactions. It offers these e-commerce services through six integrated e-commerce and digital financial services: the Mercado Libre Marketplace, the Mercado Pago Fintech platform, the Mercado Envios logistics service, the Mercado Ads solution, the Mercado Libre Classifieds service, and the Mercado Shops online storefronts solution.
Here’s how they are connected:
The Mercado Libre Marketplace is a fully automated, online commerce platform, which can be accessed through its website and mobile app. This platform enables the company (when it acts as a first-party seller), merchants and individuals to list merchandise and conduct sales and purchases digitally.
The Marketplace has an assortment of products across a wide range of categories: consumer electronics, apparel and beauty, home goods, automotive accessories, toys, books and entertainment, and consumer packaged goods.
To complement the Mercado Libre Marketplace and enhance the user experience for its buyers and sellers, the company developed Mercado Pago, an integrated digital payments solution.
Mercado Pago was initially designed to facilitate transactions on Mercado Libre’s Marketplaces by letting users securely, easily and promptly send and receive payments. Now, Mercado Pago is a full ecosystem of financial technology solutions both in the digital and physical world.
Beyond facilitating Marketplace transactions, over the years, the company has expanded its array of Mercado Pago services to third parties outside Mercado Libre’s Marketplace.
In addition, as part of Pago, Mercado Credito (credit solutions available in Argentina, Brazil, Mexico and Chile) serves its user base, which is loyal, engaged but historically underserved by financial institutions. Generally, those customers suffer from a lack of access to needed credit.
The Mercado Envios logistics solution, currently available in Argentina, Brazil, Mexico, Colombia, Chile, Uruguay, Peru and Ecuador, enables sellers on its platform to utilize third-party carriers and other logistics service providers, while also providing them with fulfillment and warehousing services.
In 2020, through Envios, MercadoLibre launched Meli Air with a fleet of dedicated aircraft covering routes across Brazil and Mexico, with the aim of improving its delivery times. It has also developed a network of independent neighbourhood stores and commercial points (known as “Meli Places”) to receive and store packages that are in transit.
MercadoLibre’s advertising platform, Mercado Ads, enables businesses to promote their products and services on the Internet. Through its advertising platform, brands and sellers are able to display ads on the company’s webpages through product searches, banner ads or suggested products.
Through Mercado Libre Classifieds, the company’s online classified listing service, users can also list and purchase motor vehicles, real estate and services in the countries where it operates.
And complementing the services it offers, MercadoLibre’s digital storefront solution, Mercado Shops, allows users to set up, manage and promote their own digital stores.
These stores are hosted by MercadoLibre and are integrated with Marketplace’s payment services and logistics services. Users can create a store at no cost and can access additional functions and value-added services on commission.
Inner Circle: Strong revenue growth has led to steadily rising profits for MercadoLibre
Overall, total revenue for MercadoLibre has grown very rapidly over the last five years, rising 632%, from $1.44 billion in 2018 to $10.54 billion in 2022.
Meanwhile, earnings have fluctuated widely, including big losses in some years. But that’s mostly because the company has invested heavily in technology, as well as sales and marketing, to support its rapid growth, remain competitive and win market share.
In 2018, MercadoLibre lost $36.6 million, or $0.82 a share. It then lost $172.0 million, or $3.71 a share, in 2019. In 2020, the company came very close to profitability, losing just $707,000, or $0.08 a share. In 2021, MercadoLibre became profitable (mostly due to its much higher revenue during the pandemic), earning $83.0 million, or $1.67 a share. In 2022, its profit then jumped—along with revenue—by 481%, to $482.0 million, or $9.53.
In the three months ended March 31, 2024, MercadoLibre’s revenue jumped 36.0%, to $4.33 billion. Fintech accounted for 1.84 billion (42.3%) of those revenues.
The company made $528 million, up 26.3% from a year earlier and $6.78 per fully diluted share.
MercadoLibre added 13 million users during the quarter, bringing its total active user base to 218 million.
The company takes a percentage of every e-commerce transaction conducted on its platforms. The gross merchandise volume (GMV) in the quarter was $10.5 billion, 47.2% higher than a year earlier.
MercadoLibre’s outlook is positive. It has $4.7 billion in cash, so it has the funds to keep expanding—including in technology and logistics. Online shopping in Latin America has been rising at a rapid rate and should only increase.
Meanwhile, the payments business offers huge growth potential. Many consumers in the region are underbanked and the company’s array of payment and fintech offerings can help fill their needs.
Recommendation in Pat’s Inner Circle: MercadoLibre Inc. is a buy.
