MercadoLibre is a diversified technology leader in Latin America, with businesses across e-commerce, fintech, payments and logistics.
MercadoLibreSeptember 27, 2020
Thesis - From their investor relations page “MercadoLibre is the largest online commerce and payments ecosystem in Latin America”. Frequently dubbed as the “Amazon of South America” Meli has grown into a diversified internet business. Based in Argentina, the company started by offering a digital marketplace that allowed people to upload and sell their stuff (like eBay). They have since grown tangential businesses, such as advertising, shipping (MercadoEnvios) and online payments (MercadoPago). They operate in 18 countries, many of which stand to benefit from an increased shift of customers to the internet and mobile. Over the last 5 years, the stock has increased by almost 10x. Since March the stock has almost tripled, giving it a rich valuation. The recent market dip means Meli is currently off its all-time highs by 13%.
Leadership - The company was founded by Marcos Galperin, an Argentinian who developed the idea whilst studying at Stanford Business School. He has been CEO for 21 years. He managed the company through its early growth and has grown with the business, overseeing several bolt-on acquisitions. He has an approval rating of 95% on Glassdoor. He is a visionary leader with local market knowledge, who has been able to strategically grow the business into large additional opportunities (such as payments). There was some concern earlier in the year that he was stepping down as CEO, but the company confirmed he stepped back specifically from Argentina operations, but remains the company CEO.
Financials & Performance - Public since 2007, Meli has achieved average revenue growth of approaching 40% over the last ten years (!). The last 4 quarters have seen revenue growth of 60%. Gross margins have steadily decreased, reflecting the companies investments in costly infrastructure to support delivery, but still stand at a respectable 50%. The company was profitable before 2018, but has posted losses across the last two years. This is a decision to invest in the company moat, rather than any dent to the business.
Risks - MercadoLibre faces some political instability in the market it operates in (as with many emerging markets) as well as currency risk. As the leader in the space, it will also face increasing competitive pressures from other startups, where VC investment in LatAm has been steadily increasing over the last 5 years. Finally, they are investing heavily in logistics and delivery, the value of which will need to be monitored in the coming years.