MercadoLibre is the leading e-commerce and fintech platform in Latin America, offering a wide range of services and solutions to millions of buyers and sellers across the region.
The company operates in 18 countries, including Argentina, Brazil, Mexico, Colombia, Chile, Peru, and Venezuela. MercadoLibre’s stock has been one of the best performers in the tech sector, delivering impressive returns to its shareholders over the years.
But what makes MercadoLibre such a successful and attractive investment? How has it grown its business and overcome the challenges in its markets? And what are the prospects and risks for its stock in the future? In this article, we will analyze MercadoLibre’s stock performance, looking at its growth story, opportunities and challenges, valuation and outlook.
Introduction
MercadoLibre, which means “free market” in Spanish, was founded in 1999 by Marcos Galperin, an Argentine entrepreneur who was inspired by the success of eBay in the US. He wanted to create a similar online marketplace for Latin America, where e-commerce was still nascent and underdeveloped.
MercadoLibre started as a simple auction site, where users could buy and sell goods and services online. Over time, it expanded its offerings to include fixed-price listings, classifieds, online stores, advertising, and payment solutions.
Today, MercadoLibre is the undisputed leader in e-commerce and fintech in Latin America, with over 132 million active users and over 11 million sellers on its platform. It also operates Mercado Pago, its own digital payment system, Mercado Envios, its own logistics and shipping service, Mercado Credito, its own credit and lending service, and Mercado Shops, its own software-as-a-service (SaaS) platform for online merchants.
Analyzing MercadoLibre’s stock performance is important for several reasons. First, MercadoLibre is one of the largest and most influential companies in Latin America, with a market capitalization of over $95 billion and a revenue of over $6 billion for the trailing 12 months.
It is also one of the few Latin American companies that are listed on the Nasdaq stock exchange, giving it access to a large and diverse pool of investors. Second, MercadoLibre is a proxy for the growth and potential of e-commerce and fintech in Latin America, which is one of the fastest-growing and most dynamic regions in the world.
According to eMarketer, e-commerce sales in Latin America are expected to grow by 36.7% in 2020, reaching $83.6 billion, and by 25.6% in 2021, reaching $105 billion. Similarly, according to Statista, the total transaction value of digital payments in Latin America is expected to grow by 19.4% in 2020, reaching $116.3 billion, and by 16.9% in 2021, reaching $136 billion.
Third, MercadoLibre is a pioneer and innovator in its industry, constantly developing new products and services to meet the needs and preferences of its customers and partners. It is also investing heavily in technology, infrastructure, and talent to maintain its competitive edge and expand its market share.
However, MercadoLibre’s stock performance is also affected by various factors, both internal and external, that can have a positive or negative impact on its price. Some of these factors include:
- The macroeconomic and political environment in Latin America, which can influence consumer spending, currency fluctuations, inflation, regulation, and competition.
- The competitive landscape in e-commerce and fintech, which can pose threats or opportunities for MercadoLibre from existing or new players, both local and global.
- The operational and financial performance of MercadoLibre, which can reflect its ability to grow its revenue, margins, profits, cash flow, and market share.
- The strategic vision and execution of MercadoLibre, which can demonstrate its capacity to innovate, diversify, and scale its business model and offerings.
- The market sentiment and expectations of MercadoLibre, which can influence its valuation, outlook, and recommendation by analysts, investors, and media.
In the following sections, we will examine each of these factors in more detail, and see how they have shaped MercadoLibre’s stock performance in the past and how they may affect it in the future.
MercadoLibre’s Growth Story
MercadoLibre’s growth story is remarkable and impressive, as it shows how the company has evolved from a small start-up to a dominant and diversified platform in Latin America. MercadoLibre has achieved this growth by following a three-pronged strategy: expanding its core marketplace, developing its own ecosystem, and entering new markets.
Expanding its core marketplace
MercadoLibre’s core business is its online marketplace, where it connects buyers and sellers of various goods and services, such as electronics, fashion, home and garden, cars and motorcycles, real estate, and more.
MercadoLibre generates revenue from this business by charging commissions and fees to its sellers, as well as advertising and listing fees to its merchants and brands. MercadoLibre has expanded its core marketplace by increasing its product selection, improving its user experience, and enhancing its customer service. Some of the initiatives that MercadoLibre has implemented to achieve this include:
- Launching Mercado Libre Moda, a dedicated fashion platform that offers curated collections, exclusive brands, and personalized recommendations.
- Launching Mercado Libre Autos, a dedicated automotive platform that offers vehicle listings, financing options, and inspection services.
- Launching Mercado Libre Inmuebles, a dedicated real estate platform that offers property listings, mortgage solutions, and virtual tours.
- Launching Mercado Libre Publicidad, a dedicated advertising platform that offers display, video, and sponsored ads to its merchants and brands.
- Launching Mercado Libre Full, a premium service that offers free and fast shipping, guaranteed delivery, and extended warranty to its buyers.
- Launching Mercado Libre Loyalty, a loyalty program that offers benefits and rewards to its frequent buyers, such as discounts, coupons, and free shipping.
- Launching Mercado Libre Protegido, a protection program that offers security and peace of mind to its buyers and sellers, such as fraud prevention, dispute resolution, and insurance coverage.
As a result of these initiatives, MercadoLibre has grown its core marketplace significantly, increasing its gross merchandise volume (GMV), which is the total value of transactions on its platform, by 63.6% year-over-year in the third quarter of 2020, reaching $5.9 billion.
It also increased its number of unique buyers by 92.2% year-over-year, reaching 76.1 million, and its number of unique sellers by 62.1% year-over-year, reaching 11.2 million. Moreover, it increased its number of items sold by 110.7% year-over-year, reaching 205.5 million, and its number of items shipped by 131.4% year-over-year, reaching 199.4 million.
Developing its own ecosystem
MercadoLibre’s second strategy is to develop its own ecosystem of complementary products and services that enhance the value proposition of its core marketplace and create new revenue streams.
MercadoLibre has developed its own ecosystem by leveraging its large and loyal user base, its strong brand recognition, and its data and technology capabilities. Some of the products and services that MercadoLibre has developed to create its own ecosystem include:
- Mercado Pago, which is MercadoLibre’s own digital payment system that allows users to pay for their purchases on and off its platform, as well as to send and receive money, pay bills, recharge mobile phones, and access financial services. Mercado Pago generates revenue from transaction fees, interest income, and service fees. Mercado Pago has grown rapidly, increasing its total payment volume (TPV), which is the total value of transactions processed by its system, by 92.2% year-over-year in the third quarter of 2020, reaching $14.5 billion. It also increased its number of payment transactions by 161.4% year-over-year, reaching 560.4 million, and its number of active payers by 69.7% year-over-year, reaching 52.5 million.
- Mercado Envios, which is MercadoLibre’s own logistics and shipping service that allows sellers to ship their products to buyers faster and cheaper, as well as to offer free and guaranteed delivery. Mercado Envios generates revenue from shipping fees, fulfillment fees, and cross-border fees. Mercado Envios has also grown significantly, increasing its penetration rate, which is the percentage of items sold on its platform that are shipped by its service, by 18.6 percentage points year-over-year, reaching 76.9% in the third quarter of 2020. It also increased its number of items shipped by 131.4% year-over-year, reaching 199.4 million, and its number of fulfillment centers by 100% year-over-year, reaching 10 across six countries.
- Mercado Credito, which is MercadoLibre’s own credit and lending service that allows users to access financing options for their purchases on and off its platform, as well as to obtain loans for their personal or business needs. Mercado Credito generates revenue from interest income, origination fees, and service fees. Mercado Credito has also expanded rapidly, increasing its loan portfolio, which is the total value of loans outstanding by its service, by 72.3% year-over-year in the third quarter of 2020, reaching $379.4 million. It also increased its number of loans disbursed by 84.2% year-over-year, reaching 8.7 million, and its number of borrowers by 106.3% year-over-year, reaching 6.7 million.
- Mercado Shops, which is MercadoLibre’s own software-as-a-service (SaaS) platform that allows online merchants to create and manage their own online stores, integrated with MercadoLibre’s marketplace, payment, and shipping solutions. Mercado Shops generates revenue from subscription fees, transaction fees, and service fees. Mercado Shops has also grown steadily, increasing its number of online stores by 78.6% year-over-year, reaching 11 million, and its number of active merchants by 50% year-over-year, reaching 1.5 million.
As a result of these products and services, MercadoLibre has created its own ecosystem that provides a comprehensive and seamless experience to its users, as well as a diversified and resilient revenue stream to its business. MercadoLibre’s ecosystem accounted for 56.5% of its total revenue in the third quarter of 2020, up from 46.7% in the same period of 2019.
