Fast Inventory Overview
Ticker: MELI

Supply: Yahoo Finance
Key Information
Trade | E-commerce / Fintech |
Market Capitalization ($M) | $55,945 |
Worth to gross sales | 5.9 |
Worth to Free Money Stream | 35.9 |
Dividend yield | – |
Gross sales ($M) | 998 |
Free money stream/share | $31.38 |
Fairness per share | $32.43 |
P/E | 207 |
ROIC | 9.1% |
ROE | 16.6% |
1. Govt Abstract
E-commerce has taken over the world… no less than the Western world and China. Different areas are simply getting began. Even with the pandemic giving distant shopping for a major enhance, some areas of the world are solely now reaching some extent the place e-commerce is beginning to overtake brick-and-mortar retail.
One such area is Latin America. It’s residence to 656 million folks, double the US inhabitants. It is usually rapidly creating and modernizing.
One firm you may need by no means heard of is dominating Latin America’s e-commerce market: Mercado Libre.
It follows the easy however highly effective mannequin of imitating Amazon, whereas additionally adapting to the peculiarity of its residence market. Because of this, it has managed to utterly outmatch Amazon and its different regional rivals in its residence market.
The inventory has now cooled off because the pandemic highs. If it was “simply” the Amazon of Latin America, it will be a gorgeous funding, however no more than that. However it is usually main the fintech revolution in a area the place half of the inhabitants has no checking account.
So Mercado Libre is finest described as early Amazon + early Paypal merged into one firm, with the potential to develop into THE tech firm of the area and grow to be the primary LATAM tremendous app.
On this report, we’ll take a deeper take a look at what has made the corporate profitable and at its progress potential.

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2. Prolonged Abstract: Why MELI?
The Regional Large
Mercado Libre has come to fully dominate e-commerce within the LATAM area, which gives one of many world’s best progress alternatives for e-commerce.
It has managed to maintain out overseas giants like Amazon and eBay, in addition to out-compete native options, utilizing a mixture of imitation and a expertise for fixing the issues particular to South America, notably logistics and cost.
Logistics is now a strong moat, and cost has was a second revenue heart with much more progress on the horizon than e-commerce.
Mercado Libre Future Potential
The e-commerce phase remains to be rising quick and has the potential to take action for the following 10-20 years. The fintech part is extremely worthwhile and rising at 50-60% per yr, and is prone to grow to be the supply of nearly all of internet revenue for the corporate.
The Mercado Libre ecosystem is the very best candidate for creating the primary LATAM tremendous app, imitating the success of corporations like Alibaba and Tencent in China.
Financials
The corporate’s progress metrics are spectacular, and it’s strongly worthwhile and free money stream constructive. Debt is cheap. Valuation is comparatively excessive in comparison with free money stream and gross sales, however nonetheless at a degree that is smart when considering the expansion of the fintech phase.
3. The Regional Large
A Tough Begin
For those who would have needed to guess the place the Amazon of Latin America could be based, you may have given a number of affordable guesses. Possibly Mexico for its proximity to the USA. Or Brazil, by far the most important nation within the area.
You’d most likely not have anticipated it to come back from is the perpetually dysfunctional Argentina. Since Mercado Libre was based in 1999, Argentina has defaulted on its debt in 2001 and went by a number of debt restructurings in 2005, 2010, and 2015. It defaulted once more in 2020 and could be headed for one more spherical of hyperinflation.

So actually, this isn’t the type of financial system the place you’d expect x100 returns, which Mercado Libre has already created.
Mercado Libre now has 667 million LATAM guests monthly, in comparison with Amazon at 169 million and 493 million for ALL its rivals collectively. Mercado Libre is so dominant that it controls greater than half of the e-commerce site visitors to platforms in the entire of the LATAM area.
In reality, in case you take a look at essentially the most visited e-commerce web sites in LATAM, Merdaco Libre nationwide websites are the highest 1, 2, 4, and high 10. It’s not solely dominating the area as an entire however the market of every of the person international locations as nicely.
I believe the Argentinian origins are a giant cause why the inventory went off the radar of most traders. Argentinian shares and horrific investing losses normally stroll hand in hand, so most individuals wouldn’t even take a look at it.
I additionally assume that that is the rationale why Mercado Libre has out-competed everybody else. An organization whose operations can casually deal with foreign money collapse, poor infrastructure, and impoverished shoppers can deal with something. Compared, even Amazon’s notoriously environment friendly operations will really feel lazy and bloated.
This concept of staying lean and savvy truly made the corporate survive its earliest struggle with a a lot better-funded competitor in DeRemate, and remains to be mounted within the firm’s DNA.
You possibly can see the complete story right here on how DeRemate wouldn’t survive funding drying up in 2000 when the dot-com bubble popped, whereas MercadoLibre thrived on a shoestring price range. Even then, a deal with natural buyer acquisition, word-of-mouth advertising, and excessive retention charges paid off handsomely.
Mercado Libre went public simply because the 2008 monetary disaster started. Whereas most progress shares are all the time at menace of elevated charges or a downturn on this planet market, Mercado Libre boomed exactly when the remainder of the world was in disaster.
Copying in a Distinctive Means
I discussed within the introduction how Mercado Libre “simply” copied what labored for Amazon and eBay. When it comes to the essential construction of the enterprise, and its obsessive deal with buying customers and retaining them blissful, it’s true.
However rapidly it additionally hit the brick wall of Latin America’s under-development within the early 2000s. Only a few folks had bank cards, and money was king. That’s a critical subject if you’re in e-commerce. On high of it, postal companies weren’t environment friendly, trusted, or dependable. Poor to nonexistent Web connections have been additionally a difficulty.
It was widespread knowledge on the time that e-commerce couldn’t work in such an surroundings. It was one thing solely doable in additional “mature” markets, the place infrastructure, habits, and know-how have been superior sufficient.
Unfazed, Mercado Libre created its personal cost system in 2003, Mercado Pago (Mercado Pay in Spanish). It partnered with native retailers for folks to each take supply and pay in money for his or her on-line purchases. What began as a essential measure has advanced right into a division as vital, if no more than the unique e-commerce core.
In 2009, the corporate would additionally rebuild its know-how from scratch to adapt to the rise of cell following the looks of the iPhone in 2007. Generally, the corporate tradition appears centered on innovating alone, not counting on acquisitions or exterior suppliers. That helps it maintain shut management over related prices.
Dealing With Geography
I’ve talked about that the postal service in Latin America principally ranges from poor to nonexistent. The street community could be fairly poor as nicely, and railroads are nearly nonexistent. A lot of the area’s inhabitants lives in mountainous areas, from internal Mexico to the Andes or the Brazilian Highlands. This implies excessive transport prices.
Within the early day within the 2000s, it didn’t matter an excessive amount of, as anyway, the Web infrastructure was restricted to city areas. The primary customers of Mercado Libre needed to be residing in cities and be prosperous sufficient to have entry to Web.
Afterward, to continue to grow and use the exploding growth of cell Web, Mercado Libre wanted to achieve distant areas with little logistics obtainable.
Stopgap measures helped, like a fleet of motorbikes for deliveries or native suppliers. But it surely was not sufficient. So the corporate has spent a lot of the final 10 years constructing a sophisticated logistical community, distinctive within the area. The trouble ranged from a fleet of airplanes to logistic facilities to the acquisition of logistic software program corporations. It additionally shields it from the danger of put up companies growing costs and reducing into its margins.
It allowed Mercado Libre to achieve identical and next-day supply charges of 55%, and 80% for 48H deliveries, astonishing efficiency within the area. Mercado Libre now gives a catalog of 397 million listings, with comfort by no means heard of earlier than (like 82% of deliveries with free delivery). It’s additionally producing $32.8B in annual GMV (Gross Merchandise Quantity).
At Amazon, I do know what the massive concepts are: low costs, quick supply and huge, big choice.
Jeff Bezos
The Mercado Libre logistics community can also be leveraged by hundreds of native SMEs that in any other case could be caught in simply their area and even metropolis. Mercado Libre even offers them with instruments to construct their very own web site, a web based advert service, and so forth.
I may also say that Mercado Libre has extra belief with sellers than Amazon, because it doesn’t promote its personal merchandise. There isn’t any threat of Mercado Libre out of the blue competing instantly with a vendor as soon as it discovered a worthwhile area of interest. So it’s nearer to eBay or Alibaba than Amazon in that respect.
4. Mercado Libre Future Potential
E-Commerce & Logistics
The e-commerce enterprise progress profile goes sturdy with 10% progress year-to-year in distinctive consumers, unfazed by the tip of the pandemic, not like e-commerce in lots of different markets.
Extra curiously, that is NOT a South American phenomenon. Brazilian e-commerce income for Black Friday in 2022 fell by 23%, reflecting the worldwide post-pandemic dynamics. Mercado Libre, nevertheless, elevated its product sales on Black Friday in Brazil by 19%. The corporate explains it by “the nice integration of our ecosystem and synergy with the platform’s sellers“. (Extra on the ecosystem on the finish of this chapter).
Except for the non permanent post-pandemic setback, e-commerce development in LATAM nonetheless has quite a lot of area to develop. 192 million folks have shopped on-line up to now, with the quantity anticipated to swell to 350 million in 2 years. This is able to nonetheless depart half of the inhabitants having by no means purchased something on-line.
From these numbers, we must always anticipate MercadoLibre’s e-commerce enterprise to have no less than a decade of speedy progress forward, possibly a number of a long time:
- Progress of the overall market as e-commerce beneficial properties reputation within the area.
- Progress in total shopper spending, because of financial growth and the “re-shoring” and “friend-shoring” of manufacturing away from China.
- Progress in market share, as by now, it’s clear that e-commerce has a winner-take-all dynamic in each market worldwide.
In contrast to different on-line companies, together with Amazon, the e-commerce part stands by itself and is worthwhile with rising internet revenues.
Funds (Mercado Pago)
Along with e-commerce, Mercado Libre has hadits personal cost system, Mercado Pago, for 21 years. Its worth proposition is straightforward to grasp even by simply utilizing Google Translate on the principle web page (see beneath).
- No forms (LATAM banks are notoriously gradual, costly, and customarily disagreeable to take care of).
- The flexibility to make use of your cash immediately out of your cell.
The QR code system primarily replaces the necessity for money with a smartphone, which most individuals have on a regular basis with them anyway. Transfers are free and instantaneous. You can also entry a world Mastercard without spending a dime.
Some safety features, like straightforward modifications to ATM passwords or the power to pause the cardboard from a cellphone, are additionally a powerful promoting level in international locations the place private safety is usually lower than optimum.

Customers as younger as 13 years previous can open accounts, an effective way to lock in future customers as early as potential.
The identical comfort permits store homeowners to profit from Mercado Libre’s giant person base and highly effective cashless cost methods. The result’s speedy progress of the cost ecosystem.
If this progress continues for a number of years, MercadoLibre would possibly grow to be THE dominant cost system in LATAM. It is a enterprise with quite a lot of community results: If sufficient folks have one, each store on the continent should settle for it. If each store has it, why hassle utilizing one thing else?
This might grow to be a really highly effective moat, as Visa and Mastercard present.
Loans & Investing (Mercado Credito & Fundo)
It is a phase I’m personally much less smitten by. I perceive why Mercado Libre wouldn’t like to depart the credit score potential of its fintech untapped. There is just too a lot cash to be made by providing short-term loans at excessive charges.
And for certain, there’s a demand for credit score for on-line purchases. So why not seize that market your self, and provide an additional service to your customers?
Whereas that logic is plain, it will increase Mercado Libre’s vulnerability to downturns, as credit score threat is extremely correlated to financial circumstances and sometimes arduous to foretell. So the true profitability or threat for losses is all the time very arduous to guage.
The credit score portfolio has grown very aggressively, greater than doubling since final yr. The majority of the amount is now shopper and bank card loans.
The standard of the loans has been steady, and margins appear nice. I’m not solely certain the ten% of provision for dangerous loans is sufficient, and we’ll focus on that additional within the chapter on the financials.
On a extra constructive notice, Mercado Libre additionally gives its person what is basically a short-term fund deposit, Mercado Fondo. This will present the corporate with quite a lot of working capital at nearly no price. Please notice that the 63% yield provide beneath is definitely deeply damaging with Argentina’s inflation at present above 90%. So Mercado Libre is in apply getting paid by its customers for accessing free working capital.

On the Approach to Changing into a Tremendous-App?
Over the previous few years, Mercado Libre has began to kind a extra coherent transfer towards making its app a fully-fledged ecosystem. The concept is to repeat the Asian mannequin of the superapp.
This mannequin will increase engagement by being THE go-to app on somebody’s cellphone. The place you do funds, store, take a mortgage, and ideally additionally chat, socialize, get entertained, and so forth. For a lot of customers, the Web as an entire grow to be synonymous with the superapp, leveraging the addictive energy of the smartphone to a excessive diploma.
Mercadolibre doesn’t have (but?) a social media or chat side, but it surely began to supply HBOGo and Disney+ to its buyer. I believe the following step ought to be to enterprise into selling video video games, e-sports, or different actions of that sort.
A chat system can also be an possibility. If everybody beneath a sure age already has the Mercado app put in, it will make sense to make it into the LATAM WeChat.
That is slightly early, however there’s a good alternative for Mercado Libre to show into a real Web large, and by far the dominant actor within the Spanish and Portuguese world. In that respect, possibly some extension towards the Iberian Peninsula could possibly be an possibility as nicely.
General, we must always anticipate the ecosystem impact to grow to be extra highly effective over time. It’ll additionally present Mercado Libre with a wealth of information that it may well to make different strikes, like enhancing lending selections.
5. Financials
Money Stream & Steadiness Sheet
Profitability is nice, revenues have been on a strong progress pattern for the final 10 years, and free money stream is now actually flowing. There’s not a lot to remark, the image is fairly rosy right here. And that is at a time when most tech corporations on this planet are firing 5-10% of their workforce.
Mercado Libre have spend $953M on R&D within the final 12 months, in comparison with $352M in 2020. I’m not certain the place the cash went, however I’d suspect knowledge evaluation on credit score and the adverts phase are the brand new precedence.
General, the corporate’s administration has a wonderful monitor document. Founder Marcos Galperin remains to be the chairman, president, and CEO. So long as that is true, I anticipate the corporate to not squander its cash on idiot’s errands. So I’d guess this R&D spending to repay sooner or later.
The corporate has some long-term debt, however nothing dramatic. It additionally has a slightly giant money cushion of $2.4B. So long as the money obtainable is the same as the overall credit score portfolio, I believe we could be considerably reassured that even a interval of poor efficiency by the credit score division couldn’t endanger Mercado Libre. The identical is true for debt, particularly contemplating the $1.6B in free money stream.
I expressed my worries about Mercado Credito, however even when it turns bitter, I don’t assume it might endanger the corporate in any important manner. Even a tripling of losses to 30% dangerous debt would “solely” contain $600M, or 1/3 of the free money stream.

Valuation (E-Commerce)
Valuation is all the time a tough factor with progress shares, as a lot of the worth relies on predictions of what is going to occur 5 to 10 years sooner or later. The worth-to-sales ratio of 5.9 isn’t low cost, neither is the price-to-free money stream of 35.9. The P/E of 209 is much more out of bounds.
So lets say a few of the progress is unquestionably already priced in. If the enterprise was solely the e-commerce half, I’d suspect it is a truthful worth, contemplating the nonetheless giant untapped LATAM e-commerce potential and Mercado Libre’s dominant place.
But when Amazon taught traders something, it’s {that a} dominant place in a single market can flip right into a dominant place in loads of different markets. So the funding case depends on giant half on the potential for Mercado Libre to take over a few of the monetary methods of the LATAM area.
Valuation (FinTech & Different)
Fintech
The web cost part grew 50% year-to-year. The purpose progress (new promoting factors like native brick-and-mortar retailers) grew 78% year-to-year. The QR cost system grew at a triple digit share.
General, the system of Mercado Pago processed 1.4 billion transactions in Q3 22, up 66% year-to-year.
At $1.2B, the fintech phase (Pago + Credito) represents nearly as a lot internet revenue because the $1.46B of the e-commerce phase. The expansion charge of the FinTech phase, at 50%-150% relying on the sub-segment, signifies how giant the chance is and the way untapped this market nonetheless is in Latin America.
I believe this sort of explosive progress is price a slightly expensive valuation. My solely reservation remains to be the Credito phase. It could be extremely worthwhile, but it surely may additionally flip Mercado Libre into an excessive amount of of a financial institution or a credit score provider for my style. Nonetheless, so long as it keep sufficiently small examine to the general enterprise, it’s high quality with me.
Future Alternative
Among the service offering by Mercado Libre is for now, simply the cherry on the cake, like streaming HBO and Disney+. It’s nonetheless but to see what’s going to come out of such alternatives and if they are going to be worthwhile.
On the very least, they need to reinforce the power of the ecosystem and assist enhance the adoption of each e-commerce and fintech options.
6. Conclusion
Mercado Libre is a hit story that might be studied by entrepreneurs and traders for many years to come back. It could possibly be tempting to think about we “missed the boat” when its 100x return because the depth of 2008 markets. I believe that is incorrect.
For certain, a few of the progress alternatives have been missed already. Within the confines of its geographical area, I believe the comparability to Amazon is truthful. Amazon’s IPO in 1997 at $0.12/share made lots of people assume there was not a lot alternative left when it hit the $12 mark in 2012. It will then go on and attain an all-time excessive of $175/share in 2021.
Can Mercado Libre do as a lot as one other 10x from right here? Possibly, but it surely doesn’t want to try this to nonetheless make a great funding. Even when it “solely” makes 2x-4x over the following decade, it will nonetheless be an excellent contributor to any portfolio.
Contemplating a progress charge of 15%-20% for the e-commerce phase, and 50% or extra for the FinTech phase, that is a completely affordable progress expectation.
Over time, Mercado Libre might be going to outperform many shares, pushed by the joint forces of regional financial progress, Web adoption curve, e-commerce progress, and new merchandise and phase launches.
This is a chance captured by the very good execution of an skilled chief and his crew which have made the “inconceivable to do e-commerce in Latin America” an on a regular basis actuality for a whole lot of thousands and thousands of individuals. It will be arduous to guess in opposition to Mercado Libre increasing its dominance in a area the place e-commerce and fintech penetration nonetheless has monumental room to develop.
Holdings Disclosure
Neither I nor anybody else related to this web site has a place in MELI or plans to provoke any positions inside the 72 hours of this publication.
I wrote this text myself, and it expresses my very own private views and opinions. I’m not receiving compensation from, nor do I’ve a enterprise relationship with any firm whose inventory is talked about on this article.
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