Mercado Libre ($MELI) - South America's Alibaba

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This thread was missing. I’d be interested to hear thoughts on South America’s “Alibaba” / “Amazon”. Is it in your portfolios? Below is basic information; my own capability for a broader fundamental analysis is lacking.

It is the continent’s leading e-commerce player. Founded in 1999, in Argentina. Now, with the corona pandemic, it has gained more momentum. Valuation multiples are in the “I don’t even want to think about it” category.

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An Amazon-like marketplace.

I personally see good diversification here with a 3-5 year horizon. Strong growth is quite certainly expected, if one can ever say so. In South America, people still partly use 100% cash, so with the corona pandemic, the leap to the digital side is relatively larger. More FinTech involved, as a difference to Amazon.

The biggest risks I see are the drop in valuation multiples if the general market situation changes. More intense competition with Amazon would also weaken the case. Currently, Mercado Libre’s market share of all e-commerce in South America was around 30%, while Amazon’s share was around 4%. This was, if I recall correctly, the situation in autumn 2020.

Market capitalization at current price 95 billion USD
2020 estimated revenue 3.9 billion USD
YoY growth is expected to be 135%
P/S 28.69 (with 12-month trailing results, Yahoo Finance)

Tomorrow, 23.2.2021, Q4 results.

Revenue growth
Q1’07 $16 million USD —> Q3’20 $1116 million USD

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Financial Times article 10/2020

Podcast:

Interview with CMO Sean Summers, this is mostly big-picture stuff, but it certainly didn’t diminish my faith in the company’s work.

http://thebusinessofplatforms.com/episode-20-on-how-mercadolibre-impacts-consumer-behavior-with-sean-summers/

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Inderesin kahvihuone (Osa 9)
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Kiitos, varsin kattava tuo Seifelin katsaus

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@Ituhippinen, I’ll kick things off here again. :slight_smile:

Mercado Libre is a South American e-commerce giant that has grown its revenue by an average of 27.4 percent per year over the last five years. The company’s main markets are Brazil, Argentina, and Mexico. Its strengths include a strong brand, a growing user base, and a profitable business.

Although the company has grown rapidly, its success is threatened by economic cycles and competition. According to estimates, the fair valuation of the company’s stock is approximately $2,750.

In short: Mercado Libre is a promising growth company that is well-positioned in the growing South American markets.

https://x.com/robertojirusta/status/1837912993243488697

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Especially impressive performance in terms of revenue. :smiley:

https://x.com/insidetechtrade/status/1839526324337082671

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EDIT:

A news story from MSN, which was likely translated by AI or something like that. In itself, quite good info about the company, and the piece is less than a week old.

Most often, company growth slows down after they reach 20 years of age. A good example of this is PayPal, a company that was used to producing double-digit growth. Nowadays, its growth has slowed and it struggles to reach a 10 percent rate.

Other large companies, such as Block, formerly known as Square, Wayfair and TripAdvisor, have struggled to continue their growth.

MercadoLibre, on the other hand, is still pumping out strong double-digit growth organically.

https://www.msn.com/fi-fi/uutiset/other/mercadolibre-osake-on-noussut-ennätyskorkealle-vieläkö-ostaa/ar-AA1r7cIA?apiversion=v2&noservercache=1&domshim=1&renderwebcomponents=1&wcseo=1&batchservertelemetry=1&noservertelemetry=1

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I’ll continue the game with a comparison like this, which includes my Amazon. :slight_smile:

https://x.com/FrameworkWisely/status/1844589058837590226

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Here is also a tweet thread about “Meli”:

https://x.com/TheRayMyers/status/1844822964992176556

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The rest of the tweet thread

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@Ituhippinen, @Mikael_Maijala has also mentioned this “MELI” in his article :slight_smile:
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@Ituhippinen

MercadoLibre will release its results tomorrow, and both revenue and earnings are expected to grow significantly.

The company’s growth in Latin American e-commerce has been strong and profitability has improved. Competition in the sector is fierce and the valuation level has risen, which may affect the market’s reaction to the earnings release. :slight_smile:

https://x.com/ZeevyInvesting/status/1853841149141619011

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I’ve been involved for about three years. From memory, Mercado Libre has four main businesses:

  • Mercado Libre: e-commerce
  • Mercado Pago: payments
  • Mercado Envios: shipping
  • Mercado Credito: consumer credit, pay later (mañana)

So, in a way, it’s a combination of “Amazon, PayPal, FedEx, and Visa” in the same package in a more unstable and faster-growing market.

Of these, primarily the risks of the credit portfolio have been a concern in recent years. The other businesses are progressing steadily. Of course, South American inflation and currency fluctuations make it a bit less linear.

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MercadoLibre’s third-quarter results fell short of expectations. The company’s expansion into financial services – specifically lending in Latin America – negatively impacted profitability. The company’s credit portfolio grew 77 percent year-over-year, and credit card lending in particular grew by as much as 172 percent, rising to $6 billion. Provisions related to the overall lending operations weighed on the result, and the net profit of $397 million missed analysts’ forecast of $513 million.

The company also invested in logistics, opening five new logistics centers in Brazil and one in Mexico.

The company sees credit cards and financial services as a strategically important growth driver, although there is currently some pressure on profitability. However, investments made for long-term growth support the expansion of the company’s fintech business, especially in Mexico, where the company has the largest credit portfolio in the country’s fintech sector.

The company’s e-commerce platform had 61 million active users and the Mercado Pago service had 56 million.

Below are some figures and charts from various tweeters. :slight_smile:

https://x.com/Quartr_App/status/1854272785713135889
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https://x.com/StockMarketNerd/status/1854274209511575682
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https://x.com/EconomyApp/status/1854274479851237687
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I think it’s worth highlighting this again.
20241107_113802

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I own Amazon and now it’s being compared to this MELI. :sunglasses:

https://x.com/ZeevyInvesting/status/1854910159597809679
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Here is a good summary of what should be of interest in MELI.

https://x.com/BourbonCap/status/1855360595773534357

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Here is an excellent summary of Meli’s quarter by Brian Stoffel. Significant CAPEX investments are being made, which weigh on results in the short term, but it can be expected that they will bear fruit over time. They are operating completely according to Amazon’s playbook.

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Kurssien ja niiden muutosten kyselyt, kauhistelut ja hehkuttelut (Osa 3)
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Below is an analysis of this MELI.

I will briefly summarize the analysis:

Jefferies sees a strong growth outlook for MELI as Latin America’s leading e-commerce platform and fintech player.

In the base case scenario, a 20 percent upside is expected if the company maintains a 26 percent annual revenue growth as the role of fintech strengthens, particularly in the credit business. In the upside scenario, an increase of up to 55 percent is seen if GMV, payment transactions, and credit growth exceed expectations. In the downside scenario, the decline could be as much as 31 percent if the company faces an increase in credit losses or capital costs.

The company still has potential to improve profitability and effectively leverage the growth of the fintech business. According to the analysis, risks and opportunities are in balance.

https://x.com/wolfofharcourt/status/1858797606161576091
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Here is Mercado Libre’s growth by segment. :slight_smile:

https://x.com/IFB_podcast/status/1860737836435013684
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What do you think about the points in the tweet below? :thinking:

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@Sijoittaja-alokas has kept the thread well-maintained! :pray:t3:

There’s nothing else new and revolutionary to add, but there’s a good reason for last week’s small dip, and owners should savor it. :thinking:

Brazil’s Finance Minister has hinted at an economic package that included $70 billion in cuts by 2026. The country’s poorer population is set to receive tax relief (estimated impact of approx. $1 billion USD), and higher earners will be taxed a bit more strictly. A package of this size is not believed to stabilize Brazil’s debt-to-GDP ratio (BofA). The country is currently fighting a tough battle with inflation, and in November, the central bank raised interest rates to 11.25%. The Brazilian real has also taken a severe hit this year, with a 19% YTD decline against the dollar.

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Although interest rates were raised significantly, the increase still fell short of market expectations, and investors are concerned whether the measures will be sufficient to improve public finances.

Fud, or actually a black swan? Well, macro stuff is macro stuff. :slight_smile:

As the market fluctuates, I try to keep my core theses in mind:

  • Strong market position in LatAm countries. For merchants, Meli is a true one-stop-shop that handles everything from marketplace, logistics, and lending (ecosystem). The market area is challenging, which creates a high barrier to entry.

  • Very well-diversified business. One mention is the fintech side (Mercado Pago), which is growing rapidly in the “unbanked” population region. Digital banking services are not yet a given everywhere.

  • Operational efficiency with rapid growth in scale. Meli’s scale is already so massive that various costs can be significantly reduced. I don’t know, but I would assume a company this large also has some political influence.

  • Growth and profitability have been successfully expanded to several countries. The business model therefore works, and there is still market to capture for years to come.

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Ostin/myin juuri äsken (Osa 7)
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Thank you very much for the excellent highlights! :slight_smile:

History is no guarantee of the future, but this is beautiful to watch. :slight_smile:

https://x.com/finchat_io/status/1862874244935569462
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The Brazilian competition authority Cade has ordered Apple to remove restrictions on payment methods used for in-app purchases.

This decision is related to a complaint filed by Mercado Libre in Brazil and Mexico in 2022, in which the company accused Apple of anti-competitive practices. MELI specifically criticized Apple for requiring developers to exclusively use its own payment system and preventing them from directing users to external websites.

Cade ordered Apple to allow developers to offer alternative payment methods and links to external payment sites, for example, threatening a daily fine if the company does not comply with the order.

https://www.reuters.com/technology/brazil-antitrust-body-rules-apple-must-lift-restrictions-in-app-payments-2024-11-26/

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The tweet below states that Latin America is rapidly developing into a hub for payment system innovation, or something to that effect.

Open banking systems, such as Brazil’s Pix, promote real-time payments and security. Businesses are integrating e-commerce platforms, and local services offer tailored payment methods. Growing e-commerce benefits from cross-border payment solutions that support the needs of consumers and businesses in the region.

I put this here as it relates to Mercado Libre. :slight_smile:

https://x.com/MaxTheComrade/status/1865416986970279989
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The tweet below highlights MELI’s undervaluation and growth opportunities, especially in Brazil, Mexico, Colombia, and Chile. The tweet praises the company’s versatility, i.e., everything it’s involved in, etc. :slight_smile:

https://x.com/BourbonCap/status/1866886120165818556
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EDIT:

A pretty good comparison of these two familiar companies. (Nu’s thread can also be found here)

https://x.com/finchat_io/status/1866536767735861742
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