MELI Deep Dive

Hi Everyone,
Here’s of my favorite growth stocks, Mercado Libre (literally translated to “Free Market”). Its businesses support e-commerce, online auctions, and fintech. It was founded in 1999 by CEO Marcus Galperin while attending Stanford. It has increased about 11 times over the last 5 years.

YTD Return: 125%

Latin America Quick Facts:

  1. Latin America’s middle class has grown from 22% of the population to 26% of the population or about 50 M people in the last 10 years (Euromonitor International).

  2. 59% or 384 M people in Latin America have internet access.

  3. GDP is about $5.6 T or about 27% of the US GDP.

  4. 70% of adults are unbanked.

  5. Online sales reached $70B in 2019 and are expected to grow to $116B by 2023 (Statistica).

  6. Latin American economies shrunk by about 8% last year, but are expected to grow 3% this year (SP Global).

Mercado Libre (ecommerce market place): Logistics, e-stores, and e-auctions are included in this group though technically they are 3 distinct divisions: Mercado Libre, Mercado Envious (Logistics), and Mercado Shops (online stores). MELI sells basic goods like Amazon and has online auctions like eBay in 18 countries. Its story suddenly got a more interesting during the first quarter of 2019 for two reasons:

  1. It’s Product mix was changed so that only products that were economical to ship would be sold. This damaged revenues in the during the quarter but laid the groundwork for the strong margins seen today.

  2. PayPal invested $750M in MELI on 3/12/19. This money was promptly invested in marketing and logistics infrastructure. The investments turned out to be perfectly timed for the pandemic. It opened 1,300 package drop off locations in Brazil, at a time when it was easier to develop these facilities. It supports free shipping for 62% of products sold. In Brazil and Mexico, MELI purchased 4 cargo aircraft in each country to service their largest markets. In Mexico, deliveries are made within 24 hours, and in Brazil, they are made within 48 hours.

Gross Merchandize Volume increased from 20 to 62% (in US dollars) over the last year. Growth and returns of all MELI secotros rival many SaaS company’s growth. In currency neutral terms, GMV went from 20% to 117% growth. They have about 26% market share of online sales. As COVID increased the digitization of large companies, Latin America increased adoption of online commerce.

Gross Merchandize Volume ($B)			
	Q1	Q2	Q3	Q4
2019	3.1	3.4	3.6	3.9
2020	3.4	5	5.9	

GMV Change YOY in USD (%)			
	Q1	Q2	Q3	Q4
2019	-2	8	22	20
2020	11	49	62	

GMV Currency Neutral Change (%)		
	Q1	Q2	Q3	Q4
2019	18	33	37	40
2020	34.2	102	117	

Growth shows up in volume of goods as well. Even though the product mix has shifted to higher priced items, which can be economically shipped, as evidenced by the underwhelming numbers in the first and second quarters of 2019, the growth has exploded in 2020. It’s important to note that shipping has occurred unabated in 2020 for MELI, while AMZN has had difficulty delivering its product. Finally, MELI has adopted its distribution system so that people who may not have a physical address can use its marketplace.

Number of Items Sold (M items)				
	Q1	Q2	Q3	Q4
2019	83	89	98	110
2020	105.7	179	206	

Change in Number of Items Sold (YOY %)		
	Q1	Q2	Q3	Q4
2019	3	4	17	28
2020	28	101	110	

Mercado Pago and Mercado Credito (Fintech): These divisions provide an online payment system, a mobile wallet, online banking, online brokerage, and a credit arm (credit for small businesses and customers). Mercado Pago is a mobile payment system similar to PayPal, Apple Pay, and Square. Since PayPal just invested in Mercado Libre and opened PayPal’s payment system for cross platform transfers, you can be sure the system is first rate. 55% of digital wallet usage is for off platform payments, so Mercado Pago is becoming widely used in everyday businesses. Mercado Pago’s partnership with PayPal for international payments to travel seamlessly through the two systems began March, 2020.

Additionally, MELI has a series of convenience stores where a person can give the cashier hard currency and the money is applied to the customer’s account for either online purchases or use with a digital wallet. This payment system is invaluable for a market where many people don’t have banks, much less credit cards. Amazon does not have anything like it.

Total payment volume in US dollars went from 64% to 92% over the last year. TPV in FX neutral terms went from 99% to 161%. Either way you slice it, these are superb results.

Total Payment Volume ($B)				
	Q1	Q2	Q3	Q4
2019	5.5	6.5	7.6	8.7
2020	8.1	11.2	14.5	

Total Payment Change in USD ($)				
	Q1	Q2	Q3	Q4
2019	35	47	66	64
2020	44	72	92	

Total Payment Volume Change FX Neutral (%)				
	Q1	Q2	Q3	Q4
2019	83	90	95	99
2020	82	142	161	

Off platform use is growing too. Now more transactions are made away from MELI marketplace than in it. This is super convenient and safer than carrying wads of cash around.

Off Platform Total Payment Volume ($B)				
	Q1	Q2	Q3	Q4
2019	2.5	3.2	4.0	4.7
2020	5	6	8	
Off Platform Total Payment Volume Change in USD (%)				
	Q1	Q2	Q3	Q4
2019	119	122	140	121
2020	84	92	114	
Off Platform Total Payment Volume Change FX Neutral (%)				
2019	194	198	190	176
2020	140	175	163	

Mercado Publicidad (advertising): This is an advertising service that does not seem to be significant to the business at this time.

Revenue Growth
In US dollars, revenue has growth has grown from 38% to 85% over the last year. Are you worried about how badly currency affects MELI? On an FX neutral basis revenues growth accelerated from 70.5% to 148.5%. Consider that for a minute. This is a time where the dollar is STRONG. Think about the results when the dollar weakens just a little bit? Currencies alone are not a good reason for an investment, but it is good to know.

Revenues ($M)				
	Q1	Q2	Q3	Q4
2019	474	545	603	674
2020	652	878	1120	
Revenue Change YOY in USD (%)			
	Q1	Q2	Q3	Q4
2019	48	63	70	58
2020	37.6	61.1	85	
Revenue Change YOY FX Neutral (%)		
	Q1	Q2	Q3	Q4
2019	93	102	91	84
2020	70.5	123.4	148.5	

Again, efficiency was increased due to investment in logistics, marketing, and eliminating low value products that could not be economically shipped in Q3 2019. At the same time, investments were made in warehouses, drop off locations and delivery infrastructure. Initially, this was done to out Amazon, Amazon, but the most important effect of this was to reduce operating expenses as a percentage of revenue from 61% to 36% this year.

Operating Expenses (% of Revenue)		
	Q1	Q2	Q3	Q4
2019	48	52	61	56
2020	51	37	36	

It looks like the bulk of the investments are behind them, and now they will start a modest share repurchase plan and MELI should see significant growth in profits. As many would point out, the exchange rate will effect these numbers greatly. That said, these last 5 years, when the strong dollar hit MELI hard, it grew over 11 times.

Profits ($/share)				
	Q1	Q2	Q3	Q4
2019	0.13	0.31	-2.96	-1.11
2020	-0.44	1.11	0.28	

What comes next? Although there is a certain level of corruption and periodic strife in Latin America, it is growing it’s economies and middle class (I could say the exact same thing about Wisconsin, LOL). MELI believes it’s invested most of the money it needs to for infrastructure for the time being, and is now starting a small share repurchase program. Growth seems like it will stay strong as the Latin American financial and commerce system evolves. I am happy to stay the course.

Regardless of US policy, I believe companies will diversify their supply chains away from China. Reliance on China for so much manufacturing infrastructure is not wise. Where else could first world countries diversify there manufacturing base? Africa? Not enough infrastructure. India? Yup. South east asia? Some. Latin America? Yup. I think five years from now, Latin America’s growth will be juiced a little bit by this effect.

MELI’s been a good grower, provides a badly needed service, and diversifies me a little outside of SaaS (though SaaS stocks are the majority of my portfolio). It might deserve a place in your portfolio too.




Fantastic post bulwnkl. I have been invested in MELI since 2012 and have added several times. I have been following its story since then but I did not know about their advertising arm and the share repurchase program. Thank you for pointing that. I remember that when Pago started it was a very small part of their revenues before it took off.
One more thing I would like to point out that even though their USD growth rates seem smaller than FX neutral growth rates, remember that all their revenues and expenses are incurred in local currencies. So the USD growth rates are for reporting purposes only.



look at e commerce in Mexico
Note the average revenue per sale is predicted to decline even though the number of users is expected to increase
MELI is # 2 behind Amazon in Mexico. As the business matures I expect ecommerce to effectively become a duopoly
Share repurchase is often like dividends, a sign a company is raking in more money than it knows what to do with. Not necessarily a good sign for growth investors.


I understand your point on Mexico, it is one of MELI’s two most important markets, so it’s an important component of earnings. However, being a duopoly in Mexico, the leader in 15 other countries, and having a booming fintech business is still reason to be optimistic. I think the revenue growth and margin expansion bear that out.

You make a fair point about the share buy back. If a company pays a dividend or buys back shares with excess cash, I, too, would usually view it as a sign of a company maturing out of its rapid growth phase. That said, MELI for several years paid a small dividend while it experienced EXPLOSIVE growth. In this case, returning cash to shareholders doesn’t necessarily equate to faltering growth.




Given the rise of populism in the region (as elsewhere) and some of the economic / political instability that the pandemic is causing in several countries in the region, returning “excess” cash to shareholders may also be a prudent way to avoid becoming a target as political leaders look for ways to either solve the problems that confront their nations (targeted taxes on companies sitting on a lot of $ anyone?) or to blame and scapegoat, much as we have seen done with Amazon in the US. We are seeing a trifecta of decades-long mismanagement, the pandemic, and climate-driven agricultural disruptions in some countries that combine to create economic and political instability. MELI’s cash horde could be a tempting target for some, much as the so-called tax on billionaires was in some quarters during the recent campaign season in the US.

Dorset, Long MELI


Ruben I know you are trying to be helpful but copying paid content and putting it on the board can get the Motley Fool in trouble. That is completely wrong.



Better do a short version of that info quickly. At least the link. I just reported the post for copyright infringement.

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