Here’s an interesting back story on Mercadolibre that also covers the arrival of SEA into Latin America.
https://www.readthegeneralist.com/briefing/meli
It was posted over on the premium Mercadolibre board by CMFBLSH, which can be found here…
https://discussion.fool.com/4056/history-of-meli-34835828.aspx
As a long term holder there’s plenty that I wasn’t aware of. It certainly increases my confidence levels in the company and management!
Ant
Thanks for the link to “The Six Stories of Mercado Libre” which is both informative and entertaining. Regarding SE’s entrance into Brazil, it says:
In a blink of an eye, Shopee has jumped to the 9th most downloaded app in Brazil, according to App Annie. Data from earlier this year suggests the company surpassed Amazon and Alibaba in terms of traffic in the country.
Sounds phenomenal, however the DJY Research deep dive which I linked in my original post addresses this specifically:
We have seen pronouncements that Sea is already a global eCommerce player, pointing to app downloads and monthly users in Brazil. However, an astute chart reader would notice how parabolic monthly user growth has been compared to other players that have operated in the region for decades. We suspect that virtually all of this app usage has been driven by promotions within the popular Free Fire game, offering free items for opening the Shopee app to receive a code to punch into Free Fire. Importantly, these promotions do not require the making of any purchases, but simply the registration of an email.
The chart they referenced shows Shopee’s app downloads being ahead of MELI since the fall of 2020. The report then goes on to compare MELI vs. SE regarding logistics and eCommerce competitiveness:
On one hand, this speaks to the power of having a captive audience and Sea’s ability to direct them to other services, but low CAC is not a business model and their eCommerce initiatives are not competitive compared to incumbents. Latin America has few common carriers and those they do have, have sub-par delivery speeds with limited geographical coverage—this is why Mercado Libre launched their own shipping service, with a network of drop off locations and warehouses offering fulfillment. Density is critical to improving logistics and so overtime the big tend to be able to offer increasingly better service at a lower cost. Furthermore, all of the network effects between sellers and buyers that make a marketplace vibrant work against them here as they do not have any material amount of local sellers and likely very few buyers. However, it is possible that Sea has some success with selling some more unique and cheaper goods from Asia to Latin America, but it is unlikely to ever be a big business without significant investment, which frankly would be a misallocation of capital given their somewhat tenuous lead in eCommerce in their core SEA markets, where the total addressable market remains largely unaddressed.
That’s a pessimistic take on SE’s Latin American prospects, but is it unreasonable?
Roller
Living in Mexico, MELI seems like a good fun tech play. I see their point of sale and credit cards. I’ve heard people talk about how much they love the services. BNPL is huge in LATAM and Meli could do very well here.
That said, I’m nervous about e-commerce. Last mile apps like Didi and Rappi are really taking off and Amazon had entered Mexico with a vengeance. I used Meli at the start of the pandemic, but now I’m all Amazon. My sister in law is the same. Brazil and Argentina could be different. This is just my experience.
Living in Mexico, MELI seems like a good fun tech play. I see their point of sale and credit cards. I’ve heard people talk about how much they love the services. BNPL is huge in LATAM and Meli could do very well here.
That said, I’m nervous about e-commerce. Last mile apps like Didi and Rappi are really taking off and Amazon had entered Mexico with a vengeance. I used Meli at the start of the pandemic, but now I’m all Amazon. My sister in law is the same. Brazil and Argentina could be different. This is just my experience.
This is an interesting perspective. My understanding is that MELI has been a decisive winner when challenged by AMZN in Latin America thus far. But Mexico’s ecommerce is still early in its evolution without a clear leader. MELI is making significant investments (recently announcing $1.1 billion in new investments) in Mexico so it might be a battle with AMZN there. AMZN has been trying to crack Mexico for about 6 years. Ecommerce still has a low penetration with only 5-7% of retail purchases online in Latin America and it is expanding rapidly so there should be room for more than one winner but this competition could put limits on growth at some point.
This seems like a good recent overall perspective on the ecommerce landscape in Mexico and the rest of Latin America:
https://www.modernretail.co/platforms/how-mercado-libres-lon…
Dave
I used Meli at the start of the pandemic, but now I’m all Amazon.
Why the change?
Here’s an interesting back story on Mercadolibre that also covers the arrival of SEA into Latin America.
https://www.readthegeneralist.com/briefing/meli
Ant
I found the read on Sea in Latin America to be quite enlightening so I thought it might be useful to some if it were imported here.
During its twenty-two years of operations, Meli has managed to see off all comers to become the largest e-commerce company in Latin America. It has done so with almost consummate ease. But no beast, even the mighty Meli, is unslayable. As competition looks heats up, the company will need to avoid complacency and ensure no rival plays the role of “redeemer.”
Though Amazon first landed in the continent in 2012 and Alibaba in 2015, the last 18 months suggest Shopee may be the most likely candidate.
Owned by Sea Group, Shopee represents a uniquely terrifying proposition: bankrolled by a money-spinning game conglomerate, thrilled to burn money to buy share, and engineered to within an inch of its life to draw attention and keep it.
As it has expanded, the Singaporean company has dialed in an effective playbook, one very different from Meli’s own. Mobile by default, Shopee attracts users through a mix of gaming and social features. For example, “Shopee Farm,” which rewards users with “Shopee Coins” to visit the app and tend to a virtual freehold, incentivizing multiple opens per day. Leveraging Sea’s gaming subsidiary, Garena, Shopee also offers rewards through vehicles like Free Fire, a popular game in Brazil. Livestreaming shopping events is another approach that brings its own appeal.
While Shopee positions itself as locally sensitive, in the mold of Meli, its model is predicated on a different approach. Rather than onboarding SMEs in Brazil, for example, Shopee advertises excess inventory for sale in Brazil. The outcome is that the platform doesn’t lift Latin American merchants but exposes Asian sellers to a new audience. Only after finding a foothold does Shopee court native merchants.
Where Shopee does tailor its approach is when it comes to marketing. The company hires local celebrities and influencers to promote its products. This is coupled with generous discounting and shipping subsidies.
It has worked. In a blink of an eye, Shopee has jumped to the 9th most downloaded app in Brazil, according to App Annie. Data from earlier this year suggests the company surpassed Amazon and Alibaba in terms of traffic in the country. Revealingly, Shopee’s local presence has expanded significantly, surpassing a 250-person headcount. The company has shuffled influential lieutenants from Asia to focus on the new market while also sniping talent from Meli. Earlier this year, Shopee announced the launch of its app in Mexico. True to form, it is beginning by offering only cross-border products.
If Shopee is Brazil’s new kid on the block, Magazine Luiza is the old rival. Founded in 1957 as a chain of retail stores, “Magalu” successfully transitioned to an omnichannel strategy, adding online buying to its footprint. In some respects, Magalu and Meli have spent the last ten years moving in opposite directions, the former bolstering its virtual position as the latter strengthens its physical one. With $5.5 billion in 2020 net revenues, Magalu outstrips Meli, even if it operates with a more asset-heavy model. (Intriguingly, Magalu advertises with the help of virtual influencer “Lu,” the Lil’ Miquela of Brazilian e-commerce. That’s helped Luiza reach 5.2 million Instagram followers, while Mercado Libre’s local account has just 2.9 million.)
FWIW I thought the comparison with The garden of forking paths" was a bit much. Its a strange and deep story. Not so MELI.
draj
I used Meli at the start of the pandemic, but now I’m all Amazon.
At the start of the pandemic, I could find better deals on MercadoLibre. It was crazy. I wanted to buy some weights and the prices on Amazon were x3 the prices on Mercadolibre.
But as the pandemic has worn on, Amazon’s inventory has gotten much better, and with that, prices have come down.
At the start of the Pandemic I was seeing Billboard ads for Mercadolibre. Now I am seeing ads on busses for Amazon.
Many people in Mexico are just getting into e-commerce for the first time. It will be a large growth market here for a while. I live in Monterrey, so close to the US and it might lead to more of an advantage for Amazon here. Market conditions in LATAM are very regional.