Regarding $MELI
I have what for me is a medium-sized position in $MELI and I’m trying to find the time for a full writeup.
Here, in random order, are some of the main ideas I’d like most to convey regarding $MELI:
- $MELI is a Fintech that has a ecommerce site, not the other way around, as demonstrated by their revenue buckets and how each bucket is growing.
- Revenues from credit card transactions (…that have nothing to do with mercadolibre.com) are TRIPLE the revenues they make from transactions on mercadolibre.com
- $MELI’s Credit Card (Mercado Pago) vision is to provide ALL the services in a credit card transaction. In a typical CC transaction there are FOUR sides: consumer, consumer’s bank (“Issuer”), Merchant, and Merchant’s bank (“Acquirer”). $MELI wants to the the Issuer AND the Acquirer; if they achieve this, their business scope will be the equivalent of Amazon, Shopify, PayPal, Square and Chase Bank
- $MELI has flywheels-within-flywheels! They have MORE flywheels than, I imagine, just about ANY company, ANYWHERE. Below are some examples.
Item #4 in this list IMO deserves it’s own paragraph(s):
Remember my past post in which I described the history behind the banking oligopolies in Brazilian banking? Well it turns out that the SAME factors (…wealthy elites closely connected to powerful politicians, suppressing competition, holdover from Colonial dynamics etc.) are in play for almost every macro-aspect of almost every LATAM country, INCLUDING (for instance) Transportation in Brazil.
…to wit: getting things delivered, to your doorstep, in a reasonable amount of time, in Brazil, historically has been a hair-pulling task. One that $MELI solved, by building out their own transportation network. Now BEFORE YOU SAY “yeah like Amazon did” PLEASE TAKE NOTE of these (IMO) extremely differentiating factors:
4a.) The National Postal Service in Brazil, at the time, was basically a combination Government monopoly + Mafia. To say that the NPS “fought” $MELI in its efforts to establish a Logistics arm is a huge understatement. The NPS fought hard, they fought dirty, they threw everything they had against Galperin ($MELI CEO), and…Galperin won. Leadership box CHECKED.
4b.) $MELI package delivery is a flywheel! Because: the difference in reliability and timeliness in getting packages delivered from $MELI vs. the NPS is such a HUGE difference that it drives traffic to mercalolibre.com! You can order from mercadolibre.com and get your stuff in two days, or you can get it somewhere else and the NPS will deliver it, whenever they get around to it. They’ll sometimes have your item at a post office, a mile away, and you’ll get it from there it…maybe 7-8 days.
4c.) I am therefore arguing that the Logistics stuff $MELI does is a MUCH bigger deal to its customers than Amazon Delivery is to folks in the USA, and the ramifications to $MELI’s revenue are a much bigger deal.
…well anyhoo. Here is a rough laundry-list of their flywheels:
A. All the data they collect drives good risk decisions for credit cards and Merchant loans
B. ecommerce drives Mercado Pago, which drives commerce OUTSIDE of Mercado Libre’s site
C. ecommerce drives marketplace (digital) ads
D. ecommerce drives interest payments from BNPL (…the MERCHANTS pay the interest!)
E. Logistics drives ecommerce!
F. Mercado Pago drives…Mercado Pago! (Seriously!)
- see above list of the scope of Mercado Pago
- customers using Mercado drives Merchants to offer it
- Merchants offering Mercado Pago drives Customers to adopt it
- QR Code payments drive 1)merchant fees, and 2)loan business from the merchants! (…I still need to do my homework on the QR-code business)
G. In short, once $MELI acquires a Customer, that Customer has HUGE incentives to use not just mercadolibre.com, but to use the ENTIRE ECOSYSTEM: credit card, digital wallet etc.
Granted they have no equivalent of AWS.
Aside from AWS though, in terms of scope of operations, $MELI is Amazon.com + integrated online+offline payment solution+credit card issuer+digital wallet+BNPL provider
I have to double-check my notes, but the non-mercadelibre.com TPV is like 70% of total TPV, and is growing at a faster rate! That’s why $MELI is a Fintech that has a ecommerce site, not the other way around. And that’s directional too: off-marketplace was 27% of TPV in FY2016 and was 65% in FY21.
ALL THIS SUCCESS happened while (…according to Latinometrics.com) Brazil’s per-capita GPD FELL 43% in the last 10 years! Does THAT address anyone’s fears that $MELI does business in LATAM! Mine are pretty squarely put-to-rest!
Are you worried that most of their revenue is from credit? Well let’s just note, then, that in the third quarter of 2022, its reported interest margin after losses (“IMAL”) was 37%! HOW IS THIS POSSIBLE? It’s possible because the banks in LATAM give their Customers a MUCH WORSE deal than that! Back to the dynamics in my post on $NU. This is why IMO it is worth the time to understand, a bit better, what the history, and the right-now, of what is going on in LATAM.
There is a lot going on in LATAM that can be capitalized on, because companies there are undervalued, because most folks don’t want to take the time to understand LATAM. I think it’s a golden opportunity!
And their mission statement addresses the dynamics I described in my post about Nubank:
" Our mission is to democratize commerce and financial services to transform the lives of millions of people in Latin America."
They aren’t just about money and being “customer centric”; they are driven to transform the financial lives of everyone in LATAM!
Here’s an example of how they are making it happen: Recently MELI scored a victory with import tax rates, exempting the first $50 of cross-border imports (critical to MELI) while enacting a general rate of 17% (…I could write an entire post about tariffs’ role in restricting competition in LATAM; throttling competition ultimately throttles GDP. The reduced tariffs are a step in the right direction, and $MELI made it happen).
Please accept my apologies for the disorganized nature of this post and for the lack of financial details. I’ll need some time to put together a more cogent post about $MELI.
https://seekingalpha.com/article/4461765-mercadolibre-meli-two-sided-network-vision
https://discussion.fool.com/t/market-inefficiency-in-brazilian-fintech/