Mercado Libre Inc (MELI) is the largest online ecommerce ecosystem In Latin America with presence in 18 countries . The company, founded in 1999, offers a variety of services including a marketplace (mercado libre), a logistics service (mercado envios), a credit solution (mercado credito), an online store solution (mercado shops), a fin tech platform (mercado pago), and an advertising service (mercado publicidad). I believe that Mercado Libre is a winner due to its disruptive business model in the marketplace and fin tech platforms, which has led to an impressive growth of the company.
Business model and impact on competitors
Mercado Libre Marketplace is an online platform in which businesses and individuals buy and sell products. The marketplace, founded in 1999, has been a disruptor of the traditional retail companies in Latin America. When Mercado Libre was founded, the traditional retailers saw the e-commerce only as an opportunity, but not as a threat. This effect delayed the response of the traditional players, facilitating the penetration of Mercado Libre. To illustrate, although Falabella, one of the largest retail companies in the region, created its online website in 1999, it was not until the 2010s that the company focused on expanding its online capabilities . Due to this time advantage, Mercado Libre has been able to grow the online business faster than traditional retailers, becoming a winner in the marketplace space.
Mercado Pago is a fintech platform that allows users to send and receive payments online in a secure and timely manner . In 2004, after the impressive growth of the Marketplace, the founders decided to create Mercado Pago to facilitate transactions in the marketplace. In the last years, this service has been extended to support other businesses to process payments. In addition, since in Latin America there were few payment providers and a high percentage of cash transactions, the company started offering in-store physical payment by selling QR payment codes, pre-paid cards for users to spend money from their Mercado Pago wallet, and a market fund to invest the balances of Mercado Pago accounts. This fintech platform is a winner since it has disrupted the payment card industry in Latin America. To illustrate, Transbank, the Chilean credit card administrator, was a monopoly  and charged rental fees for the equipment and a significant merchant discount. The entry of Mercado Pago has created a more competitive market, reducing the fees for users as well as increasing the financial inclusion of segments of the population that normally have been underserved by the financial institutions .
The stock price of Mercado Libre has grown significantly since it was listed on the NASDAQ in 2007. The stock price grew from $28.5 in October of 2007 to $663 in January of 2020. Figure 2 shows what would be the value of a $100 investment made in 2007. In January of 2020 the investment worth $2,326, while the same investment in NASDAQ and Falabella worth $360 and $128 respectively.
Furthermore, the revenues of Mercado Libre increased from $85 million in 2007 to $1,440 million in 2018. In addition, Figure 3 shows that the revenue growth in the last year has been driven by non-marketplace revenue streams. This confirms that the fintech platform of Mercado Libre will be critical to continue positioning the company as a winner in Latin America.
Finally, Mercado Libre shows a significant improvement in the key performance indicators of the business. The number of registered users increased from 53 million in 2010 to 212 million in 2017, while the number of sold items increased from 39 million to 81 million in the same period. Along the same line, in 2018 the fintech platform had 389 million of transactions, 68% over the 2017.
The fact that Mercado Libre has become a winner in the last decade does not mean that it will continue being a winner in the next years. The potential entry of Amazon to more countries in Latin America and the growth of competitors such as Linio in the marketplace industry and Mach in the fintech industry, are challenges that Mercado Libre will have to face. Investment in new technologies, the growth of new areas such as the fintech platform, the penetration of new regions, and the improvement of the customer experience are some of the initiatives that Mercado Libre should develop to continue being a leader in Latin America.
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