- MercadoLibre (MELI) is a uniquely mature e-commerce proposition in EM and will generate 58% EBITDA CAGR in FY 20-24f
- E-commerce penetration in Latin America is below 5%, so there is huge room for growth
- We do not believe the market has fully valued MercadoLibre's digital payment business
MercadoLibre Inc was founded in 1999 and is headquartered in Buenos Aires, Argentina. It is the largest online commerce platform in Latin America. It is present in Brazil, Argentina, Mexico, Chile, Colombia, Peru, Uruguay, Venezuela, Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Paraguay and El Salvador.
The company offers six integrated e-commerce and digital payments services: the Mercado Libre Marketplace, the Mercado Pago, the FinTech platform, the Mercado Envios logistics service, the Mercado Libre advertising solution, the Mercado Libre Classifieds service, and the Mercado Shops online web stores solution.
Covid-19 has widened the e-commerce canvas
The investment case for e-commerce has accelerated across the globe through the pandemic. In emerging markets, e-commerce revenue grew by an 18% CAGR in 2014-19 but rose by an average of 28% yoy in H1 20 alone (for comparison, Amazon’s revenue increased by 34% in H1). GMV increased by 30% yoy for the so-called Baby Amazons (emerging market e-commerce players, such as Jumia, SEA, Flipkart and Ozon) in H1.
The three traditional drivers of emerging markets e-commerce are:
Internet penetration, has galloped forwards in the EM world, powered by cheap data.
Smartphones, which have become the principal means of e-commerce as cheaper accessible models have flooded the market.
Unlike in developing markets, e-commerce is the first step for millions of emerging market consumers to access retailing.
However, with Covid-19, a new set of drivers have emerged, further boosting the sector:
E-commerce adoption has been much broader in the large emerging markets – India, Indonesia, Brazil, and Nigeria – than expected. Groceries and healthcare items have moved online much more rapidly than expected.
Smartphones adoption has accelerated.
E-commerce has become more prevalent among older people in emerging markets.
Some Baby Amazons are even outperforming the mothership
Certain Baby Amazons, such as Jumia, Meituan Dianping, Sea and MercadoLibre are outperforming Amazon on the stock market, which, as is well known, has itself performed extremely strongly through the pandemic.
MercadoLibre is a value enhancer
MercadoLibre is looking to emerge as a one-stop-shop platform, along the lines of Alibaba. We think it has all the hallmarks to be successful, given its wide geographical reach and exposure to rapidly expanding emerging markets.
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