MercadoLibre Went from Being the eBay to the Amazon of Latin America

MercadoLibre Went from Being the eBay to the Amazon of Latin America

E-Commerce News

MercadoLibre (MercadoLivre in Portuguese) has become the de facto internet retail option for Latin America. Founded in 1999, MercadoLibre has been able to deal with economic and political headwinds in its operating countries. MercadoLibre began operations in Argentina, where it is still based. But Brazil, the 10th largest e-commerce market in the world, has moved into top place and now accounts for nearly 60% of revenue, followed by Argentina, Mexico and Venezuela.

While initially MercadoLibre was the eBay of Latin America, drawing inspiration and even design ques early on from the US auctions leader, it is now much more the Amazon of Latin America. Marcos Galperin, the founder and CEO said "From day zero, we looked at eBay as a role model, but we always knew that we needed to change stuff to make it work in Latin America." It moved on from auctions to products at fixed price, and has focused on the infrastructure the most. It is still exclusively an e-commerce marketplace though.

The markets MercadoLibre operates in are much less developed than the US, and every country has its own unique limitations. So to achieve growth MercadoLibre had to solve many of these issues, as opposed to just building websites and waiting for the market to catch up.

One of these services is MerchadoPago, a payment system with country-specific payment methods. For example in Brazil it is common to pay in fee-free installments of at least 12 months. While Peru and Colombia are mostly cash of delivery. MerchadoPago handles the country-specific complexities. Number of transactions on MerchadoPago has been rising at least 60 percent every quarter for years, reaching 44.1 million last quarter. Since 2010 it is also offered for other retail websites to use.

MercadoEnvios is a service wrapping multiple different logistics solutions. Depending on the market it offers fulfillment services. It's not as complex as Fulfillment by Amazon (FBA), but is slowly moving towards that direction. The total number of items shipped using the MercadoEnvios service climbed to 27.3 million, rising 59 percent from the year-ago number.

MercadoLibre has also launched an advertising service for sellers, as it continues to grow the full ecosystem. We praised Amazon for moving from being a retailer, to an infrastructure company, so we think the direction MercadoLibre is taking is ideal too. It realized that building an auction website is not good enough, and went to working on increasing efficiency of the whole e-commerce chain.

Latin America has much lower internet penetration than the US, and e-commerce as a percentage of total retail sales is half that of the US. This presents untapped potential in the future. Today MercadoLibre is better positioned to dominate the market than Amazon could be. Many of the countries MercadoLibre operates in are too small for Amazon to be worth the effort, and as time goes by the infrastructure and local-specific solutions it builds will be hard for Amazon to copy. Amazon already operates in Brazil and Mexico, but in Brazil they only sell books, and they launched in Mexico just two years ago. Amazon is taking a position of watching the market unfold, and is likely to make moves in it in the future through acquisitions.

We've been watching this for a while and for the past few quarters every metric of MercadoLibre has been growing strongly. During the last year this has also resulted in MELI stock rising over 100 percent in price. They report in US dollars, but operate in markets using local currencies, so this often considerably affects sales and revenue numbers. But last year they generated over $8 billion in sales, and might even go past $10 billion in 2017.

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