$MELI: The Digital Infrastructure of LatAm

MercadoLibre, Inc. ($MELI) is the largest e-commerce ecosystem in LatAm

It can also bring LatAm into the digital age

Its platform consists of 6 integrated verticals that will serve as the backbone of a modern LatAm economy

A thread

1/ The Basics

6 integrated verticals:

- Mercado Libre (Marketplace)
- Mercado Pago (FinTech - includes lending)
- Mercado Envios (Logistics)
- Mercado Libre Advertising
- Mercado Libre Classifieds
- Mercado Shops (Online webstores)

The ecosystem benefits from network effects

2/ E-Commerce: $MELI IS the Market

MELI is the dominant leader in the top 5 countries in LatAm e-commerce market share (~86% of LatAm)

Transition from big-ticket to consumer goods (highly beneficial in recession)

Logistics enhances offering, reducing geographic frictions

3/ LatAm E-Commerce: LONG Runway

- Total LatAm Sales: $84B in 2020 and $116B by 2023 (12% CAGR).

Est. only 5.4% of total Retail sales (6.6% est. by 2022)

U.S. was 16.1% of total sales in Q2 2020.

LatAm is ~10 years behind US e-commerce usage; MELI will capture that growth

4/ More on E-Commerce

US: 254MM online buyers (77% of pop), 284MM internet users (86%)

LatAm: Only 38% of pop are online buyers

Two massive tailwinds: 1) Increase % of online buyers, 2) Increase % of internet users (even more online buyers)

MELI is capturing the opportunity

5/ Transforming LatAm Payments Landscape

MercadoPago enables merchants to accept digital payments in stores & online, both on & off MELI's marketplace.

For me, massive off market growth is critical - sticky product and network effects

Not as dominant as e-commerce biz... yet

6/ Nascent Payments Infrastructure

LatAm: Lowest ranked region in digital/mobile wallet penetration.

Only 2% of in-store spend & 14% of online spend - meaning, huge untapped market.

Trend is moving towards digitization (22% and 7% CAGR for ^ methods)

MELI: 52MM payers (+64%)

7/ Q2 Results

FX Neutral Commerce / FinTech / Net Revenue: $582MM (+149%) / $297MM (+86%) / $878MM (+123%)

GM: $427.2MM (48.6% Margin)

OpEx Margin: 37% (vs. 52%) - lower S&M (organic growth)

GMV: $5.04B (+101.5%)

TPV On / Off: $5.2B (+111%) / $6.1B (+175%) - $11.2B (+72.1%)

8/ Eye-Popping Operating Metrics

Unique Active Users: 51.5MM (+45%)

New Users: 16.9MM (+36.3%)

Items Sold: 178.5MM (+101.2%)

Items Shipped: 157.5MM (+124.4%)

Processed TRX: 405MM (+123%)

Mobile Wallet (MW): $2.1B (+373.2%)

MW Users: 9.5MM (+109.3%)

9/ Investment in Growth

EBITDA Margins have declined from 33.6% in 2014 to 0% TTM (13.9% in Q2)

Direct result of:
1) Higher S&M Margin (20.1% to 32.5%)
2) Higher COGS (25.5% to 44.8%) - shipping costs

Logistics and S&M investments paying off: 38.3% Rev CAGR (FY 2015 - TTM)

10/ Risks

1) Execution Risk: Hard to scale market the size of LatAm and with different systems / cultures.

2) Political and FX Risk

3) Valuation: High multiples relative to $AMZN $BABA $EBAY $PYPL

4) Dilution: 2019 Equity offering of +4MM shares (potential for more?)

11/ Conclusion

A thread can't fully encapsulate how $MELI's platform will modernize LatAm's e-commerce & payments infrastructure.

Risks remain near term including valuation.

However, in 5-10 years it'll be clear that it is the $BABA or $AMZN of LatAm

I don't hold a position.

For additional investment insights, you can check out:

Past Twitter Threads: https://twitter.com/SeifelCapital/status/1292869520835715074?s=20

My Newsletter (please subscribe if you like the content): https://seifelcapital.substack.com/ 

Or Detailed Reports: https://drive.google.com/drive/folders/1q7RvhoNK_3AzYnk3B5udtBBjwoSg6GOR?usp=sharing

Stay tuned for another thread next Tuesday!