The business
Investors usually refer to Mercadolibre Inc (NASDAQ:MELI) as the eBay Inc (NASDAQ:EBAY) of Latin America, and the comparison makes a lot of sense: eBay is a major shareholder in Mercado Libre – the U.S. link in Mercado Libre takes you directly to eBay Inc (NASDAQ:EBAY) – and both companies have similar business models.
Mercado Libre is the biggest ecommerce platform in Latin America and, just like eBay Inc (NASDAQ:EBAY); the company has been expanding into other areas like payments. Mercado Pago plays a similar role for Mercadolibre Inc (NASDAQ:MELI) to what PayPal does for eBay, a payment method which has been expanding beyond its own ecommerce platform to become an independent business opportunity on its own merits. Mercado Libre has also been growing in other areas like advertising, classifieds and technological solutions for its clients.
There is one big difference between Mercado Libre and eBay though, the Latin American company doesn´t face the same level of competitive pressure from Amazon.com, Inc. (NASDAQ:AMZN). Amazon.com, Inc. (NASDAQ:AMZN) is not only the market leader in the U.S. ecommerce industry; the company´s aggressively low prices and overall efficiency force other players to reduce their margins in order to compete against such a voracious and disruptive company.
Amazon.com, Inc. (NASDAQ:AMZN) is one considerable risk factor for Mercadolibre Inc (NASDAQ:MELI), the online retailer launched its Kindle store in Brazil in December, and it will most likely try to increase its presence in the region over the next years. Amazon won´t have it easy in Latin America though, it’s a complex market, and Mercado Libre has the home team advantage.
Latin America is not one big market like the U.S., but a region with different countries and currencies, there are also significant cross border tariffs and regulations which make international selling quite complicated. Amazon has benefited enormously form economies of scale and operating efficiencies in the U.S., but those factors would be hard to replicate in Latin America.
Even if Amazon can gradually increase its presence in Latin America over the next years, Mercado Libre has obtained a big advantage by being the first mover. Besides, the company knows the ins and outs of doing business in the region, so Amazon will have to go through considerable hurdles in order to effectively compete against Mercadolibre Inc (NASDAQ:MELI).
The opportunity
Mercadolibre Inc (NASDAQ:MELI) has consolidated its leadership position over the last years due to its strong brand recognition and the power of the network effect, meaning that the service becomes more valuable as it grows in users. Both buyers and sellers want to go to the platform which attracts more counterparties, this provides a self sustaining competitive advantage benefiting the company as it becomes at the same time more popular and more valuable to its users.
Source: Mercado Libre investor day presentation
Latin America has outpaced all other regions when it comes to ecommerce growth over the last years, at least according to traditional measures like retail ecommerce volume and internet buyers.
Source: Mercado Libre investor day presentation
