In the below note, we’ll discuss the reasons why we view MERCADO LIBRE (‘MELI’) as an exceptional business.
Mercado Libre operates the leading e-commerce marketplace in Latin America, supported by a payments & lending arm, a best-in-class shipping solution, and highly profitable advertising platform.
MELI was founded by Marcos Galperin in 1999. Galperin is currently President & CEO. He owns 7% of the equity. In 2026, Galperin will step down as CEO but remain Chairman, with Ariel Szarfsztejn appointed as the new CEO. Szarfsztejn joined MELI in 2017 and currently serves as President of Commerce
It is the market leader in both e-commerce and fintech across several Latam countries. Core geographies include Brazil, Mexico & Argentina (55%, 22% and 18% of sales respectively in 2024).
MELI has built a dominant position in several countries by effectively navigating Latin America’s diverse cultural, political, and regulatory landscapes.
MELI’s success in Latam can be attributed to its focus on building a comprehensive ecosystem that leverages technology, data, and a customer-centric culture. This approach has enabled the company to address key customer and seller challenges, attract a large user base, and create a strong competitive advantage in a rapidly growing market.
The company has focused on reducing customer friction. A consumer previously reliant on driving to a local store and paying in cash can now make purchases online through MELI’s marketplace and fund the payment through its MELI wallet.
Since its initial listing on the Nasdaq in 2007, the equity has delivered an annualized return of 31%, equivalent to 100x return. Group sales have compounded at 38% from 2007 to 2024.
[Source: Company Data]
THE BUSINESS
MELI’s business is split between two core parts – Commerce and Fintech. Both segments have delivered a 55% sales CAGR over the past five years.
[Source: Company Data]
The Commerce and Fintech segments can be further broken down into a number of key revenue sections:
Commerce (55% of Group Sales)
E-commerce (40% of Group Sales)
Third Pary (3P) retail sales represent approximately 30% of Group sales and reflect marketplace commission revenue generated by MELI. This is a take rate business whereby independent, third-party sellers list their items on MELI’s marketplace and pay a final value fee based on the item sale price.
First Party (1P) sales represent c.10% of Group sales. These are sales made directly by MELI where they purchase stock & sell it to customers.
MELI over-indexes to 3P sales at c.90% of total GMV versus 1P at 10%. While 3P offers higher profitability, lower inventory risk and capital intensity, this comes at the cost of lower control.
[Source: Company Data]
1P is expected to grow in the mix over time as management look to enhance price competitiveness and assortment on the marketplace. 1P allows MELI to target specific product lines which it sees as underserved on the 3P network. This will increase the breadth of the retail offering. Management have materially improved profitability within 1P in recent years.
Latam e-commerce penetration as percent of total retail spend is currently 13% versus 29% in the UK. The market is underpenetrated.
Growth in the marketplace is supported & sustained by a two-sided network effect. The platform grows stronger as new users are onboarded on both the buyer and seller sides of the marketplace.
[Source: Company Presentation]
As the marketplace model scales it becomes increasingly more powerful. Sellers benefit from faster inventory turnover & access to a larger customer base, while buyers gain improved search engine optimization, a wider selection of products, & lower shipping costs. Higher demand encourages more sellers to join the platform, leading to a deeper pool of products that enhances the platform’s value proposition for customers & attracts more buyers.
Logistics Network (15% of Group Sales)
Mercado Envíos is the company’s logistics network which handles the end-to-end logistics process, including storage, picking, packing, & shipping.
In a model similar to FBA (Fulfilment by Amazon), sellers send their inventory to warehouses managed by MELI, and MELI takes care of order fulfilment once a sale is made. Envíos prioritizes fast and reliable delivery to improve customer satisfaction.
Shipping revenue under this model represents c.15% of Group sales, however, it is loss-making and therefore a drag on profitability. However, the shipping business is seen as a ‘lock-in lever’ that supports the profitability and growth of other business lines such as 3P, 1P and advertising, rather than as a standalone profit centre.
Expert Call (Apr-2025) – “Meli had never touched a package in their existence in 2016. Today, they are more efficient than FedEx, UPS, DHL. They deliver cheaper.”
– 95% of items are sent via MELI’s managed network.
– Over 52% of shipments are delivered within the same & next day.
– 74% of items are delivered within 48 hours.
Scale is a significant advantage in logistics. The volume Mercado Envíos manages through its network allows it to offer better prices to merchants on logistic services. Better logistics equals a better transaction experience, which leads to higher transaction frequency & dilution of last-mile delivery costs. The company continues to invest into its logistics network to further its competitive advantage & maintain a competitive edge.
Advertising (5% of Group Sales)
Advertising represents a low 5% share of Group sales, but a considerably higher share of Group operating profit.
Q3 2022 Earnings Call – “The advertising business is fairly consistent across geographies. It’s a very high margin business. I think we said EBIT margins in the high 70s, low 80s.”
Assuming a 75% margin, implies a contribution of c.30% to operating profit, with a 3-year compound annualized growth rate of 59%. This is a fast growing, highly profitable segment for MELI.
[Source: Company Data]
Consumers see advertisements throughout the ecosystem, on both the Mercado Libre and Mercado Pago platform.
The strength of MELI’s digital advertising business lies in the number of individuals it can advertise to & also the intent of those individuals. As the MELI ecosystem broadens out and gains more users, the value to advertisers increases.
Advertising is currently under 2% of GMV which points to a long runway for further monetization, Amazon is at 7% as a comparison.
Digital advertising is in its infancy in Latam with a 5% share, versus 75% in the US.
Fintech (45% of Group Sales)
MELI’s fintech business comprises payment acquiring, digital wallets, cards, credit and asset management. It is referred to as Mercado Pago with the credit/loan business being referred to as Mercado Credito.
While there is significant competition within the fintech space in Latam, MELI has a competitive edge derived from its strong brand, proprietary technology & data, relationships that span both consumers and merchants and high levels of engagement via the e-commerce platform.
Fintech Services (25% of Group Sales)
The majority of Fintech Services revenue relates to payments. Mercado Pago’s payment solution platform was launched in 2003 to facilitate transactions on MercadoLibre’s marketplace, providing a mechanism that allows customers to securely, easily and promptly send, receive and finance payments online.
In a region where cash was dominant and access to modern financial infrastructure was poor, Pago was a catalyst for driving greater financial inclusion.
[Source: Company Data]
“Through Mercado Pago, we brought trust to the merchant customer relationship, allowing online consumers to shop easily and safely, while giving them the confidence to share sensitive personal and financial data with us.” – Mercado Libre 10K 2023
Reduced friction in payments has driven increased engagement on the e-commerce platform. Over time, Mercado Pago has expanded to process volumes from merchants outside the marketplace.
Payment revenues are comprised mostly of transaction fees and prepayment revenues. Like the 3P marketplace model, this is a take-rate based business with low capital intensity which provides for significant inflation protection.
In recent years, Pago has expanded into insurance, asset management, digital wallets & pre-paid cards.
[Source: Company Data]
Credit (20% of Group Sales)
MELI launched its credit offering in Argentina in 2016 and in Brazil and Mexico a year later, initially offering loans to merchants on-platform. The company now offers credit to both merchants and consumers on & off-platform as well as credit cards.
Strength in the credit business comes from leveraging competitive advantages in underwriting and distribution. MELI’s cost to serve is less than $1[1], well below that of incumbent legacy banks. Similar to other neo-banks, this enables MELI to offer more competitive products and take market share.
MELI is uniquely positioned to provide credit given the data it has on both consumers and merchants provided through the e-commerce platform. This provides for a higher level of credit quality.[2]
Credit revenues come from gross interest earned on loans plus interchange rates from card transactions.
Over the past three years to 2024, the credit portfolio has grown at annualized rate of 56%.
[Source: Company Data]
Facilitating credit enables the company to further strengthen the engagement & lock-in rate of its users within the overall ecosystem.
Credit is expected to be a strong growth driver which should be positive for Group margins given it tends to have much higher profitability than fee-based businesses like payments. That said, growth in credit comes with underwriting risk.
Management prioritizes asset quality above growth, maintaining strict underwriting standards to minimize risk of default.
– Provisioning for credit due over 15 days is >100% and is recognised up front.
– Management are pro-active in managing the risk, scaling back when there are signs of deterioration.
– Most credit is short duration which provides management with flexibility to adjust.
– MELI uses a proprietary underwriting model, supported by unique marketplace and payments data, to accurately assess risk.[3]
– There is a focus on moving credit exposure up-market which will drive the percentage of non-performing loans lower over time.
“We’re not looking to maximize the size of the credit portfolio over the next 2 or 3 quarters. We’re looking to build a very healthy & sustainable credit book and business over 10 years.” – CFO, Q3 2022
MARKET POSITION & GROWTH
MELI’s target markets have a combined population of over 650m and GDP of $5t. The Latam middle class is rapidly growing, leading to increased disposable income & greater propensity to spend online. It is the fastest-growing e-commerce market globally & a large part of the population has limited banking access.
[Source: Company Presentation]
E-commerce & digital finance remain underpenetrated in LATAM, providing a long runway for growth.
PROFITABILITY & BALANCE SHEET
MELI generates a gross margin of 46%, this has declined in recent years as a result of increased investment, and as the lower margin 1P and credit card segment have grown within the mix.
Management prioritizes share gains and above-market growth, explicitly stating that they do not manage the business to a short-term margin goal. This can lead to volatility in operating profit margins. During the period 2018-2019 period, management invested heavily in the logistics network and in sales & marketing leading to operating losses.
Cash conversion is very strong. Despite fluctuations in operating profit, the company has consistently generated positive cash flow since 2007.
Management approaches balance sheet risk with a disciplined and prudent attitude, maintaining a strong balance sheet with low net financial leverage and a tilt toward equity funding.
CUSTOMER FOCUS
A large part of MELI’s success derives from its intensive focus on the customer and on addressing the pain points of that customer.
The initial performance of the e-commerce business was held back by a lack of financial infrastructure. Most consumers were unbanked and unable to pay online. This led to the development of the Pago payments platform which accelerated growth on both sides of the business.
MELI’s decision to develop its own logistics network dramatically improved speed and quality of delivery. The infrastructure build-out reduced reliance on less reliable third parties and delivered a much better customer experience.
COMPETITIVE ADVANTAGE
Competitive barriers to entry come from network effects, physical infrastructure investment, data advantages, economies of scale and brand recognition.
On a stand-alone basis, each business unit has compelling strengths and significant growth potential in underserved markets. However, MELI’s true distinctiveness lies in its holistic ecosystem and the synergistic interplay of its components. These overlapping strengths within the ecosystem create a robust competitive edge and a dynamic growth engine. This is most evident in the symbiotic relationship between the payment’s platform and the marketplace, where each fuels the other’s growth.
[Source: Company Presentation]
Users engaged across more than one service within the Mercado ecosystem have significantly lower churn rates.
The growing ecosystem generates more & more data, enabling improved personalization, advertising and fintech services.
Scale economies shared
A shared economies of scale strategy has been successfully deployed at Amazon and Costco. Under this model, companies leverage economies of scale to reduce costs and, instead of keeping these savings as higher profit margins, pass them on to customers through lower prices or enhanced services. This creates a virtuous cycle that strengthens the business’s competitive position over time.
MELI utilises its scale efficiencies to fund consumer-centric initiatives, including complimentary shipping, improved logistics networks, greater product assortment, higher financial yields, and credit incentives. This strategy serves to expand MELI’s market share and entrench its dominant position within the Latam e-commerce and fintech ecosystem.
CONCLUSION
The flywheel for growth at MELI is powerful and extends beyond the singular advantages afforded by any one division. Each of MELI’s business units adds value and supports the other, reducing friction and driving increased engagement and greater opportunity for growth.
The extent to which MELI’s leading positioning is sustainable is largely a function of management’s strategy of continuing to invest back into the business under the shared economies of scale model with a real focus on the customer and enhancing the value proposition.
“We don’t like buying market share, we like building market share.” – Marcos Galperin.
Competitors currently don’t match the scope and quality of MELI’s offerings, and where they try to compete, they’re playing catch-up. They need to match the infrastructure, the brand awareness, the trust, the key relationships, all while MELI continues to invest and improve their ecosystem offering at a significant pace. The ability to replicate or disrupt MELI appears difficult.
“That’s what we’re trying to continue to be very consistent on, which is taking a long-term view and trying to capture as many opportunities as we can and continuing to maximize market share while delivering operational leverage over longer periods of time.” – Former CFO Pedro Arnt.
MELI’s future growth doesn’t rely on new products or significant feature expansion, the runway provided by existing segments is long. However, there are a number of opportunities available which provide for significant optionality and management has a habit of innovating and creating new products to sell into its growing merchant and consumer base.
[1] Legacy banks cost to serve can be as high as $10 /month
[2] 60% of credit is used off platform – Q3 2024 Earnings Call
[3] Models are upgraded approx. every 6 months
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