Mercado Libre – Seeking Credit

Mercado Libre (Meli), meaning “Free Market,” is an e-commerce and fintech company operating in Latin America. Revenue is primarily generated from its presence in Brazil, Argentina, and Mexico. Mercado Libre’s vision is to service parts of the market that weren’t traditionally being serviced.

Initially established as a marketplace platform for individuals to sell and trade second-hand items, Meli has evolved into a comprehensive e-commerce and fintech platform. It currently has over sixty million unique active buyers on its e-commerce platform, and over fifty million users on its finance platform.

Meli’s Q3 2024 revenue rose 35% to $5.3 billion, fuelled by more online activity. E-commerce revenue jumped 47% year over year to $3.14 billion, while fintech revenue increased 21% to $2.2 billion. Mercado Libre’s gross profit grew 16%, impacted by higher sales costs and finance expenses.

Meli has been aggressively expanding their fintech business, which has the potential for higher net margins if managed effectively. They have leveraged their e-commerce platform to support this growth. Meli believes that the richness of the data they receive will enhance their understanding of their customers. The percentage of monthly active sellers on their e-commerce platform who have obtained financing through Meli has increased from 9.9% last quarter to 21.8% this quarter.

Operating income for the company was $0.56 billion, down 29% year over year. Meli’s aggressive approach to grow their fintech business has resulted in them taking on a higher provision for bad debts. The risk of servicing markets that haven’t previously been serviced before is that there are a lot of unknown risks that the company takes on.