MercadoLibre

MercadoLibre (Meli), an e-commerce and fin-tech business operating in South America, released their Q3 2023 results last Wednesday. During the quarter, Meli’s revenue surged by 40% year on year to $3,760 million. E-commerce segment grew 45%, while Fintech increased 37% year on year. Furthermore, income from operations saw a surge of 131%, totalling $685 million, resulting in an operating margin of 18.2% for the business for the quarter.

Meli is predominantly recognized for their e-commerce platform, MercadoLibre, which is operational in Brazil, Argentina, Mexico, and a few other South American countries. Essentially, they facilitate companies in selling and distributing products through their platform. In the most recent quarter, the commerce segment made up 54% of their total revenue, with the fintech division (MercadPago) making up the remaining 46%. Meli’s fintech arm aims to further evolve into a comprehensive financial service provider in South America, catering to both businesses and individuals. Retail customers have the option to use Meli’s credit card facilities, while businesses can utilize their point-of-sale and online payment technology.

Meli faces a number of challenges. Both the ecommerce space and fintech space are highly competitive. In the ecommerce space, it can take quite a while for companies to become profitable. Customers can be quite fickle and move to different services at their pleasure. Meanwhile, the fintech space presents its own set of hurdles, including regulatory complexities and formidable competition from established players well-versed in the field.

Presently, one of the primary hurdles facing Meli is currency devaluation in the regions they operate. Over the past two years, the dollar, which Meli reports in, has exhibited a consistent strengthening trend. This stands in contrast to the currencies of numerous other developing nations, which have experienced depreciation. Specifically, the Argentine Peso has seen a reduction of just over half its value relative to the dollar since November 2022.

Companies that operate in underserviced regions have a lot of opportunity to build, however there are many challenges that come with it.

MELI is held by Lunar Capital’s Offshore Portfolio clients.