May 9, 2024.

Mercado Libre is an ecommerce and fintech company operating in Latin America (LATAM).  Mercado Libre was established in late 1999 by cofounder and current CEO Marcos Galperin; headquartered in Uruguay, and incorporated in Delaware, USA.  It started operating initially in Argentina in August 1999, by the end of the year had added Brazil and Mexico, the largest regional country markets. By the end of 2000 it added Venezuela, Uruguay, Colombia, Chile and Ecuador, and continued to expand. It IPO’d in 2007.  It currently functions in 18 countries, including those previously mentioned, and Bolivia, Paraguay, Costa Rica, Dominican Republic, Guatemala, Honduras, Costa Rica, Nicaragua, Panama, and El Salvador. That is, all the Spanish speaking countries in the region plus Brazil.

MercadoLibre has become the largest ecommerce company in LATAM by revenue and unique visitors, as well as one of the leading fintechs by revenue.  It is the surviving victor of a competition, over the course of its lifetime, with a number of regional and international ecommerce companies.  This accomplishment speaks to the quality of the management and strategic success.  I avoid novel companies. The historical record of MercadoLibre demonstrates that its management and workers are able to make the correct decisions and execute to continue profitable growth. 

Given the strength of Mercado Libre’s human capital, this combines with Mercado Libre’s origin in LATAM in explaining some key traits of its history, as well as its particular strengths. In particular, Mercado Libre originated in an environment of scarcity of some needed resources.

Internet penetration is relatively less developed in LATAM, in the region of 70%. Accordingly, Ecommerce is also less mature. Online retail sales are about 5.6% of total retail sales, whereas in US they are 14%.  However, both internet usage and ecommerce penetration are growing quickly. Approximately 192 million people in LATAM have shopped online, in 2024 this is expected to grow to 350 million. Of note, ecommerce growth requires popular participation with specifically digital finance tools, such as mobile or online payment apps, or virtual credit cards, not necessarily with traditional banking.

Public Transportation networks

The relative unreliability of state provided postage and delivery services, has provided an opening for Mercado Libre to build its own Logistics network. Mercado Envio has successfully enabled more efficient delivery than government networks. Moreover, a potential competing ecommerce business would either take the easier route of using Mercado Envio, or it would have to undertake the task of repeating the investment of fixed capital to replicate the Mercado Envio network. 

Significant Unbanked Population

A significant portion of LATAM population is underbanked, not participating in the modern digital (non-cash) financial system, and not able to participate in ecommerce.  For instance, less than 50% of the population in Latin America have a consumer financial institution account, whereas about 90% has the same in the US. This made it necessary for Mercado Libre to build a digital payment system and attract users, in order to enable consumers to use its ecommerce. This was Mercado Pago.  In 2013, Mercado Pago had 28.6% penetration in payments on Mercado Libre platform. By 2017 this share had reached 81.9% and was no longer tracked in the 10Ks.

Whether the numbers given are precisely accurate is less important that what these patterns signify.  They mean that MercadoLibre, in the course of growing into the largest ecommerce and digital payments platform in Latin America, has sat its disposal a runway of growth that is expanding in a way is qualitatively different from that for digital payments or retail companies in more developed countries.

Conversely, the conditions of scarcity of needed resources under which the company developed in the regional markets posed sharp challenges to company growth.  MercadoLibre management took these on. And paradoxically, these challenges gave it opportunities to build a competitive advantages that are more comprehensive than those available to ecommerce players in more developed countries.

As CEO Marcos Halperin described:

In 1999, our company was a marketplace, an online auction site. We had not created Mercado Pago, Mercado Envíos or the other solutions and tools that enriched our value proposition to form the ecosystem that today makes life easier for millions of people in the region, reducing gaps and promoting development. When we started, those business units were not even ideas. But problems appeared, we turned them into challenges and generated solutions. We took risks with each of them, we had successes and errors, we learned, innovated and achieved the impact that inaugurated new paths” .

This is one of a series of articles on Mercado Libre.