May 10, 2024. Mercado Libre is incorporated in Delaware, USA, and therefore reports its financial statement in accordance with GAAP standards. But substantially all of its revenue, cost of revenue and operating expenses, are generated in the company’s foreign operations.  From its inception, Mercado Libre created subsidiaries diverse Latin American countries with quite diverse economies and governments.  Revenues were reported by business segments of the major national markets.  This underlines the relevance of particular characteristics of national markets to current business results. To my mind, it is striking that Mercado Libre has successfully put together a collection of operations in diverse national regulatory regimes.  From the outset, it did the work of becoming a multinational corporation.  This gives it a barrier to entry for a potential competitor who would have to negotiate the political and economic issues of diverse LATAM jurisdictions. 

One of the risks of investing in “emerging markets” is that the fortunes of a company can be held hostage to political and economic crises which can be more volatile than in more developed nations, which are governed by more established and therefore predictable institutions.  Mercado Libre has mitigated this risk by national diversification, as it were.

when one country is beset by a financial or political challenge of the type that seems to recur in LATAM, the effect may be mitigated by the geographic diversification of Mercado Libre operations.

This was in fact a worry that for some time restrained me from investing in this heroic little company.  Recent events in Argentina served to give a fuller perspective on this concern. In November 2023, inflation reached approximately 160% in the land of Malbec and Tango, and subsequently reach 277% in Feb 2024. In spite of this Mercado Libre beat earnings estimates in the first 3 quarters of FY 2023.  The only reason it missed earnings estimates in Q4 2023 was not related to bad economic news from Argentina. It was because of a tax liability originating from disputed Brazilian taxation authority, which the company took a charge on, reducing earnings for one time. The company showed it can sustain consistent strong growth and profitability overall, company in spite of economic instability in part of its geographic distribution. 

In previous years, Venezuela, one of the initial country bases of Mercado Pago, was overtaken by a Socialist regime which in effect criminalized capitalism and subjected participants to confiscatory financial penalties, including suspension of foreign exchange markets. Sadly, Mercado Libre no longer had effective control of the Venezuela business and financial activities.  The Venezuela Subsidiary was “deconsolidated” at end of 2017, a loss of $85.8 million being reported under operating expenses, as all Mercado Libre assets in the country were written off.   However, the company continued to thrive in saner jurisdictions.

This multinational, multicultural corporation engages the potential of its human capital. Mercado Libre develops and operates most software and technology in-house. Several development centers are maintained, in various countries. Development teams native to the several countries draw form their own diverse national linguistic and cultural insights when developing products for their national market.

Mercado Libre, a multinational emerging market ecommerce and fintech company incorporated in the USA, has successfully navigated the diverse economic and political landscapes of Latin America, mitigating risks through geographic diversification. Despite challenges like Argentina’s soaring inflation and Venezuela’s fall to socialism, the company has shown resilience, maintaining strong growth and profitability. Mercado Libre’s in-house development across multiple countries leverages local insights, creating a barrier to entry for competitors and demonstrating the strength of its multinational, multicultural approach.