I previously wrote about Mercadolibre here and here. MELI announced their Q2 2021 report on Aug 4th and the market rewarded the shareholders with double digit returns. If you bought MELI after my second article that I wrote in May, you would be up about 37%. However, as you will see below, the business of MELI is firing on all cylinders and I am looking forward to being a shareholder for as long as the story continues.

First, a few highlights from 2nd quarter results

  • Revenues up 103% to $1.7 Billion. Amazing growth at this scale.
  • Total Payment Volume grew at 72% to $17.5 Billion. The off-platform payments ($10.3 Billion) continue to be larger than on-platform payments ($7.2 Billion). 
  • Gross Merchandise Volume (GMV) grew 40% to $7 Billion. One side note here. They started their fintech business after their e-commerce business. But their payment volumes are bigger and growing faster than e-commerce business. This is a great sign of optionality and how much room is there to grow in future.
  • Their margins are down a little bit to 44% from 49% because they are investing heavily in their free-shipping and warehouses. 

I will also highlight a few things that I track for MELI starting with revenues

Revenues 

Q1 (YoY%) Q2 (YoY%) Q3 (YoY%) Q4 (YoY%)
2019 $474m (93%) $545m (102%) $603m (91%) $674m (84%)
2020 $652m (70%) $878m (123%) $1,116m (149%) $1,300m (149%)
2021 $1.4B (158%) $1.7B (103%)

 

As you can see, the revenues started growing in triple digit percentages during COVID times and still growing in triple digits. This means that a large number of customers that started using MELI during COVID times are coming back to buy more stuff.

Gross Merchandise Volume (in $ billions)

Q1 (YoY%) Q2 (YoY%) Q3 (YoY%) Q4 (YoY%)
2019 $3.1 $3.4 $3.6 $3.9
2020 $3.4 (10%) $5 (15%) $5.9 (64%) $6.6 (64%
2021 $6.1 (79%) $7 (40%)

Total Payment Volume in $ billions

Q1 Q2 Q3 Q4
2019 $5.5  $6.5 $7.6 $8.7
2020 $8.1 (47%) $11.2 (72%) $14.5 (91%) $15.9 (83%)
2021 $14.7 (81%) $17.5 (56%)

Off-Platform Payment Volume in $ billions

 

Q1 Q2 Q3 Q4
2019 $2.5 $3.2 $4.0 $4.7
2020 $5 (100%) $6 (88%) $8 (100%) $9.2 (96%)
2021 $8.5 (70%) $10.3 (72%)

 

There is a backstory here. Since Latin America is severely underbanked, people were having trouble making payments to Mercadolibre digitally. So the management used this weakness and turned it into a strength by launching Mercado Pago to facilitate digital payments. You will notice now that Total Payment Volume and its growth rate ($17.5 B and 56% growth rate) is bigger than its primary business in Q2 2021 ($7B and 40%). So, their second innings is doing better than the first innings. Here is the neat part. MELI is operating in about 17 Latin American countries but they are only fully operational in 4 countries (Mexico, Argentina, Brazil and Chile). So, they have this blueprint in these four countries and can apply to the rest of the Latin American countries as they focus on rest of the Latin America. You can imagine how much room for growth is there for MELI.

A few things that give me pause is ongoing competition. The big gorilla Amazon recently launched one-day free shipping in Brazil and other parts of Latin America. Sea Limited, another company that I like a lot, also launched in Latin America and their e-commerce platform Shopee is gaining a lot of traction. So I will be watching if any of these items affect the numbers produced by MELI. So far, I am quite pleased with the management’s execution. 

Despite these threats, I remain invested in MELI and am watching these numbers every quarter. For now, I remain long MELI and it is one of top-3 positions in my portfolio.

-I wrote this article myself and I am long MELI shares. I am not a licensed financial advisor. These are my personal views.