Unless you live in Latin America or follow the rapidly growing field of e-commerce, you may not have ever heard of MercadoLibre, Inc. (MELI -4.12%). What began primarily as an online auction site has evolved into a full service e-commerce platform with services in 19 countries.
In 2017, the company sold 270 million items on its platform, up 49% year over year, generating gross merchandise volume of $11.7 billion. It also completed 231 million payment transactions, up 66.8% over the prior year, producing payment volume of $13.7 billion. Net revenue of $1.39 billion grew 66% year over year.
Investors in the company have been amply rewarded, as MercadoLibre more than doubled in 2017. Over the longer term, the company's results have been even more impressive, gaining 250% over five years and 600% in the past decade.
There are still lots of reasons for investors to be excited about MercadoLibre. Here are my top four.
1. It learns from the best
When MercadoLibre was founded in 1999, it was modeled after online auction site eBay, a company that later purchased a 19.5% stake in its younger rival. eBay then mentored the company, helping it set up a payment system similar to the one offered by PayPal, a company eBay purchased in late 2002. MercadoLibre has never deviated from its early practice of adopting the best practices of competitors.
While the company was often referred to as the "ebay of Latin America" in its early years, that moniker failed to recognize the many other areas MercadoLibre served. While it had online auctions like its mentor, it also offered fixed-price sales like Amazon.com (AMZN -3.01%), local classifieds like Craigslist, as well as real-estate listings, vehicle sales, and much more. It has since been dubbed "The Amazon of Latin America," having adopted many practices from the giant online seller.
2. It's in the best position to handle local idiosyncrasies
While U.S. customers may take online payments for granted, the situation was far different in Latin America when MercadoLibre began its operations. The region was much more cash-based than its northern neighbors, and many residents didn't have a checking account or credit card. The development of MercadoPago -- its PayPal-like payment system -- addressed early challenges regarding payments.
Shipping represented another early challenge for the company, due to lack of reliable options and frequent delays. Many local carriers didn't have the ability to track packages, and the higher prices charged by big-name shippers was stifling e-commerce growth in the region. MercadoLibre began to act as the intermediary and helped arranged shipping, a revolutionary concept in the market at the time, and one that was a hit with both vendors and customers. The company recently began offering widespread free shipping in several of its markets in a move that appears designed to stave off competition from Amazon.
Finally, small businesses in Latin American typically have difficulty obtaining bank financing, but MercadoLibre has detailed account records upon which to base its loan decisions. The company began making working capital loans to longtime merchants, finding that these not only helped increase merchant sales, but reduced churn and resulted in higher satisfaction rates.
3. It's a one-stop shop
The company now has a multitude of services that help merchants succeed -- including the aforementioned payments, shipping, and working capital loans. MercadoLibre has also been expanding its warehousing and logistics operations, taking a page from Amazon's own playbook. This includes building out its cross-docking operations, a system that receives inbound shipments from suppliers, which are then loaded on outbound trucks to customers. The service is called "Fulfillment by MercadoLibre," which bears a striking similarly to logistics services offered by Amazon.
4. Payments has moved off platform
MercadoPago, the company's payment solution, became so popular and widespread that MercadoLibre began offering it to merchants off its platform. This move reignited growth in payment transactions, which have exceeded 60% year-over-year growth for the past 12 consecutive quarters. The growing adoption and the resulting network effect shouldn't be underestimated. Revenue from payment processing off platform grew 128% year over year for the fourth quarter of 2017, the third consecutive quarter of triple-digit growth.
The 800-pound gorilla in the room
The obvious question is, "What about Amazon?" That's a fair point, and the e-commerce behemoth can't be easily discounted.
It's important to note that MercadoLibre has been going head to head against its larger rival in Mexico since mid-2015, when Amazon launched its full retail operations in the country. Even in light of that fact, 38% of online shoppers in Mexico still rely on MercadoLibre, compared to just 21% for Amazon. And MercadoLibre is still producing triple-digit growth south of the border.
The combination of local expertise, its willingness to adopt the best practices of numerous competitors, and its relentless focus on removing friction points for both buyers and sellers positions MercadoLibre to continue to succeed -- even in a world seemingly dominated by Amazon.