Social media giant Facebook (NASDAQ:FB) and Latin American e-commerce leader MercadoLibre (NASDAQ:MELI) seemingly have little in common. Yet both are investing to expand their commerce capabilities and both see these efforts as an engine for growth.
How these two companies tackle the integration of commerce into their business models provides insight into which is the better buy at the moment. Let's examine each company's efforts in this area and see if we get any insight as to who might come out on top.
MercadoLibre: enabling regional commerce
Although it started as an e-commerce player, MercadoLibre is now a leader in Latin America's fintech space. This grew out of a need to overcome a challenge: Millions of people in the region do not have a bank account and less than 30% have a credit card, both issues that limited the company's e-commerce growth efforts.
So MercadoLibre developed a slew of payment solutions under its Mercado Pago brand, which consists of two components. It can be used as a form of payment for transactions on MercadoLibre's e-commerce platform. In addition, it can be used off-platform via solutions such as in-store mobile point-of-sale (MPOS) devices, a mobile wallet for digital peer-to-peer payments, and a growing list of other services such as prepaid cards.
Mercado Pago charges fees for its services, and that's how MercadoLibre generates revenue. The company's mix of payment solutions proved successful, recording 838 million transactions in 2019, more than doubling 2018's 389 million transactions.
Of particular interest is Mercado Pago's off-platform use. The service experienced rapid growth throughout Latin America, as measured by the total payment volume (TPV) processed through the system. Here's how off-platform payment volume compares with on-platform.
|Year||TPV Off-Platform||TPV On-Platform|
|2019||$15.3 billion||$13.1 billion|
|2018||$7.2 billion||$11.3 billion|
|2017||$4.1 billion||$9.6 billion|
A look at performance for MercadoLibre's off-platform solutions in the fourth quarter reveals continued momentum heading into 2020. MPOS transaction volume grew 126.1% year over year on a foreign-exchange neutral basis. MercadoLibre's mobile wallet exceeded the $1 billion TPV mark for the first time, and now supports 7.9 million users, which represents a 29.4% increase over the third quarter.
Latin America is also one of the fastest-growing e-commerce regions in the world. As more of the population turns to online purchases and digital payments, MercadoLibre is well-positioned for continued growth.
Facebook's commerce approach
In its 2019 annual report to the Securities and Exchange Commission, Facebook stated it generates "substantially all" of its revenue from advertising, but that growth is slowing.
|Year||Revenue From Advertising||Year-Over-Year Change|
Like MercadoLibre, Facebook sees an expanded role for commerce and fintech across its products to enable further growth. The company is building up commerce capabilities across its ecosystem of core products: Facebook.com, Instagram, Messenger, and WhatsApp.
For example, the company's Facebook Pay payment system allows Facebook.com and Messenger users to input a credit card, then perform peer-to-peer payments using these apps. In addition, the company has been testing a payments feature in India within its messaging service, WhatsApp, and found consumers using it weekly. The company plans to roll out the functionality to more countries in the next six months.
Other ways Facebook is expanding commerce across its ecosystem include enabling small businesses to set up storefronts on Facebook.com and Instagram, and last year, Instagram introduced the ability for consumers to buy products through its app.
Currently, many of these projects are nascent. In Facebook's last earnings call, for the fourth quarter, COO Sheryl Sandberg admitted the Instagram commerce initiatives are still in their infancy and the company is moving slowly to ensure "consumers have a great experience."
Moreover, Facebook's primary strategy to monetize these commerce initiatives is to apply the consumer buying insights collected through commerce to increase the value of its ad business. Since Facebook won't monetize its commerce efforts directly, it will take time to see how this strategy grows revenue.
Facebook is a larger organization in terms of the size of its user base and revenue, but MercadoLibre is the winner in this matchup of technology companies. MercadoLibre's commerce and fintech offerings are comprehensive, delivering tangible results, and have room to grow. Its e-commerce business will also continue expanding thanks to the Latin America region's overall e-commerce growth.
Meanwhile, Facebook's advertising growth is slowing, and it's not known how much its commerce and fintech efforts can boost its ad business. These factors make MercadoLibre the better buy.