Over the last decade, MercadoLibre (MELI -1.79%) stock has handed shareholders an amazing 16-bagger return, beating the S&P 500, the standard measure of the market's performance, by a huge margin.
Stock return data for the last 10 years through July 24, 2020. Data by YCharts.
What's been the secret to the company's incredible success? Let's dive into five strategies that have made this Latin American e-commerce specialist into the region's leader and how they give it a solid footing to grow even bigger in the years to come.
1. Focus on a big market
In 1999, MercadoLibre launched its e-commerce operations in Argentina, Brazil, Mexico, and Uruguay. It has since expanded to 18 countries across Latin America. Its original IPO filing provides some insight into why this region was ripe for an e-commerce play. In 2007, the region had 557 million people and over 100 million internet users. Mobile phone technology and high-speed internet was expanding in the region, which helped drive growth of internet adoption at a 31% annual rate between 2000 and 2007. The combination of a large population base, technological advances, and a fast-growing internet use made for a huge market of potential online shoppers.
Image source: Getty Images.
Fast forward to today, and the region is even more e-commerce ready with 638 million people, over half of them internet users, and 200 million online shoppers.
2. Build a robust e-commerce website
From the beginning, the company knew that its success depended on building an easy-to-use platform for buyers and sellers. Capabilities such as robust search and product reviews were built into the website. Each country had its own site to make transactions and shipping easier for local users and the products more relevant. Originally, the marketplace was an eBay-style online store where buyers would purchase goods from individual sellers. In 2006, the company facilitated just over $1 billion in gross merchandise volume on its platform.
Since then it has expanded way beyond just facilitating consumer-to-consumer (C2C) sales. Last year, C2C sales only contributed 7% of the $14 billion of goods sold on the platform.
3. Make it easy for buyers to pay
By 2003, the company realized its growth depended on helping buyers pay for goods electronically. It set up Mercado Pago, which operated as an escrow service where the seller wouldn't receive payment until the buyer confirmed they had received the purchased item.
This service was wildly popular and has grown even faster than its marketplace business. Today, Mercado Pago users can also pay for goods and services outside of its marketplace. Last year, the company facilitated over $28 billion in payment volume through Mercado Pago, more than half of which was "off-platform."
4. Make it easy for sellers to fulfill orders
As MercadoLibre's e-commerce business grew, smooth fulfillment became a differentiator to bring buyers to its website. In 2013, the company launched Mercado Envios, warehousing and logistics services for its sellers. Warehousing sellers' goods and consolidating the shipping volume enabled a seamless experience for buyers and access to fast, low-cost delivery for merchants.
Today, 88% of goods sold on the platform utilize MercadoLibre's shipping services, and 46% go through its warehousing or other logistics services. As a result, customers can enjoy free shipping in its top five markets, which represent over 95% of the company's total volume.
5. Support it with an extensive ecosystem of services
Over the years, the company has added complementary services to augment its e-commerce business. MercadoCredito provides loans and cash advances for sellers and loans for buyers. It also has a classifieds service where buyers can list items for sale for a fee, including automobiles, real estate, and services. Sellers can advertise with the company or open Mercado Shops, branded stores inside the MercadoLibre marketplace.
Adding it all up
Over the last two decades, the company has built a robust ecosystem of offerings that work together to provide buyers and sellers with a great online experience. This complete package has powered the company's growth and made its e-commerce and payments platform the leading service in the region.
But the company is not done growing. With less than 5% of all retail purchases completed online in the region last year, and much of the population unbanked or underbanked, the opportunity is tremendous. Building on its solid base, MercadoLibre can continue to grow for decades to come. It's not too late for investors to be a part of this story.
