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Is Sea Limited the Next MercadoLibre?

By Danny Vena - Dec 30, 2020 at 10:00AM

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Mimicking the actions of a prosperous company and its management can be a lucrative proposition.

Imitation is the sincerest form of flattery, or so the saying goes. It can also be a path to success for a young company, by following the template laid out by another successful and well-established business. Many investors have detected similarities between Sea Limited ( SE -2.94% ) and its Latin American counterpart MercadoLibre ( MELI -6.75% ). This begs the question: can Sea follow MercadoLibre's path to success?

On this episode of Fool Live that aired on Nov. 23, Motley Fool co-founder David Gardner and Fool.com contributor Danny Vena were joined by Federico Sandler, MercadoLibre's head of investor relations, who explained why he admires Sea Limited's management.

David Gardner: Let's shift gears a little bit and talk about some other companies that are coming to the region. Some that our members are familiar with because they've been good stock center themselves. Actually, first, I wanted to ask you a question. Danny said you had to funny answer for this one. Let me ask this question. You said when you and he were talking last week preparing for this, he asked you what management team you admired that you think would make a good investment and you can't pick your own. What was your answer?

Federico Sandler: I didn't blink, Sea Limited.

David Gardner: Could you please elaborate why?

Federico Sandler: Sure. It's an interesting story. I started looking at Sea because of one of our strategic shareholder of ours [pointed it out to] us. Actually, when it was in Garena Holdings, it wasn't even Sea Limited and he was already an investor and we were watching it ever since. Then I think 2018 or '19 actually Forrest [Li], which is the CEO of Sea and their senior team came to visit us to Argentina. We had our meeting with Marcos [Galperin, CEO] and Pedro [Arnt, CFO] and all of the management team and we were very impressed with what they were doing and I've been following for a while, so I'm a big fan and I think they are a very [big] potential winner in that neck of the woods. I would say it's like [MercadoLibre] a few years back, but with the gaming ecosystem so super exciting. I think very highly of the management and I really liked the company.

David Gardner: That's a wonderful answer. The most popular question right now, coming in from our audience relates to Sea Limited. This comes from Theo. Theo says he has heard that Sea Limited might start to break into South America. He said, how will this affect MercadoLibre? Theo is an investor of MercadoLibre. Should he be worried that our company will be disrupted or impacted?

Federico Sandler: Good question. Increasingly, I get that question from investors because Sea I think they've invested, they have a gaming app that is very successful in Latin America as well. But I would say at this point, when you look at the service levels that they offer, that type of selection is more geared to a lower [average selling price] items that have long delivery times, so probably, Sea is eating more of the lunch of [Alibaba's ( BABA -8.23% )] AliExpress, particularly in Brazil.

But if you want items shipped fast and free and with deep selection, I think it's important not to underestimate the power of efficient logistics and payments. I think when we think about the competitive stack in Brazil, I would say we look at [Sea Limited's e-commerce platform] Shopee, but definitely not the most relevant. I really like the company, but I think still there are ways to go in terms of what they need to do if they want to win in the country in terms of logistics, scale, selection, and they're just not there. I think they have an interesting business relative to AliExpress, but it's a different user experience and expectation. If you want something that's more expensive than a phone cable or a phone case, and you want it fast with guaranteed purchase, you're probably not going to go to Shopee.

David Gardner: Thank you for that and I hear you. Obviously, the SEA part of Sea Limited stands for South East Asia. I would have thought that would be a big enough area for a young upstart company to start thinking that they can be the leader, let alone embarking upon Latin America. But as you say, they are admired, you admire them, it's a great team.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$1,052.95 (-6.75%) $-76.27
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
$111.96 (-8.23%) $-10.04
Sea Limited Stock Quote
Sea Limited
SE
$253.44 (-2.94%) $-7.67

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