MELI - MercadoLibre: Fintech Driving Massive Revenue Growth
2023-03-24 12:06:41 ET
Summary
- The company’s high growth rate (64.9%) is being driven by its fintech business segment (45% of revenue) with a high average 4-year growth rate of 68%.
- We identified its Fintech segment growth as being superior to its Commerce segment across all 3 of its main geographic locations, including Brazil, Argentina and Mexico.
- Its high growth was due to increasing credit revenues and we expect it to continue growing at a 5-year average of 57.8% supported by Merchant and Credit Card volumes growth.
This analysis examines the performance of MercadoLibre, Inc. ( MELI ) after the company's full-year 2022 earnings result release, where it exceeded our expectations by growing at 49%, compared to our previous projection of 33%. The company's revenue consensus of $9.47 bln for 2022 also surprised analysts, as it represented a growth rate of 34%. The analysis examines the company's revenue growth, focusing on its breakdown by Fintech and Commerce, as well as its geographic breakdown. The Fintech segment is also analyzed, looking at growth metrics such as payment volume, take rate, and market share. Finally, the Fintech revenue growth is projected based on its Fintech Services and Credit segments.
Fintech Revenue Growth Surges
| MercadoLibre Revenues ($ mln) |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Average |
| Commerce |
| 1,347 |
| 2,560 |
| 4,635 |
| 5,808 |
| Growth Rate % |
| 60.6% |
| 90.1% |
| 81.1% |
| 25.3% |
| 64.3% |
| Fintech |
| 949.8 |
| 1,414 |
| 2,434 |
| 4,729 |
| Growth Rate % |
| 58.0% |
| 48.8% |
| 72.2% |
| 94.3% |
| 68.3% |
| Total |
| 2,296 |
| 3,974 |
| 7,069 |
| 10,537 |
| Growth Rate % |
| 59.5% |
| 73.0% |
| 77.9% |
| 49.1% |
| 64.9% |
Source: Company Data, Khaveen Investments
Based on the table, the company has had an average growth of 65% in the past 4 years. Its growth across e-commerce and fintech was both strong with a similar average growth of over 60% with fintech having a higher growth rate. In 2022, its Commerce segment grew by 25% which is slightly under our previous expectation of 31% growth whereas its Fintech segment grew by 94.3%, surpassing our previous estimates of 36% growth.
| Mercado Libre Commerce Revenue Projection ($ bln) |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| 2023F |
| 2024F |
| 2025F |
| 2026F |
| 2027F |
| Mercado Libre GMV ('a') |
| 13,997 |
| 20,927 |
| 28,351 |
| 34,449 |
| 41,683 |
| 50,437 |
| 61,029 |
| 73,844 |
| 89,352 |
| Growth % |
| 12% |
| 50% |
| 35% |
| 22% |
| 21% |
| 21% |
| 21% |
| 21% |
| 21% |
| Revenue as % of GMV ('b') |
| 9.6% |
| 12.2% |
| 16.3% |
| 16.9% |
| 17.4% |
| 17.9% |
| 18.4% |
| 18.9% |
| 19.4% |
| Increase |
| 2.9% |
| 2.6% |
| 4.1% |
| 0.5% |
| 0.5% |
| 0.5% |
| 0.5% |
| 0.5% |
| 0.5% |
| Mercado Libre Marketplace Revenue ('c') |
| 1,347 |
| 2,560 |
| 4,635 |
| 5,808 |
| 7,241 |
| 9,019 |
| 11,225 |
| 13,960 |
| 17,348 |
| Growth % |
| 61% |
| 90% |
| 81% |
| 25% |
| 25% |
| 25% |
| 24% |
| 24% |
| 24% |
*c = a x b
Source: Company Data, Khaveen Investments
In 2022, its Commerce segment’s GMV growth was 22% compared to our previous analysis of 31% as we assumed it to increase in market share. Its revenue as a % of GMV increased to 16.9% compared to 16.3% in the previous year. We updated our projections to base its GMV growth on the LATAM e-commerce market CAGR forecast of 21% by Fidelity through 2027 and an increase of 0.5% of its revenue as a % of GMV based on its 2022 figure. In total, we forecasted a 5-year average of 24.5% for its Commerce revenues.
| Segment Revenue By Country ($ mln) |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Average |
| Brazil |
| Commerce |
| 450.1 |
| 793.4 |
| 1,357 |
| 2,481 |
| 3,072 |
| Growth % |
| 76.3% |
| 71.0% |
| 82.9% |
| 23.8% |
| 63.5% |
| Fintech |
| 416 |
| 668.1 |
| 837.3 |
| 1,429 |
| 2,594 |
| Growth % |
| 60.6% |
| 25.3% |
| 70.7% |
| 81.5% |
| 59.5% |
| Total |
| 866.1 |
| 1,462 |
| 2,194 |
| 3,910 |
| 5,666 |
| Growth % |
| 25.4% |
| 68.7% |
| 50.1% |
| 78.2% |
| 44.9% |
| 60.5% |
| Argentina |
| Commerce |
| 226.6 |
| 240.2 |
| 561.3 |
| 856 |
| 1,085 |
| Growth % |
| 6.0% |
| 133.7% |
| 52.5% |
| 26.8% |
| 54.7% |
| Fintech |
| 150 |
| 216.2 |
| 419 |
| 675 |
| 1,415 |
| Growth % |
| 44.1% |
| 93.8% |
| 61.1% |
| 109.6% |
| 77.2% |
| Total |
| 377 |
| 456 |
| 980 |
| 1,531 |
| 2,500 |
| Growth % |
| 4.8% |
| 21.2% |
| 114.8% |
| 56.2% |
| 63.3% |
| 63.9% |
| Mexico |
| Commerce |
| 89.5 |
| 230.2 |
| 471.4 |
| 924 |
| 1,282 |
| Growth % |
| 157.2% |
| 104.8% |
| 96.0% |
| 38.7% |
| 99.2% |
| Fintech |
| 19.6 |
| 44.9 |
| 103.7 |
| 248 |
| 582 |
| Growth % |
| 129.1% |
| 131.0% |
| 139.2% |
| 134.7% |
| 133.5% |
| Total |
| 109.1 |
| 275.1 |
| 575.1 |
| 1,172 |
| 1,864 |
| Growth % |
| 112.7% |
| 152.2% |
| 109.1% |
| 103.8% |
| 59.0% |
| 106.0% |
| Other countries |
| Commerce |
| 72.4 |
| 82.7 |
| 170.3 |
| 374 |
| 369 |
| Growth % |
| 14.2% |
| 105.9% |
| 119.6% |
| -1.3% |
| 59.6% |
| Fintech |
| 15.4 |
| 20.6 |
| 53.7 |
| 82 |
| 138 |
| Growth % |
| 33.8% |
| 160.7% |
| 52.7% |
| 68.3% |
| 78.9% |
| Total |
| 87.8 |
| 103.3 |
| 224 |
| 456 |
| 507 |
| Growth % |
| 17.7% |
| 116.8% |
| 103.6% |
| 11.2% |
| 62.3% |
Source: Company Data, Khaveen Investments
Based on its geographic breakdown, its Brazil segment which is its home market and largest was outpaced by superior growth in Argentina and Mexico. Based on its annual report , the company explained that its Fintech growth across Brazil, Argentina and Mexico was driven mainly by an increase in credits revenues of $634 mln, $328 mln and 258 mln in 2022. Overall, the revenue growth for its Fintech segment had surpassed our estimates at a strong growth of 94.3% across 3 main geographies and supported the company’s total growth of 49%.
Credit Revenues Showing Impressive Growth
| MercadoLibre Fintech Revenues ($ mln) |
| 2020 |
| 2021 |
| 2022 |
| Average |
| Fintech Services |
| 1,139 |
| 1,590 |
| 2,645 |
| Growth % |
| 39.6% |
| 66.4% |
| 53.0% |
| Credit Revenues |
| 246 |
| 809 |
| 2,033 |
| Growth % |
| 228.9% |
| 151.3% |
| 190.1% |
| Fintech Products Sales |
| 29 |
| 35 |
| 51 |
| Growth % |
| 20.7% |
| 45.7% |
| 33.2% |
| Total Fintech |
| 1,414 |
| 2,434 |
| 4,729 |
| Growth % |
| 48.8% |
| 72.2% |
| 94.3% |
| 68.3% |
Source: Company Data, Khaveen Investments
Based on its investor presentation, the company’s Fintech segment is broken down into Fintech Services, Credit Revenues and Fintech Product Sales. Fintech Services accounted for the majority of revenues at 56% of its total Fintech segment’s revenues followed by Credit Revenues at 43% of total revenue. Though, Credit Revenues had a higher 2-year average growth rate of 190% compared to 53% for Fintech Services.
| Fintech Services Revenue ($ mln) |
| 2020 |
| 2021 |
| 2022 |
| Total Payment Transactions ('a') |
| 1,915 |
| 3,255 |
| 5,470 |
| Growth % |
| 128.5% |
| 70.0% |
| 68.0% |
| Average Payment Volume per Transaction ((B)) |
| 26.0 |
| 23.8 |
| 22.6 |
| Growth % |
| -23.3% |
| -8.5% |
| -4.9% |
| Total Payment Volume ($ mln) ((C)) |
| 49,757 |
| 77,371 |
| 123,633 |
| Growth % |
| 75.3% |
| 55.5% |
| 59.8% |
| Take Rate (Revenue as % of Payment Volume) ((D)) |
| 2.29% |
| 2.06% |
| 2.14% |
| Fintech Services Revenue ((E)) |
| 1,139 |
| 1,590 |
| 2,645 |
| Growth % |
| 39.6% |
| 66.4% |
*c = a x b, e = c x d
Source: Company Data, Khaveen Investments
From the table above, the company’s Fintech Services revenue growth increased in 2022 compared to the previous year at 66.4% vs 39.6%. This is despite its total payment transaction declining slightly from 70% to 68%. However, its average payment volume per transaction declined by only 4.9% which is lower compared to 8.5% in 2021. Moreover, it increased its take rate slightly to 2.14% compared to a decline of 0.23% in 2021 from the prior year.
| Country |
| Ranking (Finance) (2018) |
| Ranking (Finance) (2022) |
| Brazil |
| 8 |
| 13 |
| Argentina |
| 1 |
| 1 |
| Mexico |
| >10 |
| 3 |
Source: SensorTower, Khaveen Investments
Additionally, in terms of its app ranking for the Finance category by downloads, the company’s ranking improved in Mexico to 3 rd place in 2022 while in Argentina it maintained its leading position. However, its ranking in Brazil declined to 13 th place in 2022.
| Mercado Credit Portfolio ($ bln) |
| 2021 |
| 2022 |
| Merchant |
| 547 |
| 661 |
| Growth % |
| 20.80% |
| Consumer |
| 851 |
| 1,568 |
| Growth % |
| 84.20% |
| Credit Card |
| 296 |
| 611 |
| Growth % |
| 106.50% |
| Total Volumes ('a') |
| 1,694 |
| 2,840 |
| Growth % |
| 67.6% |
| Take Rate ('b') |
| 47.7% |
| 71.6% |
| Credit Revenue ('c') |
| 809 |
| 2,033 |
*c = a x b
Source: Company Data, Khaveen Investments
In terms of its credit segment, the company’s credit portfolio grew by 67.6% to $2.8 bln by 2022. Its largest segment is Consumer which increased by 84% but was the second highest growth compared to Credit Care which had 106.5% growth though it is its third largest segment. The Merchant portfolio grew by only 20.8%, which is below its total growth rate of 67.6%. Moreover, its take rate increased to 71.6% of revenue compared to 47.7% in the prior year.
Thus, the company’s Fintech segment growth increased mainly due to its strong Credit Revenue performance of 151% in 2022 as well as stronger Fintech Services growth of 66.4% compared to 40% in the prior year.
Fintech Segment to Grow by an Average of 57.8% Through 2027
We updated our forecast for the Fintech segment which is broken down into Fintech Services, Credit Revenue and Product Sales. For the Fintech Segment, we projected it based on total payment volume from total payment transactions and average payment volume per transaction growth. Moreover, to derive its revenue, we applied a take rate assumption.
| Fintech Segment |
| 2021 |
| 2022 |
| 2023F |
| 2024F |
| 2025F |
| 2026F |
| 2027F |
| Total Payment Transactions |
| 3,255 |
| 5,470 |
| 9,246 |
| 15,444 |
| 25,488 |
| 41,554 |
| 66,916 |
| Growth % |
| 70.0% |
| 68.0% |
| 69.0% |
| 67.0% |
| 65.0% |
| 63.0% |
| 61.0% |
| Average Payment Volume per Transaction ($) |
| 23.8 |
| 22.6 |
| 21.1 |
| 19.7 |
| 18.3 |
| 17.1 |
| 16.0 |
| Growth % |
| -8.5% |
| -4.9% |
| -6.7% |
| -6.7% |
| -6.7% |
| -6.7% |
| -6.7% |
| Total Payment Volume ($ mln) |
| 77,371 |
| 123,633 |
| 194,924 |
| 303,687 |
| 467,472 |
| 710,870 |
| 1,067,737 |
| Growth % |
| 55.5% |
| 59.8% |
| 57.7% |
| 55.8% |
| 53.9% |
| 52.1% |
| 50.2% |
| Take Rate (Revenue as % of Payment Volume) |
| 2.1% |
| 2.1% |
| 2.1% |
| 2.1% |
| 2.1% |
| 2.1% |
| 2.1% |
| Fintech Services Revenue |
| 1,590 |
| 2,645 |
| 4,088 |
| 6,369 |
| 9,804 |
| 14,908 |
| 22,393 |
| Growth % |
| 39.6% |
| 66.4% |
| 54.6% |
| 55.8% |
| 53.9% |
| 52.1% |
| 50.2% |
Source: Company Data, Khaveen Investments
From the table, we based its total payment transactions growth on its 2022 rate of 69% but tapered down by 2% per year as a conservative estimate. We then assumed a 2-year average decline in average payment volume per transaction of 6.7%, resulting in a total payment volume growth rate of 53.9% on average. Additionally, we assumed its take rate to remain flat based on its 2-year average of 2.1%. Overall, we obtained an average growth of 53.3% for its Fintech Services revenue.
| Mercado Credit Portfolio ($ bln) |
| 2021 |
| 2022 |
| 2023F |
| 2024F |
| 2025F |
| 2026F |
| 2027F |
| Merchant |
| 547 |
| 661 |
| 779 |
| 894 |
| 999 |
| 1,087 |
| 1,150 |
| Growth % |
| 20.80% |
| 17.8% |
| 14.8% |
| 11.8% |
| 8.8% |
| 5.8% |
| Consumer |
| 851 |
| 1,568 |
| 2,810 |
| 4,895 |
| 8,282 |
| 13,599 |
| 21,650 |
| Growth % |
| 84.20% |
| 79.2% |
| 74.2% |
| 69.2% |
| 64.2% |
| 59.2% |
| Credit Card |
| 296 |
| 611 |
| 1,201 |
| 2,239 |
| 3,952 |
| 6,580 |
| 10,298 |
| Growth % |
| 106.50% |
| 96.5% |
| 86.5% |
| 76.5% |
| 66.5% |
| 56.5% |
| Total Volume |
| 1,694 |
| 2,840 |
| 4,789 |
| 8,028 |
| 13,233 |
| 21,267 |
| 33,098 |
| Growth % |
| 67.6% |
| 68.6% |
| 67.6% |
| 64.8% |
| 60.7% |
| 55.6% |
| Take Rate |
| 47.7% |
| 71.6% |
| 71.6% |
| 71.6% |
| 71.6% |
| 71.6% |
| 71.6% |
| Credit Revenue |
| 809 |
| 2,033 |
| 3,428 |
| 5,747 |
| 9,473 |
| 15,224 |
| 23,693 |
| Growth % |
| 151.3% |
| 68.6% |
| 67.6% |
| 64.8% |
| 60.7% |
| 55.6% |
Source: Company Data, Khaveen Investments
For its Credit Revenue, we forecasted its credit portfolio which consists of Merchant, Consumer and Credit Card loans based on its 2022 growth rates but tapered down by 2% for its Merchant segment, 5% for Consumer and 10% for Credit Card segments as a conservative estimate. Based on its 2022 take rate for our assumption through 2027, we derived an average growth of 63.5% for its Credit Revenue.
| McercadoLibre Fintech Segment ($ mln) |
| 2022 |
| 2023F |
| 2024F |
| 2025F |
| 2026F |
| 2027F |
| Fintech Services |
| 2,645 |
| 4,088 |
| 6,369 |
| 9,804 |
| 14,908 |
| 22,393 |
| Growth % |
| 66.4% |
| 54.6% |
| 55.8% |
| 53.9% |
| 52.1% |
| 50.2% |
| Credit Revenues |
| 2,033 |
| 3,428 |
| 5,747 |
| 9,473 |
| 15,224 |
| 23,693 |
| Growth % |
| 151.3% |
| 68.6% |
| 67.6% |
| 64.8% |
| 60.7% |
| 55.6% |
| Fintech Products Sales |
| 51 |
| 68 |
| 90 |
| 121 |
| 161 |
| 214 |
| Growth % |
| 45.7% |
| 33.2% |
| 33.2% |
| 33.2% |
| 33.2% |
| 33.2% |
| Total Fintech |
| 4,729 |
| 7,584 |
| 12,206 |
| 19,398 |
| 30,293 |
| 46,300 |
| Growth % |
| 94.3% |
| 60.4% |
| 60.9% |
| 58.9% |
| 56.2% |
| 52.8% |
Source: Company Data, Khaveen Investments
Moreover, we based its Fintech Product Sales revenue on its 2-year average of 33.2%. In total, we estimated its total Fintech segment revenue to grow at an average of 57.8% in the next 5 years, higher than its Commerce segment which we projected an average growth of 24.5%.
Risk: Increasing Competition
The company’s revenues are generated from the e-commerce and fintech markets which are its two revenue segments. Management highlighted the high competition in both markets with low barriers to entry. From our previous point, we examined its position in Brazil had dropped compared to 2018 but had improved in Mexico and maintained in Argentina. However, we believe the company’s revenue growth could be affected if competition intensifies.
For further details see:
MercadoLibre: Fintech Driving Massive Revenue Growth