Sept Idea comp - Mercado Libra $MELI
1 - Introduction - Mercado Libra
Marcos Galperin, a Stanford graduate, began imagining
the vision of an e-commerce company in his home country, while still in the
United States and closely watching the beginning of the growth of a company
called Ebey.
And with big dreams, he returned to his country Argentina, To found the "Ebey of Latin America.
but very quickly he realized that it was going to be difficult. He needed to
build everything from zero, the customer and supplier relationships, and the
platform, and then he discovered that even this was not enough, and decided to
found Mercado Pago, the financial arm of the company To meet all the customer's needs.

Galperin understood from the very beginning as in the
model of "Sarah Mourning " that to succeed, he must first take care
of a good experience for the users of the platform, and this will bring growth.

Image upload
The Hierarchy of Engagement - Sarah Tavel (Benchmark).

When the growth continues, decided to add another service to the value chain and
move to level 2 of the model and found Mercado Envíos in 2013, which is the
logistics arm of the company, and by adding a value chain to buyers and
sellers, the users return to the marketplace, the sellers cannot leave it
without experiencing logistical difficulties in sale the product and a lack of
Exposure to a large clientele and thereby losing important revenue. Therefore,
the suppliers do not leave which in turn motivates more customers to join along
with increasing the product offering.

2 - Growth

Meli in the best situation to take benefit from the growth in Latin America.
According to estimates, the fintech sector attributed
to Meli is expected to grow by about 21% per year until 2027, when over 50% of
the citizens do not have a bank account.
While e-commerce is also expected to grow by about 24% per year until 2025.

In addition, Meli growth can be expressed by increasing the market share,
as the company grows, it helps it to grow further
in a market where the winner takes all.
According to Sarah Tabel's model, the more the company
grows, the more it can reach a much larger margin as it grows.

After Meli grows enough and moves to level three of
the model, it will be able to provide more services and additional products on
the platform that will add a lot of extra value to the customer, which will add
to revenue growth.

Image upload
winner takes all - Sarah Tavel (Benchmark).

3 - MOAT
The more Mercado Libra succeeds in
providing significant value to suppliers, the more difficult it will be for
them to switch to competitors without losing revenue, which will maintain a
wide product offering and add more customers that will prevent them from
leaving. Expanding the logistical advantage, adding financial products, and
continuing to improve the platform.
It will be very difficult for other
companies to take market share from Meli, the more Meli grows, the more
difficult it will be.
In addition with a large logistics system built in 2013,
It will be almost impossible to compete on delivery times and logistics for other companies.

4 - Valuation and summary
Meli is expected to revenue $10B in 2022, which is a
price-to-sales ratio of 4.6, which is the lowest the company has received since
the IPO.
However, with the growing concern of raising the Fed's
interest rate, currently looking at the sales multiplier does not tell us much.
But making a DCF for such a complex company with
several business sectors in parallel and high growth, will also not provide us with
the full picture, and will also harm the quality of the thesis, for better or
for worse.
And thus, I think it is appropriate to look at the
Gross merchandise value (GMV), the total sales monetary value for merchandise.
In 2022 the GMV will be $34B which is a market value
multiplier of about 1.4, which is the lowest GMV multiplier the company has had
since the IPO.
I took the forecasts about the growth of GMV in Latin
America for e-commerce, with the calculation of the take rate.
Growth in fintech revenues in line with market growth. considering that once the company
is large enough it will be able to reach a 30% margin EBITDA.
And I got these numbers below.

Image upload


This is an optimistic forecast, Still I didn't include many scenarios that could surprise for good and could significantly increase the market value.
Eyal Gruner's avatar
"Whan The Come To Buy You Wont To"
"Walter Deemer"
This is the first time I write here, I hope to add value.
Steve Matt's avatar
@gruner Welcome! $MELI is my biggest position. I’m super bullish on them. I definitely think you’re taking a very conservative view of the Fintech area. They grew at fintech revenue at 72% last FY, an acceleration over the 48% the year prior.
Eyal Gruner's avatar
@interrobangbros Hi! thanks for the Comments!
I know I took a (relatively) conservative point of view.
A major reason why it is famous to everyone is that anyone can read it, even those who do not know the company in deep, and in 750 words it is impossible to go into deep
So I showed that even if the fintech field only grows along with the market, and without expanding to more services and taking more market share, it is still very interesting. And as you say, every percentage it increases will only make it more attractive.

I would be happy to hear your opinion about the rest of the thesis.
Ben's avatar
Great first post. Welcome
Joey Hirendernath's avatar
Hi welcome to Commonstock! This is a great first post :)

Tagging fellow holders of $MELI @joryko @iangray @pessen @jkess54 @conorvalue I would suggest connecting with them here
Stock Metal Investment's avatar
@joeyhirendernath follow $MELI holder as well. Will read this in my break. Good to see the september ideas coming in. Can't wait to read them all.
StockOpine's avatar
Nice post. Welcome to Commonstock.
In the valuation part do you conclude on a targeted price or do you effectively focus on the growth that $MELI could potentially have?
Eyal Gruner's avatar
@stockopine Hi! Thanks for the comments, I focus on the growth potentially.
In my opinion, setting a target price without DCF is quite arbitrary.
If so, I think that looking at the growth potential, can provide us with a thought about the future value.
StockOpine's avatar
Thank you for the clarifications @gruner
Genius!
Yegor's avatar
Great post and welcome to @commonstock 👋
Conor Mac's avatar
Nice way to introduce yourself to Commonstock my friend, thanks for sharing this great pitch!

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