Business Breakdowns
· Daniel Wu, Matt Reustle
[00:00:00] S1: Yes. So if we just look at the business from a geographic split, Brazil is the largest geography at 52% of last revenue, followed by Mexico and Argentina at 22% each and then the rest of LATAM is just 4%. So it really is these key countries that make up the majority of the revenue. The mix of commerce and fintech also differs across these markets. Argentina has the highest fintech mix at 65%. Mexico is the opposite. And then Brazil shakes out closer to the group average. You can also see this mix impact in the contribution margins as well. Argentina has by far the highest contribution margin in the mid-40s. Brazil is at less than half of that and then Mexico is even lower in the high teens. [00:00:00] S0: Let's just get deeper into each segment. I have a lot of questions that I want to talk about on each one, but we'll start with commerce. What does the market share look like? You referenced in the early days there were a lot of competitors going after the same opportunity. Where does that stand today in terms of Meli specifically? And then would you highlight any key competitors, whether it's in LATAM broadly or country specific, that are top of mind when considering the market?
· Daniel Wu, Matt Reustle
[00:00:00] S1: Before I talk about Meli's market share, I guess it's good to just lay out the playing field in terms of e-commerce in LATAM. So e-commerce penetration in LATAM is still quite low despite the post-COVID step change. We've seen estimates in the sort of 13 to 14% range across the region and this year it's probably call it 15%. And that compares to US e-commerce penetration that's in the low 20s. And then if we go to the extreme, you've got countries China where penetration is into the 30% range in terms of Meli's market share of that market. That's a bit harder to pin down because of how fragmented the Latin market is and also the fact that the company doesn't report GMV by country. But we've seen sell-side estimates indicating that Meli's LATAM share is in the mid to high 20% range. And that spans from over 80% share in Argentina where Meli is completely dominant, to around 40% in Brazil and then negligible share in some of the other countries. But overall we understand Meli's LATAM market share is higher than the next 11 operators combined. So they are in a very strong position. But it also goes to show that e-commerce in that is still very fragmented market. [00:00:00] S0: And is there anything that artificially caps the e-commerce penetration? When you think about the drivers of that, what would you point to as stopping it from being at the same level as the US, let alone as some of the bigger players?
· Matt Reustle, Daniel Wu
[00:00:00] S0: And is there anything that artificially caps the e-commerce penetration? When you think about the drivers of that, what would you point to as stopping it from being at the same level as the US, let alone as some of the bigger players? [00:00:00] S1: Yeah, I don't see anything that necessarily is fundamental to preventing e-commerce penetration from getting up to those levels. I think LatAm just started at a lower point compared to the US and as I mentioned, a lot of the infrastructure had to be built out over the past couple of decades and Meli was one of the ones or the main company responsible for doing that. So in many ways I think that's why penetration has been lower compared to the US, but then I don't think the fact that LatAm is an emerging market should put a cap on the potential for e-commerce penetration. Because you look at a country like China where they managed to get to 30% in a very, very short period of time. Now it's going to take longer for LatAm, but we do think that there's a lot more runway to go for E-commerce.
· Daniel Wu, Matt Reustle
[00:00:00] S1: Yeah, I don't see anything that necessarily is fundamental to preventing e-commerce penetration from getting up to those levels. I think LatAm just started at a lower point compared to the US and as I mentioned, a lot of the infrastructure had to be built out over the past couple of decades and Meli was one of the ones or the main company responsible for doing that. So in many ways I think that's why penetration has been lower compared to the US, but then I don't think the fact that LatAm is an emerging market should put a cap on the potential for e-commerce penetration. Because you look at a country like China where they managed to get to 30% in a very, very short period of time. Now it's going to take longer for LatAm, but we do think that there's a lot more runway to go for E-commerce. [00:00:00] S0: And then just on the competitive dynamics, e-commerce is incredibly competitive for periods of time where you will see aggressive land share grab oftentimes sacrificing economics to capture more of the market and then that oftentimes fades away as the industry matures in its respective country or cycles turn. Where would you put Latin America if you need to break it down by country, where would you put that just in terms of the stability of that market share? Maybe looking backwards and then thinking a little bit forwards about their ability to either maintain that share or to grow that share in the future?
· Matt Reustle, Daniel Wu
[00:00:00] S0: And then just on the competitive dynamics, e-commerce is incredibly competitive for periods of time where you will see aggressive land share grab oftentimes sacrificing economics to capture more of the market and then that oftentimes fades away as the industry matures in its respective country or cycles turn. Where would you put Latin America if you need to break it down by country, where would you put that just in terms of the stability of that market share? Maybe looking backwards and then thinking a little bit forwards about their ability to either maintain that share or to grow that share in the future? [00:00:00] S1: Yes, I think the market shares in LatAm, there was certainly a lot of competition during the COVID period, especially from, I guess you call them international e-commerce players that were trying to enter the market. So you've got Shopee, which is Sea Limited's e-commerce arm and you had Temu as well. Amazon's been in the market for a long time and they've got pretty stable market share, I guess you could say relatively negligible for how long they've been in the market for. And then there's a lot of, I guess longer tail e-commerce businesses of physical retailers and they have been the ones that have mainly lost share to the pure play e-commerce players.
· Daniel Wu, Matt Reustle
[00:00:00] S1: Yes, I think the market shares in LatAm, there was certainly a lot of competition during the COVID period, especially from, I guess you call them international e-commerce players that were trying to enter the market. So you've got Shopee, which is Sea Limited's e-commerce arm and you had Temu as well. Amazon's been in the market for a long time and they've got pretty stable market share, I guess you could say relatively negligible for how long they've been in the market for. And then there's a lot of, I guess longer tail e-commerce businesses of physical retailers and they have been the ones that have mainly lost share to the pure play e-commerce players. [00:00:00] S0: You mentioned the intense competition, particularly in the COVID period. What did that look like in terms of having any impact on the business and then thinking about some of that competition that still exists in the market? It's always very interesting to me that to see e-commerce in certain countries or regions and when they can be incredibly competitive and you see very low take rates versus when there is a little bit more stability and take rates come up. So what would you say happened then? And then where does it stand today?