Business Breakdowns
· Daniel Wu, Matt Reustle
Shopee opened its first Brazilian fulfillment center in September 2024. Meanwhile, Meli expects to finish 2025 with 22 fulfillment centers. So the network scale and service quality is incomparable. [00:00:00] S0: You mentioned just a little bit in terms of Shopee's inflection. In terms of being positive EBITDA on Brazil, is there a way to comp that against Mercado Libre's EBITDA numbers in Brazil? I know they don't break it out, but do you have a sense of profitability in that particular segment, in that particular region? [00:00:00] S1: Yeah. So as I said earlier about the geographic split, the contribution margin in Brazil bounces around 20 to the high teens range, depending on whether the company is reinvesting or not. It's hard to know how much of that is coming from fintech and how much of that is coming from commerce. And Shopee at the moment really only has an e-commerce business in Brazil. We can talk about the potential margin of fintech when we get to that segment. Deep dive. But I think I would say that most of the margin is probably coming from e-commerce at the moment. So you can call it in the mid teens maybe if you allocate the corporate costs to that country as well. [00:00:00] S0: Yeah, quite interesting. And then just going through some of the segments, the marketplace itself, third party versus first party, anything that you can share there. And if there's noticeable difference versus what you've seen with Amazon, which I have some type of mental model. Can you describe a little bit about that segment within the segment?
· Daniel Wu
[00:00:00] S1: Yeah, it's probably worth just at a high level outlining how we think about the composition of the business. Obviously there's two reported segments. You've got commerce and you've got fintech. But within those segments there's distinct business lines that the company doesn't report on. But they do provide enough disclosures in their filings for us to sort of estimate revenue buckets with some reasonable degree of confidence. And I think this is also just the best way, I guess, bottoms up, to think about the drivers of revenues and earnings for the company. So just decompose the commerce segment into the Mercado Libre marketplace, which includes a third party and the first party sales, the Mercado Envios logistics business and then Mercado Ads, which is the retail media advertising business. And then just quickly on the fintech side as well, I categorize that segment into Mercado Pago merchant acquiring Mercado Pago digital wallet and the Mercado Crédito credit business. So I'll go through each of these business lines and then we can tie it together with their revenue contributions. But back to your question about the marketplace. Specifically, the marketplace is the core platform that sort of connects the buyers and sellers. For Mercado Libre, there was over 100 million unique active buyers in 2024 and the marketplace generated $51 billion in GMV. That unique buyer number has more than doubled since before COVID and yet still represents less than 40% of the adult population of Meli's three core markets. Now you asked about how does the Meli marketplace differ to Amazon or where it might be similar? It is pretty similar. So on first party sales, where Meli acts as a merchant, this is still a relatively new initiative from COVID and that was just over 6% of GMV in the most recent quarter. And you compare that to Amazon, who's been doing first party sales for a lot longer and that's probably more in the, call it 30 to 50% range. Meli basically uses its first party sales as a way to just sharpen pricing in categories where third party pricing might not be sufficiently competitive. So categories such as consumer electronics. And then more recently they've also used first party sales to expand into grocery and supermarket categories where the economics currently don't stack up for third party merchants.
· Daniel Wu
If we exclude first party sales from total GMV, the reported third party take rate has crept up to 21% of GMV in the first half of this year and that's up from a reported 13% in 2021. It looks like a pretty big jump optically, but there's been some changes to how Meli calculates and reports that take rate. So I think the equivalent 2021 figure by our estimate is more like 17%. In terms of the actual fee structure, it is very similar to other online marketplace platforms. If we take Brazil as an example, Meli charges a final value fee on successful transactions and that ranges between 10 and 14% depending on the category. There's a fixed fee per unit for any products that are sold under 79 reais which is $15 USD. And then if sellers want to offer interest-free installments, there's an additional 5% fee. So we estimate that the core seller final value fee is just under 13% and that's up from 12% in 2021. So that means substantially all of the take rate expansion that we just talked about has come from value-added services such as logistics and advertising. And that's what you want to see as a shareholder, right? Take rate expansion that comes from driving adoption of value-added services rather than from squeezing merchants on core fees. And I think that's also very similar to what's happened to Amazon as well. Their core final value fees have stayed relatively stable and then they've layered on top FBA, they've layered on top, which is fulfilled by Amazon. They've layered on top advertising, they've layered on top various other services to merchants to drive that take rate higher.
· Matt Reustle
[00:00:00] S0: It's hard to separate I know each of these segments because they do have such an impact on one another. They're complementary and they're certainly complementary drivers. I'm curious on the logistics piece, as you referenced, there've been expansion, there's a fulfillment center footprint. How has that evolution gone again? I think sometimes it's overlooked how incredible what Amazon accomplished in the US is. And how would you categorize that for Meli in terms of their ability to expand that effort while also keeping the economics into consideration?
· Daniel Wu
[00:00:00] S1: Mercado Envíos is Meli's logistics operation and that sort of provides storage, warehousing and delivery to marketplace sellers. We can break that down into three levels of service. You've got Full, which is basically analogous to fulfillment by Amazon and that's where sellers store their inventory in Meli's fulfillment centers. And they're picked and shipped by Meli. There's Cross Docking where sellers deliver packages to a Meli cross docking operation center and then Meli sorts and delivers the packages. And finally there's Flex where the seller ships directly to the buyer using a Meli contracted courier. When Mercado Envíos first launched back in 2013, it was basically the latter Flex essentially. So where Mercado would contract with existing third-party carriers and get negotiated rates and then allow sellers to essentially use those rates, use those carriers and have a more consistent shipping experience. Over time, Meli has invested in broadening out its logistics network. So right now that logistics network in Latin America spans dozens of fulfillment centers, hundreds of smaller logistics hubs and thousands of pickup and drop-off locations. The transportation network itself includes dedicated aircraft, trucks and thousands of last-mile delivery vans. And that's predominantly owned and operated by third-party carriers.
· Matt Reustle
[00:00:00] S0: My impression based on that answer is that it feels like it's earlier stage of Amazon's larger logistics build out prior to having the air fleet and a lot of the trucking and vehicle fleet, which was some of the most capital intensive pieces of that logistics build out in my view. Is that fair to categorize that way? And then where would you put the capital intensity of the logistics effort today? And looking forward, is that something that they're investing a lot into? There's the operating expense line, but then there's also the capex.