Thread by @JerryCap

Let's talk about $MELI

$MELI is a complex business operating a marketplace primarily in three countries (Brazil, Argentina, and Mexico) + a complementary (but potentially standalone) payments business

They are following the same successful strat that other e-Commerce companies have shown works entering/investing in asset management, credit, logistics, advertising, classifieds in hopes to expand/control as much of the purchase process as possible.

The company is going through a deep investment cycle cutting the dividend in Q4/17:

“After reviewing our capital allocation process, we have multiple investment opportunities that can generate greater return to shareholders through investing capital into our businesses.”

To top it off in Q4/2017 they had sizable write-down of their Venezuela operations

"we have deconsolidated our Venezuelan subsidiaries… recorded a loss of $85.8 million pertaining to investments in Venezuela”

The “capacity to suffer” discussed by Tom Russo @manualofideas
certainly prevails at $MELI - its easier to do when you are the founder and CEO. Marcos Galperín has skin-in-the-game with a 10% stake in the business.

The stock traded 20% higher today. Why?

$MELI reported continued GMV growth in their major markets against extremely tough comparables from Q4/17:

Brazil GMV (50% of total) +24% YoY in Local Currency (LC) on a Q4/17 comp of 71%

Argentina GMV (20% of total) +48% YoY LC on a comp of 59%

Mexico GMV (10% of total) +56% YoY LC on a comp of 91%

Consolidated CC USD GMV Growth of 31% (if we exclude Venezuela), 18% with Ven.

While management is pointing investors to a re-acceleration in growth as the comps get easier throughout 2019.

“the comps will get progressively easier as we move into 2019 on the GMV front and that's probably the key trajectory we're comfortable commenting on"

e-Commerce has shown to be a winner take most market so every quarter that goes by where $MELI maintains or gains share in any of their individual markets increases the probability that they become the dominate player.

This was one of those quarters.

I don’t think they get scale economies operating in multiple countries in the same way that Amazon does operating in various states.

This adds to the complexity (evaluating each individual segment as unique asset) but also helps in terms of downside protection (they don’t have to win all three markets for the investment thesis to play out).

Downside also limited by their payments business which alone could do a lot of heavy lifting in future value creation (compare the EV of $PYPL to the EV of $EBAY…), making up something like 50% of the current $MELI EV.

$MELI had total 2018 GMV of $12.5 billion (USD) while TPV was $18.5 billion, $11.2 billion on-marketplace, the remainder off-marketplace.

Management stated that eventually off-marketplace GMV should be orders of magnitude higher than on-market place TPV, currently off-market represents 40% of total, growing triple digits AND accelerating 172% YoY.

I feel more comfortable investing in $MELI s payments business than $STNE or $PAGS given $MELI has a “first and best customer” – the payments landscape is too competitive for a direct investment, I don’t believe standalone merchant processing is a great business (commodity).

@Compoundinsight has a great write-up on the company I encourage you to take a look.

Aptly titled $MELI "Digging the Moat (or is it a Grave?)"

scuttleblurb.com/melip2/

As @bakergavin points out it’s a mistake to focus only on large-cap tech. Take a listen to this great podcast with @modestproposal1 on “Why the FANG stocks can’t win in the niches (58:11)” for a little inspiration.

investorfieldguide.com/modest/