‘Demand that has moved online probably stays online’ – MercadoLibre

After business skyrocketed during the pandemic-related e-commerce surge, Argentina-based MercadoLibre is betting on perpetually high online demand, even as physical stores reopen.

“I want to remain somewhat cautious until we get through H2, [but] the two-year stacks actually look better coming out of the pandemic than they did going into the pandemic, which means that a lot of this demand that has moved online probably stays online,” CFO Pedro Arnt told investors and analysts in the company's Q2 earnings call.

The e-commerce powerhouse achieved another strong quarter.

Consolidated gross merchandise volume (GMV) grew 46% year-over-year on an FX-neutral basis, to over US$7bn, and almost US$1bn sequentially. By the end of June, MercadoLibre registered around 37.8mn unique buyers on its commerce platform. 

The company sold roughly 245mn items between April and June, an increase of 37% year-over-year, and saw improvements in the level of transactions per buyer compared to historic marks, "a sign that it is sequentially driving increased engagement by its users", according to Arnt.

Its main markets drove solid results. 

Brazil grew over 40% year-over-year in GMV on an FX-neutral basis, with over 125mn items sold in Q2. Argentina reached over 60% GMV FX-neutral growth, with an all-time high number of unique buyers, according to the company.

Mexico, “has eased out of lockdown restrictions during Q2” and maintained the number of buyers attracted in the previous quarter, Arnt said, with items sold up 30% and 29% GMV growth on an FX-neutral basis. 

Business in Chile was even better, with over 230% GMV growth on an FX-neutral basis.

“We believe that our business is showing tremendous momentum despite immense volatility in our key markets due to the frequent closing of physical retail across Latin America,” Arnt said.

“The last 18 months have generated a steep function increase in digitization of commerce and finance, setting the stage for sustained long-term growth throughout the region.”

LOGISTICS

The scenario is prompting MercadoLibre to step up investments in leaner and faster shipping, as competition intensifies and players such as Amazon, B2W and Magazine Luiza are also embracing same-day delivery.

MercadoLibre’s investments were US$263mn in the first six months of the year, over two times more the total invested in the same period in 2020. In the quarter, investments tripled to US$150mn.

“As markets gradually continue to reopen, we are directing our investments toward initiatives that will spur continued growth, as well as user engagement and retention. So far this year, marketing investments have been geared toward stronger promotional events and increasing our coverage of orders with free shipping,” Arnt said.

Free shipping is part of MercadoLibre’s strategy to guarantee smooth delivery, coupled with the expansion of distribution centers, larger proprietary shipping fleets and an increase in fulfillment centers.

The company launched in Q2 same-day shipping deliveries from fulfillment centers in Brazil, Mexico, Argentina and Chile. 

Considering all shipping modalities and geographies, Arnt said 24h delivery average time is now less than 1.5 days on an aggregate level.

In Brazil, same-day shipping can reach almost 20% of national postal codes, according to the CFO. In around 2,000 localities packages can be delivered the same day or the next, he said.

Chile is a particular logistics investment focus. A few years ago this market was among the company’s “more challenging” ones, but has become “a very, very strong” one in terms of growth and share gains. 

Demand in Chile has grown the most of any market over the last 15 months, according to the company.

“And that will demand more fulfillment capacity, more distribution capacity. So we will certainly double down on our fulfillment and logistics efforts in Chile.”

MERCADOPAGO

During Q2, the company's fintech arm MercadoPago surpassed US$17.5bn in total payment volume, growing 72% on an FX-neutral basis year-over-year. The unit saw almost 730mn transactions in the quarter.

The company said it reached slightly above 19mn active mobile wallet investment accounts, up from 11.4mn in the second quarter of 2020 and 15.7mn in the first quarter of 2021.

MercadoPago is also doubling down on credit for merchants.

“An important channel for consumer credit, our buy-now-pay-later feature for payments within our wallet has already reached double-digit penetration rates in Brazil and Mexico. On the country level, we had the most significant uptick in originations coming from Mexico this quarter. And Brazil and Argentina continue to expand at impressive triple-digit growth rates,” Arnt said.

MercadoPago reached around 27mn consumers with approved credit lines in the region, around nine times more than Q2 last year.