The Rise of Mercado Libre

The Rise of Mercado Libre

By
William Barnett, Gary Mekikian, Christy Johnson
2020|Case No.IB109| Length 17 pgs.

Marcos Galperin, a graduate of Stanford Graduate School of Business, founded Mercado Libre in 1999 with a vision to build an e-commerce company focused on serving the nascent but fast- growing Spanish and Portuguese-speaking markets in Latin America. In the spirit of a Silicon Valley start-up, the company was started in a garage in Buenos Aires. By 2006, Mercado Libre hosted the largest online trading platform in Latin America. Just prior to the company’s 2007 IPO, Mercado Libre achieved what eluded most internet start-ups―profit. It had recorded $52 million in revenues and $1.1 million net income for the full year in 2006. The IPO itself raised $289 million.

By 2019 Mercado Libre was largest online commerce ecosystem in Latin America based on unique visitors and page views. It operated in 18 countries across Latin America: Brazil, Argentina, Mexico, Chile, Colombia, Peru, Uruguay, Venezuela, Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Paraguay and El Salvador.

Over the past 20 years, Mercado Libre had developed a diversified business model, one aimed at boosting electronic commerce. With the Mercado Libre Marketplace as the hub and engine, the company developed additional business units to provide payment solutions, logistics, financing, advertising and software services. The Mercado Libre ecosystem was designed to provide users with a complete portfolio of services to facilitate commercial transactions and to provide buyers and sellers with an environment that fostered the development of a large e-commerce community in Latin America, a region with distinctive cultural and geographic challenges.

Mercado Libre had penetrated Latin America; however, Mercado Libre faced a formidable competitor – Amazon. Amazon entered Latin America in 2012 and was rapidly expanding.

Galperin wanted to be the leader in retailer and financial service provider in Latin America. To do this, especially with Amazon’s rapid expansion, Galperin anticipated that Mercado Libre would likely lose money in the short-term as it increased expenditures.

Galperin and his team were playing the long game. He hoped investors would recognize this, and that, in the long-term, the investments and expenses of today would lead to increased profits and the solidification of their market position in the long-term.

Learning Objective

Through the case study, students will learn about organic growth, multi-sided platforms, and the value of understanding customer needs.

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