Thursday, May 1, 2008

MercadoLibre Is Sweeping Latin America’s Internet Sales Market

STANFORD GRADUATE SCHOOL OF BUSINESS—MercadoLibre, the Buenos Aires-based online company considered the eBay of Latin America, sees nothing but growth ahead as more households in the region jump online.

That’s the prediction from Nicolás Szekasy, MBA ’91 and chief financial officer of the firm, founded in 1999 by a flock of Stanford Graduate School of Business alumni.

“We think that we have accomplished a lot, but we are only seeing the tip of the iceberg in terms of opportunity,” said Szekasy, presenting the annual Arjay Miller Lecture at the School on April 24. “The venture is growing very fast and we need to be in position to capture all the opportunity we see ahead. We are excited.”

Founded by Stanford MBAs Marcos Galperin and Hernan Kazah from the class of 1999, the company’s regional management team today includes: Osvaldo Giménez, MBA ’98; Hernán Kazah, MBA ’99; Ignacio Vidaguren, MBA ’98; Stelleo Tolda, MBA ’99, and Francisco Ceballos, MBA ’96.

MercadoLibre was the leading e-commerce platform in Latin America based on unique visitors and page views during 2007. Revenue reached $85.1 million last year, with earnings of $9.6 million, or 22 cents per share. Company leaders are betting their service will catch on as more people turn to the internet in Latin America, an expansive region with 550 million people that now has about 126 million internet users. While less than the number of online users in Asia, Europe or North America, Szekasy said internet use is growing faster in Latin America than anywhere else in the world.

MercadoLibre—its name means ‘free market’ in Spanish—has nearly 25 million registered users and operations in 12 countries: Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Uruguay, and Venezuela. That’s nearly double the number of users—12.2 million—the company had in 2005.

In MercadoLibre’s early days only 2 or 3 percent of the Latin American populace used the internet, a figure that influenced the company’s initial strategy of focusing on the quality of the site rather than spending millions to blanket the region with advertising. “We believed it made more sense to focus on building a great technology rather than spending massive amounts of cash in marketing,” Szekasy said.

In August 2007, the company conducted a $49.6 million initial public offering on the NASDAQ, giving it more money to expand. US-based online auction giant eBay is MercadoLibre’s largest investor, having acquired a 19.5 percent stake in 2001. MercadoLibre acquired iBazar Com Ltd., the Brazilian subsidiary of iBazar SA, which had recently been acquired by eBay. In return eBay received a 19.5 percent ownership interest in MercadoLibre and will share best practices with the company. As of August 2007, eBay owned 8.1 million MercadoLibre shares, according to Yahoofinace.com.

While well known for its auction-sale format, today 90 percent of MercadoLibre users choose fixed-price sales, and more than 80 percent of the articles purchased are new. MercadoLibre manages its own online payment services, similar to PayPal in the United States. It is about to roll out a new product to enable customers to complete transactions outside of the MercadoLibre system, said Szekasy.

Asked whether the company might be spreading itself too thin by offering so many services, Szekasy said absolutely not; “You don’t want to do more than you can do. You also don’t want to do less than you can do. That is the balance we are always struggling to find.”

He added, “Latin America is where we have great advantages. We have the skills and the team and we know how to operate in that environment.”

MercadoLibre has helped give rise to a cottage industry of mom-and-pop firms that rely solely on the site for sales, giving the small firms access to a national market, rather than just catering to the people that walk in their door.

“We have many anecdotes of someone who was driving a taxi, started selling something online, and now they have 20 employees and they don’t drive the taxi anymore,” said Szekasy.

“We don’t know exact numbers, but tens of thousands of people make all or most of their living by selling on MercadoLibre.”