E-commerce giant Mercado Libre announced a record investment of $3.6 billion in Brazil, with its fintech business as one of the drivers for growth in Latin America’s largest economy.
Mercado Libre, which trades in U.S. markets with a capitalization of $60 billion, will deploy 19 billion Brazilian reais in 2023 to bolster its business in Brazil. The Argentine company has grown out of its home country, where it holds an overwhelming dominance, to gain a share in regional economies.
The recent investment outsized its previous commitment of 17 billion reais last year. It signals that the e-commerce giant is still finding opportunities to grow in one of the region’s most competitive markets for fintech.
“A significant part of this investment will be allocated to expand the performance of Mercado Pago, ” said Tulio Oliveira, country manager for Mercado Pago in Brazil. “Mercado Pago is one of the country’s great growth levers for Mercado Libre.”
A major bet on Brazil
This investment would also benefit other areas, such as shipping and technology. The company has upped its bet in Brazil recently, especially after the increased demand for online shopping caused by the Covid-19 pandemic.
“Our performance in recent years has proven the relevance of the business, consolidating a complete offer of financial services,” Oliveira said.
Mercado Libre dubbed the Amazon of Latin America, prolonged its momentum into 2023 as the growing weight of its fintech business lifted last-year results higher. Net income reached $165 million in the three quarters, up from a loss of $46 million in the year-ago quarter.
Good momentum in 2023
The e-commerce giant booked a 56.6% year-over-year revenue growth during the fourth quarter, up to $3 billion. The company consolidated its position as the leading marketplace while its fintech unit Mercado Pago grew at an impressive rate.
Mercado Pago now accounts for almost half the group’s total revenues. It is set to surpass Mercado Libre in revenue by next year. The unit is growing faster than the e-commerce site, at a 73% year-over-year expansion.
In the future, the company will gear toward scaling up lending and other digital banking services. However, the fintech will face the challenge of rising delinquency levels in Brazil. Inflation and higher rates affect Brazilians’capacity to repay. Most large fintech lenders and traditional banks have taken a cautious approach in the last few quarters.
Mercado Pago expanded its fintech ecosystem over the past few years by incorporating new features into its digital accounts service. These include insurance, investments, and credit. Seventy percent of Mercado Pago’s volume is now generated outside the Mercado Libre marketplace.
“Now, with a complete product stack, Mercado Pago is well positioned to become a leading financial services provider in the region, enabling us to foster financial inclusion across the region,” Pedro Arnt, Chief Financial Officer at Mercado Libre, said while presenting fourth-quarter results.