Mercado Libre, the Amazon of Latin America, prolongued its momentum into 2023 as the growing weight of its fintech business lifted last-year results higher.
The e-commerce giant booked a 56.6% year-over-year revenue growth during the fourth quarter, up to $3 billion. The company cemented its position as the leading regional marketplace while its fintech unit Mercado Pago continues to grow at an impressive rate.
Its fintech business now counts for almost half of the group’s total revenues. It is growing faster than the e-commerce site, at a 73% year-over-year expansion. Net income reached $165 million in the three quarters, up from a loss of $46 million in the year-ago quarter.
Shares of Mercado Libre have been on a bullish trend this 2023. The stock is up a staggering 40% year to date, primarily attributed to a collapse of one of its major Brazilian competitors.
Strong results during the quarter furthered that momentum, taking the stock over 4% since the release.
“Momentum in our fintech business remains strong,” the company said in a letter to shareholders. Mercado Pago processed north of $100 billion in payments last year, bolstering the unit’s weight in the group’s total income.
Fintech revenues grow
The company reported 44 million unique active fintech users last year, up 27% year-over-year. Half of them, it said, use Mercado Pago digital wallet to make payments. “They are a natural (and growing) audience for us to cross-sell additional services and products and build towards achieving principality.”
The company has reaped the benefits of an ambitious fintech strategy in the past two years. It has continuously incorporated new products to its traditional digital wallet app, such as insurance, investments, and credit.
For the first time, the company said, Mercado Pago has reached a “critical mass of services” to compete with banks and other fintechs for the client’s primary financial relationship.
“We now have the tools in place to shift Mercado Pago from being mainly a payments wallet to a full-service digital account,” it noted.
Room to grow in Brazil with credit
Mercado Libre identified a strong opportuntiy to grow its fintech business in Brazil. It is the region’s largest market, and the company expects to increase market share in the following quarters.
Small and medium sized businesses are a target. “Our market share of SMB Financial Services distribution is still low, with plenty of upside,” the company noted in the release.
Mercado Pago believes its credit card product will be critical to achieving ” principality” among its users. “It will have an important role to play given the product’s value to consumers for their day-to-day needs,” it said.
The company will launch its credit card business in Mexico this year.
To be sure, Mercado Libre’s credit business is still tiny. Last year, it reported a period-end portfolio of $2.8 billion. The company took a cautious approach to lending in 2022 as the risks of a weaker lending environment materialized. The company reports a 90-day NPL of 10%.