Alibaba Should Acquire MercadoLibre To Expand Into Latin America

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  • Alibaba may acquire MercadoLibre to get into the growing and underpenetrated LatAm e-commerce market.
  • MercadoLibre strong network effects are hard to replicate for new competitors, even Amazon or Alibaba. Good timing to acquire MELI after recent -20% share pullback.
  • Acquiring MercadoLibre represents just ~20% of BABA LTM Free Cash Flow. BABA can even sell long term USD debt at ~3.5% yields to finance this highly accretive transaction.
  • MercadoLibre shares may trade above $335 (+35%) in a potential takeout scenario.

Last May 2017, Jack Ma, Alibaba's (NYSE:BABA) founder and CEO did a quick trip to visit Buenos Aires, Argentina. In this trip, he officially met Government officials and announced new trade opportunities for both China and Argentina, as well as to support Argentinian merchants that are currently marketing products on Alibaba's e-commerce platforms. At first glance, the visit appeared as an ordinary diplomatic trip to meet with officials and know the Country in more detail. But I believe that Jack Ma's interest in visiting the Country was more oriented towards analyzing in more detail the overall e-commerce ecosystem in Latin America and thinking on Alibaba expansion into the region, who has MercadoLibre (NASDAQ:MELI) as the indisputable leader.

In this article, I present the case on why I think it makes significant sense for Alibaba to acquire MercadoLibre in order to enter the growing Latin America e-commerce market before Amazon does so. It is official that Alibaba has an interest to expand into Latin America and buying MercadoLibre is strategically the most efficient way to enter the region according to my analysis. I think shares can trade above $335 (~35% premium) in a potential acquisition scenario.

MercadoLibre: Latin America's Alibaba

MercadoLibre has many similarites to Alibaba. MercadoLibre operates an online commerce platform, which allows third parties to reach an audience of ~50MM monthly active users (MAUs). MELI operates in Argentina, Brazil, Mexico, Chile, Colombia, and eleven other markets in Latin America (and Portugal). The company offers its users an ecosystem of six related e-commerce services: the MercadoLibre Marketplace (~60% of revenue, similar to Alibaba or eBay (EBAY)), MercadoPago payments solution (similar to Alipay or PayPal(PYPL); ~23% of revenue), along with the MercadoEnvios shipping service (~5% of revenue), Classifieds, Advertising, and other (~13%). Both Companies are managed by its founders. MercadoLibre website closely resembles the look of an eBay, Alibaba, or

This article was written by

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5 Year Buy-Side Experience, MBA Columbia University

Disclosure: I am/we are long MELI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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