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What Drew PayPal to MercadoLibre?

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MercadoLibre is raising funds for expansion

PayPal (PYPL) announced on March 11 that it would invest $750 million in the purchase of an equity stake in MercadoLibre (MELI). The investment from PayPal will help MercadoLibre raise ~$1.9 billion in additional capital to support the expansion of its business.

PayPal portrayed its investment in MercadoLibre as its purchasing a ticket to a brighter future. According to PayPal’s CEO, Dan Schulman, Latin America is experiencing tremendous growth in the digital commerce and payment space, and MercadoLibre is well positioned to continue leading the race in the region.

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Revenue rose 20% at MercadoLibre

More than 334 million items worth over $12 billion were sold through MercadoLibre’s marketplace in 2018. MercadoLibre’s payment unit handled 389 million transactions worth $18 billion in 2018. In the fourth quarter, MercadoLibre’s revenue rose 20% YoY (year-over-year) to $428 million. eBay (EBAY) and Amazon (AMZN) reported revenue rises of 6.0% and 20% YoY, respectively, in the quarter. Revenue fell 8.0% YoY at Groupon (GRPN) in the quarter.

Opportunity to collaborate on payments

PayPal’s investment in MercadoLibre is also a strategic one. The company talked about seeing a great opportunity to collaborate with MercadoLibre to create a more valuable payment experience for both companies’ customers. 

PayPal extends consumer loans that people can spend on online purchases. The company also provides business loans. PayPal’s loan services can help MercadoLibre drive sales on its marketplace by giving sellers access to funds to boost their stocks and by giving consumers access to funds to make big-ticket purchases now and pay later.

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