TIVP054: Mercado Libre: More than just "the Amazon of Latin America" w/ Daniel Mahncke & Shawn O’Malley

25:15fintech as i said looks very different especially in a more mature market like argentina where once the payments and the credit infrastructure is in place the marginal cost of generating yet another peso of fintech revenue is just much lower so there's very little physical infrastructure involved and most costs don't scale linearly with volume so yeah that's why argentina which is much higher in fintech penetration than than most other markets it's operating in consistently delivers the highest contribution margins and why shifts in the commerce versus fintech mix have such a big impact on MercadoLibre's reported profitability across all countries they operate in.

25:56As you know, my co-host Sean and I are obsessed with analyzing companies. But you probably have noticed from personal experience that talking stocks is not everyone's favorite hobby. And I'm reminded of that every time I bring up investing at dinner or when I'm out with friends, they tolerate Waited for about 10 minutes. But then I get this look. The one that says, we get it. You love stocks. But this is not the place. So Sean and I thought, why not build that place? And we did it. It's called the Intrinsic Value Community. Our members range from pilots and firefighters to lawyers and engineers, but also hedge fund managers, actual rocket scientists and CEOs.

26:33And despite those different backgrounds, what connects all of us is the passion for value investing and continuous learning. And each week we host live calls, covering everything from vetting the group's best stock pitches to analyzing portfolios, investing case studies and conversations with expert guest speakers who are either prominent portfolio managers, CEOs or authors. And the best thing is that if you ever miss a call, we have a library of recordings for watching back every single call we've ever hosted. And if you prefer reading over watching, well, then we have dedicated spaces in the community to share write-ups, discuss investing ideas or just your thoughts on the general market.

27:12And multiple times a year, we bring the community from the virtual world into the real one, including private dinners in Omaha for Berkshire weekend and meetups in New York City to explore, hang out and most importantly, Talk Stocks. Our last cohort of members brought together 20 incredibly thoughtful people, some of the sharpest investors that Sean and I have ever met. And if you want the chance to learn alongside people like that, you should join our waitlist at theinvestorspodcast.com slash intrinsic value community. That's theinvestorspodcast.com slash intrinsic value community. Just like everybody else, there was a time when I was a beginner investor, And I have to say, investing is particularly filled with jargon that can just make it so difficult for new investors to understand what is going on.

27:59But it's never too late to get smarter about stock investing from the ground up. At The Investors Podcast Network, we've made a habit of studying the world's best investors. And now I'm distilling those learnings into a simple course for you or for anyone in your life who you might want to share the gift of knowledge with. With my How to Get Started with Stocks course, you can master the principles of excellent lifelong investing with valuable insights for both beginners and pros. The course covers 10 different sections, beginning with the basics of what a stock actually is and how the stock markets work, to strategies to optimize your retirement savings, how to pick great companies for the long term, what to look for in ETFs, and how to monitor your investments, plus so much more.

28:38To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks. And for a limited time, you can use code STOCKS15 for a 15 % discount at checkout. And that's what we like so much about a company like NewBank, right? And if you look at their cost metrics, you see how much more efficiently run they are versus legacy banks because they have this freshly built digital infrastructure that comes with very few variable costs. Whereas you contrast that with the legacy banking system. I mean, come on, you've got physical branches and thousands of employees manning those branches.

29:20And so there's many more variable costs to scaling the business, which just makes those businesses structurally less profitable, right? To serve more customers, you need more branches and you need more people working those branches. Whereas New NewBank, it's all software, right? They maybe have an AI assistant and it's an app and it's all downloadable and it's all very minimal variable costs. So while physical infrastructure in e-commerce is sort of like a moat, it is more of a burden in the modern financial sector because the financial sector has become digitalized. And so when I look at Mercado Libre, you might say that they might have an easier way to acquire new customers than NewBank.

29:59And so what worked phenomenally well for Nubank, just for context, has been word of mouth marketing. And so they didn't need to advertise. But at some point, that will probably no longer be the case, especially when it goes from being, you know, their primary market opportunity is acquiring customers who are unbanked to really trying to take customers from other banks. And so MercadoLibre, on the other hand, has its own marketplace in place. And so whenever a customer is checking out, Melly can just quickly chime in with an offer to pay with their own credit card and get cash pack or points or to spread out the payments and whatever it is.

30:32And then boom, you've got a new customer acquired into your fintech ecosystem. And then you have a whole funnel that probably moves them from one credit card to other credit cards to savings accounts and different financial products as they get deeper and deeper into the ecosystem. And so, I mean, that worked, that whole process worked very effectively for Amazon and getting me to sign up for their card. And now I'm a very loyal user of it. I really have to think about you when I read that, because I was like, this sounds exactly like the kind of program that even if I don't know Mercado Libre as a customer, I know how it is to just suck people into the ecosystem because they get these little benefits.

31:10And it just works perfectly well. You're basically driving down customer acquisition costs close to zero or as close to zero as it can get. And at the same time, and you just mentioned it, you can turn someone who might only use MercadoLibre occasionally into a much more frequent user across payments, across commerce, and eventually even credit. And I got to admit that of all the business models that we've looked at on this show, I honestly think Melly has one of the strongest flywheels out there, at least when I compare to the growth opportunity that is still ahead for the company. Logistics is another really important piece of that flywheel, obviously.

31:45And Argentina isn't just more profitable than Brazil or Mexico because fintech is further along. It's also because the logistics infrastructure is largely built out already. And that means you just have much lower incremental capex today because you basically did all the investments in the last decade. And in Mexico and Brazil, that's not the case yet. Somalia is still actively building out warehouses and building fulfillment capacity and just last mile coverage in general. And that obviously costs a lot of money. So margins, they are basically under pressure, I would say, by design for at least a couple of years, probably at least a couple of quarters.

32:20But once those logistics investments slow down and utilization improves, well, then margins in those markets should expand quite meaningfully. Why don't we just zoom in on the logistics side a little more? Because it's such a crucial part of understanding the moat for both Mercado Libra and Amazon. And maybe while you walk us through that, we can also compare Mele to some of these other players on the space like Shopee and Timu, which as far as I know, don't really have that kind of physical infrastructure in place yet. And so the question is whether that's a competitive advantage or competitive disadvantage for those businesses.

32:56So whenever we talk about the logistics part of the business, technically we are talking about Mercado and Vios. And I think I'm pretty much fun with the pronunciation for any Spanish speakers out there. So again, I apologize for that. But generally, you have a pretty sophisticated and by now just a multi-layered logistics network. That is definitely not the way it started out. In the beginning, when it launched in 2013, it was basically a way for Melly to just negotiate better shipping rates with third-party carriers that did most of the job. and to just bring a bit more consistency into the experience for sellers who are shipping their orders and also for the customers who receive them.

33:32So that helped a lot in the beginning and the setup was very similar to what Melly now calls its flex model. So the seller is holding the inventory, then hands the package off to a courier and that courier is contracted by MercadoLibre and takes care of the last mile delivery. And from there, the network basically evolved step-by-step. So today, Mercado Envios offers three different logistics services, each designed for a different stage of, basically you can say, seller maturity. So the more scale they have, depending on that, you would decide what part of the subscription or the logistics network they would use.

34:08And the first is called Full, which is the closest you can go to the FBA program fulfillment by Amazon. And basically in that model, you have sellers that store their inventory in MercadoLibre's fulfillment centers, and then Melly takes over everything. So we're talking packing, shipping, and delivery, the entire process. And then there's cross-talking, where sellers basically bring their packages to a Melly-operated hub. And from that point onward, Melly handles sorting and transportation through its own network. And then finally, kind of the legacy part of it, you still have this flex alternative, which just says, okay, well, sellers ship directly, but there's a benefit from MercadoLibre in terms of negotiated carrier rates and also the logistic tools that they use.

34:52when we zoom out a bit and compare it to what amazon has built there are i think some interesting nuances but also some differences meli now operates a logistics network that spans dozens of fulfillment centers but also hundreds of these smaller hubs and then thousands of pickup and drop-off locations across latin america as i understand it and so the transportation network includes its own fleet of aircraft with meli air and branded trucks and this large last mile fleet, much of which is run through these partner carriers. And that last mile part, I think, is actually one of the most important distinctions.

35:30Amazon's logistics network became really what it is because they've chose to own the major components of it. And so Mercado Libre has consciously taken what I would say is a very different approach. Their network is built with a mix of owned and leased facilities. And most of the transportation layer still runs through these third-party partners. And that has kept the business much more capital light. But then my concern would be if you have less direct control over the entire process, the cost of that would be sort of in the difficulty of trying to maintain as pristine of a record of reliability like Amazon has, where Amazon really controls everything from end to end to ensure a certain timeliness and quality.

36:14Well, one of the reasons why they did it is just because of the volatile nature of emerging markets. What you don't want to do is spending billions of dollars in infrastructure in a certain country. And that may no longer be part of your operations in five years. I mean, that's obviously not what Mali expects from markets like Brazil, Mexico, Argentina, but it's probably a mindset they got from past experiences in smaller and less stable markets. We talked about Venezuela when we had our guest talk on our sister podcast, We Study Billionaires, which is a market that has been important for Mali in the past.

36:48But then at some point, hyperinflation hit, the economy broke down. And basically, in a matter of a day, or let's say a week or two, it's not an important market for Mali anymore. And if you have billions of dollars in infrastructure in those markets, it's obviously a huge hit for the company. That said, they're not standing still either. Last year, the company announced plans to double its fulfillment capacity in Brazil by the end of 2025. And they have acknowledged that building out that much space obviously does pressure margins in the short term since new facilities take time to reach optimal utilization but it's definitely the best choice that they can do in the long term and i just like and you would see that if you look at the financials that over time the more scale they reached the more they doubled down on more capital intensive investments so when they weren't sure yet whether a market will be a successful one in the future they were more capitalized and how they invest and now if you have these big markets like brazil for example they know it's about investing heavy in those markets get your market share up defend it and then you can go on to the next country.

37:47And to your concern, I think that's valid. I think my understanding is that they use those small and local carrier services where Melly is basically the only or at least the biggest customer that they have. And because of the local factor and them basically being the only or the most important customer, they have an eye on the performance of the carrier and possibly even a say on the operational side of the business. and it seems to work pretty well. I mean, about 94 % of packages are now delivered through its own network and 74 % of them are delivered within 48 hours. And another important point is, just talking financials here, that logistics is still largely unmonetized.

38:24So Melly hasn't pushed hard on any fulfillment fees or other monetization levers that you can pull in the logistics side as Amazon did, for example, with the FBA program. So the company has really repeatedly said it wants to reach higher and more consistent fulfillment adoption. before fully leaning into monetization. But when you look at the numbers that are sent prior, I think you're probably at a point where you can make an argument for monetizing logistics in maybe the next one or two years, which could also be a huge driver for the financials. And now getting to your original question about competition as well, the existence of this logistics network is one of the clearest lines separating Melly from newer entrants like Shopee and Timu.

39:05Shopee initially entered Latin America with local marketplaces in either Brazil and Mexico and Chile and even in Colombia and Argentina. But by late 2022, they had shut down most local operations, actually every single operation except for Brazil, and shifted to a cross-border model everywhere else. And that means most orders are shipped from abroad and then rely on third-party carriers as soon as they get into the country. However, in Brazil, they have become pretty fierce competitors. Actually, it's probably one of the points that I haven't looked into enough in the beginning because I thought MercadoLibre is just so dominant.

39:42But Shopee has done a phenomenal job in the last couple of years and especially in the last couple of quarters. They have about a 17 % market share, making them the second largest player after Melly, which has about double that market share. And in terms of logistics, Melly has about 2 million square meters of distribution space, but Shopee has about half of that. So it's not like they're not building infrastructure at all. They're also there. They joined the party later. But still, if you think about the decades that Melly is still in the market and the couple of years that Sharpie is in the market, having half the amount of or the number of million square meters in distribution space, that's not unsuccessful expansion at all.

40:19By the way, to give you a perspective of how large that actually is, because I otherwise would have no idea either. One million square meters is the size of about 17 American football fields. Now, I would need to know if that's the same size as European football fields. I don't know that for sure, but I think it's about the same size. So yeah, just summarizing or saying it in short, a major difference is just density. So Shopee has a very limited same-day delivery network because most of their network is still in these largely populated cities, but they cannot really make same-day delivery outside of those mega cities.

40:52And MercadoLibre is able to do that. For MercadoLibre, a 35 % to 40 % market share in Brazil is, for context, about the same size as Amazon's market share of e-commerce in the US. So we wouldn't want to dismiss the competition here, but I do think it's important to make clear just how strong their relative positioning is. And so let me ask you, do you think Shopee's strong results in the last few quarters, is that what has driven the sell-off in Melly's stock? Is that really the primary concern? Because at the time of recording, the stock's about 25 % off from its all-time highs. I guess it's part of the underlying fear that more competition will make the business less profitable in the long term.

41:35But on the other hand, if you look at Seas Limited stock, which is the parent company of Shopee, it's almost 40 % from the year's high. So it hasn't really benefited either. And even Coupang, the company you mentioned before that you looked at in the beginning of the first couple of episodes here on the show, the South Korean retailer, it has had a very tough year. That's a bit different over there because they had a huge data leak, which was very bad for the company and the publicity. But still, I would say the overall business model of e-commerce companies has just been not the investor's favorite over the last couple of years.

42:08And I think investors generally believe competition could hurt both companies. So MercadoLibre, but also Shopee, as they could undercut each other on pricing. And then, yeah, add to that the general discount for the instability of, let's say, Argentina and maybe even Brazil. And you quickly get to a price where you would say it's still trading at 30 times. So it's not like it's incredibly cheap. And honestly, I mean, even Amazon, look at the stock chart. It didn't perform well in the last five years. So I think it's a mix of having basically the business model of payments and e-commerce. And both of these industries sold off in the last couple of years.

42:44So I'm not surprised we're not at all-time highs right now. And then there's Timu, which is a company that like a lot of Americans I had never heard of until suddenly it seemed like they ran like six Super Bowl ads in a single year a few years back, which is a lot when you consider how much a single Super Bowl ad can cost and the plural millions. But since then, at least anecdotally, it kind of felt like there was a peak in interest in Timu just because of the fascination and how ridiculously cheap some of the things were being sold, or at least the way they're being priced in advertisements. And I think maybe closing the de minimis exemption and then some of the terrorists in the US have probably zapped some of their momentum.

43:24But I mean, what about Timu in Latin America? Are they another fierce competitor for MercadoLibre that we need to be really kind of concerned with? I think the picture looks pretty similar, although it probably wasn't the Super Bowl ads that put it on the radar there. Unsurprisingly, Timo is even more dependent on cross-border shipping than Shopee is. And nearly all the assortment comes directly from China. And Timo has gained a lot of app engagement, especially in Brazil. But without local fulfillment centers and last mile assets or even just pickup point networks, it can offer low prices, but not necessarily the part of the equation, which is speed.

44:02And that limits its relevance for these high frequency categories, where speed and reliability matter a lot. And one thing that we often see when you look at e-commerce companies is the importance of being dominant in categories that people shop oftentimes. So clothing is actually a big factor there, and Timo is very successful in that. But if you look for clothing that you want to buy again and again, because the quality is good and delivery is fast, Timo is probably not that one company. Amazon is the company that, if anything, competes with Melly for these higher quality companies. And it has expanded fulfillment capacity in Brazil and in Mexico in recent years.

44:37But they haven't really gained share in a meaningful way, especially in Brazil. And that might be because ultimately the logistics network is not on Melly's level or because they lack the fintech arm that Mercado Pago is, or perhaps simply because there are still so many other priorities that Amazon is tackling on. I mean, we just talked about cloud. That's where they make most of their profits. So to assume that they would rather expand e-commerce, which is a business they don't make much money from, in Brazil than focusing on actual profit drivers is probably not the way to go for them. And if I had to take a guess, ultimately I would say it's a mix of all of them.

45:11And this is likely not going to change in the future either. And maybe as a last point, and it kind of goes to what you said about Timu, I wouldn't underestimate the fact that countries generally have an incentive to favor local players. I mean, sure, Melly is an Argentinian company, but the vast majority of its products come from local, small and medium-sized businesses in the countries where it operates. So when Chinese players enter, that also means that sales volume that would have gone to Argentinian, Brazilian or even Mexican SMBs now goes to huge companies in China. And Melly's management has actually already made public comments about this.

45:50And in early 2025, Mexico imposed a 19 % VAT on packages imported from countries without a free trade agreement, like China, for example. And for packages under$50, which were previously duty-free and is most of the volume that Timu sells in these Latin American markets. And this measure explicitly targeted these ultra cheap imports from platforms like Shein and Timo that exploited the de minimis exemption. Our boss and the co-founder of the Investors Podcast, Zig Brodersen, he always likes to remind us that it is not necessarily the best product that wins. And I think that's something we should keep in mind.

46:28And we had a discussion like that when we explored Uber as well. And it might be the better product, but that does not stop thousands of taxi drivers and unions from protesting or putting pressure on politicians to make changes. And so this is the type of stuff that does matter in the real world and just can't be seen from modeling in a spreadsheet. And so this is the type of stuff that does matter in the real world, but just can't be seen from looking inside of a spreadsheet. But I think we have a pretty good understanding of Melly's ecosystem now. So if you had to sum up the flywheel, how exactly would you do that in maybe a few sentences?

47:06So at the center of the flywheel is basically this classic marketplace flywheel. So you've got more buyers that attract more sellers and more sellers attract more buyers. And that part is pretty straightforward. But Mercado Pargo and Mercado Envios, they add a new layer to this. So for sellers, listing on MercadoLibre almost immediately leads to using MercadoPago as well for the payments part. And that gives sellers faster settlement, better fraud protection, and just a standardized checkout process that buyers trust if they're on the platform. And once you start to scale, many sellers move into MercadoEnvios as well, letting Melly basically handle fulfillment, shipping, or at the very least, sorting and last mile distribution.

47:49At that point, a merchant is just so integrated into the system and dependent on the sales coming from Melly that they also start using Mercado ads to promote their listings. And some sellers might even end up extending into Mercado Credito, which is basically Melly using working capital loans and funding inventory or managed cash flows tied to sales on the platform. as some of our listeners will know i mean there are very few business models so we get more excited about than advertising so let's talk about that more meli seems to have what i would say is a very compelling setup to successfully launch an ads business and amazon for reference has become the third largest advertising business in the u.s and globally is responsible for more than 10 percent of ad spending so that there's some big shoes to fill and that is just a crazy statistic when we think about everything else Amazon does and does very well.

48:45And so the strength of the value proposition, I think for merchants is that Amazon owns the point of purchase. When you log into the Amazon website or pull up the app, there are very few moments in any other point in your life in which you're more willing to buy something and spend money than when you are actively browsing a marketplace like Amazon or Melly. I mean, for me, it's like an entrenched just reflex. I see something, click, add, click, add. And it feels, well, the problem is that it doesn't feel real at all. It doesn't feel like you're spending money. It feels almost like a game. So I mean, the ads hit a customer at the best possible moment with the highest incremental propensity to spend.

49:29And with all that data they have on customers, they also know exactly what those people are looking for and probably how much they want to spend too. And so again, we frequently discuss ad businesses and focus on what differentiates successful ones from the ones that end up failing. And I think two of the critical factors that really do matter are having personalized data and then the available real estate, for lack of a better word, the digital real estate to display the advertisements. And Amazon and MLA have arguably the best data and definitely the best real estate really anywhere. Absolutely.

50:05I mean, creating an ads business is one of the most natural things that Melly can even do. And I think you said before that it's also the part of the business that makes you most excited. And it's still in the early innings. It's only accounting for about 2 % of GMV, but it's growing fast. It's growing 50 to 60 % year over year. And a set that surprised me is that it supposedly already accounts for about 50 % of the digital retail ad spending in Latin America. And for perspective, Amazon sits at about 16 % and Shopee has less than 5 % market share. And both of them, Amazon obviously, but also Shopee have advertising businesses.

50:40And this is just another advantage for Melly because not only is it a profit driver, but it also attracts, once again, merchants looking to scale quickly because no other platform can match MercadoLibre's user base and also the reach that you can basically get through just running ads. And Melly also recently launched Offset Ads, so talking about real estate, which means they can now also target you on apps like Disney Plus or on Google and even other platforms using data from their marketplace. It's kind of similar to what PayPal is also doing and talked about in that episode. And that said, if I probably had to speculate, I would guess that the uptick in market share for the other parts of the graphic that we currently hear show on the screen is due to Shopee gaining share over Walmart and Amazon.

51:25Because what you see here is that, especially over the last three years, Amazon and Walmart are losing a lot of market share in the ad spending. And the other parts, which is a great part here on the graph, is substantially growing. And the only company that I could think of, which is responsible for that, is probably Shopee, especially considering the market share that it's having in e-commerce. And what's potentially interesting is that Melly also launched its own streaming service in 2023. It's free, so it's only powered by ads at this point. And content comes mostly from players like Disney, HBO, or other local movie studios.

52:00And with all of these players, Melly has revenue sharing agreements. So this is once again a less capital intensive approach to offering a streaming service than producing shows in-house, which tends to come with a lot of high costs. the parallels here with amazon just keep coming obviously amazon prime has long included prime video as an aspect of it and it did used to be free entirely and now they've started charging for you if you want to bypass ads and then over time we've seen amazon make bigger and bigger bets on streaming and whether that be in producing their own content or getting the rights to major sporting events like thursday night football every week with the nfl so it just sounds like for Mally, the streaming app, I'm sure, is part of their loyalty program of sorts too.

52:44And it'll be interesting to see how much they're able to recycle back into it. Will we see them hosting, you know, major sporting events, getting the rights to, you know, soccer matches, stuff like that on that app too. Yeah, just brought up the loyalty program, which is kind of like Amazon Prime. It's called Mally Plus. And again, conceptually, it's very similar to Amazon Prime. Customers pay a monthly on an annual fee in exchange for free or discounted shipping, faster delivery, and then these bundled digital benefits like streaming or music, shows, all of that stuff, which is basically known for any Westerner from Amazon Prime.

53:21And we don't have exact numbers since MedliPlus isn't broken out as its own segment, but management gives some pointers on earnings calls here and there. And MedliPlus appears to reach about tens of millions of subscribers across Latin America, which Brazil and Mexico as its core markets. And adoption has been steadily increasing as delivery speeds improved and as the bundle became more attractive. I mean, we talked about Amazon Prime and how it's just a no-brainer. If there's a subscription I would need to get rid of, probably the last two would be Spotify and Amazon Prime. And I'm not yet sure if Melly is the same type of a no-brainer or Melly Plus, but again, it appears to reach tens of millions of subscribers across Latin America.

54:02And since they go up all the time and people buy more frequently and they spend more time on the app, most importantly probably is that management consistently highlights that Melly Plus users are just meaningfully more engaged. So they buy more frequently, they spend more per user, and they are more likely to use Mercado Pargo across both offline and online transactions. And from a financial standpoint, Mercado Libre has been very clear that Melly Plus is not yet optimized for profitability, which does not come as a surprise if we're being honest. It's pretty much like Prime and Amazon's early years.

54:34The program is mostly run close to break even or at a small loss at a standalone basis. But what you want to achieve with this service is just higher lifetime value of a customer. You want more GMV per user, you want higher fintech penetration, you want lower churn, and obviously better unit economics across the entire ecosystem. And that's why you build these loyalty programs or subscription services. So when we're thinking about MercadoLibre, I was just Googling what Melly Plus costs, and it's about$2 or$3 a month in USD terms. So you really need a lot of subscribers to move the needle. But I mean, as you said, it is really basically the Amazon playbook here.

55:13and to some extent it's another layer for the flywheel. I guess the question I would really be most interested in is for that, let's say$2 to$3 a month, depending on where you are and exchange rate fluctuations, do people feel like Melly Plus is a service they can't live without? I think there's probably 100 million people in the U.S. that would say Amazon Prime is a subscription they're least likely to cancel out of everything, kind of like you said, Daniel. And so I just wonder if there's that same loyalty. I mean, with Coupang, we saw that with very much being true in South Korea where the product just multiple times over completely pays for itself.

55:53And so people just almost can't fathom.

56:24not being subscribed to it. that items fulfilled through MercadoLibre tend to arrive faster and more reliably than elsewhere. And that improves trust and better delivery and buying online becomes a lot less like gambling and more of a habit. And that's how we start to talk about this being a service that people feel like they can't live without and pays for itself. And then from MercadoLibre's perspective, as purchase frequency increases, you can also have the chance to integrate MercadoPyGo, which that starts to make more sense, right? It's convenient, it's widely accepted, facilitates more transactions it just really is the smoothest way to to check out and so once a buyer has reached that point which tens of millions of people have signing up for melee plus i would think more or less is a natural next step and you know that includes free or discounted shipping faster delivery easier returns and all these bundled benefits whether you're talking about streaming too once you're ordering regularly and then all that just starts the flywheel loop over again reinforced by melly plus and higher frequency driving greater logistics density and that leads into better delivery speed and reliability and so i mean you know that is a painstaking breakdown of of a flywheel but it is a self-reinforcing business and that's one of the most attractive things we like about it where it's shared economy scaled as they would say as nick sleep would say A lot of benefits are being recycled and reinvested back into consumer surplus.

57:54It's spinning. The flywheel is spinning. And I think that's what's so interesting about it. And you mentioned the pricing of Melly Plus. If you actually compare to the pricing of Amazon Prime in Latin America, you will see that Amazon Prime is a bit cheaper than Melly Plus. So seeing the growth compared from Melly Plus to Amazon Prime, despite being a bit more expensive than Amazon, just makes me think that it's the exact same no-brainer that Amazon Prime is too. And there's certainly signs that the e-commerce market in Latin America, and especially in Brazil, will get more competitive over time.

58:24And Shopee has done a great job in recent years. But in my mind, no one except Melly offers the full ecosystem where every part reinforces the other. And once again, going back to Melly Plus, that's why the flywheel is so strong and why I think it's basically the same no-brainer as Amazon Prime is here, because they have the full ecosystem. They even have the payments part, which Amazon does not have, which is probably a huge thing. Because if I think about what I actually use Amazon Prime for, it's surprisingly not a lot of things. I maybe buy something on Amazon once or twice a month. I don't watch Amazon Prime video a lot.

58:57So there are not many things that actually hold me in the ecosystem and I still wouldn't give it up. So I'm pretty sure that Melly Plus is actually, even now, a huge value add to all the customers. But still, I mean, I'm sure Shopee has plans for a similar ecosystem and Melly already has 40 % market share, which is especially in commerce a huge hub that's close to 80 million users and Mercado Pargo has about 70 million users so you tend to see that if you use Mercado Libre you're also likely to use Mercado Pargo and that just makes it the biggest player in Argentina it's the second biggest player in Mexico after Amazon and in Chile it's the biggest and then once again in Brazil it's the biggest as well and on the fintech side it's the biggest behind our portfolio company Nubank so it's just incredibly successful in all the markets that it operates and Timo is a good example of why or where MercadoLibre's flywheel really shines.

59:47Timo is excellent at attracting these price sensitive users and driving app engagement on price alone and it often wins if you just play that game but Timo operates almost entirely cross-border as I mentioned without local fulfillment, last mile, dense pickup and all of that stuff and as a result you just struggle with consistency, with speed, and especially in categories where reliability matters, you just can't compete. And Tmall also lacks the surrounding ecosystem. So those are the type of players where I do not fear that they could build an ecosystem, subscription services, ads that can actually compete with MercadoLibre.

1:00:21So I hear a lot of talk about Amazon being the biggest competitor. That might be true, especially on the higher quality front, but I don't see them growing. I see Shopee growing a lot, but then again, it will probably take a lot of time until you get the same ecosystem and combined with the fact that local governments will probably favor the local champion and you already have all that market share i think it will be incredibly difficult to create the same flywheel and ecosystem as melly has and losing some customers here and there on pricing is probably not the biggest threat if you're operating in a market that's supposed to grow 10 a year for the next 10 years we've kind of danced around the fintech side of the business a little bit, but I don't think we've really dug into the numbers specifically yet.

1:01:03So let's do that. Let's take a closer look at how Mercado Pago is actually performing beyond just sort of the strategic importance within the broader Mercado Libre ecosystem. Generally, there are three ways that Mercado Pago can be or is monetized. And at the core, Mercado Pago is still a payments business. So it processes transactions on and off Madly's marketplace. And in fact, it processes more transactions now outside of Melly's marketplace than on it, which at least in my mind is a good sign that you get broader adoption. And people are actually users of Mercado Pargo for the service itself.

1:01:39And not only because it helps them on the marketplace. So online merchants might use Pargo as a checkout solution. And offline, it shows up through QR code payments, which are a huge thing in Latin America, as you also know by researching Nubank. and it also sells point of sales devices in physical stores. So MercadoLibre then earns a little fee on each transaction, similar to traditional acquirers. Then the second big chunk of revenue comes from credit. So interest earned from Mercado Parco credit cards, all loans and advances, it's either granting to consumers or to merchants. And lastly, you have so-called fintech products.

1:02:17Those are, for example, the point of sales devices that we talked about earlier that are sold to offline merchants. But this is really, you could look at the financials, a very, very small part. And it's more about the long-term game of onboarding more merchants and giving Pargo users the chance to pay offline as well. And sales themselves of those devices account for less than 1 % of total fintech revenue. So it's basically irrelevant from a financial standpoint. Before our call, we were chatting, as we so often like to do. And you were telling me something about the asset management services that are embedded into this part of the business.

1:02:53But I think it's a small part of it, but I mean, could you pay some more color around what that looks like? It's interesting as well, because there's a unit where you can invest your money into digital assets like cryptocurrency or just receive higher rates than in your traditional money market fund. And the idea is simply to keep as much money as possible in the Mercado Power ecosystem. And it's working quite well, assets and management have almost doubled from$8 billion in Q3 of last year to 15 billion in Q3 of this year. And again, it's not about making a lot of money from this, but I thought it's interesting because we often talk about payment companies and especially if you look at Latin America, the use of stablecoins is a huge value add.

1:03:33So if you can just put your money into stablecoins on Mercado Pargo, that alone is probably incentive enough to get even more funds that in the end MercadoLibre can then work with. Yeah, I mean, like you said, for users, I think it makes sense because if you can deposit funds into stablecoins that are pegged to the US dollar, it's probably going to be a better option for most people trying to save money than holding in their local currency, which Latin America has not the best track record in avoiding currency depreciation and sometimes very dramatic currency depreciation. So I mean, looking at the three businesses here, the fastest growing right now is on the credit lending side.

1:04:13And in the last five years, it grew out of care of, sounds ridiculous to say, almost 90%, which is double the rate of the fintech's service revenue overall, which are the transaction fees. And so, I mean, growth is not slowing down. And last year, the kicker was still well above 80%. I almost feel bad of it. So I will apologize in advance because I will bring up the flag wheel again, but I can't stop talking about it on today's episode. With Mercado Packers' growth and overall transaction volume, many obviously got a lot more data on its customers than, for example, Amazon. Even though it's a huge marketplace, it doesn't have this payment arm.

1:04:51And all that data gives Melly an extreme advantage over every bank when it comes to underwriting credit and controlling risk. And unlike a traditional bank, Mercado Libre has real-time visibility into both sides of the user's economic life. So on the consumer side, it's about what they buy, how often they buy, and how they finance things. And on the merchant side, it's how much they sell, which categories they operate in, and how seasonal their cash flows are and even how they behave across every part of the ecosystem. And that kind of data is extremely difficult to get and extremely difficult to replicate if you're a bank without having this entire ecosystem.

1:05:30NewBank is famous for not just all the data they collect, but how they've been able to successfully use alternative forms of data to help with underwriting loans, I guess you could say. And they don't have all the bureaucracy that legacy banks have, and that makes them a lot more nimbler in being able to test new things and build out their own data sets to determining what factors are more or less meaningful in trying to estimate whether somebody is ultimately going to repay their loan. And it works pretty well. I mean, you can see the impact of that in the underwriting metrics. The most important ones are so-called NPLs or non-performing loans, which we also talked about in NewBank's episode.

1:06:07There are two points in the loan timeline that you usually check for, and those are loans that go delinquent after 15 days and then loans that go delinquent after 90 days. So NewBank's NPLs are noticeably lower than Mercado Pargo's, which simply means a smaller share of its borrowers end up missing payments. They sit at 4 % for the 15-day bucket and about 7 % for the 90-day bucket. Mercado Pargo's NPL after 15 days is 7%, but after 90 days, it goes up to about 17.5%. The flip side though is that Mercado Pargo earns a risk-adjusted margin of a little over 20%, which is roughly double the margin of Nubank.

1:06:47And that's after all the credit losses that you have encountered. So in other words, Mercado Pargo takes on more risk, but it also gets paid significantly more for doing so. And importantly, both of them carry more reserves than needed to cover all the expected losses. So it's not like any of those two companies is gambling and just speculating on another bull market for the next 10 years. And still, this is probably the part of the business that would come under pressure if one of the major economies that Mercado Pago operates in were to experience a serious downturn. The first one that comes to your mind would obviously be Argentina.

1:07:21It's also, I mean, it's reassuring to see that these key lending metrics have remained stable for the most part. In fact, I would say both 15 and 90 day NPLs have actually declined year over year, despite that 80 % plus growth in the credit portfolio we've talked about. I mean, that strongly suggests growth is not coming at the expense of the credit cycle, should I say cautiously. But certainly the big question is whether that can persist across time and economic cycles. And as Buffett says, when the tide comes in, you see who has been swimming naked. And I certainly hope Mercado Pago has not been swimming naked.

1:08:00It doesn't seem like they have been, but that's always the concern. So let's talk about capital allocation, though. And then in the same breath, management in general, because if we're trusting them to manage these underlying credit risks and not to be swimming naked, we really need to have a lot of faith in how effective management is and how well they're aligned with shareholders. So how do you think about that? Yeah, totally. I mean, one of the most difficult parts for me to get comfortable with NewBank is probably understanding what data exactly you use and then looking at the management team.

1:08:37I think for NewBank, the management team is just perfect. They did a fantastic job over the last couple of years. And if you look at the NPLs, you also see that whatever set of data they're using, it works pretty well. Having said that, to me, it's probably easier to understand when your data comes from a marketplace that I know because I shop at marketplaces, you know, every single month, though I kind of understand where they get their data from. But then again, they also just have an incredible management team. And one of the things that I said across the entire episode is that their capital allocation always made sense.

1:09:08They only spend capital when they thought, okay, it's really worth doubling down here. And they were willing to change business models over the time when they thought, okay, well, this is probably a better opportunity than the last time. and if you have a business like Melly, you obviously want money to be reinvested into the business and not be paid out in either buybacks or in dividends, especially given the very tangible advantages of all the investments they do. I mean, we often talked about infrastructure, but basically all of them, even the credit has to be, especially it's kind of an investment because you have to fund it upfront and only take the benefits of it later on.

1:09:41So there are instances where companies need to spend money on, for example, buybacks. for example, when they have high levels of share-based compensation. Investors don't like to get diluted. So when there's a lot of SPC, companies that can afford it tend to buy back shares to offset it. But it's kind of a slippery slope because on one hand, you're not getting diluted, which sounds great on paper. But on the other, it's your cash flow that is spent on those shares. So technically, you still pay. It's just not in the form of shares, but in cash. And the great news about Melly is that there's basically no share-based comp at all.

1:10:17We are talking about less than 1 % of revenue, which is lower than anything I've ever seen for a tech company at that scale. So all the money it earns can be reinvested in a business that has a return on invested capital of about 35%, which just sounds pretty good to me. That's very good. And honestly, maybe that's the perk of looking at tech darlings outside of Silicon Valley, where there is this very entrenched culture of expecting stock based comp. And yeah, if they can reinvest in growing their business profitably with very high returns on capital, then of course, you'd rather see that to buybacks.

1:10:53And typically for more mature companies, they may simply have just less reinvestment opportunities. So buybacks can become relatively more attractive, especially if there's a lot of stock-based comp to offset. But that is just not the case here. No, I mean, at least for the next couple of years, there's definitely not capital that you can invest profitably into the business. But on the other hand, I wouldn't be mad if at some point you have a business that is generating a lot of cash and you can give that cash back to shareholders in either the form of buybacks. or a form of dividends, whatever it is, if we see margins actually go up at some point, that would be fantastic.

1:11:29But we haven't yet talked about the management. So on that side, something that we both love to see is to have a business where the founder is still involved. And in this case, you have the founder and the person of Marco Scalperin, who has led the business from the time of founding to today as the CEO. And he's the type of CEO that I just like a lot. He's a great capital allocator, obviously, as we talked about today, but he understands the business very well and also the markets they operate in. And he has consistently focused on the business's long-term outlook and ignoring the short-term noise.

1:12:01And he's also not a promotional CEO. He doesn't attend earnings calls anymore and he is not doing a lot of public speaking at all, but they actually have a podcast. So if you want to learn more about Mercado Libre, they have their own podcast, which is definitely worth checking out. But he's just very focused on the operational side. He actually stepped down as a CEO at the end of 2025, but he remains executive chairman and with a 7 % stake in the company he's also highly aligned with shareholders so I don't expect there will be any huge changes. I mean the new CEO he's been at the company since 2017 and was handpicked by Gertbouin and Gertbouin also wrote a letter explaining why the transition is happening now and I think he made it pretty clear that he has given a lot of thought to this decision and he wanted to ensure that this transition is definitely done the right way.

1:12:50Again, it sounds a lot like Amazon. You had Bezos eventually step away in title from being CEO, but still for the most part remain pretty involved with the company. And we mentioned before how crucial the transition from founder CEO to the next in line can be. And there are companies where that has worked out well, like with Copart, but there are also many examples where it didn't. And looking at Galperin's track record across business and capital and management team decisions, I want to give him the benefit of the doubt that this transition will go smoothly, but that's always a risk, of course.

1:13:26And so kind of pivoting a little bit here, I should say for listeners who don't know, Daniel and I did do a top stocks for 2026 episode recently on our sister podcast, We Study Billionaires, with our friend and colleague, Clay Fink. And I pitched the Dutch holding company, Exer, and Daniel pitched MercadoLibre. And so in that pitch, you mentioned that margins used to be higher in the past. And we are now sitting at the kind of low double digit range. And then in the mid 2000s, they were actually comfortably above 30 % in terms of profit margins. And assuming that not everybody heard your explanation of that in this other podcast we did, how about you just explain that discrepancy once more for us?

1:14:14That's definitely counterintuitive. usually margins would improve when the business scales. And at least when your business model works, and it's safe to say that Mally's business model definitely works, what's different for them is that they have always been very cautious about spending money. That's what we talked about a minute ago. That's why they made a point of becoming profitable early to show that this model is actually working. We can build this, we can scale this, and other companies cannot compete with us on the same level. So they basically had these huge profit margins, as you can't really say it otherwise, early on.

1:14:46However, with scale and market power, they also became more confident to invest more heavily into the business. And the margin decline was basically starting in 2017 and it was largely the result of deliberate reinvestment. So that was a period when the company was more aggressive on expanding its logistic network. It was expanding free shipping subsidies, basically, to accelerate adoption and also pump up the utilization of the infrastructure that you now build. And then also they began scaling Mercado Pargo beyond the marketplace. And each of these temporarily compress operating margins, but also dramatically strengthen the long-term competitive position of the company.

1:15:25One of the long-term advantages of free shipping, for example, is that the increase in volume makes the logistics network more efficient. And you can see that in the numbers as well. When free shipping was introduced in 2017, and it actually was again this year in 2025, Melly saw the largest quarterly edition of unique buyers in the company's history, which drove down unit shipping costs by about 8 % in its biggest market with Brazil. Last quarter, unique active buyers increased by 26%, bringing the total close to 80 million, and the items sold per unique active buyer rose another 11%. So that's about 8 % right now.

1:16:01So while margins today are pressured by things like free shipping, for example, I think the efficiency gains should lead to margin improvements in the long run. And do we know how profitable Melly's marketplace is? Or I mean, do we have a take rate to reference? As we know with Amazon, despite its huge scale, the marketplace itself is actually not really the ultimate profit driver. It's advertising, it's also AWS, and Melly does not have an AWS equivalent. So it does really kind of feel like the weakest point in the comparison with Amazon. Unfortunately, and that was the most annoying part about researching MercadoLibre, they did not report any margins by segment, just as they do not give us a lot of details on Melly Plus or on ads.

1:16:49What they report instead are GMV, net revenue, and so-called direct contribution margins, which we talked about earlier. And once again, that margin is basically sitting between the gross and the operating margin. And as we talked about, it counts all the variable costs of the business unit, but not the company's overhead costs. So something like centralized R &D or G &A expenses, for example. And to get an idea of the take rate, you can just take the net revenue and then divide it by third party GMV. And you would get a take rate of close to 20 to 21%. And that's not pure commission, obviously.

1:17:22that's also counting something like ads, shipping services, which like I told you do not make a lot of money right now, and a couple of other value added services, for example, Melly Plus. And for context, third party GMV is generated by products from independent sellers. First party would mean Melly is the company behind the product. So Amazon share of profits, as I said in the beginning, is pretty much 50-50 between third party and first party. And Melly is still over 90 % third party. So this proxy works quite well. And it's also the reason why for Melly, the marketplace is not a loss later.

1:17:56And a couple of years ago, the takeaway was still in the mid-teens. So there has been significant improvement here. So I would say that's promising because if you want to see the takeaway increase, it's mostly from value added services. You do not want to pressure merchants over fees, which is not a durable way of improving profitability. And with ads expanding in the future and logistics moving further down the Amazon route, so becoming a service for other companies as well. I think the takeaway should keep improving over time still. All right. Well, we already talked about the margins of the fintech business a bit and how they're actually even higher.

1:18:30And Argentina, being Melly's most mature market, does have contribution margins of over 40%. So it might not be unreasonable to assume that Brazil and Mexico could at least reach the 30s and the next decade ahead. with that backdrop. I think maybe we can finally get to the valuation part of today's episode, Daniel. I already spoiled that Melly was your top pick for WSB. So people probably can already guess that at least you're pretty bullish on adding it to our intrinsic value portfolio. And maybe that implicitly means it passes the valuation test, but let's just go through that and double check the numbers.

1:19:10Well, let's just try to keep the arc of suspense for a little longer. So to be completely honest, before doing the valuation, I wasn't sure whether a five-year valuation model with relatively modest assumptions would even rank Melly as a great opportunity on paper. So for my base case, I assumed revenue growth in the low 20s, something like 21, 22 % over the course of the next five years, mid-20s for the first two years, and then slowing down to mid-teens. And in terms of margins, I actually modeled that we see a slight decline in margins over the next two years, about half a percentage point, followed by a recovery starting in 2027.

1:19:47That will lead to 2030 operating margins of about 19%. I think that's realistic considering the 30 plus percent margins that we already have seen in the past, even though it has been a long time ago, but a whole lot of changes in the business since then. And net income margins, I assume, take a similar path. So they would end up slightly below 13 % in 2030, assuming we leave the share account unchanged and we apply a 26 times multiple which is definitely below the historic rate that it's trading at and then using a 10 discount rate which is two percentage points higher than our usual discount rate mostly due to the geography i think melly is operating in they're doing a great job but still you have these markets where just as for new bank we kind of go with a higher discount rate just because it's basically in a risk premium for the markets it's operating in and after all of that, we end up with a fair value of almost$2 ,700 to$2 ,800.

1:20:42And let's be a bit more conservative and just apply another 20 % margin of safety, and then we get to$2 ,200. That's still a 17 % to 18 % IRR from today's price of close to$1 ,900. If we are a bit more bullish, and we assume that growth will be closer to 25%, and operating margins might actually hit 20 % in 2030, you can also underwrite a fair price target of about$3 ,000. At least when you put a multiple of 30 on it, instead of 26, you could also say, okay, well, this stock is worth$3 ,500. So I think just on valuation terms, you could make almost anything seem logical if you are in a spreadsheet.

1:21:22On the other hand, and that's basically the full proof of it, you have the typically emerging market risk as well. And if you have a serious macroeconomic downturn in World of Melly's major markets, So a lot of the money that is currently spent on building the credit portfolio and also the infrastructure basically will be for nothing. And you would obviously have a massive slowdown in growth. So it's very difficult to model this out. I don't know if it's realistic at all, but let's just assume that top line growth slows down to low double digits. I went for 10 % and margins stay flat at today's levels.

1:21:57Well, that might not sound that bearish, but considering the front loaded investments right now, that basically means none of them pay off at all and the money is more or less gone. So at that point, you got to say, okay, well, growth of like 10%, margin's not looking that good. What is the multiple you would put on it? Probably 20 times. And then you would actually end up with a stop that is about$700. So do I think this is likely? Not at all. But is it possible? Sure. I mean, you never know what happens, especially in the margin markets. So I just want to say, do I think this is the most likely bear case out there?

1:22:30Probably not. But it's definitely a possibility that I at least want to model out to see, okay, where could this go if things go terribly wrong? And when I put it all together, I get an expected return from the current price of about 17%, which comfortably clears our 12 % hurdle rate. I've tracked Melly passively for over a year now, I think. And yeah, I mean, this is just one of those businesses that blows you away. And every time I talk about it or hear somebody talk about I just get more excited about it. It's truly best in class. And recently, Mr. Market has seemingly given us at least a decent entry price as he's prone to sometimes do, especially with these fast growing emerging market companies.

1:23:13And so in terms of operational excellence or other Latin holding new bank, I mean, that's pretty dang hard to beat. But I actually think Melly's business in a way is more durable. And I mean that literally in the sense that it's more diversified and its competitive advantages are more entrenched physically. NewBank has this digital infrastructure cost advantages that are very legitimate and they recycled that into benefits for customers, but that advantage is not carved into stone. It's not guaranteed to last forever. I think it's a very strong moat, but it's not impenetrable. And so hypothetically, I could imagine someone being able to at least build out a rivaling tech stack eventually that supports a financial app that could be just as trendy for some new reason.

1:24:01But when we're talking about a company like MercadoLibre that's anchored in this real world massive logistics network that is very difficult to physically recreate and then to have the same operational experience and excellence in running that network, right? You can't just build out a bunch of hubs and then from day one run them as efficiently as mercadolibre does um between those things at just at some point i i think that it becomes very clear that this is a durable business a lot of promising upside and the only kind of caveat i would say is we are kind of now looking to bet largely on two of latin america's best businesses but that is a lot of exposure to a part of the world that has not been known for its historical stability, whether that be militarily, politically, or also economically with currency devaluations that we kind of mentioned before.

1:25:03Argentina is notorious for defaulting on its debt. And those do have real business implications. Rule of law and stability, I mean, that matters tremendously. And that's one of the things that has made the U.S. such a special place to invest in. And on the flip side, that is what can make places like Latin America so challenging to invest in. When we have 20 % of our cash in our portfolio waiting to be allocated for the most part, I don't mind having a chunk of exposure to Mercado Libre and Nubank at the same time. At some point down the road, if we're looking to add further to either of those positions, we probably want to almost balance them against each other where we're saying, hey, if we're more optimistic about Mercado Libre and we want to bet more on it, then maybe we need to trim the new bank position.

1:25:52It's not always the most effective framework to have that kind of binary thinking, but I kind of would suggest that we might consider that just so we don't get too carried away and have almost a reckless amount of portfolio exposure to a very volatile region of the world. And so I think I'd be comfortable. I know I'd be comfortable with a 3 % bet, but I probably wouldn't flinch at even a 5 % position size either. So I kind of say it's up to you whether we go through your 5 % so long as our combined Latin America exposure between the two companies remains below 10%, I would say. It's a part of the world I'm optimistic on, but not more than 10 % of our portfolio exposure optimistic on.

1:26:37And it's not only about the geography. You would basically bet on payment companies both times. You have Mercado Pago, which is a huge part of Mercado Libre, and you have NewBank, and both of them operating in the same countries, basically. I mean, NewBank is mostly in Brazil, but the same is true for Mercado Pago as well. So thinking about risk management, it's obviously about position sizing here if we think about these two companies. So I also like to look at the range of outcomes. So when I said, okay, well, I have this very bearish case for Mercado Libre, then I would say I did that mostly to think, okay, well, how comfortable am I with putting money into this considering the geography, considering we already have Nubank, and then considering that in these models, there will be a difference of about$2 ,500 between the bull case and the bear case of the company.

1:27:23And I'm pretty sure it'd be a similar difference for Nubank if you would model out all three cases. but I think it's safe to say that there's quite a right range of outcomes and I would totally agree that at some point you would need to think about how much exposure do you want to those markets and Newbank has performed outstandingly well so I think it's not that smart and it's one of the learnings that we had in this year to let our winners actually go further and run and not changing them out for companies that have either not yet performed for us or just didn't perform well in general. So if it's up to me, I would say we make it a 3 % position close to where Nubank is currently trading or at least has been before it went up so much.

1:28:02And that would take our exposure to that market to about 7 % or 8%. And if we make any changes to that decision, because we feel like this should be even more of our portfolio, you would know about it in our weekly newsletter that is free and that we send out every Sunday. We will send it out on Melly2. Actually today, when you listen to this, it will be out. And we'll also have the final decision on portfolio sizing in there. Yeah, the newsletter is great for, we like to just keep the focus on covering a different company that's new each week on the podcast. But in the newsletter, we really take the chance to revisit previous decisions and kind of flesh those out more.

1:28:38But I think we're on the same page, Daniel. 3 % seems like a reasonable place to start. And honestly, I hope that we get some more weakness in the stock and we can add to it. I wouldn't be surprised if this quickly became either because of the stock running up on its own or because of us doubling down on it much bigger than a 3 % position. Totally, totally. And honestly, I mean, we just had a talk in our community from a hedge fund manager in China. We also talked about how you should position yourself in certain companies that might be great, but they are in certain geographies in the world and how you should look at it if, first of all, you don't have boots on the ground.

1:29:12And then second of all, from the regulatory standpoint of just being in another country and maybe there are political tensions at some point as well. So all of that kind of in the back of my head would tell me do 3 % today and perhaps you boost it up to 5 % at another time. All right, the episode is already quite long. So how about you give us the hints for next week's episode? Next week will be a change of pace, that's for sure. Not nearly as sexy as Mercado Libre. We are going back to the world of sporting looking at a trophy asset actually but through a lens that we didn't really consider before when we covered madison square garden sports and manchester united and so next week's pitch like i said is a sports company but it's one that's found a way to make money that's even more profitable in a way than relying on tv viewership and their viewership is also nothing to shy away from either so the event they host is honestly a staple of american culture even if it goes by in just two minutes and all right I'm already probably giving away too much.

1:30:16It's interesting because you told me about it beforehand and you asked me if I would even know it. I think if you're an international viewer here you probably don't know what Sean is talking about right now but from everything I heard if you are a US citizen you probably already know what it will be about next week. All right so then it's my job to close today's episode and I will do so with a quote by none other than Mercado Libre founder and now former CEO Marcus Galbrain and And he said, overspending early and not focusing on building a great product is the biggest mistake. And it's obvious he took that advice too hard when building Mercado Libre.

1:30:51And I'm sure his successor will too. And with that, I'm glad we have this company in our portfolio. And we will see you all next Sunday. Thanks for listening to TIP. Follow the Intrinsic Value podcast on your favorite podcast app. And visit theinvestorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax or legal advice. The content is impersonal and does not consider your objectives, financial situation or needs. Investing involves risk, including possible loss of principle and past performance is not a guarantee of future results.

1:31:27Listeners should do their own research and consult a qualified professional before making any financial decisions. Nothing on this show is a recommendation or solicitation to buy or sell any security or other financial product. hosts guests and the investors podcast network may hold positions in securities discussed and may change those positions at any time without notice references to any third-party products services or advertisers do not constitute endorsements and the investors podcast network is not responsible for any claims made by them copyright by the investors podcast network all rights reserved

1:32:10Thank you.