PayPal Makes a $750 Million Investment in MercadoLibre

MercadoLibre (NASDAQ:MELI), the Latin American e-commerce and payments powerhouse, announced that it will raise as much as $1.85 billion in a secondary stock offering. This will include equity investments from payments giant PayPal (NASDAQ:PYPL) and venture capital company Dragoneer Investment Group.

Dan Schulman, PayPal's president and CEO, pointed to the tremendous growth of digital commerce in Latin America, saying that MercadoLibre is poised to benefit from the ongoing trend. "We've been impressed with the digital commerce and payments ecosystem Marcos [Galperin, MercadoLibre's CEO] and his team have built," Schulman said. "We see great opportunities to integrate our respective capabilities to create unique and valuable payment experiences for our combined 500 million customers throughout the region and around the world."

MercadoLibre has seen massive success with its MercadoPago payment system, which has become so popular in Latin America, it moved off the company's e-commerce platform and is being used by a growing number of online stores and brick-and-mortar retailers.

PayPal will be able to mentor MercadoLibre and help the Latin American e-commerce giant to further leverage the growth of its payments solution. Investors should view this as a huge vote of confidence from PayPal and "a strong endorsement of MercadoLibre's payments platform from the global leader in digital payments," according to BTIG analyst Marvin Fong.

Dragoneer may not be a household name, but the venture-capital fund has invested in a host of well-known start-ups such as Uber, Instacart, DoorDash, Chime, and India's Flipkart, which is majority owned by Walmart. With its successful track record of choosing investments, Dragoneer's interest is also a positive sign for MercadoLibre investors.

MercadoLibre has faced a number of challenges recently and has taken steps to solidify its position in advance of Amazon.com's encroachment into its backyard. When MercadoLibre reported its fourth-quarter results, the company had more than $440 million in cash on its balance sheet, so it wasn't like there was a pressing need for cash.

With more than $2 billion available after the secondary offering, MercadoLibre will be better positioned to compete with Amazon while continuing to expand its hugely successful payments business.

Manello Corp