Find out more about why Aziz and his team back founder-driven businesses.
This video was recorded in October 2025.
Lightly edited transcript
MercadoLibre has been a great long-term success for you, why did you invest in it originally and do you think it still has good growth prospects?
MercadoLibre is a portfolio holding since our inception in global growth portfolios in 2016. So we have been long-term shareholders of MercadoLibre. This is the largest e-commerce platform company, and they also have a significant payments business. In the last year, roughly 60% of their business was e-commerce, and the remaining 40% was financial services, payments, and FinTech. We believe this company really fits into what we look for in our businesses. As a reminder, we are trying to invest literally less than one percent of the universe that fits our quality growth and valuation framework. We believe MercadoLibre is a very high-quality business with significant, sustainable competitive advantages that include platform advantages, ecosystem advantages, and brand advantages. Let me elaborate on these points.
This company, MercadoLibre, operates in 18 Latin American countries that constitute roughly 95% of the GDP of Latin America. They really have a unique platform with over 100 million plus active buyers on their platform and more than 10 million unique sellers. This ecosystem and platform, we believe, would be very difficult to replicate by someone else. The reason for that is that this is a unique region in terms of doing business. MercadoLibre has been in operation for more than two decades, building the ecosystem on both the merchant side and also for their customers and buyers. In addition to that, they have a very robust payments business that supports the core e-commerce business, with over 60 million unique users of these payment platforms.
Another quality aspect for MercadoLibre is its strong financial positioning. They have a strong balance sheet, and their business model has very little inventory. They own very little inventory outside of a few categories, which results in a very attractive, asset-light, high return on capital business. They have very attractive margins and very attractive cash flow return on investment.
Like some of our other businesses, it's a founder-driven business. The founder is currently still very involved, is a major shareholder, and is the chairman of the board leading the company. So collectively, we believe when you combine all these advantages from brand, ecosystem, and network, it will be very difficult or impossible for someone else to replicate this business over time.
In terms of growth, it's also a very attractive business. We always want to invest in sustainable, secular growth businesses with profitable growth that's evidenced by cash flow growth. This company really benefits from one of the most attractive business drivers, and that's the growth in e-commerce in Latin America.
We believe the total addressable market in Latin American e-commerce market is around $1 trillion, and the penetration of e-commerce is still low, around the low teens percentage. We believe that, over our investment time horizon, e-commerce penetration will significantly increase, providing significant growth for MercadoLibre as a leader in this space. They get roughly 60% of their business from e-commerce.
We believe that this will continue to grow along with the remaining 40% of the business, which is FinTech solutions. This really complements their e-commerce business as it facilitates payments for merchants and buyers on their platform. We believe that this business will also continue to enjoy robust growth over our investment time horizon.
When we take all this together, we believe that they can grow their cash flow by over 20% in our time horizon and continue to generate an attractive cash flow return on investment that’s well above the cost of capital. So we talk about quality, we talk about growth, and this leads to a valuation that we believe is very attractive, as we believe the market is significantly underestimating the long-term durability of this business. Also, the cash flow growth in this business provides us with an opportunity to own a business at a significant discount to our estimate of intrinsic value.
You also invest in Adyen, what do you think are its competitive advantages and future prospects?
So, Adyen is a portfolio holding for our global growth strategies since its IPO in the second quarter of 2018. Adyen is a global merchant acquirer and payment solutions company that was founded in 2006. The company really offers a very unique payment platform compared to legacy platforms because it has, from the very beginning, organically developed for next-generation payment systems that offer 250 payment methodologies globally across online, mobile, and traditional point of sale transactions. Their clients include some of our holdings like Meta, Microsoft, and Netflix. They have very robust integrated payment solutions for a variety of payment options from online e-commerce to mobile to traditional point of sale.
This company has very strong competitive advantages, including their single global platform, as well as very high switching costs, meaning their customers would have a high hurdle to change from Adyen to another vendor because they're so embedded in their business as a solution. When we look at the company's founding, the management had the vision to create this unified, scalable platform that they built organically. This led to a platform integrating multiple aspects of the payment value chain, including merchant acquisition, gateway services, risk management, and other processing functionalities that really lead to convenience, cost savings, reduction in fraud, payment optimisation, security, and continuous innovation for the merchants.
So when we compare this to industry participants today, those participants really utilise what we call old legacy platforms that were not built for today's multi-channel transaction environment, leading them to offer a much more limited service compared to Adyen. Also, because of its end-to-end view of transactions, from the initial merchant checkout through to the final settlement, Adyen can provide greater transparency and real-time insight into consumer behaviour compared to the legacy players we have today.
This enables merchants to not only reduce fraud but also understand and gain valuable insights into consumer behaviour across different channels, which can lead to greater sales while lowering costs for the merchants. Because of these advantages, this company has a 99% retention rate, meaning 99% of their customers choose to stay on the platform year after year, leading to a very sticky client base.
In addition to all of these advantages, the company has significant financial strength, it’s a very self-sufficient company in terms of cash flow generation, above the needs of the business. It reinvests this cash flow into its growth, making it a self-sustaining business. They don't have to go to the market for raising equity or debt because they are very strong in cash flow generation, and they generate very attractive cash flow return on investment around 20%, well above the cost of capital. This is another founder-driven business where one of the co-founders is still in management and is the co-CEO of the company, with a significant stake in the business.
So collectively, we believe when you take all these advantages, it will be very difficult for another company to replicate these advantages. In terms of growth, they benefit from the shift from traditional forms of payment to electronic and new fintech forms of payment. We believe they are addressing around $50 trillion of annual global personal consumption expenditures, which is what we call PCE outside of China. Of this amount, we believe around 40% is still in traditional payment systems that will continue to shift to new forms of payment systems. We believe that as penetration increases, this will lead to double-digit growth for a company like Adyen, being a clear leader in this new form of payment platform.
What's also interesting is that despite all this success and growth, Adyen only accounts for 2% today of the overall payment volumes. We believe there's a long runway for this company to grow their market share of payments, and their margins, which are around 40%, will continue to increase over our investment time horizon, potentially approaching around 60%. As this is a scaled business, the incremental margins are higher. When we take into account these competitive advantages and the significant growth, we believe the company is trading at a significant discount to our estimate of intrinsic value as market participants do not see the growth or the durability of the business and competitive advantages as we do.
You also own Oracle, are there any similarities between Oracle and the other founder-driven businesses you own?
We have owned Oracle for roughly two decades. It started as a database business, which is a fantastic business because when you buy a database, it's a very long-term decision. A company usually makes that decision with a view for the next 10 years. You don't just buy your database and then switch to something better the next day. Switching costs are extremely high, making it very difficult for a company to rip off Oracle and just bring in another vendor.
So we like the database business, the core business for Oracle, because it provides very high recurring profits and has a very sticky client base, which leads to those high recurring profits. The barriers are very high, evidenced by the fact that Oracle has been the leader in databases for almost three to four decades now. On top of that, they created an applications business, selling applications as a solution as part of the stack. They then offered cloud services, and now they are extending those cloud services to AI infrastructure.
This is a company that has evolved over time. Similarly, Meta and Google started with their core businesses, and now they have many products. Google has more than ten products that have over half a billion users. This is one commonality we have in our founder-driven businesses, where these companies continue to evolve and extend their core competitive advantages while also driving further growth by expanding into adjacent markets related to their core businesses.
