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Could MercadoLibre Be on Amazon’s Shopping List?

Posted on Monday, Jan 7th 2013

Analysts believe that it is not just Brazil, but all of Latin America that is poised for strong economic growth in the coming years. Over the past five years, Latin America’s economic growth has been double that of crisis-ridden Europe and North America. The region’s per capita income is projected to grow by nearly 50% to $13,000-$15,000 by the year 2030.  The additional prosperity is also accompanied by increased technological spending. Market research suggests that less than 40% of the Latin American population accessed the Internet in December of last year, registering growth of 16% over the year, driven by growth in Argentina and Mexico. Compare that with 78.1% use for the United States and 83% for Canada, and the opportunity for e-commerce growth becomes clear.

MercadoLibre’s Financials
MercadoLibre’s (NASDAQ:MELI) Q3 revenues grew 19% over the year to $97.27 million, short of the market’s expectations of $98.12 million. On a constant currency basis, revenues grew 37% over the year with Brazil’s revenues growing 25% and Argentina leading the region with 69% growth. Revenues from Mexico and Venezuela grew 29% and 57% respectively. EPS of $0.59 fell 1.7% over the year and was also below the Street’s target of $0.60 for the quarter.

During the quarter, gross merchandise volume grew 6.5% over the year to $1,436.4 million, and total payment volume grew 30% to $480.1 million. Items sold on MercadoLibre during the quarter grew 22% to 17.6 million and total payments transactions through their payment portal, MercadoPago increased 65% to 6.4 million.

MercadoLibre’s Growth Plan
Researchers report that mobile phone user penetration in Latin America stands among the highest in the world with 55.4%. In Mexico, 57% of users already own smartphones, and 20% of the population has used a mobile device to make online purchases. The trend is picking up: 47% of the online shopping population in Mexico and 48% in Argentina has expressed an intention to use a mobile device to purchase online over the next 12 months. MercadoLibre is building up its systems to address this mobile growth. During the past quarter, mobile accounted for more than 4% of the company’s gross merchandise volume in the third quarter. Since the release of the mobile app, MercadoLibre has seen more than 4.5 million accumulated downloads.

The company is continuing to push its payments solution, MercadoPago. During the quarter, it made the use of MercadoPago compulsory on select seller profiles and product categories.

It is also working to expand its vertical product categories. During the quarter, the company saw strong results coming from the accelerating classifieds verticals and added more verticalized apparel categories in Brazil and Argentina. It is also expanding into the vertical of auto parts in these markets.

Mercado’s stock is trading at $82.79, with a market capitalization of $3.66 billion. It touched a 52-week high of $104.50 in February 2012.

According to a Forrester report, online retail sales in Brazil are projected to grow to $25 billion by 2017, compared with $12.2 billion estimated for 2012. The high growth in the market has also attracted retail giant, Amazon, which has mentioned its intention to buy assets to expand in the region. Market reports suggest that Amazon is in discussions with the Brazilian bookseller Saraiva, to acquire them. Saraiva is valued at $356 million and is both a publisher and retailer of books online and in physical stores.

Could MercadoLibre also be on Amazon’s shopping list?

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