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From E-Commerce to Web 3.0: MercadoLibre Still Dominates Latin America

Posted on Monday, Sep 28th 2015

According to a Forrester research report, Brazil’s business-to-consumer e-commerce sales are projected to grow from $17.8 billion in 2014 to $40.8 billion in 2019. Argentina, the second largest market in the region, is expected to see e-commerce sales grow from $3.4 billion in 2014 to $8.3 million in 2019 and over the same period, Mexico will see revenues grow from $2.8 billion to $6.7 billion. Latin America’s e-commerce leader MercadoLibre is continuing to thrive in this rapid growth market.

MercadoLibre’s Financials
MercadoLibre’s (NASDAQ: MELI) second quarter revenues grew 17% over the year to $154.3 million compared with the Street’s forecast of $154.1 million. EPS of $0.44 was significantly below the market’s projections of $0.74. The steep miss in the earnings was attributed to currency fluctuations, increased investments in new offerings, and the changing mix toward MercadoPago, which is a lower margin offering.

During the quarter, the items sold during the quarter increased 28% to 30.2 million with gross merchandise volume of transactions improving 85% to $1,653.5 million. MercadoPago’s Total Payment Transactions grew 76% to 18.1 million with Total Payment Volume growing 108% to $1,206.0 million. This was the seventh consecutive quarter of growth in payment transaction volume. Total payment volume grew 108% in local currencies to $1.2 billion and accounted for 70% of their GMV for the quarter. Usage continued to improve as they recorded 21% growth in registered users to 132.3 million.

MercadoLibre’s Growth Plans
To continue to drive sales, MercadoLibre has been focusing on improving listings on their websites. For the quarter, the number of listings being offered on their marketplace grew 59% over the year. They are now offering interest free listings that allow merchants to sell expensive products on interest free installments. The service is available only through MercadoPago and has resulted in increased sales for merchants. The feature is currently available in Brazil and Mexico. During the quarter, Brazil’s adoption of the interest free service grew to 52% of all GMV and in Mexico, it accounted for 21% of all transaction volumes. They have also integrated the marketplace, payments, credit, and shipping solutions and are offering vendors the ability to list for free to avail of these solutions.

MercadoLibre has been working on a Malls initiative that attempts to convert the online marketplace into a branded retail store. During the recent quarter, total branded stores selling through their marketplace grew to nearly 1,000. A Mall seller pays higher sales fees to Mercado and in turn benefits from higher completion rates.

Within shipping, MercadoEnvíos is also seeing strong growth. In Brazil, during the quarter, 56% of all units sold were shipped through MercadoEnvíos. They are also witnessing strong growth in Argentina and Mexico where the solution was launched less than a year ago. Recently, they released their shipping service in Colombia as well.

Their stock is currently trading at $91.90 with a market capitalization of $4.06 billion. It hit a 52-week low of 89.72 last week. It had touched a 52-week high of $153.42 in May this year. The recent decline in the stock’s value is attributed to the weak earnings despite the higher revenues.

Market Landscape in Latin America

An eMarketer report published earlier this summer estimates the total e-commerce retail market in Latin America is projected to grow 24% over the year to $47.4 billion. The market is expected to grow to $84.75 billion by the year 2019. Attracted by this growth rate, bigger players like Amazon and eBay are also expanding their presence in the region. In June this year, Amazon opened their new storefront for Mexico — This storefront is their biggest international expansion ever. The Mexican storefront will include a wide range of product categories including electronics, houseware, and sporting goods. The site will offer free shipping on purchases over 599 Pesos (~$38). Keeping in mind the local market conditions, Amazon is also offering delivery of goods to local pickup locations.

Besides Amazon, there are also niche players like Dafiti who are fast becoming more formidable players in the region. Focused on fashion and beauty products, Dafiti has become a leading e-commerce player in the region within the category. Similarly, there is Brazil-based B2W that operates several niche sites such as for consumer goods, for electronics, bed and bath products, and for electronics and games, and it has become a top-ranked e-commerce company in Brazil. Import restrictions in the region make it difficult for global brands to enter the market easily, but the local players are already giving MercadoLibre some stiff competition.

You can learn about the journeys of many other successful e-commerce entrepreneurs in my book From E-Commerce To Web 3.0 and here on my blog.

This segment is a part in the series : From E-Commerce to Web 3.0

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