According to InternetRetailer, overall Latin America web sales grew 15.5% in 2015 to $22.22 billion compared with the 22.1% growth recorded a year ago. The slowing down of the growth rate is attributed partially to the depressed macroeconomic conditions in Brazil, which accounts for 58% of the region’s web sales. Last year, the Brazilian economy shrank 3.8%, recording the biggest decline in gross domestic product since 1991.But slowing down of the Brazilian economy has not stopped online retailers in the Latin American region from continuing to push ahead.
According to the Brazilian Institute of Geography and Statistics, while overall retail sales in the country fell 4.0% last year, e-commerce sales actually grew 15.3% over the year. Mexico, which is the second biggest economy in the region is also seeing growth for the e-tailers. A Forrester Research study on online retail sales in Mexico forecasts the industry to grow from $2.9 billion in 2015 to $6.0 billion by 2018. Little wonder then that MercadoLibre (NASDAQ: MELI) has almost doubled in value since the start of the year.
MercadoLibre’s second quarter revenues grew 29% over the year to $199.6 million compared with the Street’s forecast of $180 million. EPS of $0.74 grew 68% over the year and beat the market’s projections of $0.59.
Among other key metrics, MercadoPago’s on platform penetration reached a record high of 75%. MercadoPago also launched its services in Peru. MercadoPago’s Merchant services business grew 102% over the year in local currencies, making it the fifth consecutive quarter for triple digit growth. Total items shipped through MercadoEnvios grew 104% over the year to 20.3 million units. The service accounted for more than 70% of items sold in Brazil. Gross Merchandise Value of goods sold grew 57% on a constant currency basis to $2 billion for the quarter. Advertising revenues grew 124% in local currencies with the Product ad format accounting for 50% of total advertising revenues.
MercadoLibre attributed the recent growth to its continued focus on product selection and user engagement. During the quarter, it further strengthened its portfolio of products through pricing strategies. In markets that it wants to expand, MercadoLibre is offering a freemium service. To attract sellers, it has eliminated placement fees for products by allowing them to get rid of the up-front fees for products that may not sell. Additionally, the freemium model offers a final value fee structure that promotes engagement from larger sellers and the use of additional services including financing, shipping, and advertising services. The company is already seeing benefits as the number of live listings being offered grew 73% over the year to 63 million listings.
MercadoLibre still has a long way to go. Market reports estimate that there are nearly 360 million Internet users in the region. MercadoLibre has a user base of 159 million, clearly revealing additional market potential for the company.
The potential is translating into its stock performance. Its stock is currently trading at $186.49 with a market capitalization of $8.2 billion. It touched a 52-week high of $191.76 last month. It is a steep climb from the 52-week low of $84.19 it was trading at in February this year.
And analysts are hopeful that it will continue to soar even more. Recently, J.P. Morgan’s Andre Baggio upgraded the stock and pegged it to reach $200 citing the available market potential especially in markets like Brazil. Analysts are buoyed by MercadoLibre’s initiatives surrounding the enhanced marketplace that includes the integrated payment and shipping service along with zero-interest installments and a success-based fee structure.
Photo Credit: SMLatam