MercadoLibre (MELI) is a Rising Latin American Star
MercadoLibre (MELI: Charts, News), a Buenos Aires, Argentina-based e-commerce website, has often been hailed by Western journalists as the eBay (EBAY: Charts, News) of Latin America, which has excited speculators looking for the next sunny market far from the gloom and doom of the Eurozone.
MercadoLibre, or free market in Spanish, is eBay's Latin American partner, with operations in Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Mexico, Ecuador, Peru, Portugal, Panama, Uruguay and Venezuela. Shares have traded in a wild roller-coaster 52-week range between $48.30 and $95.48, and both the company's trailing P/E of 57.5 and its beta of 1.9 make it a poor choice for squeamish, conservative investors. This risk is exacerbated by the Latin American dependence on global export and commodity demand, which is being held captive by a deadlocked Eurozone, which will result in softer Latin currencies. However, for emerging market investors with an appetite for high risk and high rewards, MercadoLibre fits the bill nicely. Daily Chart
As a whole, Latin America has been progressing down a parallel road as China, with a rising middle class and increasing Internet penetration. Like Chinese Internet giants Baidu (BIDU
) and Alibaba, MercadoLibre has the home field advantage against its foreign competitors, Amazon (AMZN
) and eBay (EBAY
), which have made little headway into Latin America, with 4.2% and 2.8% respective market shares. In fact, eBay currently owns 19% of MercadoLibre, which it will likely aid rather than compete against. As the first business of its kind in the area with a head start of 12 years, MercadoLibre's 33 million monthly unique visitors are currently triple its nearest competitor. Analysts believe that the company could grow at least 24% annually while moderately expanding its margins. What investors are excited about is the rising strength of Latin America, which has a population of 500 million and a GDP of approximately $5 trillion, and the fact that e-commerce only accounts for 2% of total retail in the area. If Latin America continues its growth trajectory, in the same manner as the United States or China, successful e-commerce businesses could increase their profits exponentially. The main bottleneck for Latin American e-commerce is its current preference for cash and face-to-face transactions over Internet based ones - a factor that should be watched closely by prospective investors. Last year, the company reported 52.9 million registered users, a 24.9% market share of all Internet users in Latin America. This figure is expected to increased to 36% by 2015 and 48.5% by 2020. However, the average items sold per user was an anemic 0.74, a far cry from the online mega-stores set up by its American and Chinese counterparts. This is most likely attributed to inactive accounts - in fact, only 26% of registered users performed transactions on the MercadoLibre platform. The company's commission on sellers of 4% is in line with China's Alibaba, but far lower than eBay's 7%. Internet penetration is expected to increased from 40% to 70% over the next decade due to lower Internet access costs, which will change the company's growth forecasts considerably. The number of online shoppers is expected to increased 20% annually. As MercadoLibre's position increases, it is likely to cause its display advertising to become a primary revenue stream. While the long-term growth of the company remains attractive, the company has to contend with some serious macro headwinds. Currency fluctuation has damaged Latin currencies against the U.S. dollar, which it reports earnings in, and Latin America's massive iron ore and oil industries exposes it directly to the threat of the Eurozone and a global slowdown. Investors should slowly dollar-cost average into this stock over a long period of time, as fluctuations can be fast and unpredictable. Other News About MELI MercadoLibre Is Well Positioned For Latin America's E-Commerce Boom
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Published on Dec 12, 2011
By Leo Sun