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Latin America Rising Online

Posted on Wednesday, Sep 22nd 2010

According to a recent study by Visa, e-commerce in Latin America and the Caribbean grew 39% over the year to $21.8 billion in 2009. Between 2007 and 2009, e-spending grew 106% in Latin America and the Caribbean, driven by 170% growth in Brazil, 91% growth in Mexico, and 56% growth in Argentina. Within Latin America, Brazil was the biggest market, contributing 61% of total online consumption, followed by Mexico with 12% and Chile with 5%.

Mercado Libre (NASDAQ:MELI), the leading e-commerce player in the region, also saw significant growth during the quarter. For the second quarter, revenues of $52.5 million grew 28% over the year and managed to exceed the market’s projected $52.1 million target. EPS of $0.26 also exceeded the Street’s target of $0.24. The company saw 34% growth in the number of items sold and 91.2% growth in total payment transactions during the quarter, which grew to 1.3 million.

Marketplace revenues grew 19.9% to $37.2 million in the quarter and Payments revenues grew 54.9% to $15.3 million. During the quarter, gross merchandise volume grew 22.4% over the year to $798.1 million, while total payment volume grew 85.7% over the year to $147.8 million. The company boasts of nearly 27.5 million unique visitors in Latin America. A year ago, it had averaged over 1.3 billion page views per month.

Internet use in Latin America is estimated to grow 20.3% over 2009–2012. Brazil is the dominant market in the region, contributing 37% of the Internet user population. The number of broadband users in Brazil is expected to rise to nearly 20 million from the present 12 million, covering 10% of the population by 2013. Further, the Brazilian government has initiated plans to spread broadband Internet services in the country through its telecom company, Telebrás. Through its National Broadband Plan, the government will spend $6.1 billion to boost access to broadband services among low-income households by reducing subscription rates by as much as 70%. The goal of the plan is to enable Internet broadband access to nearly 40 million households by 2014.

Earlier this year, to address Brazil’s growing Internet population, MercadoLibre started to process off-MercadoLibre transactions through MercadoPago 3.0, its payment portal, to any site in Brazil that wanted to adopt it. In July of this year, it also launched a new version of MercadoPago payments platform for its marketplace transactions in Brazil. Besides Brazil, for Mexico and Venezuela, the company enabled MercadoPago 2.0, which is an escrow-based system where the buyer pays for usage.

Given that Latin America has the highest Internet penetration rate of any major continent and is a region where the growing middle class will assert itself in the coming decade, MercadoLibre continues to have good growth potential, although this potential is already priced into the stock. The stock is trading at $72.59 with a market capitalization of $3.2 billion. It touched a 52-week high of $74.78 earlier this month.

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