MercadoLibre Still Independent and Growing Nicely

By the end of 2011, Latin America had more than 231 million Internet users, including more than 145 million Facebook subscribers. Internet penetration in this vast region is close to 40%, and Latin America accounted for 10% of the world’s online population. Researchers estimate that Internet penetration is projected to grow to 53% by the year 2016. Internet use on mobile devices is also on the rise, and analysts expect more than 750 million mobile users in the region by 2015.

MercadoLibre’s Financials
The growing use of the Internet is helping online retailer MercadoLibre’s (NASDAQ: MELI) performance. Q2 revenues grew 28% over the year to $88.0 million, in line with the market’s expectations. EPS of $0.57 grew 68% over the year and was ahead of the market’s projections of $0.49 for the quarter.

During the quarter the company reported an addition of 3.7 million new users. Total registered users at the end of the quarter grew 31% over the year to 73.2 million. MercadoLibre also recorded growth of 36% in successful items sold during the quarter to 15.8 million units. The total number of payments of 5.5 million was 78% higher over the year. The gross merchandise value of transactions grew 37% to $1.299 billion. For the company’s payment service, total payment value grew 39% to $411.6 million.

MercadoLibre’s Market Expansion
MercadoLibre is working hard to expand its market reach in Latin America by focusing on improving the customer experience and service on its platforms. As part of this initiative, it has invested in a new customer support center in Uruguay. Through improved world-class customer management tools, it plans to improve service level metrics.

Recently, it also began work on the initial stages of its shipping deployment. Through a tie-up with Correios, the large state-owned company responsible for the national postal service of Brazil, MercadoLibre now helps sellers ship their orders. It determines pricing, collects fees, and issues shipping orders and tracking numbers on behalf of sellers. The service is a new offering and still does not have a big following, but MercadoLibre is confident that the pace will pick up. The offering is expected to be received well by consumers because it improves the buying experience by integrating shipping data and costs during checkout instead of expecting the consumer to discuss shipping terms and conditions offline with the seller. MercadoLibre believes that shipping services will become a strong competitive advantage in months to come.

However, competition is expected to grow in the region. Online retailing giant Amazon is already scouting international markets for growth. It is said to be building up staff in its Sao Paulo office, primarily to provide its cloud-computing web services to Latin America’s merchants. Analysts were expecting Amazon to launch its sales operations in Brazil this September. There is still no confirmation on the news reports. Amazon may start small to test market readiness. But, if they do, they will be a fierce competitor for MercadoLibre to tackle. As I said earlier, MercadoLibre could even become an acquisition target for Amazon.

Meanwhile, MercadoLibre’s stock is trading at $81.93 with a market capitalization of $3.62 billion. It touched a 52-week high of $104.50 in February 2012.