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MercadoLibre’s Rising Competition in Latin American E-Commerce

Posted on Tuesday, Sep 16th 2014

An eMarketer report released earlier this year estimates the business-to-consumer e-commerce sales in Latin America to grow 20% this year from $48.14 billion to $57.69 billion. The market is expected to grow to $74.5 billion by the year 2017, translating to a 12% annual growth over the period 2013 through 2017.

MercadoLibre’s Financials
Latin American e-commerce marketplace MercadoLibre (NASDAQ: MELI) recently announced second quarter results that squashed all market expectations. They ended the quarter with revenues growing 18% to $131.8 million and an EPS of $0.72. The market was looking for revenues of $111 million and an EPS of $0.56. MercadoLibre has also benefited from the fluctuating Venezuelan currency which helped revenues grow $7 million.

For the quarter, their gross merchandise volume (GMV) grew 4.6% over the year to $1.8 billion. Items sold on MercadoLibre grew 17.6% to 23.6 million and total payment volume improved 35.9% to $785.5 million. Total payment transactions through the payment platform MercadoPago increased 39.8% to 10.3 million.

Among other operating metrics, total payments reached 44% of gross merchandise volume due to the improved on-platform adoption in Brazil and Argentina. Their shipping solution MercadoEnvios shipped over 25% of Brazil’s sold items in June. Mobile is also registering strong growth with 31% of their new registered users in June signing up through a mobile device. Mobile sales also accounted for 16% of the total GMV during the quarter.

MercadoLibre’s Growing Competition
MercadoLibre may have done all the tough work to become the leading e-commerce player in Latin America, but things are going to get tougher now. Since its inception, MercadoLibre had the advantage of partnering with eBay that prevented eBay from investing in the region. Despite the contract’s expiry in 2006, eBay still kept away from the Latin American market. But things are heating up.

Recently, eBay opened their website in Spanish and Portuguese languages. The websites will also enable users to transact in their local currencies. The move aims at addressing the growing e-tailing market in 19 countries including Brazil, Mexico, Colombia, Argentina, and Chile. This follows the fashion-focused mobile application that eBay had launched last year for Brazil. They also expanded their international shipping options to include Brazil and other Latin American countries to allow shoppers from Latin America to buy directly from the US marketplace.

Besides eBay, Amazon is also expanding their presence. Last year, Amazon’s Latin America sales grew 142% over the year to $475 million. Amazon has been focusing on the Latin American market through sales of Kindles and e-books. But they too are growing and they now plan to add printed books in Portuguese to their Brazilian e-commerce site.

Meanwhile, MercadoLibre continues to invest in expanding its reach. As part of their geography expansion, analysts believe that the company is now looking to grow in the South American markets of Bolivia and Paraguay. MercadoLibre has not confirmed such intentions. Additionally, they also continue to invest in their technical team and opened a new software development center in Cordoba, Argentina.

There is no doubt that MercadoLibre is the single largest e-commerce player in Latin America. They account for 25% of e-commerce transactions and 2,000 searches conducted per second in the region. While there are several local players in the market, no other company has managed to establish such a big presence across countries. It will be interesting to see how the company copes with competition from companies like Amazon and eBay who come with deep pockets and experience in creating superior logistics networks. They will still have to deal with the region’s issues of political and currency instability, and understanding the rules and regulations of various countries. 

MercadoLibre’s stock is trading at $114.19 with a market capitalization of $5 billion. It touched a 52-week high of $145.99 in October last year.

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