Latin American e-commerce sensation MercadoLibre isn't just
riding the crest of the region's growing wave of online buying,
but also helping to drive it.
The company has worked to improve the user experience and make
it easier for consumers to transition to online commerce. It has
upgraded the user interface, expanded product categories and
added shipping options.
Through steps such as these,MercadoLibre (
) has sparked a surge in sales and profit amid a rising user
base, increasing the number of transactions and merchandise
Dubbed theeBay (
) of Latin America, MercadoLibre operates a marketplace website
that lets businesses and individuals list items and conduct
transactions in a fixed-price-sale or auction-based format.
It offers its platform to a market of over 584 million people
in Latin America that includes Argentina, Venezuela, Mexico,
Colombia, Ecuador and Panama, as well as Brazil, its biggest
revenue generator. The company also runs e-commerce platforms in
the Dominican Republic, Panama and Portugal.
MercadoLibre offers the online payment system MercadoPago too,
which operates much like eBay's PayPal system.
Another feature is the MercadoShops solution, where users can
set up, manage and promote their own online Web stores.
MercadoLibre reigns as the e-commerce leader in each Latin
American country where it operates, based on the number of page
views and unique visitors it gets. And the company works hard at
building that position.
"Rather than sitting back and benefiting from the shift of
retail to online, they continue to innovate and roll out
different enhancements and functionalities," said Chad Bartley,
an analyst at Pacific Crest Securities.
More Plentiful Money
The shift to digital buying Bartley refers to is occurring in
Brazil and other Latin American countries amid "secular growth in
income," he says. So people have more discretionary income to
spend on shopping overall.
Still, Bartley says, e-commerce is only about 3% of total
retailing done in Latin America. So there's plenty of room for
that penetration rate to grow -- and MercadoLibre has been and
should continue to be a prime beneficiary of that growth, thanks
to ongoing internal initiatives.
"This year and going forward, it has several initiatives that,
in the aggregate, can move the needle intermediate- to
longer-term," he said.
Among those Bartley lists is expansion into new product
categories. He says, historically, the company has concentrated
on the consumer electronics products category. Recently, it's
diversified away from that to focus on others, such as apparel
and home goods.
The effort yielded "above-average" growth rates in the second
quarter in categories such as apparel, home, garden and toys,
said MercadoLibre Chief Financial Officer Pedro Arnt on the
company's second-quarter conference call.
Another initiative, launched in 2013, is the MercadoLibre
Envios shipping solution. Through it the company offers product
sellers cost-efficient integration with logistics companies and
shipping carriers. Those sellers opting into the program are able
to offer a "uniform and seamlessly" integrated shipping
experience for their buyers, according to Arnt.
These types of initiatives have helped propel 15 straight
quarters of double-digit sales growth, and double-digit or better
profit gains in all but one of those quarters.
"Quarter after quarter they are delivering steady performance
in terms of driving transaction volume," said Morningstar analyst
Dan Su. "They spend a lot of effort and resources improving the
user experience every step of the way, from how they log in
through to finishing the transaction."
They have shown "solid execution in getting new customers in
the door and making sure they enjoy the experience and keep
coming back," she added.
That "execution" came into play in the second quarter.
Earnings rose 18% to 67 cents a share. Sales climbed 26% to
During the quarter, 4.5 million new users registered on the
site, expanding the base of registered users 23% from a year
"New users in the quarter were the highest ever and sold items
accelerated vs. the prior quarter in all our key countries --
primarily in Brazil -- outpacing user growth, a sign of increased
user engagement," Arnt said.
Items sold grew 27%, reaching 20.1 million. Overall gross
merchandise volume was $1.7 billion, up 33% from a year earlier.
Total payment volume was up 40% in U.S. dollars to $578
Several initiatives contributed to the quarter's growth, Arnt
says. Among them was a TV marketing campaign launched during the
quarter that centers on MercadoLibre's brand, its mobile
capabilities and the benefits of buying online vs. offline.
Other efforts during the quarter include a series of search
optimizations aimed at improving the relevance of search results
users get, and added features that improved deal and product
MercadoLibre also extended user-interface improvements to its
Arnt says the company's mobile efforts "continue to exceed
expectations for such an early stage and show no signs of slowing
Mobile is an area of focus for the company as smartphone and
broadband penetration increase in the region, Bartley says.
Mobile On The Move
Mobile accounts for a "low double-digit percentage" of the
company's new users and a high single-digit percentage of its
general merchandise volume, Bartley wrote in a report. He notes
that's "impressive" considering its mobile site and app have been
available for only a year.
Analysts polled by Thomson Reuters expect MercadoLibre to stay
on the fast track. They see full-year 2013 earnings rising 20% to
$2.77 a share. They expect a 25% rise in 2014 and a 30% increase
"The company is well-positioned to tap into the tail wind in
e-commerce in Latin America," Su said. The Latin American market
is a very attractive market growing at a pretty nice pace, she
"I think the tail winds can continue going forward in that
space," she added.
Bartley said in his report that MercadoLibre "should continue
to benefit from increased e-commerce adoption and grow faster
than the market due to" various initiatives such as product
He expects MercadoLibre to see "at least" 30% revenue and
earnings growth over the next several years and notes that Latin
American e-commerce is forecast to grow in the low 20% range in
"Being the largest player in this space, MercadoLibre is well
positioned to capture much of the incremental growth going
forward," Su said.
As to rivals,Amazon.com (
) has entered Brazil with Amazon Web Services and a digital
Kindle store, Bartley notes. And MercadoLibre expects Amazon to
enter the marketplace business at some point, but it believes it
"can compete against Amazon effectively."
In terms of competition outside the MercadoLibre marketplace,
the firm is most focused on eBay, he says. Ebay owns about an 18%
stake in MercadoLibre.
"Management believes eBay has an advantage in technology, but
MercadoLibre is innovating to close the gap," Bartley said.