Internet access might be a given in the vast majority of U.S.
households, but that's not the case in a lot of other
The Internet penetration rate in South America, for example,
was 48% as of June 2012, according to data from market tracker
Internet World Stats.
In Central America, the rate was only 33%. That compares with
nearly 80% in the U.S.
One byproduct of the comparatively low penetration rate in
Latin America is that companies that provide Internet and
e-commerce services have plenty of room to grow.
As more consumers in the region gain Internet access and begin
buying products online, e-commerce providers should see a
substantial boost in sales and earnings in coming quarters and
One of those providers isMercadoLibre (
), which has been dubbed "theeBay (
) of Latin America."
MercadoLibre runs the region's largest online shopping center,
with operations in Argentina, Brazil, Colombia, Costa Rica,
Chile, Ecuador, Mexico, Panama, Peru, the Dominican Republic,
Uruguay and Venezuela as well as Portugal.
Like eBay, MercadoLibre operates a marketplace website that
lets businesses and individuals list items and conduct
transactions in a fixed-price or auction-based format. Its
MercadoPago payment system operates much like eBay's PayPal
MercadoLibre has averaged 31% sales growth and 44% earnings
growth over the last three years.
Because the company is so firmly entrenched in the Latin
American market, analysts expect it to continue to deliver robust
growth as the market expands to include more Internet users.
"We expect the company to be a major beneficiary of strong
secular growth drivers in Latin America, such as increasing
Internet and broadband adoption and wider acceptance of
e-commerce," noted Chad Bartley, analyst at Pacific Crest
"Additionally, we believe that the deployment of MercadoPago
will remove a major friction point for e-commerce and drive
accelerating growth in key markets, as well as create a strong
new revenue opportunity."
Bartley expects MercadoLibre to grow faster than the overall
e-commerce market in Latin America because of internal
initiatives to expand the company's services. These include a
program to directly connect large retailers to the marketplace
and an effort to increase business on mobile platforms.
In 2012, the Latin American e-commerce market grew 32%
year-over-year to around $37 billion, according to eMarketer. By
comparison, Bartley says, MercadoLibre's revenue grew roughly 38%
on a currency-neutral basis.
While Latin American e-commerce is forecast to grow in the
low-20% range in 2013, Bartley reckons MercadoLibre is "well
positioned to continue gaining share, and that high 20% to 30%
growth is sustainable."
That's the case even as MercadoLibre deals with problems in
Venezuela, a major market that provided 16% of company revenue
during the 2012 fourth quarter.
On Feb. 8, the Venezuelan government said it would devalue the
country's currency by about one-third. That announcement was made
before the March 5 death of embattled former President Hugo
Chavez. His death brought even more uncertainty to the Venezuelan
MercadoLibre shares fell 2.5% to 83.73 on the day the currency
announcement was made. Since then, however, the company's stock
price has rebounded and currently trades near 94.
Most analysts downplay the impact of Venezuela's troubles on
MercadoLibre's performance and stock price.
"Recent devaluation of Venezuelan currency sparked concerns in
some market participants regarding MercadoLibre's exposure to the
country. We find these concerns exaggerated," JPMorgan analyst
Andre Baggio noted in a report last month.
Even with Venezuela uncertainty, analysts expect MercadoLibre
to grow annual earnings in double digits well into the next few
That kind of performance has become commonplace at
MercadoLibre. The only hiccup it has produced in the last few
years came in the 2012 third quarter, when EPS declined 2% and
the company fell a penny short of profit views.
MercadoLibre rebounded nicely in the fourth quarter, however.
Earnings were 69 cents a share, up 47% from the prior year and 8
cents above consensus analyst views.
Revenue rose 20% to $103.8 million. It was the first time the
company topped the $100 million mark for a full quarter, though
results fell shy of estimates for $105.3 million.
The number of payment transactions grew 43% for the quarter.
Gross merchandise volume was $1.6 billion, up 14% in U.S.
dollars. Total payment volume reached $525 million, a gain of 30%
in U.S. dollars.
Meanwhile, revenue from classifieds and advertising climbed
46% in constant currencies during the fourth quarter.
"This combined growth is led by strong classified listings
momentum, upgrades and better monetization than a year ago for
the business unit," Chief Financial Officer Pedro Arnt said on a
conference call with analysts.
For the full year, MercadoLibre grew revenue 25% and earnings
33% as the company continued to take advantage of an expanding
"The number of purchases and sales per user is increasing
steadily, suggesting that buying and selling goods in an Internet
marketplace is becoming more common in Latin America," JPMorgan's
In 2012, he says, the average active seller performed 11
transactions per year. That was up from eight in 2006. The
average buyer acquired four items in 2012 vs. three in 2006.
Analysts polled by Thomson Reuters expect MercadoLibre to log
first-quarter earnings of 45 cents a share, up from 32 cents a
year earlier. Full-year profit is seen rising 18% to $2.71 a