Is It Too Late To Buy MercadoLibre?

Latin America’s smartphone market grew 22.1 percent year-over-year in the first quarter of 2021, and it grew 41.8 percent year-over-year in the second quarter of 2021. Analysts are projecting that Latin Americans will buy a total of 134.3 million smartphones in 2021 alone. 

A growing middle class with access to mobile technology create the right conditions for e-commerce – and the Latin American market is huge. There are an estimated 300 million potential online shoppers in the region.

E-commerce sales in Latin America are expected to hit $85 billion in 2021, and they are likely to reach at least $160 billion by 2025. 

Latin America is a huge opportunity for online retailers, and the opportunity is estimated to be even bigger for companies that can offer digital payment solutions. Argentina-based MercadoLibre (MELI) has both, and it has taken a commanding lead in Latin America, handling roughly a quarter of all e-commerce transactions in the region. 

In the past five years, MercadoLibre stock gained 822 percent, and it is up 23 percent in the past 12-months. However, MercadoLibre stock has declined by just over two percent year-to-date in 2021, which has investors asking the hard question: Is it too late to buy MercadoLibre stock? Will MercadoLibre stock go down further?

What Makes MercadoLibre Special?

MercadoLibre isn’t just an online marketplace like Amazon (AMZN) or eBay (EBAY), and it doesn’t focus exclusively on the financial side of transactions like PayPal (PYPL). It does all three – and more – to create a one-stop solution that can handle all types of digital sales from start to finish. 

The company’s MarketPlace platform connects buyers and sellers, and MercadoShops offers users a simple way to set up their digital storefronts. MercadoPago is the secure digital payment system, and MercadoCredito allows buyers to finance certain purchases. 

There are sites for real estate agents to list property and for car dealers to advertise new and used vehicles, and MercadoLibre has a long list of resources to support merchants’ marketing and advertising efforts.

In short, MercadoLibre has all of the tools necessary to support an increasingly digital economy at a time when such services are in high demand. 

Why Did MercadoLibre Go Up?

MercadoLibre stock saw slow, steady growth since its 2007 IPO. However, share prices really took off after the March 2020 market crash.

As in other parts of the world, the COVID-19 pandemic sent Latin Americans inside. Digital sales and services became far more attractive for consumers attempting to avoid virus exposure. 

Investors took notice of MercadoLibre’s large market share in a growing economy, and they saw promise in the rate at which the company’s revenues increased.

• For the quarter ending June 30, 2021, MercadoLibre’s revenues totaled $1.70 billion – an increase of 93.85 percent year-over-year. 
• Annual revenue for 2020 came in at $3.97 billion – an increase of 73.04 percent over the previous year
• Annual revenue for 2019 came in at $2.29 billion – an increase of 59.5 percent increase over 2018
• Annual revenue for 2018 came in at $1.44 billion – an increase of 18.34 percent over 2017

These factors combined to make MercadoLibre stock attractive, especially for investors who felt they missed the opportunity to get into tech giants like Google (GOOG) and Amazon (AMZN) early. It was no surprise when MercadoLibre shares went up sharply. 

Can MercadoLibre Stock Keep Going?

Analysts recognize that MercadoLibre is getting expensive, but that hasn’t put a damper on their enthusiasm for the company’s future. While it is known for its marketplace, the real excitement is around MercadoLibre’s financial services. 

Latin Americans use traditional banking products at a far lower rate than US consumers. That is primarily due to the fact that many Latin American countries lack the sort of advanced banking infrastructure present in the United States. 

MercadoLibre offers a digital alternative to traditional banking services. Through the payment platform, users can send and receive funds and use their digital wallets to transact online and with some brick-and-mortar merchants.

Many analysts believe that this side of the business will eventually contribute more to MercadoLibre’s top line and bottom-line results than its original online marketplace. 

What Could Go Wrong?

A big risk facing MercadoLibre – and by extension, its shareholders – is competition. The success of Mercadolibre has invited a handful of serious rivals.

Other e-commerce giants want a piece of the action in Latin America, and they are starting to pour resources into pulling market share away from MercadoLibre. For example, US-based Amazon has now expanded to Brazil and Mexico, and it has plans to grow its footprint throughout the region. 

MercadoLibre Vs Sea Limited

Singapore’s Sea Limited is also expanding into Latin America as part of a far-reaching strategy to gain market share worldwide.

By the end of 2020, it was the largest e-commerce company in Southeast Asia, and it now has a presence in Latin American countries like Mexico, Chile, and Colombia. It had already established itself in Brazil as early as 2019. 

Sea Limited is also moving into the massive Indian market, and it is planning to open for business in Poland. In short, the company appears prepared to take on all of the established e-commerce platforms at once in a race to control emerging e-commerce markets. 

There are rumors that Sea Limited is exploring the possibility of moving into Argentina, where MercadoLibre is based.

Would it pose a true threat to MercadoLibre’s success?

Most analysts think not. MercadoLibre has a wide moat in Latin America that is expected to protect it from significant loss of market share to Sea Limited and other competitors. 

MercadoLibre MOAT

MercadoLibre was founded in 1999, and it has widespread brand recognition throughout Latin America. Being first in the region – and local to the region – plays an important role in MercadoLibre’s ability to defend against encroaching competitors. 

Companies like Amazon and Sea Limited (SE) might set up shop in parts of Latin America, but MercadoLibre has a presence in more than a dozen countries.

MercadoLibre’s management has been in place since the company was founded – or shortly thereafter – and they all live in the area. As a result, the company has a deep understanding of the region, which is critical due to the complex economic, cultural, and political challenges that come with doing business in certain Latin American countries. 

Finally, MercadoLibre has invested in developing a physical distribution system that works – not to mention an advanced software platform. While Latin American consumers may visit Amazon or Sea Limited from time to time, it is unlikely they will make a complete switch based on all of these factors. 

Is It Too Late To Buy MercadoLibre?

The bottom line is that it is not too late to buy MercadoLibre stock. Though it currently appears a bit expensive, the company’s potential justifies current share prices and suggests plenty of room for growth. The most recent analyst projections average a target of $2,119 per share over the next 12-months. 

MercadoLibre is in the right place at the right time to take advantage of a more prosperous Latin American middle class, greater access to digital technology, and a need for reliable banking services. All of that combines to make MercadoLibre stock a buy. 

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