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  • Writer's pictureIshfaaq Peerally

MercadoLibre Stock Analysis

MercadoLibre is known as the Amazon of Latin America but it has more in common with Alibaba than Amazon. MercadoLibre started in 1999 as an ecommerce website and since then received funding from JPMorgan and eBay (which owned about 20% of the company at some point) to become the leading online retailer in the region, ahead of Amazon. MercadoLibre has operations in 18 Latin American countries including Brazil, Argentina, and Mexico, with 320 million users as of 2019.

The company has 5 more business segments apart from its marketplace, Pagos (an online payment system similar to PayPal), Envios (fulfillment and warehousing services for third party sellers), Mercado Shops (Sellers pay to set-up and maintenance on storefronts powered by MercadoLibre), Publicidad (hosting advertisement on their websites), and Credito (credit solution to sellers and buyers).

The main risk with the company is the rising competition from Amazon as well as increased regulations in the countries where it operates.

The chart on the left shows the Google Searches for some of the largest online retailers worldwide. It is clear that MercadoLibre dominates Latin America but the competition is rising, especially in Mexico, which accounts for about 12% of total sales. Brazil accounts for about 60% of sales while Argentina accounts for 20%.

The chart on the right shows Google Searches for MercadoLibre (Blue) and Amazon (Red) in Brazil, Argentina and Mexico respectively.

Brazil revenues increased annually by 49.7% in the last four years. Argentina revenues increased by 16.8% while Mexico revenues increased by 61.6%.

Internet penetration in Latin America has been rising at a fast rate and more people are shopping online, especially with the pandemic.

The stock price of MercadoLibre gained over 1000% in the last five years outperforming the S&P 500 and both the S&P 500 Consumer Discretionary and S&P 500 information Technology indices by a large margin. The stock also outperformed Amazon.

However, in order for them to develop their new business ventures, they had to sacrifice their profit margins and now on the bottomline, they are losing money. They even discontinued their dividends. Is MercadoLibre a good investment? Read the full analysis on my research partnership:

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