Tags: MercadoLibre | MELI | Latin | eBay

Gains Ahead for Latin eBay MercadoLibre

Friday, 07 Oct 2011 02:25 PM

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MercadoLibre (MELI), which means “free market,” hosts the largest online commerce platform in Latin America at www.mercadolibre.com.

The company is the largest e-commerce company in Mexico and in the following South American and Central American countries: Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Peru, Uruguay, and Venezuela, based on unique visitors and page views. MercadoLibre also operates online commerce platforms in the Dominican Republic, Panama, and Portugal.

Like U.S.-based e-commerce powerhouse eBay, which holds an 18 percent interest in MercadoLibre, the company’s online platform allows both businesses and individuals to list items and to conduct sales and purchases on its web sites in either a fixed-price or auction-based format. Additionally, through online classified listings, MercadoLibre’s registered users can list and purchase motor vehicles, vessels, aircraft, real estate, and services.

To enable its customers to transact business in a user-friendly way, the company provides an integrated online payments application that allows its users to securely, easily, and promptly send, receive, and finance payments online through its MercadoPago system.

As a further enhancement to MercadoLibre’s online marketplace, the company allows businesses to promote their products and services through its MercadoClics program. Specifically, that service allows the company’s users to place display or text advertisements on MercadoLibre’s web pages to promote their brands and offerings in an automated and cost-efficient manner.

In regard to that program, individuals and businesses can purchase advertising space on a cost-per-click basis that appears alongside product search results for specific categories and other pages. Those advertising placements are differentiated clearly from product search results, and they direct traffic both to and off MercadoLibre’s platform to the advertiser’s destination of choice.

Through the company’s MercadoShops service, users can set-up, manage, and promote their own online web stores. Those online stores, which are hosted by MercadoLibre, offer integration with the company’s online marketplace, payments, and advertising services. Users can choose from a basic, free webstore or pay monthly subscriptions for enhanced functionality and added services on their stores.

Financial condition and operating results

Like all of the companies that I follow closely, MercadoLibre is financially strong. The company’s cash and marketable securities alone covering all of its financials obligations, both short- and long-term liabilities, as of the company’s June 30, 2011 balance sheet filed with the U.S. Securities and Exchange Commission. As of that same date, MecadoLibre’s long-term liabilities represented a mere 4.2 percent of its total tangible assets.

Meanwhile, the company has consistently grown its revenues and earnings, as well as its cash flows from operating activities. Revenues and net income rose at a year-over-year pace of at least 25 percent and 69 percent, respectively, during each of the past three years.

During the year ended Dec. 31, 2010, MercadoLibre’s net earnings rose by 69.3 percent to $1.27 per diluted share from 75 cents per share during the year ended Dec. 31, 2009, on a 25.4 percent increase in the company’s revenues.

During the second quarter of this year, ended June 30, 2011, the company increased its earnings per diluted share by 30.8 percent, on a year-over-year basis, after growing those earnings by 45.5 percent during the quarter ended March 31, 2011.

Looking forward, I expect MercadoLibre to grow its revenues and earnings at even faster rates during 2012 and 2013, as my research indicates that worldwide economic conditions and the incomes of South American households will improve substantially during those periods.

The fact that the company has consistently grown its number of registered users — to 18.2 million during 2006 to 52.9 million during 2010 — and recently began offering its Spanish-language online marketplace in Europe bodes well for the MercadoLibre’s financial outlook.

Outlook for the stock

Although MercadoLibre’s stock fell sharply over the past five months as worldwide stock prices in general pulled back considerably, it rebounded from an intra-day low of $48.30 per share on Oct. 3 to close yesterday at $56.77.

While I expect MELI to trade in a volatile sideways pattern over the next few months, my
research and experience suggests that this stock will double by the end of 2012. Therefore, I encourage both conservative and aggressive investors to monitor MercadoLibre (MELI) closely during the weeks ahead.

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