William Blair & Company initiated research coverage of MercadoLibre, Inc. (MELI $92.47) with an Outperform rating and Aggressive Growth company profile.
Analyst Mark Miller estimated the company, which is the largest online trading platform in Latin America and operates four e-commerce businesses, would generate earnings per share of $2.30 in 2012 and $3.05 in 2013.
“E-commerce is a tremendous growth opportunity in Latin America,” Miller said, “representing less than 2% of retail sales versus 8% in the United States. The United States took nearly a decade to reach 8% from 1.5%, but the growth rate of e-commerce in Latin America is outpacing the rest of the world, so we expect the gap to narrow considerably in the next few years. Rising broadband penetration and increased mobile usage should both facilitate fast e-commerce growth. We believe MercadoLibre should continue to gain share, growing gross merchandise volume (GMV) faster than the overall rate of increase for e-commerce. Though MercadoLibre is most similar in functionality and appearance to eBay, it also incorporates elements of Amazon’s third-party marketplace, most notably in its high number of fixed-price items for sale (more than 90% versus 64% for eBay). MercadoLibre has transformed itself from a basic website where individual sellers can list items for sale to a full-service platform serving anyone who wants to conduct e-commerce transactions in Latin America. As part of this transformation, the company is leveraging the network effect of the core marketplace business to fuel growth in other segments, including MercadoClics (advertising) and MercadoShops (webstore services).”
Miller continued, “The company is well positioned to drive higher penetration of its payments business (MercadoPago) on the MercadoLibre platform—similar to PayPal on eBay. The off-platform payments business, which recently began working with Wal-Mart in Brazil, also represents a significant opportunity. We estimate the company can sustain 30% annual EPS growth over the long term. Sales gains should exceed 30%, as GMV grows faster than the market and as rising on-platform penetration of MercadoPago drives accelerated payments growth. While the company has opportunities to increase its take rate (total revenues/GMV), we believe management will try to keep it low to enhance the growth of the enterprise.”
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