Outperforming Amazon with a 34% increase this year! Latin American e-commerce platform MercadoLibre receives recommendations from 90% of analysts

According to the financial news app Zhitong Finance, investors are looking for technology opportunities beyond the seven tech giants in the US stock market, and one of the world's largest e-commerce companies, the Latin American e-commerce platform MercadoLibre (MELI.US), has caught the attention of Wall Street. The stock has risen by 34% so far this year, outperforming Amazon (AMZN.US) at 27% and the S&P 500 index at 20% during the same period, showing impressive performance. Based on FactSet data, about 90% of Wall Street analysts rate the stock as "buy" with an average target price of $2268, representing an increase of about 8% from this week's trading price. There are currently no sell ratings.

MercadoLibre ("Free Market") is an Argentine e-commerce and payment platform registered in Delaware and traded on the Nasdaq market. The company was founded by CEO Marcos Galperin 25 years ago during the peak of the Internet bubble. According to eMarketer, the company currently dominates online sales in Brazil, Argentina, Mexico, and Chile, accounting for about half of online sales in South America. It also operates a digital payment platform called Mercado Pago.

MercadoLibre has recently attracted favor from Wall Street analysts. Brad Gerstner of Altimeter Capital emphasized that the expansion of profit margins and the potential of artificial intelligence are the reasons he is "excited" about the stock.

At the Goldman Sachs Communication Conference held this month, Gerstner stated in an interview, "Look at companies like 'MercadoLibre'... as investors turn to the 'seven sisters of US stocks,' people have forgotten many companies. I think many internet companies will benefit from artificial intelligence. This is not only about expanding profit margins, but also about re-accelerating at the top level, where they can acquire customers, improve products in a way that makes it easier for customers to purchase, and eliminate friction in the system."

From Silicon Valley to Buenos Aires

CEO Galperin came up with the idea of MercadoLibre while studying at the Stanford Graduate School of Business. During his search for seed funding, most investors would choose to invest internally in California.

Galperin mentioned Wall Street on the West Coast, saying, "Latin America has no venture capital. In fact, there is almost no venture capital outside of Silicon Valley. Even if you are an entrepreneur in New York, investors are all on Sand Hill Road. I don't think they really care about exploring other parts of the world."

Investor attitudes have changed. According to PitchBook data, last year, venture-backed Latin American companies raised $3.3 billion in nearly 1,000 transactions. At the peak in 2021, companies in the region brought in $16.3 billion in revenue.

But as early as the late 1990s, Galperin had described the prospects to a private equity investor who happened to be teaching at Stanford University, stating that the lack of infrastructure and competition in Latin America would present opportunities He said, "In Latin America, there is no ready-made infrastructure, no online payment, and inefficient logistics for peer-to-peer commerce. We have to build it ourselves." "This made things more difficult at the beginning, but for us today, it's great."

Although MercadoLibre is sometimes referred to as the "Amazon of South America," when Gaplerin founded the company, eBay was dominating online commerce, and at that time Amazon was more of an online bookstore. In fact, MercadoLibre chose to cooperate with eBay, which bought 20% of MercadoLibre in 2001 and sold it in 2016.

Gaplerin said, "We learned a lot from this relationship, and eventually we started to move away from auctions. Today, I think we are closer to Amazon."

Amazon has also begun to sniff out business opportunities in South America, as the dominant North American e-commerce platform has expanded into Mexico. Gaplerin said, "We have been competing from the beginning, and this competition will continue for many years."

Competitive Tailwinds

Gaplerin pointed out that there are favorable factors that help MercadoLibre withstand competition. Latin America has a young population of over 600 million people proficient in mobile devices, and e-commerce and online payment businesses are steadily growing. MercadoLibre's revenue in the second quarter increased by 42%, growing by 112% on a neutral currency basis, and operating profit margin expanded to 14.3%.

In an interview, Gaplerin said, "Compared to the United States, Europe, or Asia, the e-commerce penetration rate in Latin America is still relatively low." "About half of the population does not have a bank account or has insufficient bank accounts. For us, this is a huge opportunity, as we can distribute financial products to all these previously excluded individuals."