Mercado Libre & GMarket: Attempt to Replicate EBay's Success

This pair of companies are recent start ups attempting to repeat the success of eBay (EBAY) in their respective markets. Mercado Libre (MELI) is South American focused, headquarters are in Buenos Aires, and offers their online auction in a dozen Latin American countries. Gmarket (GMKT) is a South Korean company, focusing their efforts on the local market.

Mercado Libre has been public since August 2007 and the stock has had a very nice run up, more than doubling. Gmarket has been traded in the U.S. for about a year and a half and is about 50% higher than the opening price. However, there have been a couple of pretty severe pullbacks along the way. Let me see if I can compare these two companies is some meaning full ways:

Financials:

• Market cap: MELI: $2.5 billion, GMKT: $1.1 billion
• PE: MELI: 320+, GMKT: 39
• Projected growth rates: both in the 40-50% range

Markets:

• South Korea, home of Gmarket, has a population of 50 million. The country has the highest Internet access percentage in Asia, at 51% and the world’s highest broadband penetration.
• Korea is a unique language country, so GMKT will succeed or fail based on how the Korean population takes to the concept.
• The market countries of Mercado Libre have a combined population of 480 million. However, internet access, especially high speed, is not readily available to a large percentage of all those people. Hooking up to the web is relatively expensive for many Latin Americans.

My Conclusions: I think the MELI definitely has the most long term potential, with a potential population base 10 times Gmarket’s. I do think initial growth may be less than believers in the stock may hope. Latin America is a region of the world where selling through the local weekend open-air market is much more accepted than buying & selling over the internet.
At a PE ratio of over 300 I think the share price of MELI is definitely getting ahead of the growth in revenues and profits.

Gmarket is showing nice growth in earnings over the last several quarters, with one negative surprise. Future estimates show continued growth. The big question is where is the ceiling for revenues in a market the size of South Korea? Also, last quarter's earning drop needs to rectified with continued growth. I think the PE ratio here is probably in-line with the companies prospects.

eBay owns 18.5% of MELI and Yahoo (YHOO) holds 10% of Gmarket. Either one could be a future buyout prospect. At this time I would be more interested in GMKT, looking for strong earnings growth over the next few quarters. For me, MELI is currently too rich and I think there will be opportunities to pick up stock in the company at much better valuations.

Disclosure: I currently do not have a position in either company.

MELI vs GMKT 6-month chart: