MercadoLibre’s Price Target

I haven’t written about MercadoLibre in a while. On Wednesday, Eric Savitz, over at Barrons, reported that its CEO Marcos Galperin terminated an over 1.7 million shares stock sale plan, which sent the stock up $4.44, or 16.6 percent, to $31.23.

MercadoLibre (NASD: MELI), the combination of eBay (EBAY) and Amazon (AMZN) of Latin America, announced its Q1 earnings a couple of months ago. With revenues of $28.8 million, the company recorded 75% growth over the previous year and 7% growth sequentially despite the seasonal impact of Easter in the quarter. The Street was expecting revenues of $26.7 million.

By segment, Marketplace revenues grew 65% over the year to $23.5 million and Payments revenues grew 137% to $5.4 million. Net income for the quarter was $2.1 million, representing an EPS of $0.05, which was substantially short of market expectations of $0.10.

Mercado added 1.6 million new confirmed users in the quarter, taking its total user base to 26.5 million. The company's gross merchandise volume increased 44% to $450 million, and the total payment volume increased 96% to $52 million for the quarter.

In the quarter, Mercado benefited from its acquisition of Tu Carro, where the company realized synergies in IT and back-end integration. The company also launched its new payment platform, MercadoPago 3.0, in Argentina after having successful launches in Chile and Colombia in the previous quarter.

According to Mercado’s CEO Marcos Galperin, MercadoPago 3.0,

removes the escrow and shifts the payment of the processing fees from the buyer to the seller, thereby making the process faster and more compelling.

It enables payments both inside and outside of its platform, thus expanding the company’s addressable market. Mercado will be launching the platform in other countries during the rest of the year.

Mercado was ranked as a market leader in Latin America in the online retail space by comScore Media Metrix. With Latin American economies gaining investor confidence – Brazil was recently granted investment grade status by Standard and Poor’s – Mercado’s performance is likely to improve.

Mercado’s growth is spurred by increasing Internet, broadband, wireless, convergence and PC penetration in Latin America. In my interview with Galperin, he talked about the days when Internet penetration was only 3%. Today, the South American region has over 25% Internet penetration.

According to a Global Information report, in 2003, there were only 2.7 million broadband subscribers in Latin America; by the end of 2007, that number had increased to 19.4 million. The world average for broadband penetration is 5.9 lines per 100 inhabitants. As Latin American penetration is still only 3.4 lines, there is further growth potential.

The stock had been beaten down too far of late, for no particular reason or rationale. It is very likely to climb back up to at least the forties. More importantly, this is a long-term hold company.

Disclosure: None

Comments

[donzoab]

While I agree that latin america has tremendous growth potential, MELI remains extremely over valued. This is a very poor region of the world and does not have the spending potential that a larger industrial based county would have. Growth will come but with a PE over 140 and very small user base, small net income, large number of shares outstanding, I would rather own GMKT

2008 Jul 11 07:27 AM

[SHADOW]

MELI has the support, through share ownership. of many very large investors and knowledgable groups! If EBAY has a new feature, won't it eventually end up here as well? Likewise, if EBAY tries a new idea and it doesn't work...then it's not likely MELI will go thru the same mistake process. I like the small # of shares outstanding and the public "float" By the time the public get to buy into these companies, there are billions of shares outstanding. I would rather be in on some future stock splits than come along after they have taken place!!!

2008 Jul 11 11:54 AM

[caltus]

Just tell Galperin to stop doing things like secondary offering or insider selling agreement. This kind of things ruin the overall sentiment in the investment community! They are sick of these kind of things. Please tell Mr. Galperin to do something that gives investors confidence in him.

2008 Jul 11 03:17 PM

[SHADOW]

YOU ARE RT HE'S BEEN GETTING SOME BAD ADVICE! HOPE HE SEES THE BIG PICTURE!

2008 Jul 11 04:20 PM