LatinAmericaJaJa

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    • MercadoLibre: Rules of the Game [view article]
      Sorry, a couple mistakes - but it doesn't change the premise of the argument..
      MELI's net income was $10 million not $20 million last year.
      Ebay's net income was over $1B in 2006 not 2007.       May 07 06:46 PM
    • MercadoLibre: Rules of the Game [view article]
      There has been alot of talk about Mercado Libre lately and I think some points have to be brought into the discussion.

      Yes, there has been alot of positive press coverage about the future of Latin America and Mercado Libre in particular as they are the only really known internet player in this region and the company’s valuation has been pushed north by a cool billion in the past 2 weeks.

      The big 3 markets in Latin America are Brazil, Mexico & Argentina.
      I am most familiar with Mexico – so I’ll use that country as an example – it is not so dissimilar to the rest of the countries where Mercado Libre operates.

      Postal System: The postal system simply doesn’t work. It is notorious for lost/stolen mail. Credit card companies, banks and many large department stores deliver statements to their customers by private courier companies – because the government post office is unreliable.

      This means that most any reasonably priced item has to be sent by private courier – thus pretty much wiping out the low ticket items – as the cost of delivery is going to be as much/more than the item itself.

      Garbage/Treasure: In wealthy countries, there is a saying that someone else’s garbage is another’s treasure. In poor countries – and all Latin American countries can be considered poor – one person’s garbage is….another person’s garbage. Even if someone else values it – the problem cited above with shipping costs pretty much negates the item’s desirability –which was based in its low price.

      Big ticket items: People with money in Latin America are going to spend their money at trustworthy domestic brick & mortar retailers or wait until they go on their annual shopping trips to the US where they buy everything they need in San Antonio/Miami/Las Vegas – which is much cheaper than at home. Why would anyone buy a used big ticket item from a stranger when they can go to Costco or the US and get a new one for less?

      Ethics & Culture: There is a far lower standard of ethics in Latin America when in comes to business. The societies are rife with corruption, pure theft by their politicians and monopolies rule the private sector. With monopolies come the standard: high prices, bad products & poor service.

      This is not to say Latins are any less ethical human beings - just that they have accepted that the average citizen is going to get ripped off and there is nothing he can do about it.

      An American politician gets caught stealing from the cookie jar – he goes to jail. In this region politicians are multimillionaires, they know it, the public knows, that’s the way it is.

      Oil has gone from $20 to $120/barrel in a few years and there has been no marked improvement in the lives of the average Mexican, in a country which is a major oil producer. Where has all the money gone?

      The government can’t be trusted, the police can’t be trusted, most businesses can’t be trusted.

      Mercado Libre, simply by having an auction site, is not going to change the culture of Latin America. You simply do not have the kind of trust necessary for a user to send alot of money to a stranger for a big ticket item. It will not happen in a big way in this region – ever!

      Corporate Questions – why did Mercado Libre plan another issuing of stock and then suddenly withdraw it at the last moment? What was their motivation for issuing new stock – and who forced them to decide not to?

      They are spending non-stop on marketing – it is an enormous percentage of their revenues – but even their almost universal brand name recognition in this region will not change the issues cited above.

      Nothing changes the facts on the ground – no matter how the investment community spins it - Not more internet penetration, not more per capita income, not how smart their CEO is – nada!

      Mercado Libre’s PE today is 333.
      It is valued at $2.5 Billion – it had a net income of only $20 Million last year.

      Ebay – Mercado Libre’s model (and largest stakeholder) – has a PE of 95.
      They had a net income of over $1 Billion last year.

      Everyone is talking about what a disaster it is at Yahoo.
      It has a PE of 33 – not 333. They had a net income of $660 million last year.
      A PE 1/10th as large and 30 times as much earnings.

      Google, Lord Google, King Google, Maser of our Universe Google only has a PE of about 40.

      How well can Mercado Libre do that their stock price is going to rise given that their PE Ratio is almost 9 times greater than Google’s, 10 times greater than Yahoo’s and almost 4 times greater than eBay which earned 50 times more than them last year?

      I just can’t see any justification for investing in this stock.

      My guess is that all the institutional holders are thrilled with this recent massive spike in MELI and will be happy to get out with a fancy profit.

      Disclosure: I do not hold any position in MELI/eBay/Yahoo – long or short.
       May 07 05:11 PM
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