Why MercadoLibre Stock Popped 14.5% in November

The Latin American e-commerce star showed that it's not going to give up market share without a fight.

Joe Tenebruso
Joe Tenebruso
Dec 11, 2017 at 11:31AM
Consumer Goods

What happened

Shares of MercadoLibre (NASDAQ:MELI) jumped nearly 15% last month, according to data provided by S&P Global Market Intelligence. The dominant e-commerce platform in Latin America delivered solid third-quarter results, which helped to assuage fears that Amazon.com (NASDAQ:AMZN) was about to eat its lunch.

So what

Coming into November, MercadoLibre's stock was reeling following a report that online retail titan Amazon.com was preparing to expand its operations in Brazil. Analysts warned that Amazon's entry would pressure MercadoLibre's margins and gross merchandise volume and ultimately lead to a loss of market share for the Latin American e-commerce leader.

However, MercadoLibre's third-quarter results helped to lessen those concerns. Its revenue surged more than 60% to $370.7 million, which was well above Wall Street's expectations for $347.7 million. Its earnings per share declined 28% to $0.63 -- mainly due to the company's investments in expanding its free shipping offerings -- but that also topped analysts' estimates. Most importantly, MercadoLibre displayed strength across its key metrics, including registered users (up 21% year over year), items sold (up 56%), and payment transactions (up 69%).

A boxer with his gloves up

MercadoLibre is not going down without a fight. Image source: Getty Images.

Now what 

Amazon is certainly not a threat to be taken lightly. With its "your margin is my opportunity" philosophy, the online retail juggernaut is notorious for disrupting new markets -- and putting immense pressure on incumbents' profits in the process.

Still, e-commerce is a huge and rapidly growing industry. Plus, internet penetration rates remain relatively low in many of MercadoLibre's core markets. In fact, only about 60% of the more than 600 million people in Latin America currently use the internet. Contrast that with the 90% rates seen in North America, and you can begin to see just how early e-commerce is in its growth cycle in Latin America. This is a potentially massive market -- one that's likely to be large enough for more than one winner. Thus, it's possible that Amazon and MercadoLibre can both thrive in this fertile ground in the years ahead.