One of last year's biggest winners -- MercadoLibre (MELI -1.16%) -- is finally correcting. The leading Latin American online marketplace operator has seen its shares decline 16% since hitting new highs earlier this month.
Trading volatility has made a lot of the market's dot-com darlings cheaper in recent days, but MercadoLibre seems well suited to bounce back. Despite a rough month in which a pair of Wall Street pros put out unflattering analyst notes, MercadoLibre remains a unique speedster. Revenue is growing at its fastest clip in more than a decade, and it's well positioned in overcoming its near-term margin challenges and persistent threats of Amazon.com (AMZN -1.68%) as a potential cutthroat rival. MercadoLibre still has the means to generate a lot of upside for its investors -- a millionaire maker, if you will -- and the recent slide offers up a compelling entry point.
Image source: MercadoLibre.
Let the bears go first
There haven't been any bullish updates out of the biggest firms covering MercadoLibre since last month. The analysts that have chimed in through March haven't exactly been bullish since the stock peaked.
Two weeks ago, Scott Devitt at Stifel downgraded the stock from buy to hold, lowering his price target on the shares from $425 to $405. The catalyst for the move was the Sao Paulo Regional Federal Court lifting an injunction that protected MercadoLibre from a shipping fee increase. The decision may very well be reversed after the formal judicial process plays out, but he sees it bumping MercadoLibre's shipping subsidy's cost by roughly $53 million this year if the decision holds.
This week it was Alana Imaizumi at Citi talking up the Amazon threat. Brazil's O Globo newspaper is reporting that Amazon is in talks with Casino Group on a partnership involving appliance and electronics retailer Via Varejo. Acquiring Via Varejo would fortify Amazon's logistics in the region and naturally extend its operations in Brazil. Imaizumi concludes that Amazon could reshape the Brazilian e-commerce market, a negative development for MercadoLibre.
Let the bulls go last
Higher fulfillment costs and fears of Amazon's growing presence in Latin America aren't pretty, but there's a lot going right at MercadoLibre these days. Revenue soared 71% in its latest quarter, with the top line nearly doubling on a currency neutral basis. The last time we saw revenue growing faster, it was 2006. MercadoLibre did post a sharp decline in adjusted earnings, as the high costs of free shipping and loyalty programs are eating away at margins as the regional market leader emphasizes sales expansion over earnings growth.
MercadoLibre's platform accounted for $3.6 billion in gross merchandise volume in the fourth quarter, and its MercadoPago payment platform and MercadoEnvios order fulfillment business are growing even faster. The concerns are real, and MercadoLibre has rarely been a bargain by most valuation standards. However, until we see Amazon's actions truly start taking a bite out of its business, it's hard to give the bears the upper hand here despite the recent correction. MercadoLibre remains a million-maker stock.
