MercadoLibre, Inc. (NASDAQ:MELI) had a banner year in 2017, and things were looking up to start off 2018. When the company released its fourth-quarter financial results in February, it reported revenue of $437 million, up 70% year over year in U.S. dollars and almost doubling in local-currency terms. It also announced that it would be deconsolidating the results of its Venezuelan subsidiary, which had long been a drag on its financials due to persistent currency devaluations and spiraling hyperinflation. After doubling last year, MercadoLibre's stock had gained over 30% again by early March.
But then the good times came to a screeching halt, with reports that Amazon.com (NASDAQ:AMZN) was ramping up to make aggressive moves in Latin America. The company is expanding its operations in Brazil, where it plans to store and sell a wide assortment of products, according to a report by Reuters.
Since those reports, MercadoLibre has fallen nearly 20%, but recent data suggests that fears regarding competition from Amazon may be overblown.
Follow the traffic
It's important to note that Amazon entered the Brazilian market more than five years ago, though the company's efforts in the country have focused primarily on books, adding electronics late last year.
However, a review of internet traffic in Latin America shows that MercadoLibre is still far and away the market leader. As of February 2018, 47% of Latin Americans who made online purchases did so on MercadoLibre, compared to just 17% for Amazon, according to data compiled by comScore (via Portada).
South of the border
The most intriguing data, however, relates specifically to Mexico. Amazon launched full retail operations in the country in June 2015, offering up millions of items for sale. With nearly three years in the country, it must be dominating the e-commerce market south of the border by now, right? But that's just not the case.
38% of Mexican consumers who made an online purchase shopped at MercadoLibre, while just 21% visited Amazon. Even in an established market like Mexico, MercadoLibre is still producing significant growth.
In its most recent quarter, MercadoLibre reported that units sold in Mexico increased by triple digits for the second consecutive quarter -- up 126% year over year -- and accelerated from the 46.9% growth seen in the prior-year quarter. Gross merchandise volume increased for the ninth consecutive quarter, up 90.6% in local currency, but also produced the fastest pace of revenue growth in Mexico in over five years -- up a whopping 124.5% in local currency year over year.
MercadoLibre has made other significant gains in Mexico, even in direct competition with Amazon. Unique sellers in the country accelerated for the fourth consecutive quarter, up 28.9% year over year. Adoption of the company's shipping solution, MercadoEnvios, reached 75% of units sold in Mexico last quarter, while MercadoPago, its payment option, achieved 98% penetration.
MercadoLibre has been building out its warehousing and transportation networks in both Mexico and Brazil for years, adding multiple carriers across multiple geographies, and instituting free shipping across the region on a wide variety of products in anticipation of Amazon's arrival.
The local favorite
MercadoLibre is the established player in Latin America, and while Amazon is not easily dismissed, investors shouldn't assume that MercadoLibre will just roll over and play dead.
JPMorgan Chase analyst Joseph Giordano believes investors are overreacting:
This move by Amazon should not be market disruptive, particularly when thinking about the short/mid-term as the company may face some challenges to expand in the country. It may take time to establish the company in Brazil to become a major market contender.
If the results in Mexico are any indication, MercadoLibre will continue to thrive in Brazil -- even in the face of direct competition from Amazon. As an investor in both companies, I have a vested interest in seeing both of them succeed. In Latin America, however, my money's on MercadoLibre -- the hometown favorite.