One of the world’s largest e-commerce companies has emerged as a top pick on Wall Street as investors look for tech opportunities beyond the Magnificent Seven.
MercadoLibreArgentina’s e-commerce and payment platform incorporated in Delaware and actively traded on the Nasdaq, increased by 34% in 2024, compared to an increase of approximately 27% for Amazonand 20% for S&P 500. The company was founded 25 years ago by CEO Marcos Gaplerin at the height of the dot com boom. It now dominates online sales in Brazil, Argentina, Mexico, Chile and makes up about half of online sales in South America, according to eMarketer. It also operates a digital payment platform called Mercado Pago.
About 90% of Wall Street analysts covering the stock rate it a “buy,” with an average price target of $2,268 — about 8% up from where it traded this week, according to FactSet. No sell rating.
Brad Gerstner of Altimeter Capital is one of the bulls. He highlighted MercadoLibre’s expanding profit margins and AI potential as reasons he “likes” the stock.
“You look at companies like MercadoLibre … a lot of companies that people have forgotten when (investors) move to the Magnificent Seven — I think there will be a lot of internet companies that will benefit from AI,” Gerstner told CNBC’s Scott Wapner at the Goldman Sachs Communicopia conference last month. this. “It’s not just margin expansion, but reacceleration at the top, where they can acquire customers, add products in a way that is easier for customers to buy, and take friction out of the system.”
Silicon Valley to Buenos Aires
Galperin came up with the idea of MercadoLibre when he was a student at the Stanford Graduate School of Business in Palo Alto, California. He began looking for seed funding when several investors committed capital outside of California.
“There is no venture capital for Latin America. Actually, there is little venture capital for anything outside of Silicon Valley. Even if you are an entrepreneur based in New York, the investors are all on Sand Hill Road,” Galperin told CNBC, referring to Wall Street on the West Coast. “I don’t think they really care about exploring other parts of the world.”
The mindset of those investors has changed. Last year, venture-backed companies in Latin America raised $3.3 billion in nearly 1,000 deals, according to PitchBook. At its peak in 2021, the region generates $16.3 billion.
But in the late 1990s, Galperin brought in a private equity investor who happened to attend college at Stanford, and saw the lack of infrastructure and competition in Latin America as an opportunity.
“In Latin America, there is no existing infrastructure. You cannot make online payments. There is no efficient logistics for peer-to-peer trade, we have to build everything,” said Galperin. “It made it more difficult in the beginning – but for us now, it’s good.”
While MercaroLibre is sometimes called the “Amazon of South America,” Galperin built the company at a time when eBay dominated online commerce. Amazon, at that time, was still more than an online bookstore. In fact, MercadoLibre cooperated with eBay, which bought 20% of the company in 2001, and sold the shares in 2016.
“We learned a lot from that relationship, and then eventually we started moving away from auctions,” Galperin said. “Today, I feel closer to Amazon.”
Amazon is also starting to see opportunities in South America. The dominant North American e-commerce platform has expanded into Mexico. “We’ve been competing since we started – it’s something that will continue for many years,” said Galperin.
Tailwind competition
He pointed to tailwinds that could help MercadoLibre withstand competition. E-commerce and online payments continue to grow, and Latin America has a young, mobile-savvy population of more than 600 million people. MercadoLibre grew revenue 42% in the second quarter, and 112% on a currency-neutral basis. The operating profit margin increased to 14.3%.
“If you look at e-commerce penetration in Latin America, it’s still quite low compared to the US, Europe or Asia,” Galperin told CNBC. “Approximately half of the population is unbanked or underbanked. It is a huge opportunity for us to distribute financial products to all people who have historically been left out.”
