One of the world's largest e-commerce companies is emerging as a top pick on Wall Street as investors look for technology opportunities beyond the Magnificent Seven.
MercadoLibrean Argentine e-commerce and payment platform incorporated in Delaware and actively traded on the Nasdaq, will rise 34% in 2024, compared to an increase of about 27% for Amazonand 20% for the S&P500The 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 and Chile, and accounts for about half of online sales in South America, according to eMarketer. It also operates a digital payments platform called Mercado Pago.
Around 90 percent of Wall Street analysts who follow the stock recommend buying it, with the average price target at $2,268 – about 8 percent above this week's price, according to FactSet. There are no sell recommendations.
Altimeter Capital's Brad Gerstner is one of those bulls, citing rising profit margins and MercadoLibre's AI potential as reasons why he's “excited” about the stock.
“Look at companies like MercadoLibre… a lot of companies that people have kind of forgotten about when [investors] to the Magnificent Seven – I think there are going to be a lot of internet companies that are going to benefit from AI,” Gerstner told CNBC's Scott Wapner at the Goldman Sachs Communicopia conference this month. “It's not just about increasing margins, but also about accelerating at the top where they can acquire customers, improve products to make them easier for customers to buy, and remove friction from the system.”
From Silicon Valley to Buenos Aires
Galperin came up with the idea for MercadoLibre while studying at the Stanford Graduate School of Business in Palo Alto, California. He began looking for seed capital at a time when few investors outside of California were putting capital in.
“There was no venture capital for Latin America. Actually, there was hardly any venture capital for anything outside of Silicon Valley. Even if you were a New York-based entrepreneur, the investors were all on Sand Hill Road,” Galperin told CNBC, referring to West Coast Wall Street. “I don't think they were really interested in exploring other parts of the world.”
That investor mindset 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 raised $16.3 billion.
But in the late 1990s, Galperin pitched his idea to a private equity investor who happened to be teaching at Stanford, presenting the lack of infrastructure and competition in Latin America as an opportunity.
“In Latin America, there was no infrastructure. You couldn't make online payments. There were no efficient logistics for peer-to-peer commerce, we had to build it all ourselves,” Galperin said. “That made it more difficult in the beginning – but for us, it's great today.”
Although MercaroLibre is sometimes referred to as the “Amazon of South America,” Galperin founded the company at a time when eBay dominated online commerce. Amazon was still more of an online bookstore at the time. In fact, MercadoLibre partnered with eBay, which bought 20% of the company in 2001 and sold the stake in 2016.
“We learned a lot from that relationship and then at some point we moved away from auctions,” Galperin said. “Today, I think we are much closer to Amazon.”
Amazon also sees opportunities in South America. The leading North American e-commerce platform has expanded to Mexico. “We have been competing since we started – and that will continue for many years to come,” said Galperin.
Tailwind from competition
He pointed to tailwinds that could help MercadoLibre withstand the competition. E-commerce and online payments are growing steadily, and Latin America has a young, mobile-savvy population of more than 600 million people. MercadoLibre increased its revenue by 42% in the second quarter, and 112% in constant currency. Operating profit margin rose to 14.3%.
“If you look at the penetration of e-commerce in Latin America, it's still quite low compared to the US, Europe or Asia,” Galperin told CNBC. “About half of the population has no or inadequate access to banking services. For us, it's a huge opportunity to distribute financial products to all these people who have been excluded until now.”