Morningstar | MELI Updated Forecasts and Estimates from 22 Mar 2019
MercadoLibre's long-term success depends on its ability to drive transaction and payment volume growth, and we identify several favorable tailwinds. Thanks to external (smartphone ubiquity, consumer familiarity with online transactions, Latin America wealth creation) and company-specific factors (product mix diversification, new on- and off-platform payment technologies and shipping solutions), we believe MercadoLibre is well positioned to capitalize on accelerating digital commerce trends across Latin America, despite lingering macro constraints.We estimate that there are more than 460 million Internet users across Latin America--representing Internet penetration of almost 70% compared with 90% in North America--and forecast more than 100 million new users during the next five years. This offers significant opportunities to build on MercadoLibre's current base of 267 million registered users. On top of that, we believe ongoing technology, free shipping, loyalty program, and branding investments--which we expect to weigh on EBITDA margins the next few years--will allow MercadoLibre to convert a higher percentage of Internet users into lifetime customers. MercadoLibre's network effect should also extend into other merchant solutions. We expect MercadoPago to benefit from increased marketplace volume, higher adoption rates, and extensions like mobile and off-platform payments, financing, and interest-free installment payment alternatives. Coupled with MercadoEnvios' expanding third-party logistics, a wider base of large merchants, and classifieds/advertising enhancements, we anticipate that MercadoLibre's blended take rate will range between 13%-15% in the years to come supporting our positive moat trend rating as the firm extracts a greater percentage of each transaction.MercadoLibre faces limited competition in the region, with Amazon, eBay, and local players like B2W generating less unique visitors in its core markets. While Amazon is looking to expand its presence in Brazil, we believe MercadoLibre can withstand competition through mobile, payment, shipping, and loyalty solutions, each of which should attract merchants looking to expand in Latin America.MercadoLibre is engages in an online commerce ecosystem. Co.'s platform is designed to provide users with a portfolio of services to facilitate commercial transactions. Co. integrated e-commerce services includes: the MercadoLibre Marketplace, which is an automated, topically-arranged and user-friendly online commerce service; MercadoLibre Classifieds Service, which users can also list and purchase motor vehicles, vessels, aircraft, real estate and services; MercadoPago payments solution, providing a mechanism that allows its users to send and receive payments online; and MercadoLibre advertising program, which enable businesses to promote their products and services on the Internet.
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