One of the world’s largest e-commerce companies is emerging as a top pick on Wall Street as investors look for tech opportunities beyond the Magnificent Seven.
MercadoLibrean Argentinian e-commerce and payments platform incorporated in Delaware and actively traded on the Nasdaq, is up 34% in 2024, compared to around 27% growth for Amazonand 20% for the 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 accounts for 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 who cover the stock rate it a “buy,” with an average price target of $2,268 — about 8% upside from where it traded this week, according to FactSet. There are no sales ratings.
Altimeter Capital’s Brad Gerstner is one such bull. He pointed to MercadoLibre’s growing margins and AI capabilities as reasons he is “excited” about the stock.
“You look at companies like MercadoLibre… a lot of companies that people have kind of forgotten about as [investors] moved to the Magnificent Seven — I think there’s going to be a lot of Internet companies that will benefit from AI,” Gerstner told CNBC’s Scott Wapner at the Goldman Sachs Communicopia conference this month. “It’s not just margin expansion, it’s re-accelerating at the top, where they can acquire customers, improve products in a way that makes it easier for customers to buy, and remove friction from the system.”
Silicon Valley to Buenos Aires
Galperin came up with the idea for MercadoLibre while a student at the Stanford Graduate School of Business in Palo Alto, California. He began seeking seed funding at a time when few investors were committing capital outside of California.
“There was no venture capital for Latin America. In fact, there was little 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.”
This 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 brought in $16.3 billion.
But back in the late 1990s, Galperin introduced a private equity investor who happened to be lecturing at Stanford and framed the lack of infrastructure and competition in Latin America as an opportunity.
“In Latin America, there was no existing infrastructure. You couldn’t do online payments. There was no efficient logistics for peer-to-peer commerce, we had to build it ourselves,” Galperin said. “That made it harder at first — but for us today, it’s great.”
While MercaroLibre is sometimes referred to as the “Amazon of South America,” Galperin built the company at a time when eBay dominated online commerce. Amazon, at the time, was still more of an online bookstore. 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 eventually started to move away from auctions,” Galperin said. “Today, I think we’re much closer to what Amazon is.”
Amazon is starting to see opportunities in South America as well. North America’s leading e-commerce platform has expanded into Mexico. “We’ve been fighting since we started — it’s something that will continue for many years,” Galperin said.
Competitive tailwinds
He pointed to headwinds that may help MercadoLibre withstand the competition. E-commerce and online payments are growing steadily, and Latin America has a young, mobile-savvy population of over 600 million people. MercadoLibre grew revenue 42% in the second quarter and 112% on a currency-neutral basis. Operating margin increased to 14.3%.
“When you look at e-commerce penetration in Latin America, it’s still pretty low compared to the US, Europe or Asia,” Galperin told CNBC. “Nearly half the population is unbanked or underbanked. It’s a huge opportunity for us to distribute financial products to all these historically excluded people.”