Back to the Future: eBay and MercadoLibre
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Biff Tanner School of Investing
What if I told you that time-travel was possible? What if I said that I befriended an eccentric scientist driving around in a substantially modified DeLorean? And what if I presented you with the option of traveling back to September of 1998, just as eBay (NASDAQ: EBAY) was going public at the split-adjusted price of $0.75? We would find your younger self and tell him or her to invest large sums of money in eBay. We would then return to the present day, check your brokerage account statement and celebrate. Since September 1998, eBay’s share price has risen 67,792%. Just $1,475.10 invested 14 years ago would have made us millionaires today. “Awesome! When do we leave?! Where did I put my wallet?!” would likely be your response to my offer.
Unfortunately for us non-movie character investors, time-travel is not possible. Or if it is possible, I have yet to encounter a crazy ‘Doc’ with a time-traveling sports car. But I do potentially have the next best thing to my Back to the Future II investing scenario. A company in a similar position to eBay during its earlier years. That company is MercadoLibre (NASDAQ: MELI).
One of the reasons why I like emerging market companies is that some of them present you with these sort of Back to the Future do-overs. For various reason, we may have missed out on investing in a company during its extreme growth periods. But the emerging market gives us the chance to apply our 20/20 hindsight wisdom and attempt to rectify those missed opportunities. And we can all have that chance again with the eBay of Latin America, MercadoLibre.
The Latin American Mirror
In many ways MercadoLibre is the Spanish/Portuguese language mirror-image of eBay. And given the two companies’ interconnected pasts, that observation should not come as too much of a surprise. After eBay’s failed attempt at international expansion into Latin America, they decided to invest in MercadoLibre rather than continue to compete in the region. In 2001, eBay became a minority shareholder, acquiring 19.5% of MercadoLibre. In the process, eBay became a global partner with MercadoLibre. The partnership involved, among other things, eBay imparting upon the company the immense knowledge, expertise and strategy eBay had acquired over the years. This helped MercadoLibre become the company it is today, the number one e-commerce platform in Latin America.
MercadoLibre’s core business is its auction and fixed-price marketplace website, MercadoLibre.com. But much like eBay, this is not the company's only service offering. Nearly identical to eBay's high-growth and much talked about PayPal division is MercadoPago. This is the company’s online payment system that allows users to safely and securely transact online. MercadoLibre also offers a service called MercadoShops, comparable to the GSI Commerce division that eBay acquired last year. MercadoShops allows for the creation of shopping websites for small and medium sized businesses, with MercadoLibre handling that business's payment solutions, marketing and social network integration. And continuing with this theme is MercadoLibre's recently launched technology solution for the management of shipping logistic (similar to an eBay seller paying for, printing out and scheduling a pickup directly from within eBay).
I mention all of this not to summarize MercadoLibre’s service offerings, but to paint a picture of a company that is closing the business loop around the customer (to paraphrase MercadoLibre’s CFO at a recent investment conference). In the past, the company viewed payment and shipping services as an aspect of the transaction process that buyers and sellers could settle on their own. Today however, MercadoLibre is bringing everything in-house, creating a seamless, frictionless transaction process from start to finish. A process in which buyers and sellers never have to leave the MercadoLibre umbrella of services to complete.
Risk from Abroad
As with any company, one risk is the entrance of new competitors. And one of the biggest risks in that area would be Amazon (NASDAQ: AMZN). Speculation earlier this year was that Amazon was contemplating a formal entry into the Brazilian market. While Amazon could be a threat to MercadoLibre should it decide to compete in Brazil, success for Amazon is far from guaranteed.
Brazil has been a hard nut to crack for American companies. Bring the world biggest at your particular niche means little when it comes to Brazil. The Brazilian market is littered with American companies that have tried their hands at Brazilian expansion only to have failed spectacularly. This lists included Wal-Mart, the world largest retailer, Yum! Brands, the world largest fast food company (by total restaurants), and the aforementioned eBay. Wal-Mart, Yum’s KFC and many others had all came in with grand plans for international expansion, only to later retreat from that market with their collective tails between their legs. Retail is a difficult concept to export abroad. What works extremely well in America may get lost in translation in another country and culture.
MercadoLibre, in contrast to these American companies, has proven itself since it began doing business in 1999. It is not enough to want to do business in Latin America. A company has to understand the business culture, the the political environment and its potential customer base if that company wants to have any success in the region (particularly in Brazil). That is something that MercadoLibre, as the homegrown Latin American company that specializes entirely (minus Portugal) in Latin America, understands very well.
Today less than 40% of the Latin American population is comprised of internet users (compared to 78.1% for the United States and 83% for Canada). With that large of a disparity, MercadoLibre's growth story has only just began. With over half a billion people in MercadoLibre's Latin American footprint, I am investing in the possibility for a long and prosperous future ahead for MercadoLibre.
WhichStocksWork owns shares of MercadoLibre. The Motley Fool owns shares of Amazon.com and MercadoLibre. Motley Fool newsletter services recommend Amazon.com, eBay, and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!