The next time that the U.S. economy falters, some analysts predict it will be because of a currency crisis, which should mean most other currencies will appreciate against the dollar.
There’s no closer potential to capitalize on this than in South America. It is unfortunate that people in Venezuela are suffering hyper-inflation because of socialist government policies, but the GDP of South America collectively stands above $6.5 trillion with total unemployment less than 10%.
Which brings me to MercadeoLibre (MELI, Financial), which literally means "Free Market!" It reported numbers yesterday, and revenue was up 18% year-over-year. Gross merchandise volume increased 15.2%, and items sold jumped 38.8% year-over-year to 85.4 million.
The company is currently valued at $15 billion and has grown from $137 million in sales during 2008 to over $1.4 billion in just the last 12 months. Every year, it has produced higher sales and up until last year when it made significant investments in elevating the customer experience, the book value and earnings per share figures were consistently on the rise too.
Founded in 1999, MercadoLibre operates an online marketplace where it sells in more than a dozen Latin American markets but generates 95% of its revenue from Brazil, Argentina, Venezuela and Mexico. It also offers payment processing via MercadoPago, display and paid search advertising with MercadoClics, online store management services through MercadoShops, and third-party logistics solutions at MercadoEnvios.
There is plenty of room left to grow, as more Latin Americans connect to the internet. The current rate stands at almost 70%. These good people want the same low prices and convenience we do here in the U.S.Â
More importantly, MercadoLibre is in the position of growing with the market like Walmart did, which means helping the people who work there move up the wealth chain as much as investors in the stock will. It’s not a sure thing that MercadoLibre will continue to dominate, as Amazon is still thirsty for expansion globally. However, the company is another example of an overpriced stock trading over 10 times sales.
MercadoLibre has 223 million registered users and faces limited competition with Amazon, eBay and local players like B2W while generating fewer unique visitors in its core markets. While Amazon is looking to expand in Brazil, MercadoLibre should be able to withstand the increased competition through mobile, payment, shipping and loyalty solutions, each of which attract merchants looking to expand in Latin America to its service platform. Latin America is still an emerging market with twice as many people as the U.S. but one-third the total GDP. Technology advancements and rising wealth will allow MercadoLibre to dominate for years to come.
Amazon (AMZN, Financial)’s market cap is almost 5% of U.S. GDP. Its revenue is over 1% of GDP. By comparison, if MercadoLibre can get to those numbers compared to the Latin American GDP, the company would be 62 times larger than it is today. What that would do to the stock price is obvious. By what percentage is anyone’s guess.
Disclosure: I am not long/short any stock mentioned in this article.