This Latin American e-commerce platform is set to surpass Amazon in 2024

One of the world’s largest e-commerce companies is becoming a top pick on Wall Street as investors look for tech opportunities beyond the Magnificent Seven.

MercadoLibrean Argentine e-commerce and payments platform that is incorporated in Delaware and actively traded on the Nasdaq, is up 34% in 2024, compared to about 27% growth for Amazonand 20% for 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 percent of Wall Street analysts who cover the stock are a “buy,” with an average price target of $2,268 — about 8 percent from where it was trading this week, according to FactSet. There are no ratings for sale.

Altimeter Capital’s Brad Gerstner is one such bull. He highlighted MercadoLibre’s expanding profit margins and AI potential as reasons he is “excited” about the stock.

“You look at companies like MercadoLibre … a lot of companies that people kind of forgot about when (investors) moved into 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 about expanding the margin, it’s also about reaccelerating at the top where they can acquire customers, improve products in a way that makes it easier for customers to buy in 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 committed 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 an entrepreneur based in New York, the investors were all on Sand Hill Road,” he said Galperin told CNBC, referring to to Wall Street on the West Coast. “I don’t think they really cared to explore other parts of the world.”

That investor mentality has changed. Last year, Latin American venture-backed companies 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 in the late 1990s, Galperin introduced a private equity investor who happened to be lecturing at Stanford and framed Latin America’s lack of infrastructure and competition as an opportunity.

“In Latin America, there was no existing infrastructure. You couldn’t make payments online. There was no efficient logistics for peer-to-peer commerce, we had to build that 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 its stake in 2016.

“We learned a lot from that relationship, and then eventually we 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 dominant e-commerce platform has expanded into Mexico. “We’ve been competing since we started — it’s something that will continue for many years,” Galperin said.

Competitive tailwinds

He pointed to tailwinds that could help MercadoLibre withstand 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. Its operating profit margin expanded 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. “About half of the population is unbanked or unbanked. It’s a huge opportunity for us to distribute financial products to all these people who have been excluded in the past.”