Buy in to Latin America's online shopping boom

published 1 December 2014

141201-shopping — Latin Americans like their malls - but are increasingly shopping online

Against all my better judgement, I was caught up in Black Friday last week.

I really didn't want to, but out here in Panama it's a big deal you can't avoid it. In the preceding days the TV channels, radio stations and billboards were filled with adverts from local shops. The news programmes were even running specials on how shoppers could avoid being robbed in this big orgy of consumerism.

Over the last decade, Panama has been one of the fastest-growing economies in the world. It's also built scores of huge shopping malls. As a result, a lot of newly-rich Panamanians are getting a taste for spending their cash on brand names from around the world.

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But despite all the warnings, I was shocked when Friday came. Traffic ground to a halt, a spate of my meetings were cancelled at the last minute and all the secretaries I was phoning to arrange interviews seemed to mysteriously disappear after lunch.

Realising that I wasn't going to get much done anyway, I decided to go down to Panama's Albrook Mall the biggest in Central America to see if I could pick up some early Christmas presents. It was chaos. Shoppers were hiring prams from the crche to carry all their purchases, security guards were battling to control customers and stressed shop assistants were explaining for the umpteenth time, "if it isn't out on the shelves then we don't have it".

Needless to say the experience hasn't endeared me to Black Friday. But now the focus has moved to Cyber Monday. And I think that bodes well for one of our New World favourites, Argentinian e-commerce firm, MercadoLibre (Nasdaq: Meli).

Latin America's internet boom continues

As I mentioned in my last post for The New World, Latin America is the world's fastest-growing internet region.Internet penetration in Latin America currently sits at about 40%, compared to almost 80% in the US. Analysts expect that penetration will reach 60% by the end of 2015.

The spread of smartphones is also an important part of the story. Smartphones don't just get more Latin Americans onto the internet the phones also change how they use it. The smartphone means that fewer and fewer Latin Americans are accessing the internet from the shared computers in the once ubiquitous cyber cafes, known as locutorios. And analysts believe the move away from shared computers makes people more likely to use the internet to shop.

Because while Latin Americans may like their malls, they're also proving to be avid internet shoppers. A recent report from eMarketer estimates that business-to-consumer e-commerce sales in Latin America will grow by 20% in 2014 to $57.7bn. That growth will continue over the next few years, with the market reaching $74.5bn by the year 2017, which comes in as 12% annual growth from 2013 to 2017.

All of those numbers are nice, but what really matters to us are MercadoLibre's figures. Fortunately, they're good too. Last month, the firm shocked Wall Street with better than expected third-quarter results.

Sales for the quarter came in at $147m instead of the $131m that analysts had expected.

Earnings per share (EPS)also exceeded expectations at $0.87, when analysts had forecast $0.65.

All of this was great for the share price, which is now at $140, up 60% since I last reported on itin April.

But despite the gains I'm still looking for more.

Why MercadoLibre still has much further to go

Another growing area is its delivery service, MercadoEnvios. I also like that fact that sales taking place on smartphones are rising and now account for 16% of gross merchandise volume.

One possible cloud on the horizon is that MercadoLibre's bigger competitors are all sniffing around the market. Chinese giant Alibaba is rumoured to be considering expanding to Latin America, while eBay has created Spanish and Portuguese versions of its site. Amazon is also growing sales from Latin America.

But the fact is that MercadoLibre has established itself as the number one player in the region. It handles 25% of ecommerce sales in Latin America and that's a market that's set to rocket. There were reports in the Argentinian press of MercadoLibre expanding to Bolivia and Paraguay, which would help increase its regional footprint.

Analysts over at JPMorgan share my optimism on the stock and have a $157 price target. I think that if MercadoLibre can take advantage of the huge growth in its market it can go even higher.

James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.

After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the Forbes.com London bureau.

James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report.

He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.