MercadoLibre (MELI) is one of my favorite speculative, small cap stocks. MELI is often described as the EBAY (EBAY) of Latin America as MELI provides an online marketplace for listing + transacting goods in LA countries including: Argentina, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Mexico, Panama, Peru, Uruguay and Venezuela.While EBAY and MELI operate similar business models (as noted in more detail below) it's important to realize that EBAY is MUCH LARGER. Ebay's marketcap is $36 Billion vs. MELI's which is just $1.7 Billion. And although MELI is rapidly GROWING, its full year 2007 sales were only about 1% of EBAY's total 2007 revenues !
It's also important to remember that where EBAY operates in a mostly MATURE and WELL-capitalized (think $$$) online marketplace like the U.S., MELI operates in a still Emerging, Fragmented and much LESS capitalized Latin America Internet market...thus this small cap stock is considered 'speculative'.
With that said, Some interesting investing Details Relating MELI to EBAY:
* EBAY's A 20% OWNER --> In October 2001, EBAY announced a 19.5% stake in MercadoLibre. According to a Feb 2008 13G SEC Filing ('Statement of Beneficial Ownership'), EBAY maintains an 18.4% stake in MELI. I think there's a decent chance that EBAY will outright acquire ALL of MELI someday. I'm just not exactly sure of WHEN..could take two years or could take ten years (too many variables in play make it impossible to predict). What I can predict though is that good ol' capitali$tic EBAY will make the best decisions for its shareholders and its shareholders earnings (PROFITS). And in terms of earnings GROWTH (the #1 interest of shareholders), EBAY's business is getting long in the tooth/reaching maturity in the U.S. and external Growth via International acquisitions is only a matter of time. MELI offers EBAY solid exposure to the very attractive + still emerging Latin America market (driven of course by BRAZIL!). Per its 1Q08 financial statements, EBAY can afford to buy MELI without external financing as they had about $4 Billion in cash and short term investments on their balance sheet (MELI's marketcap is $1.7 Billion).
* STRIKINGLY SIMILAR BUSINESS MODELS --> Aside from its marketplace business, EBAY also owns the propietory online payment processing system 'Paypal'...MELI seems to be following the exact same business model as it created its own payment processing system named 'Pago'. Interesting to note that while Paypal accounts for about 50% of EBAY's transactions, Pago currently makes up only 12% of MELI's (meaning there's room for GROWTH).
* FINANCIALS + SCALE --> EBAY's 2007 Annual Sales were $7.7 BILLION vs. MELI's $85 million...Per their 1Q08 qtr, EBAY's operating margin (operating income divided by total revenue) was 25% vs. MELI's 23%...EBAY's marketcap is $36 Billion vs. MELI's $1.7 Billion.
Full Disclosure: I own shares of MELI.
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