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MercadoLibre: Pandemic transforms consumer behaviour

  • Smartphone penetration in Latam is poised to grow further

  • Value in MercadoLibre’s digital payment business, and 'super-app' potential

  • We raise our target price for MercadoLibre by 15% to US$2120, and reiterate Buy

MercadoLibre: Pandemic transforms consumer behaviour
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

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Tellimer Research
9 August 2021
Published byTellimer Research

We raise our target price for MercadoLibre – the most popular e-commerce company in Latin America – by 15% to US$2120 (from US$1842).

The 2Q21 results for the Nasdaq-listed company (MELI US) reveal a radical transformation in Latin American consumer behaviour due to the pandemic. E-commerce and payments have risen beyond our expectations and those of the market.

Gross Merchandise Value (GMV) and TPV (Total Payments Volume) rose 39% and 56% yoy in 2Q21. This indicates that a sea-change in digital adoption is underway in Latin America. MercadoLibre is at the heart of this shift.

E-commerce and fintech revenue more than doubled, as shown in the table below.

Result summary (US$ mn)

Earnings revision table (US$ mn)

Smartphone penetration in Latam is poised to grow further

MELI US is a beneficiary of the rising rate of e-commerce penetration in Latin America. It has doubled to 6% in 2Q21 from 3% in 4Q2019. About half of the population of Latin America have smartphones. This is the same level of smartphone penetration as the US had in 2013 (the US has since risen to 81%, and LatAm is on a similar trajectory).

MercadoLibre’s digital payments business

MercadoLibre has the largest digital payments ecosystem in Latin America, operating in 18 countries, covering 605mn people. It can be used to pay utility bills and make person-to-person (P2P) transactions.

But its digital payments business is yet to achieve its true value in the market, in our view. In Q2 2021, MELI’s Total Payments Value increased to US$17.5bn, as 730mn transactions were conducted, representing a growth rate of 80% yoy. There was a 94% yoy (FX neutral) rise in off-platform transactions as the user base among merchants is rising rapidly.

Consumer trends seem robust

The company sold 244mn items in the quarter (up 37% yoy). Reiterating the transformation of consumer behaviour in LatAm, along with the growth in GMV, the monetisation rate is also on the rise. In Q2, GMV monetisation grew to 16.3%, from 15% in Q1.

Super App potential

MELI US has 'Super-app' potentialThe company hopes to become a one-stop shop for e-commerce, ride-hailing, payments and other services, like Alibaba. MELI’s valuation does not reflect its potential as a super-app, but we believe its strategy could be successful.

Valuation upgrade

We value MELI on a SOTP basis. We value the marketplace business (e-commerce) on a P/GMV basis of 1.33x and the fintech business on a P/TPV multiple of 0.65x.

Our SOTP valuation gives us a 12-month target price of US$2120, up from US$1842. We have increased our target price because of the increase in our GMV and TPV assumptions. We reiterate our Buy recommendation.

SOTP valuation