MercadoLibre's Fintech Ventures Should Add Value To E-Commerce; JPMorgan Upgrades

Mercadolibre Inc MELI, a Latin America-based e-commerce provider, is well positioned to grow over time from its core marketplace business and initiatives in fintech that are "becoming more relevant," according to JPMorgan.

The Analyst

JPMorgan's Andre Baggio upgraded Mercadolibre's stock from Neutral to Overweight with a price target boosted from $270 to $500.

The Thesis

Mercadolibre is considered to be the "winning platform" in Latin America e-commerce given a 44 percent year-over-year growth in gross merchandise value, Baggio said in a note. Unlike North America, the e-commerce industry is underpenetrated in Latin America and accounts for less than 3 percent of total retail sales which gives companies Mercadolibre momentum to sustain its growth rates over time.

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More encouraging to the bull case is the fact that Mercadolibre's fintech initiatives, including off-platform payments business (merchant services), will have "substantial" top-line growth of more than 50 percent in the coming years, Baggio said. The company's credit business, MercadoCredito, offers loans to loyal sellers at an interest rate of around 40 percent and comes with "limited default risk." This business can more than triple in size through 2019 from its current $70 million.

Bottom line, the company's fintech ventures will "add value" to the company's already impressive e-commerce business. Management is "taking the right approach" in its strategy of focusing mostly on top-line growth in the near-term while a margin recovery will come over time, Baggio said.