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To: Johnny Canuck who wrote (47908)	5/15/2012 5:21:19 PM
From: Johnny Canuck	Respond to of 69827

Buying Opportunity in Mercado LibreBy Andrés Cardenal - May 11, 2012 \| Tickers: AMZN, EBAY, MELI \| 0 Comments Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited. Shares of Mercado Libre (NASDAQ: MELI) fell more than 12% on Wednesday after the company reported results that were quite negatively received by the market. Looking at the numbers, the reaction seems widely exaggerated, and there is no reason to believe anything material has changed at the company. Long term investors should consider this unjustified fall as an opportunity to acquire shares of a high growth business at an attractive entry point. Mercado Libre, which means free market in Spanish, is the leading ecommerce platform in Latin America. The company is usually referred to as the Ebay of Latin America and there are many similarities between the two companies. In fact, EBay (NASDAQ: EBAY) owns 18% of Mercado Libre and the two business models are quite similar. Mercado Libre also owns a payment platform called Mercado Pago, which plays a similar role to the one PayPal plays for Ebay. Seeing it this way, investing Mercado Libre may be like buying Ebay when it was in its previous growth stages as internet penetration is much lower in Latin America than in the US or other developed countries. The World Bank estimates that 37% of the population in the region has internet access, versus 78% of the population in the US. Needless to say, ecommerce has extraordinary growth potential over the next years in the region. Better yet, Mercado Libre is more isolated than Ebay from the competitive pressure Amazon(NASDAQ: AMZN) can exert. Amazon is the first choice when customers are trying to buy something online in the US, but in Latin America Mercado Libre has that privileged position. Keeping this in mind, it´s no wonder at all that sales have been expanding at more than 30% annually, and the company has profit margins that can make many companies in the world tremble with envy as operating margins are comfortably above the 30% level. We are not talking small potatoes here, this is a high growth business with strong competitive advantages and a huge potential from a long term perspective. For the last quarter, earnings per share were literally one cent below expectations: Mercado Libre reported $0.45 per share versus $0.46 estimated by analysts. Sales of $83.7 million were below estimates of $84.3 million from Wall Street analysts. The numbers were not so bad after all, and when put into perspective, it looks like Mercado Libre is still doing quite well. From the press release: • Net revenues grew 36% in US dollars to $83.7 million, a 44% growth rate in local currency. • Income from operations grew 29% to $24.9 million, with an operating income margin of 29.8% vs. 31.4% in the first quarter of 2011. In local currency, operating income grew 36% year-on-year in the first quarter. • Net income was $19.6 million, a 40% growth rate year-on-year. This represents a 23.5% net income margin versus 22.9% a year earlier. In local currency, net income grew 47% year-on-year in the first quarter. The following table from the company’s press release for the quarter shows that operating performance is as strong as ever at Mercado Libre, and there is really no reason to doubt the company´s fundamentals based in this last earnings report. Mercado Libre is no cheap stock. This kind of growth doesn´t come at bargain prices, but after this last fall the forward P/E ratio of 25.5 is getting to more attractive levels. If the company keeps performing so well, investors will probably feel very happy with their returns a few years from now regardless of current valuation levels. An extraordinary company falling more than 12% because it missed one cent in earnings per share during the last earnings report, Mercado Libre is a buying opportunity in my book.