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ECONOMY | 22-10-2017 00:29

Amazon’s growing interest in Latin America weighs on Mercado Libre’s stock price

US ecommerce giant has plan in the works to expand interests in Brazil and Argentina., the world’s largest e-commerce company by market capitalisation, sent shares in major Latin American companies in the sector into a free-fall this week as it announced plans to expand in Brazil.

The strategy, first reported in the Brazilian press, is that the company run by Jeff Bezos will move past books and will begin to offer electronics through a network of independent marketplaces. Earlier this year, Amazon signed a deal with the Argentine authorities to open an office in Argentina. That move will allow the giant firm to expand its Amazon Web Services (AWS), their cloud computing business, as former US ambassador to Argentina Noah Mamet stated last week in a column for the Times.

Brazil is one of the world’s most important e-commerce markets in the world, with US$15.8 billion in sales in 2017 according to Pag-Brazil. It is also home to a highly competitive market for digital sales, with established players like Mercado Libre, B2W, and Magazine Luiza. And of course, Amazon.

The US e-commerce firm won’t be offering its full gamut of services in South America, including Amazon Prime and its all-important logistics support centres, but will rely on a network of third-party marketplaces which will each sell through their website.

“Each country has a different playbook,” explained Alex Szapiro, Amazon’s country manager in Brazil, in an interview with Reuters this week, declining to say if there were plans for the company to stock its own electronics inventory or open a fulfillment centre to ship third-party goods more efficiently, as it did simultaneously with the launch of independent sellers in Mexico two years ago.  

The news wrecked havoc in the share price of Amazon’s various Latin American competitors. Mercado Libre, B2W, and Magazine Luiza all saw their stocks take double digits tumbles. While several analysts indicated the moves may have been exaggerated, there was caution in Wall Street and Buenos Aires.

While the entry of one of the world’s dominant e-commerce giants—the other is Jack Ma’s Alibaba—is troubling, particularly as Mercado Libre derived more than half its revenue from Brazil in 2016, the Argentine firm led by Marcos Galperin has been investing heavily in improving their capacities in the neighbouring country.

Argentina, which was home to 31 percent of the firm’s revenue last year, and Mexico are Mercado Libre’s other priorities. While the past week was deeply negative for its share price, the stock is on a rip this year, with gains well above 75 percent.

Interestingly, Mercado Libre could also potentially benefit from Amazon’s arrival in Argentina. As the Times said last week, Amazon has signed an agreement to open a 100-person office in Buenos Aires for its AWS cloudcomputing business.

In a meeting with President Mauricio Macri and Modernisation Minister Andres Ibarra, Michael Punke, AWS global VP for Public Policy, highlighted Argentina’s regional importance and explained the company’s commitment to train public servants, students, and entrepreneurs to use the cloud. Additionally, some could receive funding from AWS, iProfesional reported. Mercado Libre is one of AWS’s biggest clients in Argentina, along with the likes of Garbarino, Fravega, and Globant.

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