3 Technology Trends That Will Drive MercadoLibre's Growth

By Danny VenaMarketsFool.com

When trying to understand the prospects of a company, investors tend to evaluate the opportunity using their own experience as a lens. This is only natural, and as noted above, it is part of the human condition. This can, however, prove problematic when the reality outside of our perspective is vastly different from our experience. Let's look at several realities in Latin America that may provide more color and better perspective for evaluating MercadoLibre (NASDAQ: MELI) and its growth prospects.

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Image source: MercadoLibre.

Mercado who?

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MercadoLibre is the most popular e-commerce site in Latin America by unique visitors. It has its roots in Latin America where 18 of its 19 markets reside, with a lone European market in Portugal. MercadoLibre generates more than 97% of its revenue in the 18 markets in Latin American it serves. The company's huge exposure to the region means thatmajor technology shifts in Latin America represent a huge opportunity for MercadoLibre.

Internet penetration

The internet is fairly ubiquitous in the United States, a fact that many of us take for granted. Access to the internet is a fact of life in the modern age. Folks connect to the internet at home, at work and on the go. With a population of 325 millionand a penetration rate estimated at 89%, we are among the most connected countries in the world.

Latin America consists of numerous countries with varying and distinct demographics, economies, and populations. As a whole, the population is estimated at 625 million, butInternet penetration rates are much lower in Latin America. Estimates place current internet penetration at 55%. This leaves more than 280 million people in Latin America, a population nearly the size of the United States, still waiting to come online. It also provides a greater pool of potential customers for MercadoLibre to draw from.

Mobile penetration

Mobile phone, particularly smartphone usage is another area where we may have a U.S.-centric view. Mobile phone usage is quite pervasive in the United States. Recent estimates indicate that 81% of the U.S. population has a mobile phone, with 80% of those(or 65% of the total U.S. population) using a smartphone.

Estimates for 2016 put smartphone penetration in Latin America at 34% of the population, up from just 30% last year. This figure is expected to grow to nearly 43% by 2018. Mobile broadband usage is similarly low. Nearly 300 million consumers in Latin America still do not subscribe to mobile internet services.

The good news, Foolish investors, is that Latin America is the second-fastest-growing global region, and mobile internet users are expected by grow by 50% over the next several years. MercadoLibre has been investing in its mobile platform in recent years. It reported during its most recent conference call that six of 10 new users registered through mobile devices last quarter, that mobile sales accounted for more than a third of its total gross merchandise volume, and that mobile contributes to 60% of its traffic.

Mobile penetration is still relatively low in the region, and as the smartphone revolution works its way through Latin America MercadoLibre should see more customers coming onto their platform.

E-commerce penetration

E-commerce is something else that's fairly pervasive in the United States. Online sales in the U.S. reached 7.3% of total retail sales for 2015, or a whopping $342 billion. When factoring out cars and fuel, that percentage is even higher, at more than 10.5% of total retail. E-commerce, meanwhile, is still in its infancy in Latin America. Online sales in Latin America still represent only 2.2% of total retail sales -- less than $41 billion of an estimated $1.8 trillion total retail sales. The future is bright, as online sales are expect to nearly double by 2019 and account for 3.5% of total retail.

Foolish final thoughts

Peter Lynch famously advised investing in what you know. Sage advice, but investing based on what we think we know can lead to incomplete decisions. With internet penetration, smartphone use, and e-commerce in Latin America lagging far behind the U.S., Latin America is poised for massive growth in each of these areas. MercadoLibre is positioned at the intersection of these tech trends and is the first-mover and trusted e-commerce brand among Latin American consumers. This gives it much greater growth potential than our U.S.-centric perspective might allow us to see.

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Danny Vena owns shares of MercadoLibre. The Motley Fool owns shares of and recommends MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.