Mercado Libre, a leading e-commerce player in Latin America, may have an opportunity to gain market share due to an accounting scandal at its rival, Americana.
Americana’s Accounting Scandal
A surprise announcement last week sent Mercado Libre’s shares soaring 16% on Thursday and Friday. In Brazil, Americana’s S.A., a top competitor, was embroiled in an accounting scandal that led to its CFO and CEO being ousted. Approximately 80% of its stock price was wiped out in one day because of this scandal.
A $3.88 billion accounting error is causing Americana, the country’s largest online retailer, to reel after it was revealed the company had not reported debts of this magnitude. If Americana’s retail business is adversely affected, Mercado Libre may have an opportunity to gain market share.
Americana’s Response
A statement from Americana management indicated that the error did not have a material impact on the company’s cash flow. Despite that, Sergio Rial, the company’s outgoing CEO, who just took over two weeks earlier, pointed out that the company has $1.6 billion in cash. This is because the company can continue paying suppliers and obligations.
He predicted that a cash infusion would be needed to repay the company’s debt. Having nearly $4 billion in debt on its books by the third quarter of 2022 has nearly doubled Americana’s debt burden. Moreover, the company’s ability to raise money through a stock offering has been significantly hampered by the substantial decline in the stock price.
Impact on the Investment Community
Immediately and widely, the fallout spread throughout the investment community. On Friday, Americana’s stock recovered some of its losses after the plunge on Thursday, and several investment banks suspended their recommendations.
Investors believed a default was likely on Thursday since its bonds traded at 38 cents apiece. The company owes debts related to supplier financing operations, which are accounting irregularities.
Downgrade in Credit Rating
Americana’s credit rating was downgraded to CC from BB by Fitch Ratings, which said the company’s debt had effectively doubled. In addition, the agency called Americana’s capital structure unsustainable and expected the company to enter into a standstill agreement with its creditors to prevent a takeover. In addition, S&P Global downgraded Americana’s rating to BB.
Mercado Libre’s Opportunity
Aside from having physical stores, Americana operates in e-commerce through first-party direct retail and third-party marketplaces. In constant currency, Americana will generate about $3.5 billion in revenue through the first three quarters of 2022. During that period, its gross merchandise volume (GMV) increased by 7.5% to $8 billion, an increase of nearly $8 billion over the previous year.
The revenue generated by Mercado Libre in the first three quarters of 2022 was $7.5 billion. Over three quarters, gross merchandise volume increased by about $25 billion in constant currency or 32% in constant currency. About half of its sales come from Brazil, which operates throughout Latin America.
GMV of Mercado Libre in the third quarter rose 20%, indicating a growing market share. Black Friday week was when the Brazilian e-commerce market suffered a 23% decline compared with its 10% revenue growth.
Mercado Libre’s Success
There are already signs that Mercado Libre is a success. As American e-commerce competitors like Amazon.com
struggled, the company continued to grow revenues through 2022. Moreover, its profit margins increase as advertising, credit solutions, and third-party marketplaces grow. In the third quarter of 2022, the company’s revenue increased by 20%, and its profit margins increased.
Mercado Libre operates in e-commerce through both first-party direct retail and third-party marketplaces. The company has a strong presence in Brazil and Latin America, generating about half of its sales. Its gross merchandise volume (GMV) has been consistently increasing, with a 20% increase in the third quarter of 2022.
The accounting scandal at Americana presents an opportunity for Mercado Libre to gain market share and further solidify its position as a leading e-commerce player in Latin America. Mercado Libre has already been performing well, with increasing revenues and profit margins, and the challenges faced by Americana may provide the company with an opportunity to outcompete its rival.