MELI - AMZN in Brazil

I posted this on the RB MELI board, but I’m posting it here as well as there seem to be a few MELI investors here:

Amazon had their earnings call on Thursday and given that the main reason MELI stock dropped so much is due to Amazon expanding into Brazil, I decided to take a look at their earnings call transcript to see if it came up. Luckily, Brazil did come up as seen below:

Ross Sandler - Barclays Capital, Inc.

Hey, guys. Two questions. There’s been some news flow recently about Brazil expansion. Can you just talk about how Brazil compares to maybe some of the other international markets that you’re investing in? What level of investment should we expect in Brazil maybe relative to like in Australia or in India?..

Dave Fildes -, Inc.

Yeah, Ross. Thanks for the question. This is Dave. On Brazil, just briefly, yeah we did recently expand and add an electronics category there in Brazil. It’s a third-party marketplace offering. You may recall we’ve been in Brazil for a number of years now, initially launched with really a Kindle and e-books offering without the sort of physical categories and, more recently, added physical books again, a third-party marketplace offering.

So, I think, we’re excited about the electronics getting out there. There is a wide variety of products included in that category: smartphones, tablets, cameras, TVs, what have you. So, I think, we’re really excited to get that technology out there for Brazilians. And I think beyond that, we really just focus on those categories and growing selection there, but I can’t speculate on what we might do in the future there.…

It looks like for now, Amazon is just focusing on electronics through third-party marketplace offerings for now. For now, Amazon does not appear to be going all in on Brazil and is testing the demand for electronics, which are notoriously expensive in Brazil due to high import taxes. When we have any of my wife’s family members visit from Brazil, they always load up on electronics as they can get it much cheaper here in the US. I imagine that Amazon won’t be able to sell it much cheaper given that they cannot get around the import taxes.

I sort of think that Amazon is just testing Brazil eCommerce to see if it makes sense to try to compete with MELI or if it is too difficult, perhaps they may just buy them out.