MercardoLibre, Inc. (MELI - Free Report) is getting hit by increased competition, especially from Amazon, in the online marketplace. This Zacks Rank #5 (Strong Sell) is expected to see an 88% decline in earnings in 2018.

MercardoLibre is Latin America's leading e-commerce company with its websites MercadoLibre.com and MercadoPago.com.

Big Miss in the Fiscal First Quarter

On May 9, MercadoLibre reported first quarter results but missed on the Zacks Consensus for the 4th consecutive quarter.

It posted earnings of a loss of $0.29 versus the $0.48 estimate.

There are multiple analysts covering this company so it's not like there's only 1 or 2 and they can't get it right.

The headline numbers looked great as gross merchandise volume surpassed the $3 billion market for the first time, up 34% year-over-year in USD and up 42.7% on an FX neutral basis.

It saw a 50.6% increase in the number of items sold to 80.1 million.

Unique buyers jumped 28%, driven by Brazil and Mexico, two of its largest markets while Colombia and Chile also delivered solid results.

Total payment volume through MercadoPago rose 60.5% in USD and 81.7% on an FX neutral basis.

Estimates Slashed for the Full Year

If everything was so good, why are estimates being cut dramatically?

Free shipping.

Amazon has entered into several of MercadoLibre's biggest markets, including Mexico. The company has to eat the difference as it rolls out free shipping.

In the first quarter of 2018 free shipping cost the company $112.5 million versus just $4.3 million in the first quarter of 2017.

The 2018 Zacks Consensus has fallen to $0.28 versus $1.93 just 2 months ago. By comparison, it made $2.53 in 2017 when it didn't have to pay for free shipping.

The analysts are also bearish on 2019 as 7 estimates were cut for 2019 as well, pushing the Zacks Consensus down to $2.35 from $3.55.

Shares Sink on Earnings Decline

The good news is that the underlying business is healthy in both the merchant category and in payments.

Shares had been on a tear the last 2 years with a gain of 105% but with the new free shipping dynamic, the shares have sold off.

They're down 11% year-to-date.

Because of the estimate cuts, the valuation is still insane, with a forward P/E of 1071.

But if you're interested in the online merchant story in Latin America, which is a big growth market, you can always buy its largest competitor Amazon (AMZN - Free Report) . It is trading at just 130x right now.

Additionally, online payments are growing quickly in Latin America. PagSeguro Digital (PAGS - Free Report) is one of the largest players in Brazil. It's a Zacks Rank #3 (Hold). 

PayPal (PYPL - Free Report) and even Square (SQ - Free Report) could also soon be in the mix.