MercadoLibre Meli Stock Drops 15% After Missed Earnings – Now Is This a Signal to Buy?

MercadoLibre Meli Stock announced late Wednesday that it achieved an adjusted earnings figure of $7.83 per share, accompanied by impressive sales totaling $5.31 billion for the quarter that ended in September. This performance, however, fell short of expectations set by analysts who were surveyed by FactSet. They had projected that the Uruguay-based company would report adjusted earnings of $10 per share alongside sales of $5.28 billion.

In comparison, during the same period a year earlier, MercadoLibre had reported adjusted earnings of $7.16 per share on sales amounting to $3.76 billion. This year-over-year growth in earnings and sales highlights the company’s ongoing expansion, even as it faces challenges in meeting market expectations.

On the stock market today, MercadoLibre stock is experiencing a decline, down more than 8% at a price of 1,945 in premarket trading. This drop reflects investor reactions to the earnings report and the broader market sentiment regarding the company’s future performance.

MercadoLibre: Earnings Miss

Often referred to as the Amazon.com (AMZN) of Latin America, MercadoLibre operates a comprehensive e-commerce platform that spans across 18 countries. Its largest markets include Brazil, Mexico, and Argentina, where the company was originally founded. In addition to its e-commerce operations, MercadoLibre also offers Mercado Pago, a fintech business that features a digital wallet similar to Venmo, which has gained significant popularity in the region.

In a letter to shareholders, the e-commerce firm explained that its investments in shipping operations and the origination of credit cards had a negative impact on its profit for the quarter. Wedbush analyst Scott Devitt pointed out that MercadoLibre’s operating income for the quarter was reported at $557 million, which was below the estimates of $758 million that analysts had anticipated.

“Operating margin was negatively impacted by the accelerating growth in the credit portfolio and an ongoing shift towards credit cards, which typically carry lower margins,” Devitt noted. “Additionally, higher fulfillment-related costs were incurred as the company opened six new fulfillment centers during the quarter.” This strategic expansion in fulfillment capabilities is aimed at enhancing customer service and operational efficiency, but it has also contributed to the current margin pressures.

Devitt maintains an outperform rating on MercadoLibre stock and has raised his price target on MELI shares to 2200, up from a previous target of 2000, following the release of the earnings report. He believes that despite the near-term margin uncertainty, investors should seize any opportunities to buy shares that may be undervalued due to this recent performance.

“We think investors should take advantage of any dislocation in shares due to near-term margin uncertainty and continue to see multiple levers to drive long-term margin expansion,” Devitt wrote. He highlighted several factors that could contribute to this expansion, including the growth of MercadoLibre’s advertising business, the benefits derived from the scale of its fulfillment network, and the potential for improving margins as new credit card products mature and gain traction in the market.

Meanwhile, the total volume of payments processed by MercadoLibre’s fintech arm saw a significant increase, climbing 34% to reach $50.7 billion for the September quarter. This growth in payment volume underscores the increasing reliance on digital financial services in the region. Additionally, the gross merchandise volume sold through its e-commerce marketplace rose by 14% year over year, reaching $12.9 billion. This upward trend in e-commerce sales reflects the ongoing shift towards online shopping, which has been accelerated by changing consumer behaviors.

“Our competitive position is strengthening as retention improves across our businesses,” MercadoLibre’s shareholder letter stated. “This gives us great confidence as we invest to fully capitalize on the many growth opportunities that are ahead of us, knowing that our ecosystem is uniquely placed to capture those opportunities.” The company’s focus on enhancing customer retention and expanding its service offerings positions it well for future growth, even in the face of current challenges.

In summary, while MercadoLibre’s recent earnings report revealed some areas of concern, the company continues to demonstrate resilience and growth potential in both its e-commerce and fintech operations. Investors will be closely watching how the company navigates these challenges and capitalizes on its strengths in the coming quarters.

MercadoLibre’s (NASDAQ:MELI) stock took a significant hit in after-hours trading, plummeting over 15% as its Q3 earnings report fell short of Wall Street’s profit expectations. The Latin American e-commerce giant reported a revenue increase of 35% year-over-year, which is impressive, but its gross merchandise volume only grew by 14%—a pace that was slower than what analysts had anticipated.

The silver lining in this situation is that unique buyers surged by 21%, with Brazil leading the charge, indicating strong regional demand for its services. However, with earnings per share (EPS) landing at $7.83, which is below the consensus estimate of $9.85, and adjusted EBITDA dropping to $714 million compared to the expected $928 million, it is evident that investors were not pleased with these results.

On the fintech side, MercadoLibre’s Mercado Pago service continued to gain momentum, with monthly active users increasing by 35% year-over-year, reaching a total of 56 million. The growth of its credit portfolio and expansion efforts across Brazil, Mexico, and Argentina provided a significant boost to its fintech operations.

However, the company’s substantial investments in credit and logistics expansion did put pressure on its profit margins. Despite these short-term challenges, MercadoLibre is committed to doubling down on these essential growth drivers, as management believes there is massive long-term potential in fintech and digital payments.

Looking ahead, MercadoLibre’s leadership remains optimistic about the untapped growth opportunities in e-commerce, digital payments, and logistics throughout Latin America, where online retail is still in its infancy. By enhancing logistics capabilities and expanding fintech services, they are positioning themselves to capture the region’s vast potential.

Management is confident that these strategic initiatives are unlocking significant growth opportunities, setting the stage for MercadoLibre to remain competitive as the market heats up.

In summary, while the recent performance of MercadoLibre’s stock reflects some investor concerns, the company continues to show resilience and growth potential in both its e-commerce and fintech sectors. As the market evolves, investors will be closely monitoring how MercadoLibre navigates these challenges and leverages its strengths to capitalize on future opportunities.

The outlook for MELI stock remains a topic of interest as the company strives to maintain its leadership position in the rapidly changing landscape of Latin American e-commerce and digital finance.