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Mark Your Calendar: MercadoLibre Reports Earnings Feb. 23

MELI Chart

Latin American e-commerce leader MercadoLibre, Inc. (NASDAQ: MELI) is scheduled to report the results of its recently completed fourth quarter and full year on Feb. 23. MercadoLibre -- which is Spanish for "free market" -- saw its share price increase an impressive 42% in 2016. Investors will have a keen eye on the latest results. Here's a preview of MercadoLibre's earnings report and a few things to watch on Feb. 23.

MELI data by YCharts .

A little background

In MercadoLibre's third-quarter earnings release, it reported revenue of $230.8 million, a 37% year-over-year increase, and net income of $39 million, a 15% decrease. Those results don't appear all that impressive, but pull back to a wider view and the year-to-date performance showed revenue up by 25%, while net income improved by 27%.

MercadoLibre numbers can be tricky to interpret because it provides e-commerce services in 19 Latin American and Caribbean countries and does business in the currencies of each. Its results are then translated into dollars for the purposes of financial reporting. A stronger dollar will make the company's financial results look worse, while a weaker dollar will improve their appearance.

Mercadolibre logo with a handshake over a yellow circle.

Image source: MercadoLibre.

Collectively, Brazil and Argentina represented 87% of MercadoLibre's revenue in its third quarter. During the fourth quarter, the dollar strengthened 3% against Brazil's currency, the real, and was up 1% against Argentina's peso. In both cases, this will have a negative effect on the reported results. Put simply, if it takes a greater number of reals or pesos in exchange for a dollar, the company's reported financial results will suffer. However, this negative affect may be less pronounced compared to the year-ago quarter, potentially providing easier comparisons.

How do the results look if you exclude the exchange rate affect?

Reviewing the results in local currencies provides a better understanding of how the company is doing. During MercadoLibre's third quarter, revenue increased by 66% in local currencies compared to 37% reported in dollars, while net income increased 32.6% compared to a decline of 15% in dollars. This is a significant difference.

A few key non-financial metrics provide even greater clarity. In its third quarter, MercadoLibre reported that total confirmed users increased 20%, items sold increased 40%, and payment transactions increased 67%. These metrics indicate that MercadoLibre's growth was quite impressive, and exchange-rate differences tend to mask this robust growth.

Chart showing growth in Mercadolibre's total confirmed registered users, items sold, and payment transactions.

Data source: MercadoLibre. Chart by author.

What should investors watch?

Over the previous three quarters, growth in confirmed registered users has exceeded 19% on average, and it has been growing, increasing to 20% in the third quarter. I would like to see an increase of 20% or higher in the quarter being reported on Feb. 23, indicating that user growth is still accelerating.

Year to date, growth in payment transactions has exceeded 70% on average, though that growth also slowed. Look for growth in this area to exceed 65% for the quarter, and full-year growth to exceed 70%. MercadoLibre has been busy marketing its MercadoPago payment service to merchants outside of its ecosystem. As the payment transactions business sees greater adoption off-platform, there is potential for even higher growth rates.

Items sold have increased by 40% or more in each of the last three quarters. I would expect to see growth near 40% for the quarter and the full year.

More than most companies, assessing MercadoLibre's performance requires digging a little deeper into the results to get a true understanding of what happened during the quarter -- and what to expect going forward. This can provide investors with a clearer picture and lead to better investment decisions.

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Danny Vena owns shares of MercadoLibre, but speaks no foreign languages. The Motley Fool owns shares of and recommends MercadoLibre. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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