MercadoLibre (MELI) Reports Loss in Q3, Revenues Improve Y/Y

MercadoLibre, Inc. MELI reported third-quarter 2019 loss of 97 cents per share (adjusted for valuation allowance on deferred tax assets in Mexico and Colombia), against the Zacks Consensus Estimate for earnings of 1 cent.

Further, the figure was wider than a loss of 23 cents per share reported in the year-ago quarter. Notably, the company reported earnings of 31 cents per share in the previous quarter.

Revenues improved 10.6% sequentially and 69.7% on a year-over-year basis (90.5% on an FX neutral basis) to $603 million.

Increasing total payments volume (TPV) acted as the key catalyst in driving the third-quarter top line. Moreover, solid performance by Mercado Pago positively impacted the results. Merchant and consumer credit business also performed well on the back of robust Mercado Credito.

Additionally, solid momentum of mobile-point-of-sale (MPOS) business across Brazil, Argentina and Mexico contributed to the results.

Further, the company’s solid performance across all its reporting regions and robust e-commerce platform were major positives. Robust shipments via Mercado Envios also drove revenues, primarily backed by the company’s strengthening free shipment program.

However, the figure missed the Zacks Consensus Estimate of $605 million.

Following the lower-than-expected earnings numbers, shares of the company plunged 6.8%.

Increasing expenses especially those related to marketing and branding activities remained a major headwind. This negatively impacted the margin expansion. Further, accumulating bad debts remain a concern.

Nevertheless, the company’s well-performing FinTech and logistics businesses drove the top line. Further, its strong focus toward delivering enhanced user experience remains a positive. All these are expected to instill optimism in the stock.

Quarter in Detail

Brazil: Net revenues in the third quarter were $389.9 million (64.7% of total revenues), up 76.6% year over year. This can be attributed to improved gross billings, which surged 43% on a year-over-year basis. Further, gross merchandise volume (GMV) improved 24% year over year in this region.

Argentina: This market generated $116.2 million revenues (19.3% of revenues), which advanced 38.8% year over year. Gross billings in this country improved 37.3% from the year-ago quarter. Further, the company witnessed solid growth in GMV in this country, which was up 80.2% year over year.

Mexico: Net revenues in the reported quarter were $71.4 million (11.8% of revenues), up 146.2% year over year. Year-over-year growth came on the back of robust GMV, which improved 47% from the prior-year quarter. Additionally, gross billings were up 99.2% from the year-ago quarter.

Other countries: These markets generated revenues of $25.5 million (4.2% of total revenues), surging 16.9% on a year-over-year basis. The company’s gross billings in these countries were up 18.2% on a year-over-year basis. Notably, GMV in Colombia and Chile was up 50% and 32%, respectively, from the year-ago quarter.

MercadoLibre, Inc. Price, Consensus and EPS Surprise


MercadoLibre, Inc. Price, Consensus and EPS Surprise

MercadoLibre, Inc. price-consensus-eps-surprise-chart | MercadoLibre, Inc. Quote

Key Metrics

GMV of $3.6 billion improved 21.6% year over year and 36.8% on FX neutral basis.

Total confirmed registered users at the end of the reported quarter were 306 million, improving 22.9% year over year. However, new confirmed registered users during the period were 13.8 million, declining 1.4% on a year-over-year basis.

Number of successful items sold was 98 million, up 17.4% year over year. Moreover, number of successful items shipped surged 49.5% year over year to 81.2 million. This can be attributed to strong performance of MercadoEnvios and optimization strategies for the company’s free shipping program.

Total payment volume (TPV) was up 66.2% on a year-over-year basis to $7.6 billion, driven by strong performance of MercadoPago. Additionally, the company’s online-to-offline payment offerings continued to gain traction in the third quarter, thanks to robust MPOS business. Notably, MPOS business witnessed TPV growth of 141.2% year over year. Further, the company saw rapid adoption of its Mobile Wallet.

TPV on marketplace was $3.4 billion up 24.2% year over year. Further, total payments transactions increased 118.5% year over year to 227 million.

Unique buyers improved 25.1% year over year to 22.4 million. Moreover, unique sellers were 4.4 million, up 2.3% from the prior-year quarter.

Operating Details

For the third quarter, gross margin was 47.2%, contracting 60 bps year over year. This can be attributed to rising shipping subsidies and warehousing costs of managed network.

Operating expenses as a percentage of total revenues came in 60.7%, expanding significantly from 50.9% in the year-ago quarter.

The company reported a loss from operations of $81.9 million, significantly wider than the year-ago quarter’s loss of $11 million.

Balance Sheet & Cash Flow

As of Sep 30, 2019, cash and cash equivalents were $1.42 billion, improving from $1.12 billion as of Jun 30, 2019. Short-term investments were $1.73 billion, down from $1.79 billion in the previous quarter.

In the third quarter, cash generated from operations was $206.9 million compared with $27.6 million in the second quarter.

Zacks Rank & Key Picks

MercadoLibre currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader technology sector are Alteryx, Inc. AYX, Zendesk, Inc. ZEN and CommVault Systems, Inc. CVLT. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alteryx, Zendesk and CommVault is currently pegged at 39.85%, 29.52% and 10%, respectively.

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