Stocks

The eBay of Latin America Lost More Than Expected. Here's the Good News.

MercadoLibre stock fell as its quarterly loss was $2.97 a share, while analysts expected a loss of 3 cents.

MercadoLibre stock fell as its quarterly loss was $2.97 a share, while analysts expected a loss of 3 cents.

MercadoLibre shares are down after the e-commerce and payments company reported lower-than-expected third-quarter earnings, but BTIG’s Marvin Fong thinks the results show that management can cash in on its Latin American payments business.

MercadoLibre stock (ticker: MELI) fell about 4% after the company said it lost $2.96 a share, with $603 million in revenue. The shares are up almost 70% this year, compared with the S&P 500’s 22% rise.

The company operates an online marketplace, as well as a digital wallet and payments system called Mercado Pago. This year, PayPal Holdings (PYPL) bought a stake in MercadoLibre, which is known as the eBay (EBAY) of Latin America.

Investors had expected the company to lose 3 cents a share, with $589 million in revenue. The main factor behind the shortfall was increased marketing spending, and management assured investors that the higher outlays were tied to the third quarter and wouldn’t continue, Fong noted.

The longer-term opportunity for the company, Fong believes, can be seen in its Argentina business. “An important item to come out of the call was that [MercardoLibre] is going to start monetizing the digital wallet in Argentina,” Fong said.

MercadoLibre charges a fee of 0.6% on transactions. That is less than on most other noncash payments, even purchases via debit cards, creating the potential for the company to raise prices yet remain competitive.

“Assuming [MercardoLibre] turns on monetization across [Latin America], the revenue contribution can exceed $200MM by 2023 (just from transaction fees),” according to Fong. “This development is evidence that there truly is a meaningful payoff for those who win out in the fintech land grab.”

Write to Ben Walsh at ben.walsh@barrons.com

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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