MercadoLibre Plunged After Earnings. Here's Why I'm Not Selling.
The Latin American e-commerce and fintech leader grew revenue 45%, but higher spending squeezed its margins.
MercadoLibre's shares dropped 12% after its third-quarter earnings fell short of analyst predictions on November 5. The company's market capitalization has since fallen more than 40% from its all-time peak. While broader market factors contributed to the decline, the company's financials also played a role. Revenue increased 45% year-over-year to $10.75 billion, and its commerce segment saw a 47% revenue growth.
Fintech operations grew by 42%, and the platform now boasts 93 million monthly active users. Gross merchandise volume surged 33%, and payment volume grew 53% to $109 billion. However, profitability concerns emerged as operating margins contracted to 6.3% from 9.8% a year ago. CFO Martín de los Santos attributed this to increased costs and bad debts from the expanding credit portfolio.
Despite this, he remains optimistic about future margin recovery. The company's loan portfolio expanded by 62% to $17.9 billion, with a low bad debt rate of 7%. The management's cautious approach to new loans in Brazil and Argentina suggests confidence in the credit quality. With a current valuation of less than 40 times forward earnings, the stock presents an attractive opportunity for growth-minded investors.
Concerns about permanent cost increases and potential challenges in Latin America's economy are worth monitoring, but the company's strong growth and logistics advantage indicate long-term resilience.
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