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MercadoLibre (MELI) Down 12% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for MercadoLibre (MELI). Shares have lost about 12% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is MercadoLibre due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

MercadoLibre Beats on Q2 Earnings & Revenues

MercadoLibre delivered second-quarter 2019 earnings of 31 cents, which beat the Zacks Consensus Estimate by 3 cents and surged 138.5% sequentially. Notably, the figure shows an improvement from a loss of 25 cents per share in the year-ago quarter.

Revenues increased 15.1% sequentially and 62.6% on a year-over-year basis (102.1% on an FX neutral basis) to $545.2 million, surpassing the Zacks Consensus Estimate of $498 million.

Increasing total payments volume (TPV) acted as the key catalyst in driving the second-quarter top line. Moreover, solid performance by MercadoPago positively impacted the results. Also, merchant and consumer credit business performed well on the back of robust MercadoCredito.

Additionally, the company’s online-to-offline payment offerings continued to gain traction in the reported quarter on the back of robust mobile-point-of-sale (MPOS) business, which accounted for 41.9% of the total off-platform payment volume. Further, the company witnessed rapid adoption of its Mobile Wallet.

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

All these contributed to the company’s better-than-expected second-quarter results, which in turn is aiding the stock gain momentum across investors.

Top Line in Detail

Brazil: Net revenues in the first quarter were $340.9 million (62.5% of total revenues), up 74% year over year. This can be attributed to improved gross billings, which surged 42.4% on a year-over-year basis. Further, gross merchandise volume (GMV) improved 27% year over year in this region. Additionally, strong device sales, growing momentum of MercadoLibre’s e-commerce app and launch of MELI Logistics contributed to the top-line growth in the country.

Argentina: This market generated $113.9 million revenues (20.9% of revenues), which advanced 14% year over year. Gross billings in this country increased 14.8% from the year-ago quarter. Further, the company experienced solid growth in GMV in this country, which was up 63% year over year. MercadoLibre gained momentum across apparel, home and garden verticals in the country, which contributed to the results. Further, proper execution of wallet initiatives and growing number of shipments via Mercado Envios, which reached 62% of the total items shipped in Argentina, also acted as tailwinds. Moreover, rising device sales and robust e-commerce app were encouraging.

Mexico: Net revenues in the reported quarter were $64.4 million (11.8% of revenues), up 267.1% year over year. Year-over-year growth came on the back of robust GMV, which improved 45% from the prior-year quarter. Additionally, gross billings were up 125.9% from the year-ago quarter. Launch of MELI Logistics, strong fulfillment operations, rising adoption of e-commerce app and growing device sales in the country were major positives.

Other countries: These markets generated revenues of $26.1 million (4.8% of total revenues), surging 19.2% on a year-over-year basis. The company’s gross billings in these countries were up 16.5% on a year-over-year basis. However, GMV was down 3% from the year-ago quarter.

Key Metrics

GMV of $3.4 billion increased 8.4% year over year and 33% on FX neutral basis.

Total confirmed registered users at the end of the reported quarter were 292.5 million, improving 24.5% year over year. Further, new confirmed registered users during the period were 12.4 million, improving 5.1% on a year-over-year basis.

Number of successful items sold was 88.7 million, up 3.9% year over year. Moreover, number of successful items shipped surged 32.9% year over year to 70.2 million. This can be attributed to strong performance of MercadoEnvios driven by strong performance of MercadoEnvios and optimization strategies for the company’s free shipping program.

Total payment volume (TPV) was up 47.2% on a year-over-year basis to $6.5 billion, driven by strong performance of MercadoPago.

Total volume of payments on marketplace was $3.1 billion up 11.6% year over year. Further, total payments transactions increased 112.4% year over year to 181.6 million.

Unique buyers improved 20.7% year over year to 20.4 million. Moreover, unique sellers were 4.3 million, up 2.4% from the prior-year quarter.

Operating Details

For the second quarter, gross margin was 50%, expanding 240 bps year over year.

Operating expenses as a percentage of total revenues came in 52.3%, contracting 380 bps in the year-ago quarter.

The company reported loss from operations of $12.5 million compared with the year-ago quarter’s loss of $28.2 million.

Balance Sheet & Cash Flow

As of Jun 30, 2019, cash and cash equivalents were $1.12 billion, declining from $1.29 billion as of Mar 31, 2019. Short-term investments were $1.79 billion, up from $1.65 billion in the previous quarter.

In the second quarter, cash generated from operations was $27.6 million compared with $138.4 million in the first quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -94.87% due to these changes.

VGM Scores

At this time, MercadoLibre has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MercadoLibre has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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