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MercadoLibre Jumps After Results Show ‘Profitable Growth’

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(Bloomberg) -- Latin American e-commerce retailer and fintech provider MercadoLibre Inc. is reaping the rewards of its investment across the region over the past years, posting record revenue and better-than-expected profits even as the region’s economies cool down.

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Net sales in the three months through June 30 jumped 53% from a year earlier to $2.6 billion, according to a statement Wednesday, topping the $2.5 billion average estimate of analysts surveyed by Bloomberg. Operating margins fell to 9.6% from 9.8% in the same period last year, while Wall Street was bracing for a sharper contraction to about 7%.

Operations in Mexico had their first profitable quarter since starting up five years ago, Chief Financial Officer Pedro Arnt said in an interview. That’s a key milestone as it’s one of the most competitive markets in the region, he said.

“This proves the returns on that heavy investment over the last five years,” Arnt said. “We aim to deliver incremental profits for many years to come.”

Shares jumped as much as 22% in New York Thursday, with Morgan Stanley touting the company’s investment thesis of “persistent, profitable growth” in a report published following the results.

The better-than-expected figures provide somewhat of a buffer to the macroeconomic headwinds expected in coming months as regional growth slows. Retail sales stagnated in Brazil -- MercadoLibre’s largest market -- in May, signaling the nation might be poised for a recession. E-commerce gains have also decelerated following the pandemic-driven boom, and competition has increased with the expansion of online shopping platforms from Sea Ltd.’s Shopee and Chinese fast-fashion giant Shein.

Read More: MercadoLibre Surges on Signs of Profitable Growth: Street Wrap

“In a market that’s slowing down, we’re slowing down less than we expected and gaining share at an accelerating pace,” Arnt said. In addition to Mexico, the Buenos Aires-based company’s operations are profitable in Brazil and Argentina.

Fintech Growth

Meanwhile, the company’s credit portfolio rose to almost $2.7 billion from about $2.4 billion at the end of March, accounting for 46% of total revenue. Even as credit quality deteriorates alongside the tougher economic scenarios in the region, the company “adequately priced” this risk and saw margins improve, Arnt added.

Earlier this month, MercadoLibre’s fintech arm borrowed $233 million from Goldman Sachs Group Inc. so it could expand credit in Brazil and Mexico.

The company’s shares have been battered along the wider rout in tech stocks. Shares are down 55% since peaking January 2021, pushing the firm’s market value to below $45 billion.

Other key points from the interview:

  • The company’s fintech segment, MercadoPago, is likely to surpass retail in terms of revenue over the next few quarters, Arnt said

  • Growth in the credit business will drive a “significant increase in monetization” of the fintech arm

  • In the e-commerce segment in Brazil, the company now has a market share of about 33%

  • MercadoLibre is holding on to the crypto it has in its balance sheet, because it believes in the asset class and wants to show users it “eats its own dog food”

  • The company is looking to add “innovative products” tied to crypto in the second half of the year that “will confirm we’re not pulling back because of the volatility”

(Updates with market move in fifth paragraph)

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