MercadoLibre (NASDAQ:MELI) on Thursday delivered remarkably strong results for the first quarter of 2014. Even while economic headwinds in Latin America and the competitive threat from Amazon.com (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) are relevant risks to watch, the e-commerce company continues firing on all cylinders and is positioned for growth in the years ahead.
Sales in U.S dollars grew by 12.3% to $115.4 million, materially above analysts' projection of $109.4 million for the quarter. Currency devaluations in many Latin American countries, particularly Venezuela, had a big negative impact during the period. However, sales in local currencies increased by a remarkable 49.9% versus the first quarter of 2013.
High inflation and currency volatility in Latin America can make comparisons a bit tricky when analyzing MercadoLibre -- the region's top e-commerce website -- in monetary terms. However, operational metrics are much more stable, and they continue to show extraordinary performance.
Roughly 21.7 million items were sold on the platform during the quarter, a year-over-year increase of 20%. Payment transactions via its MercadoPago platform -- which plays a similar role for MercadoLibre to the one PayPal plays for eBay -- increased by a remarkable 36% versus the prior year, to 9.2 million.
The company gained 4.3 million registered users during the quarter, versus the 4.2 million users it gained in the same period last year. MercadoLibre ended the quarter with a total base of 103.7 million users, a 21.1% increase from 85.7 million in the year-ago period.
Mobile penetration doubled from 7% to 14% of all transactions versus the first quarter in 2013, while the company's mobile app reached more than 10 million downloads by the end of quarter.
MercadoLibre recently launched its shipping solution MercadoEnvios, and the service seems to be gaining traction at a considerable speed. MercadoEnvios had a penetration rate of 11% of all MercadoLibre items sold in Brazil and Argentina combined during the quarter.
The company's quarterly gross profit margin was 72.7%, up from 72.1% in the first quarter of 2013, while operating margin increased by 166 basis points, from 27.8% of sales to 29.5%.
Earnings per share landed at $0.69 for the quarter, up 72.5% from the $0.40 per share collected in the same quarter in the prior year and substantially better than the $0.57 consensus projection from Wall Street.
Dissipating the fears
Shares of MercadoLibre are down by more than 35% over the last six months due to concerns over macroeconomic headwinds and the possibility of increased competitive pressure from Amazon and eBay.
Currency volatility is having a considerable impact on performance, and the economic situation in many Latin American countries is hard to predict. However, MercadoLibre continues to generate remarkable growth rates despite facing significant economic challenges. Doing business in emerging markets means going through considerable economic uncertainty, but it also provides exceptional opportunities for growth in the long term.
Both Amazon and eBay are increasing their presence in Brazil, MercadoLibre's biggest market. Amazon launched its Kindle store in Brazil in December 2012; the company sells its devices at physical retailers and is offering digital products in the country. Meanwhile, eBay is promoting its cross-border shipping capabilities in Brazil, especially in electronics.
However, according to MercadoLibre CFO Pedro Arnt, "The overwhelming majority of e-commerce in Brazil is occurring intra-Brazil, the cross border trade when we look at the overall volume of that is probably minuscule compared to the actual in-country e-commerce that's occurring."
MercadoLibre presently seems to be relatively well protected from competition from big U.S players. This does not mean competitive pressure won't increase in the medium term, but it won't be easy for Amazon or eBay to displace the regions' e-commerce king.
The local player has the first-mover advantage in Latin America, a widely recognized brand, and the know-how to serve local customers while dealing with a complex and changing regulatory landscape. By consolidating its payments and shipping platforms, MercadoLibre continues to build defenses against its competitors.
Besides, e-commerce accounts for only 3% of retail transactions in Latin America. This allows for enormous room for expansion in the years ahead, so the market should provide enough opportunities for a number of players to profit and grow over time.
Despite economic headwinds and fears over competitive pressure from Amazon and eBay, MercadoLibre keeps demonstrating that it has what it takes to generate extraordinary growth rates for investors. Recent fears seem overblown, so the dip in MercadoLibre could offer a chance to buy an extraordinary growth company at a discounted price.
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Andrés Cardenal owns shares of Amazon.com. The Motley Fool recommends and owns shares of Amazon.com, eBay, and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.