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MercadoLibre Keeps Riding Latin America's Rebound

By Dan Caplinger - Updated Nov 21, 2016 at 2:21PM

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Times are looking much better for Latin America, and that's great news for the e-commerce specialist.

Editor's note: A previous version of this article incorrectly reported MercadoLibre's nine-month net income figure rather than its three-month net income figure. The author and the Fool regret the error.

E-commerce is booming around the world, and in Latin America, MercadoLibre ( MELI -6.75% ) has the inside track to success. Yet for several years, poor economic conditions in the region put stress on MercadoLibre's ability to maximize its growth.

Coming into Thursday's third-quarter financial report, MercadoLibre shareholders were hoping that the worst was over for the Latin American consumer market and that the company would therefore produce strong results. MercadoLibre did exactly that, and it thinks that even better times might lie ahead. Let's take a closer look at how MercadoLibre fared and what it means going forward for the e-commerce specialist.

Image source: MercadoLibre.

MercadoLibre looks for a new consumer boom

MercadoLibre's third-quarter numbers reaffirmed just how much potential the company has to tap into the Latin American e-commerce market. Sales soared 37%, to $230.8 million, exceeding even the optimistic 32% pace of growth that investors had been hoping to see. Net income came in at $38.9 million, down from year-ago levels due largely to a big jump in income tax expense, and that produced earnings of $0.88 per share. That was $0.05 per share higher than the consensus forecast among investors.

Looking more closely at MercadoLibre's numbers, the e-commerce specialist posted exceptional operational results. Total items sold jumped by two-fifths, to 47.6 million, sustaining the pace of growth that investors saw earlier in the year. Gross merchandise volume was more than 10%, to $2.04 billion, and those numbers were held back by the strength of the U.S. dollar and by the eccentricities of the Venezuelan market. In local currency terms, revenue from advertising was up 84%, due, in large part, to MercadoLibre taking advantage of using product ads in search format.

As we've seen many times before, the MercadoPago payment service has been an important contributor to MercadoLibre's overall strength. Total payment transactions grew by two-thirds, to 36.8 million, and total payment value climbed to $2.11 billion. That marked the first time that payment volume exceeded gross merchandise volume, marking an important milestone for MercadoPago. In local currency terms, total payment volume doubled, marking the sixth-consecutive quarter of 100% or higher growth.

Shipping has also been a success for MercadoLibre. The total number of items shipped using the MercadoEnvios service climbed to 23.1 million, rising 86% from the year-ago number. Almost three-quarters of items sold in Brazil shipped using the service, and rising percentages in Mexico, Argentina, and Colombia are also using MercadoEnvios.

CFO Pedro Arnt was happy with how his company did. "We continue to make progress in expanding our enhanced marketplace vision across all our geographies," Arnt said, "as we grow the adoption of our payments, credit, and shipping solutions in our marketplaces." The CEO also noted that MercadoLibre has managed to achieve this success while still maintaining customer satisfaction.

Can MercadoLibre still keep growing?

MercadoLibre is still doing a good job of attracting new business. About 7.7 million new confirmed registered users came on board during the quarter, pushing the total number to 159.3 million. That's up 15% from where it was a year ago, and it continues to make all of MercadoLibre's businesses more valuable.

Also, growth continues to accelerate in some key markets. Sales growth climbed higher in U.S. dollar terms in Brazil, Mexico, and the company's other-countries segment. Even in Argentina and Venezuela, growth was quite strong on a local-currency basis. As long as those figures keep climbing, it suggests that some of the most important economies in the Latin American region are firing up.

Investors were satisfied with MercadoLibre's results, sending the stock up a bit less than 1% in after-market trading following the announcement. As long as Latin America keeps bouncing back, MercadoLibre should be able to take advantage of a rising consumer class there.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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