What happened

Shares of MercadoLibre (NASDAQ:MELI) fell as much as 11.7% on Friday, hitting that low around 2:45 p.m. EDT, after the Buenos Aires-based e-commerce company reported second-quarter earnings Thursday night.

So what

Analysts had been looking for adjusted earnings near $1.03 per share on revenues of roughly $311 million. Sales jumped 59% higher year over year to land at $317 million, easily clearing the analyst bar, but the earnings figure fell far short at $0.61 per share.

Woman accepting a cardboard-box package from a courier at the door

Image source: Getty Images.

Now what

MercadoLibre's gross margins are under pressure from expensive free shipping programs in Mexico and Brazil. The company is in the early stages of deploying loyalty programs and free shipping options. These first launches have been successful at driving higher sales volumes, but at the cost of dramatically lower profit margins.

That's not the end of MercadoLibre's customer loyalty efforts. The company will continue to push forward with these initiatives while also promoting the new MercadoPago online payments program. The e-tailer can afford to sacrifice some short-term profits in order to build a stronger financial platform for the long term, so that's what CEO Marcos Galperin is planning to do.

"We continue to drive performance in our marketplace in Mexico, unlike what we have seen in the 17 years of operations in that country," Galperin said in a conference call with analysts, as MercadoLibre's units sold in that market doubled year over year. He added:

Our vision is yielding solid results, which continue to extend our leadership position and drive our top line growth and scale. We will continue to focus on these scale gains and increased engagement on our platform by placing our customers in front and center of everything we do.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends MercadoLibre. The Motley Fool has a disclosure policy.