The past three months have been tumultuous ones for MercadoLibre, Inc. (NASDAQ:MELI). The company reported fabulous results for its second quarter, and the stock promptly fell 10% on the devaluation of the Venezuelan currency, the bolivar. This currency move resulted in a $25 million hit to MercadoLibre's net income for the quarter. In addition, a report that online juggernaut Amazon.com (NASDAQ:AMZN) was preparing to expand its operations in Brazil sent MercadoLibre's stock plunging last month.
When the Latin American e-commerce leader reported its financial results earlier this month, investors were looking for reassurance that these exterior forces hadn't derailed MercadoLibre from its growth in the region and that the company could still thrive in a challenging environment. Shareholders weren't disappointed, and the stock jumped 13% on the results.
The envy of other retailers
MercadoLibre reported net revenue that grew to $370.7 million, up 61% year over year in U.S. dollars (USD), and up 79% in local currencies. This result soared past consensus estimates of $348 million. Net income fell to $36.7 million, down 30% from the prior-year period, producing earnings per share of $0.63, which was still better than analyst expectations of $0.62.
Operationally, the results continued to shine. Total confirmed registered users grew to 191 million, up 21% year over year, while items sold increased to 74.2 million, up 56% over the prior-year period. Payment transactions continued to drive results, up 69.4% year over year to 62.3 million. These three metrics tend to strip out the effect of changes in exchange rates and show that the company's growth is still robust.
Gross merchandise volume of $3.08 billion jumped 50.7% in USD, and a staggering 93.8% in local currencies. Total payment volume also impressed, growing to $3.67 billion, up 73.5% in USD compared with the prior-year quarter and up 86% in local currencies.
Gross profit of $175.8 million resulted in gross margin of 47.4%, far below the 63.1% achieved in the prior-year quarter. Company executives explained that the margin compression was the result of free shipping, which MercadoLibre has been rolling out across its largest markets. The company believes that offering this perk on select purchases while sharing the cost with merchants, will result in important market-share gains as the platform becomes the default choice for many shoppers in the region.
Something for everyone
MercadoLibre continues to offer consumers a unique value proposition, with a growing number of products, a localized payment solution in MercadoPago, an integrated shipping choice in MercadoEnvios, and consumer financing all in one place. The company has found that customers who use more than one of its services have higher customer satisfaction and tend to be repeat shoppers, with increased monetization rates, and better lifetime value metrics.
Merchants are also eager to join the platform, which offers not only the largest collection of buyers in Latin America, but also helpful services they can't find anywhere else. MercadoLibre offers working capital loans and cash advances to small- and medium-sized businesses for amounts equaling up to two months of sales, which the company collects back from ongoing business. MercadoLibre has detailed data that goes back years in many cases, which offers the company unique insight into a merchant's ability to repay the loans. These funds can then be used for to increase business, like to stock up on inventory for busy periods such as holidays. MercadoLibre believes it is only "scratching the surface in filling the void in the traditional retail banking environment." The company has reported that merchants who use Mercado Credito tend to experience higher sales and unit volumes, which results in an ever-improving relationship.
The company's payment solution, MercadoPago, continues to attract off-platform merchants and is becoming a de facto payment solution in the region. Payment transactions by sellers not using MercadoLibre's platform grew 84% year over year, and rising demand by consumers is resulting in a groundswell of adoption by other online sellers and brick-and-mortar retailers.
A one-stop shop
The skyrocketing number of registered users, combined with the growing number of merchants, creates a virtuous cycle that will help keep competitors at bay. The growing threat from Amazon is not to be taken lightly, but thus far, MercadoLibre has taken all the right steps to ensure its continued dominance in its home markets, and the continuing fortunes of investors.