Expectations were high going into MercadoLibre, Inc.'s (NASDAQ:MELI) fourth-quarter earnings report, and while its stellar top-line growth continued, the company reported a surprise net loss. Net revenue climbed to $437 million, up 70% year over year, but the company posted a $67.7 million loss. MercadoLibre made the tough decision to deconsolidate its Venezuelan business, and adjusting for that one-time charge it produced an adjusted net income of $8.8 million.
There was much more happening in the quarter, though, than what the company could squeeze into its earnings press release. Here's a sample of the biggest takeaways from MercadoLibre's earnings conference call.
Brother, could you spare a dime?
MercadoLibre has big plans for its working capital and cash advances arm -- Mercado Credito. On the conference call, CEO Pedro Arnt noted that when it comes to small- and medium-sized businesses, the "existing financial system doesn't necessarily serve them very well, and when it does serve them, it serves them at exorbitantly high interest rates."
The company has records on its merchants, some going back a decade or more, which gives them specific insight in the ability of a merchant to repay a loan -- particularly the merchants who use MercadoPago, the company's payment system.
"So we think we can be very efficient here because of all of the data we have on these merchants who use MercadoPago," Arnt said, "and we can charge rates that are very attractive but that are also sustainable in terms of our margins."
Because of its ability to pre-approve merchants based on their history, MercadoLibre believes it can eventually expand that business to off-platform merchants who use its payment system.
One of the catalysts behind the recent surge in revenue has been MercadoLibre's decision to offer free shipping on select orders in its largest markets. While the shipping is free to the consumer, it does come with conditions. In Brazil, it is only available on items that cots more than $40, and only available from certain sellers. To qualify in Colombia and Chile, purchases must exceed $23 and $22, respectively. The option is currently being rolled out in Argentina, with a higher minimum-purchase threshold of about $70.
It is important for investors to understand that MercadoLibre does not bear the entire cost of these initiatives -- the merchant shares the cost.
MercadoLibre sees free shipping as "a strong differentiating factor of our value proposition" and says it has been the most significant individual catalyst "for accelerating sales over the last several quarters." The company has seen a significant impact on "customer loyalty, customer lifetime value, even in customer acquisition."
MercadoLibre believes that this is too great an opportunity to pass up and that the costs of such a venture can be managed once its shipping operation achieves sufficient scale.
Suspending the dividend
MercadoLibre revealed in its press release that the company will be suspending the dividend, as it "has multiple investment opportunities that should generate greater returns to shareholders through investing capital into the business than issuing a dividend."
Arnt expanded on those thoughts during the call, saying that the company was in an "investment cycle" and could produce a better return for shareholders by building out its fulfillment and logistics operations, expanding into an increasing number of product category, and exploring opportunities in the fintech space. MercadoLibre believes that each of these areas could provide a greater overall return to shareholders by "using that extra cash to invest in the business" rather than continuing to pay the dividend.
Overall, MercadoLibre's conference call bolstered the immense opportunity that exists for the company in Latin America and the many ways it is positioning itself for future success.