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Here's What's Held Back MercadoLibre Lately

By Dan Caplinger - Updated Aug 8, 2018 at 7:43PM

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Just one thing caused the e-commerce giant to report slower unique-buyer growth.

MercadoLibre (MELI -0.17%) has taken full advantage of the boom in the Latin American economy over the past 20 years, building out an impressive e-commerce empire that includes not only marketplace listings but also payment processing, delivery services, and financing. Yet even though the company has prospered over the long run from Latin America's emerging strength, setbacks can cause short-term breaks in that growth that can hurt results in any given quarter.

Coming into Wednesday's second-quarter financial report, MercadoLibre investors weren't certain whether the company would be able to sustain its strong growth rates in sales and profits. MercadoLibre's results were solid, but some poorer performance in certain metrics came from one thing: a trucking strike in Brazil that caused shipping bottlenecks in the region's largest economy. The fact that a one-time event had an impact on the company should give investors comfort that its long-term prospects are very much intact.

Person wearing hat talking with MercadoLibre worker at a checkout screen.

Image source: MercadoLibre.

A mixed quarter for MercadoLibre

MercadoLibre's second-quarter numbers didn't come as a big shock after last quarter's results reset expectations. Sales growth came in at 18%, producing $335.4 million in revenue, which was double the 9% growth rate that most of those following the stock were looking to see. Disappointing, though, was the fact that MercadoLibre lost $11.3 million for the period, as a net loss of $0.25 per share was even worse than the $0.10 per share consensus loss forecast investors had.

Again, though, extraordinary items played a major role in changing the numbers. Gross billings were up 36% from year-ago levels to $432 million, and foreign exchange movements dramatically dampened the local-currency revenue growth that MercadoLibre experienced. The company's revenue gains would have been 25 percentage points higher if measured in local-currency terms.

Fundamentally, many of MercadoLibre's key business metrics stayed strong. Gross merchandise volume climbed 15% to $3.1 billion, and the number of items sold was higher by 39% to 85.4 million. Live listings on the marketplace hit 154.8 million, up 56% from year-ago levels.

Yet one area where MercadoLibre was weak was in unique buyer growth. There, the company cited the May truckers strike in Brazil, along with higher postal increases there that limited overall gains to 16%. However, MercadoLibre was quick to note that better growth rates persisted in other key countries, including Mexico, Colombia, Chile, and Argentina.

As investors are used to seeing, MercadoLibre's related services businesses added plenty of value. Total payment volume on MercadoPago jumped 40% to $4.4 billion, as the service handled 85.5 million transactions, up 64% year over year. Even with the shipping challenges, MercadoEnvios handled 52.8 million item shipments, or 58% more than in last year's quarter, and Chile was a big winner in that category with shipment volumes that quintupled.

Can MercadoLibre win the e-commerce war?

CFO Pedro Arnt was quite pleased with where MercadoLibre is. "The outlook for our industry is as positive as ever," Arnt said, "and our investment thesis remains intact. The internet is rapidly becoming a driving force that is increasing the pace of modernization in Latin America." The CFO believes that the company can take advantage of a lack of competition to provide valuable solutions in areas like retail and banking.

Mobile development is playing a key role in technological advances for MercadoLibre. The company's mobile gross merchandise volume hit the 55.5% mark, and its mobile point of sale business accounted for 43% of total off-platform payment volumes during the quarter. In regions where landline telephone service doesn't have nearly the history that it does in the U.S., MercadoLibre's attention to mobile capabilities will be especially necessary to bring new shoppers to the e-commerce world.

MercadoLibre investors didn't find a lot to react to in the report, and the stock climbed just a fraction of a percent in after-hours trading following the announcement. Yet as long as the e-commerce company keeps a stranglehold on the Latin American market, investors should feel comfortable about MercadoLibre's prospects for the foreseeable future.

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