The problem with being a tech niche player today is that it's just so easy for the giants to turn your specialty into a single feature of their own offerings. (Think of what Facebook has done to Snapchat.) And of course, Fitbit (NYSE:FIT) has been suffering for a while as full-feature smartwatches have siphoned away large portions of its wearables sales -- not to mention the market share loses to low-cost foreign competitors.
But management has not been sitting idle, and in this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Ron Gross, Matt Argersinger, and Jason Moser start by discussing all the ingredients that finally came together last quarter to contribute to Fitbit's nascent recovery -- and the 33% share price spike that followed its latest earnings report. Then they jump over to MercadoLibre (NASDAQ:MELI), which lost money despite rising revenue. And the story of where this company may be headed will be of note to anyone who has it mentally filed as "the Amazon.com (NASDAQ:AMZN) of South America." (Spoiler alert: You may need to reclassify it soon.)
A full transcript follows the video.
This video was recorded on Nov. 2, 2018.
Chris Hill: You know who had a better week than Under Armour shareholders? Fitbit shareholders! Third-quarter profit and revenue came in higher than expected, and they raised guidance for the holiday quarter, Ron.
Ron Gross: I've never been a fan. [laughs] I don't understand why it's a standalone company.
Hill: Can I interest you in the stock up 33% in one week?
Gross: I'll give it to them. Smartwatch sales grew significantly over the quarter. They sold 3.5 million devices. Average selling price increased 3%. They're now the No. 2 player in the smartwatch space, having had zero share only 14 months ago, according to the company. That's pretty impressive. They've made some nice tuck-in acquisitions in the healthcare market. Healthcare grew 26% for them. It's still a relatively small piece of their revenue, but it's increasing. But hey, competition is pretty steep with Apple, Samsung.
It's interesting to me that they're a standalone company. I don't know if they will be forever. But good for them. It's a solid quarter.
Hill: When you look at the track record this company has had -- I'm thinking mainly of the stock and how it has struggled over the past couple of years -- I have to believe, or maybe I'm just hoping, that they are not taking the guidance raise lightly. The holiday quarter is so important for this company. If they can do this again in three months, they might actually have something.
Gross: It's interesting. Their guidance was mixed. Their earnings guidance going forward was better than expected, but their revenue guidance was light. They're hopefully being conservative on the top line.
Hill: MercadoLibre reported a loss for the third quarter, but overall sales came in higher than expected. Matt, we've always talked about MercadoLibre as being the Amazon of Latin America. You were saying before the show you don't think of them that way anymore.
Matt Argersinger: No, I don't, especially after this quarter. If you look at MercadoLibre's press release, the first six bullets of that press release didn't even mention the core e-commerce business. Instead, it talked about Mercado Pago and metrics like payments transactions, transaction volume, off-platform payments, mobile point of sale, mobile wallet, asset management. It's interesting. It reminds me, several years ago, before eBay and PayPal split, if you read eBay's conference calls or press releases, it spent most of the early part gushing about PayPal, not so much about the marketplace business. That's exactly what's happening with MercadoLibre. It points to the fact that payments and financial technology is becoming so crucial to the business.
The growth has been impressive. Total payments transactions were up 67%. On-platform payment volume reached almost $5 billion. Something noteworthy was that in September, the last month of the quarter, off-platform transactions exceeded marketplace transactions. In other words, more people are using Mercado Pago outside of MercadoLibre than using it inside MercadoLibre. It's not just the Amazon of Latin America. I think more and more, it's the PayPal of Latin America.
Jason Moser: They see opportunity in... payments. That's... interesting.
Argersinger: You know something about payments.
Hill: I was just going to say, it sounds like one more for the War on Cash.