Editor's note: This article has been corrected to note that MercadoLibre is scheduled to report Feb. 26.

While it's no secret that Amazon.com (NASDAQ:AMZN) is the undisputed champ in the U.S. digital sales arena, things are quite a bit different south of the border. In Latin America, the company goes toe to toe with local favorite MercadoLibre (NASDAQ:MELI). The company is the e-commerce leader in the region as ranked by unique visitors, as well as top dog in 10 of the 19 markets in which it operates. 

MercadoLibre has faced numerous challenges recently, including its decision to institute free and low-cost shipping to counter the threat from Amazon, and dealing with a recent accounting change that made revenue growth appear lower than in the past.

We'll get an update on these issues when MercadoLibre reports the financial results of its fourth quarter after the market close on Feb. 26. Let's recap the company's third-quarter results to see if they provide any insight into what investors can expect when the company reports Q4 earnings.

An animated mural depicting a number of household, clothing, and electronic items.

Image source: MercadoLibre.

Not as bad as it seemed

For the third quarter, MercadoLibre reported gross billings of $463 million, up 25% year over year, and up 48% on a currency neutral basis. Net revenue -- which incorporates the aforementioned accounting change -- grew to $355 million, up 17% year over year, exceeding analysts' consensus estimates of about $349 million. The loss per share hit $0.23 compared with a $0.63 gain in the prior-year quarter, but more than double the $0.10 loss per share expected by analysts.

Looking at merely the top- and bottom-line numbers fails to illustrate just how well MercadoLibre is actually doing. There are three metrics, however, that strip out the effects of accounting pronouncements and exchange rate volatility, providing a much clearer picture of the company's progress.

Metric

Q3 2018

Q3 2017

YOY Change

Confirmed registered users

249 million

201 million

24%

Items sold

84 million

74 million

13%

Payment transactions

104 million

62 million

67%

Data source: MercadoLibre Third-Quarter 2018 Financial Release. YOY = year over year.

As you can see from the above chart, user growth is doing nicely. MercadoLibre's confirmed registered users has grown about 20% or higher year over year for 28 consecutive quarters. Items sold slipped last quarter from its historical range of 40% or more. The company instituted a flat fee for smaller items to counter the impact of a postal rate hike in Brazil, its largest market.

Payment transactions continue to soar and represent a fast-rising business for the company. MercadoPago, MercadoLibre's payment solution, achieved payment volume of $4.6 billion, up 24% year over year in U.S. dollars, but a much more impressive 70% in local currencies. The fact that a growing number of brick-and-mortar merchants and digital sellers have adopted MercadoPago as a payment option in their physical and digital shops shows just how popular it has become.

During the month of September, the company reported that payments processed off-platform exceeded those processed on the site for the first time. Additionally, its mobile-point-of-sale segment (similar to Square) is quickly becoming one of the fastest-growing segments of the business and now represents more than 46% of total off-platform payment volume.

What the quarter might hold

MercadoLibre is renewing its focus on profitability, adjusting its operational and financial model to support sustainable yet profitable growth. The company doesn't provide quarterly guidance, but to put this in the context of investor expectations and the broader market sentiment, analysts' consensus estimates are calling for revenue of $411.66 million, a decline of 6% year over year, and a loss per share of $0.10.

While the company has dealt with a number of challenges over the past year -- trucker strikes, postal rate increases, changes to accounting presentation, and wild exchange rate fluctuations -- the underlying business remains strong. Watch user growth, items sold, and payment transactions to see how the business is really doing.

MercadoLibre is well positioned to take advantage of the nascent e-commerce market in Latin America while supplementing its sales with payments, shipping, fulfillment, and credit. With that many ways to win, my money's on MercadoLibre.