There are special challenges for U.S. investors in assessing companies that do most or all of their business overseas. When the U.S. dollar is particularly strong against specific foreign currencies, it can have a huge impact on reported financial results, even when the underlying business is strong. From its perch in Latin America, MercadoLibre (NASDAQ:MELI) is especially prone to these impacts, given the volatility in many currencies in the region.
Coming into Tuesday's fourth-quarter financial report, MercadoLibre investors had hoped that the recent downturn in the company's financials in dollar terms would show signs of reversing. Not everything was perfect for the e-commerce giant, but signs of progress encouraged investors that the company's future looks brighter.
MercadoLibre finishes 2018 strong
The company's fourth-quarter numbers showed the continued disconnect between its reported U.S. dollar and local currency financials. Sales climbed almost 20% to $428 million, outpacing the $410 million that most of those following the stock were looking for. MercadoLibre did suffer a net loss of $2.3 million, which worked out to $0.05 per share, but that was slightly better than the $0.13 loss that represented the consensus forecast among investors.
That performance looked a lot better when you took out the impact of the U.S. dollar. On a currency-neutral basis, the e-commerce company's top line climbed 62%. Moreover, if you take out the $3.9 million in foreign exchange losses during the period -- due largely to the weakness of the Argentine peso -- MercadoLibre would've been profitable.
Looking at MercadoLibre's businesses offers another perspective. For the marketplace segment, gross merchandise volume for the quarter fell 11% to $3.23 billion, accelerating its pace of declines from previous periods. Yet there, too, currency-neutral growth came in at 18%. Items sold were up 5% to 85.6 million, and live listings picked up nearly 60% to 182.1 million. Unique buyers were higher by 7.5%, and MercadoLibre got good growth from its mobile marketplace platform. The company picked up 18.8 million new users during the period, finishing the year with 267.4 million users.
Elsewhere, MercadoPago saw huge growth. Total payment volume was higher by nearly $1 billion to $5.3 billion, and total payment transactions jumped by more than 70% to 125.6 million. In particular, MercadoPago picked up a lot of traction outside of MercadoLibre's marketplace, with off-platform users taking advantage of merchant services, point-of-sale devices, and mobile wallets.
In other areas, MercadoEnvios shipping counts climbed 29% to 62.1 million. Free shipping helped bolster those numbers, but huge gains in volume in Argentina, Mexico, Chile, and Colombia were particularly encouraging.
Can MercadoLibre recover fully in 2019?
CFO Pedro Arnt was happy with how things went. "During the fourth quarter," Arnt said, "we have continued our efforts to recalibrate our [profit & loss statement] with initiatives such as continued changes to our discounted shipping initiatives and free listing caps, which allowed us to improve enhanced marketplace monetization." Arnt was happy about how sales growth accelerated on a local-currency basis.
One thing that did come up several times during the report was MercadoLibre's initiative to offer flat listing fees in Brazil and eliminate low-priced items from its marketplace. That caused noticeable pressure on MercadoLibre's Brazilian results, but the company nevertheless seems confident that the end result will be more profitable business that could pave the way for similar initiatives in the e-commerce giant's other markets in the region.
MercadoLibre investors were excited about the company's progress, and the stock was higher by 5% in after-hours trading following the announcement. The e-commerce player has a long way to go before it can claim a complete turnaround, but so far, what it's saying is making shareholders more confident about its prospects in 2019.