Investors in MercadoLibre (MELI) have been on a thrill ride for the last couple of years. After the Latin American e-commerce and payments giant reached all-time highs in early 2018, several unforeseen challenges sent the stock into a tailspin, and it shed more than 40% of its value. Those doubts evaporated in early 2019 as the company returned to profitability, reassuring Wall Street that its growth story wasn't over. Investors have since piled into the stock, which is up more than 100% so far this year and hit some new all-time highs.
Considering its recent sprint, MercadoLibre will have a lot to prove to investors when the company releases the results of its second quarter after the market close on Wednesday, Aug. 7. Let's take a look at MercadoLibre's Q1 results and what has investors so jubilant, to see if it provides any insight into what to expect when the company reports earnings.
For the first quarter, MercadoLibre reported net revenue of $474 million (up 48% year over year), marking its fastest growth rate in more than two years. While that was impressive enough, the results were even more remarkable when viewed in the local currencies, with growth of nearly 93%.
One of the primary contributors to the company's stellar results was its booming payments business. MercadoPago, which is modeled after PayPal (PYPL), achieved a total payment volume of $5.6 billion, up more than 82% in local currency.
The payment option has become so popular that it has moved off of MercadoLibre's platform and is now the method of choice for a growing number of e-commerce sites and brick-and-mortar businesses in Latin America. Off-platform payment volume grew 118% year over year in U.S. dollars (USD) and 194% in the local currencies, processing more than $2.5 billion over a whopping 88 million transactions.
That wasn't the only contributor. MercadoLibre's enhanced marketplace, which combines the e-commerce platform with its shipping and payment solutions, also saw robust growth, up 80% in USD and 128% in local currency.
The company's success carried through to the bottom line, with net income of $12 million and earnings per share of $0.13, compared to a loss of $13 million and $0.29 per share in the prior-year quarter.
A huge vote of confidence
Earlier this year, PayPal validated MercadoLibre's payments business when the company agreed to invest $750 million in MercadoLibre as part of the company's $1.85 billion capital raise. This fresh infusion of cash not only allowed MercadoLibre to further accelerate its expansion in the region but also brought in PayPal as a mentor and business partner.
PayPal CEO Dan Schulman said, "We see great opportunities to integrate our respective capabilities to create unique and valuable payment experiences for our combined 500 million customers throughout the region and around the world."
What the quarter could hold
MercadoLibre doesn't issue quarterly or full-year guidance, preferring instead to focus its energies on the longer term. In the absence of specific metrics from the company, we can turn to Wall Street, though we don't want to fall into its quarter-to-quarter mindset.
Analysts' consensus estimates are calling for second-quarter net revenue of $504.16 million, which would represent year-over-year growth of 50%, accelerating from the 48% pace the company achieved during the first quarter. Analysts are also expecting earnings per share of $0.25, up from a loss per share of $0.25 in the prior-year quarter.
Those are pretty ambitious targets, particularly on the revenue front. The 48% year-over-year revenue growth MercadoLibre generated in the first quarter was its best performance in over two years. Factor in the stocks gain of more than 100% so far this year, and investors may be expecting too much from MercadoLibre.
There's little doubt the growth story will be good, but with expectations that high, investors may be setting themselves up for a letdown.