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How MercadoLibre Shares Rose 46% Last Month

By Anders Bylund – Jun 5, 2020 at 9:59AM

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Latin America's largest e-commerce company used the coronavirus situation to boost its future growth trajectory.

What happened

Shares of MercadoLibre (MELI 0.67%) gained 46% in May 2020, according to data from S&P Global Market Intelligence. The surge hinged on a great first-quarter earnings report, which sent the stock 20% higher in a single day.

So what

The leading e-commerce specialist in Latin America saw the bottom line swing from earnings of $0.13 per share to a net loss of $0.44 per share, but that was still better than the $0.48 loss per share that the analyst consensus was pointing to. More to the point, MercadoLibre's sales jumped 38% higher year over year to $652 million. Here, your average analyst would have settled for $634 million.

Now what

MercadoLibre started to see headwinds from the COVID-19 health crisis in March. The company was quick to let 9,000 employees work from home, and the MercadoLibre logo changed from a handshake to an elbow-to-elbow greeting in order to strengthen the social distancing idea. A new branding campaign centered around the slogan, "Stay at home, we are still delivering."

Two versions of MercadoLibre's logo, one with a handshake and one with an elbow bump.

Image source: MercadoLibre.

MercadoLibre is making the best of a difficult situation, and the soft revenue trend in March was followed by a strong rebound in April. We should expect the bottom line to stay negative for the foreseeable future, though. The company is pouring every peso of potential profits into growth-accelerating business expenses such as large marketing campaigns. The first-quarter sales-and-marketing budget rose 58% year over year, outpacing the 38% revenue increase by a wide margin.

The next quarter or two should continue that positive trajectory. MercadoLibre investors have now pocketed a 47% return in 2020.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends MercadoLibre. The Motley Fool has a disclosure policy.

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Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
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