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Nasdaq Drops Below 11,000 as MercadoLibre Earnings Disappoint; Ulta Looks Beautiful

By Dan Caplinger – Aug 10, 2020 at 4:58PM

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A market rotation appeared evident Monday.

For a long time now, the Nasdaq Composite (^IXIC) has been the ascendant stock market benchmark, dramatically outperforming its peers. Yet as we've seen on a few occasions more recently, the Nasdaq on Monday lost ground even as other measures of market performance climbed dramatically. By the end of the session, the Nasdaq Composite had fallen below 11,000, and the Nasdaq-100 Index had posted a roughly 0.5% decline.

One culprit that the Nasdaq is fighting against is an extremely high bar for many fast-growing companies listed on the stock exchange to overcome. That's what snared Latin American e-commerce company MercadoLibre (MELI 2.37%) on Monday. But Ulta Beauty (ULTA 0.33%) managed to press higher as positive signs of economic activity in the U.S. raised hopes for more widespread reopening measures across the nation.

When a boom is not enough

Shares of MercadoLibre dropped almost 6% Monday following the online retailer's second-quarter financial results. Even though growth remained strong, investors seemed unsatisfied.

The numbers from MercadoLibre were staggeringly good and showed the high demand for e-commerce during the coronavirus pandemic. Revenue soared 123% from year-ago levels. Unique active user counts were up 45% year over year, with gross merchandise volume climbing by nearly half even after accounting for local currency fluctuations. Total items sold doubled from the previous year's period.

Toy cart with box with Brazil flag on it, with several boxes nearby.

Image source: Getty Images.

Moreover, MercadoLibre's other business segments carried their weight. The Mercado Pago payment service saw payment volume jump 72% on a 123% rise in transaction counts. Off-platform use of Mercado Pago nearly doubled. Other key services saw similar gains.

MercadoLibre's executive team noted how the pandemic accelerated trends toward digital commerce in Latin America, and that was a key contributor to quarterly results. Yet even with that enthusiasm, shareholders took the opportunity to take profits on a stock that has soared well past the $1,000 per share mark since early July.

Reopening hopes send Ulta higher

Yet not everyone was downbeat about companies' prospects. Shares of Ulta Beauty were higher by 7% as investors tried to size up the chance that the growth stock would be able to fully open its store network in the near future.

Ulta got crushed during the early stages of the pandemic, as much of its business relies on in-person visits to its salons in stores. Yet the company has worked hard to innovate in an effort to sustain itself even during periods of store closures. Online tools to match up consumer preferences with cosmetic options have worked far better than many had expected, spurring greater use of Ulta's e-commerce portal.

Investors are also reacting positively to other encouraging signs in the economy. Greater levels of air travel suggest that Americans are getting more accustomed to returning to their normal lives even with the threat of coronavirus infection. If that translates to local officials being more lenient about beauty salons, then it could help restore Ulta's business back toward more typical levels.

There's definitely risk in that approach, as a new wave of COVID-19 cases could reverse reopening efforts. For now, though, Ulta shareholders are upbeat, and that's pushing the stock back toward higher levels.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends MercadoLibre and Ulta Beauty. The Motley Fool has a disclosure policy.

Stocks Mentioned

MercadoLibre Stock Quote
MercadoLibre
MELI
$884.24 (2.37%) $20.43
Ulta Beauty Stock Quote
Ulta Beauty
ULTA
$481.65 (0.33%) $1.60
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$10,958.55 (%)

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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