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Why Is MercadoLibre Falling After Earnings?

By Matthew Frankel, CFP® - Mar 2, 2021 at 3:41PM

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The e-commerce and fintech company declined despite reporting triple-digit revenue growth.

What happened

The stock market was hovering near flat for much of the day on Tuesday, but Latin American e-commerce and fintech company MercadoLibre (MELI -6.97%) was a big underperformer. Shares were down by more than 4% at 3:15 p.m. EST and had been down by more than 5% earlier in the session.

So what

The short explanation for today's move is that MercadoLibre reported its fourth-quarter earnings on Monday after the market's close, and investors don't seem too thrilled with the results.

Packages on conveyor belts.

Image source: Getty Images.

At first glance, the numbers look pretty strong. In the fourth quarter, gross merchandise volume (GMV) on MercadoLibre's marketplace increased by a staggering 110% year over year. On the fintech side of the business, the Mercado Pago payments platform saw payment volume soar by 134% from the same quarter in 2019, and the most important component, off-platform volume, grew by 150%. In all, MercadoLibre's revenue climbed 149% year over year.

While it might seem odd that the stock would fall after numbers like that, there are a few potential reasons why we're seeing MercadoLibre sell off a bit. For one thing, while growth was impressive, some of the key numbers decelerated, such as off-platform payment volume, which grew by an even better 197% year over year in the third quarter.

In addition, while revenue surpassed expectations, earnings did not. MercadoLibre posted a surprise earnings loss, with EBIT margins falling from 7% in the third quarter to negative 2% in the fourth.

Now what

MercadoLibre's stock price is up by 165% over the past year, even after today's decline. While the earnings report was definitely strong, it wasn't exactly breathtaking compared to the company's past few quarters. While the long-term growth story remains intact, it's not completely surprising to see the stock cool off a bit today.

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