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Zoom, MercadoLibre Smack Nasdaq Despite Earnings Strength

By Dan Caplinger - Mar 2, 2021 at 2:52PM

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Growth stocks are under siege once again.

After an amazing first day of the month, stocks moved back lower on Tuesday. Once again, the Nasdaq Composite (^IXIC -1.78%) took the brunt of the hit, falling more than 1% even as other major stock benchmarks had only fractional percentage declines.

What's interesting about the Nasdaq's behavior lately is that a bunch of high-growth stocks have seen their share prices fall even after delivering strong financial results. That trend continued on Tuesday, as both Zoom Video Communications (ZM -3.21%) and MercadoLibre (MELI -5.22%) revealed amazing performance to close out 2020. Yet both stocks were down significantly on the day. Here's a closer look.

Zooming up and down

Shares of Zoom Video Communications fell nearly 5% Tuesday afternoon. That drop came after an initial rise that took the stock as much as 10% higher in after-hours trading immediately after the video conferencing specialist's results were made public Monday afternoon.

You might never again see numbers like the ones Zoom released. Revenue soared 369% in the fourth quarter, closing a year with total sales gains of 326%. Adjusted operating income soared 839% for the quarter and more than 1,000% for the full year. Quarterly adjusted earnings jumped eightfold year over year to $1.22 per share.

Person at desk on Zoom call with 12 other people.

Image source: Zoom Video Communications.

Zoom continued to see adoption levels rise. The company boasted more than 467,000 customers with more than 10 employees, more than quintuple year-ago levels. Nearly 1,650 of those customers brought in more than $100,000 in annual revenue, up 156% from the fourth quarter of Zoom's previous fiscal year. Moreover, net dollar expansion rates remained above 130% for the 11th quarter in a row.

Investors still seem convinced that Zoom won't be able to adapt to a post-pandemic world. Yet it was growing before the pandemic, and this use case should keep it on the move higher long after COVID-19 is finally brought under control.

Heading south

Meanwhile, MercadoLibre shares were down more than 4%. The Latin American e-commerce giant put in another solid quarter of impressive growth, but shareholders focused on a couple of concerns in the numbers.

MercadoLibre's business was on fire to finish 2020. Gross merchandise volume rose 70% to $6.6 billion, with the service boasting 74 million unique active users and almost 230 million items sold. Live listings on the site exceeded 275 million. The Mercado Envios shipping service handled 214 million items, up more than 130% year over year. Total payment volume on Mercado Pago was up 84% to $15.9 billion, with almost 660 million payment transactions occurring for the period. Those figures helped boost MercadoLibre's sales as well, as net revenue almost doubled to $1.3 billion.

However, some clouds overshadowed MercadoLibre's report. The company lost more than $50 million in the quarter, which wasn't as good as some had hoped. In addition, growth in fintech revenue was up at a 60% pace, less than half what the e-commerce side of the business generated. Many see MercadoLibre's most valuable business being Mercado Pago, so signs that the payment network's growth might be slower than the rest of the business weren't entirely welcome.

Don't panic

Investors should remember that both MercadoLibre and Zoom saw amazing share-price gains in 2020. It's therefore not surprising to see pullbacks as financial results catch up with those stock rises. If Zoom and MercadoLibre keep executing as well as they have, then there should be more gains to come for both companies and their stocks.

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Stocks Mentioned

Zoom Video Communications Stock Quote
Zoom Video Communications
ZM
$115.98 (-3.21%) $-3.84
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,319.68 (-1.78%) $-204.87
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$679.84 (-5.22%) $-37.47

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

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