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Why MercadoLibre Stock Pulled Back Today

By Jon Quast - Updated May 6, 2021 at 4:02PM

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The company's growth rate looks great compared to last year, but business was a little better last quarter.

What happened

Shares of MercadoLibre (MELI 4.71%), a marketplace platform and payments processor in Latin America, pulled back on Thursday after the company reported its financial results for the first quarter of 2021. The company reported phenomenal first-quarter growth but didn't give guidance. And considering it's coming off a big year, investors might be getting worried about future growth. This caused MercadoLibre stock to drop 5% as of 3 p.m. EST today.

So what

MercadoLibre is both an e-commerce platform and a fintech company, providing exposure to two key secular growth trends. On the e-commerce side, the company's first-quarter gross merchandise volume (GMV) was up 114% year over year in local currency. On the fintech side, its total payment volume (TPV) was up 129%. In short, both sides of the business are thriving compared to last year.

An investor places his hands on his cheeks in frustration with a down stock chart in the background.

Image source: Getty Images.

Even though business is booming for MercadoLibre, the stock pulled back. But this might have more to do with the market than the company. Businesses like MercadoLibre have thrived because of the digital transformation pushed forward by the pandemic. Investors are increasingly worried these businesses won't be able to sustain growth rates in 2021, sparking a sell-off.

Analysts are worried, too, lowering their price targets for many companies. But with MercadoLibre, they seem reluctant to lower them too much. For example, according to The Fly, an analyst with Credit Suisse just lowered its price target on MercadoLibre stock from $1,850 per share to $1,824 -- a trivial difference of just 1.4% and still presenting compelling upside from today's price. 

MELI Chart

MercadLibre stock is still outperforming the market average over the last 12 months. MELI data by YCharts.

Now what

For MercadoLibre, both GMV and TPV were up year over year, but these metrics were down from the previous quarter. There's nothing too alarming about that -- after all, the fourth quarter is typically a time of heavy spending with holidays. However, long-term investors should keep an eye on user metrics.

MercadoLibre finished the first quarter with almost 70 million unique active users on its platform -- up almost 62% year over year. But this is down slightly from the 74 million active users it had in the previous quarter. Latin America is in the early innings of e-commerce and fintech adoption, so you'd expect MercadoLibre to consistently win new users. Therefore, this modest drop was a little surprising to me.

There's no reason to hit the panic button yet on MercadoLibre stock, and first-quarter results were quite good. But it's worth monitoring its overall user metrics in the coming quarters. 

Jon Quast 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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