This International Fintech Battle Just Heated Up

Wednesday was a shock to the stock market, with most market commentators pointing to Fitch Ratings' downgrade of U.S. government debt as the catalyst for a broad move lower for stocks. Declines of 1% to 2% for the Dow Jones Industrial Average (^DJI 0.40%), Nasdaq Composite (^IXIC 2.02%), and S&P 500 (^GSPC 1.02%) showed how widespread the pressure was on markets.

Data source: Yahoo! Finance.

After the end of the regular trading session, a pair of fintech stocks reported their latest financial results. PayPal Holdings (PYPL 2.90%) has had a tough couple of years, and prospects for the electronic payments pioneer didn't seem to improve much in shareholders' eyes after its latest report.

However, MercadoLibre (MELI 3.09%) moved in the other direction, lifted both by its namesake e-commerce marketplace and Mercado Pago payment service. Here's everything you need to do know about the head-to-head fintech battle and what it means for the rest of the industry.

PayPal can't catch a break

Shares of PayPal Holdings dropped 7% in after-hours trading on Wednesday afternoon. The company's second-quarter financial results weren't bad but still didn't show as much of a rebound as some investors have waited a while to see.

PayPal reported an 11% rise in total payment volume to $376.5 billion in the second quarter, which translated to net revenue of $7.3 billion, up 7% year over year. Gains on the bottom line were even more impressive, with adjusted earnings of $1.16 per share rising 24% from year-ago levels.

The company handled 6.1 billion payment transactions during the quarter. Total active accounts were up just 2 million from 12 months ago to 431 million, but activity within those accounts was up, with an average of 54.7 payment transactions per account.

However, some investors weren't happy with sequential trends, particularly with respect to profitability. PayPal's adjusted operating margin rose from 19.1% a year ago to 21.4% in the second quarter, but that was down from 22.7% in the first quarter of 2023. PayPal has had to increase loss provisions for loans that it has made to merchants, and the prospect of further deterioration in economic conditions could put further pressure on margins looking ahead.

PayPal has largely missed 2023's stock market rebound, and its shares are well below their highs from 2021. With CEO Dan Schulman set to leave the company at the end of 2023, there are still a lot of questions that PayPal will have to answer.

MercadoLibre gets back in gear

Meanwhile, shares of MercadoLibre were higher by 5% in after-hours trading. The Latin American e-commerce retailer and payment processor saw a nice boost across its ecosystem during the second quarter.

MercadoLibre's numbers were strong. Total payment volume nearly doubled to $42.1 billion, while gross merchandise volume of sales on the e-commerce platform climbed 47% year over year to $10.5 billion. That resulted in a 57% rise in net revenue to $3.4 billion, and net income more than doubled to $262 million, or $5.16 per share.

Brazil and Mexico have been the two key markets for MercadoLibre lately, contributing the most to its profit growth. Mercado Pago has also been a key driver, with net interest margin spreads climbing substantially, even as non-performing loan levels remain relatively stable. In particular, credit card issuance in Brazil has contributed to profitability, and MercadoLibre is growing its presence in Mexico's consumer credit market, as well.

MercadoLibre sees a lot of growth ahead for e-commerce, payments, and logistics. The ecosystem makes MercadoLibre strong, and that's what investors appreciated in today's results.