Shares of MercadoLibre (MELI +3.74%) were sliding today as a narrowing gross margin and expectations of slowing growth seemed to overshadow a strong quarter. The company's reported profit was also impacted by a one-time tax liability.
As a result, the stock was trading down 12.9% as of 10:31 a.m. ET.
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MercadoLibre's hot streak cools off
The Latin American e-commerce and digital payments specialist has been a top performer throughout its history and has delivered brisk growth coming out of the peak of the pandemic.
However, that wasn't enough to impress investors as high expectations were already baked into the stock.
On a reported basis, revenue rose 42% to $4.26 billion. That was up 83% on a currency-neutral basis as inflation in Argentina has skyrocketed. The result beat expectations for $4.12 billion.
Growth was strong in both e-commerce and fintech. Gross merchandise volume rose 40% on a reported basis to $13.5 billion, and total payment volume rose 57% to $56.5 billion.
However, the company's gross margin compressed by roughly 270 basis points due to lower shipping revenue, higher first-party revenue (which carries a lower margin than marketplace revenue), and a smaller contribution in credit revenue.
On a reported basis, net profit was flat due to the tax liability charge, but adjusted operating income improved by 78% to $572 million.
NASDAQ: MELI
Key Data Points
What's next for MercadoLibre
MercadoLibre doesn't give guidance, and investors seem to be concerned that it will be difficult for the company to maintain its blistering growth rate. One comment on its earnings call made it seem as though the company expected its units sold growth of 29% in the fourth quarter to slow in 2024 due in part to challenges in Argentina, which recently devalued its currency.
However, the overall business continues to execute well and high-margin businesses like advertising and strategic priorities like shipping are continuing to grow.
The 78% growth in adjusted operating income also shows the business executing effectively. Therefore, today's sell-off seems more like a blip than a reason to be concerned.
