MercadoLibre's (MELI 1.08%) stock sank 10% on Feb. 23 in response to its fourth-quarter earnings report. The Latin American e-commerce leader's revenue rose 42% year over year (83% on a currency-neutral basis) to $4.26 billion and exceeded analysts' estimates by $130 million. However, its diluted earnings stayed flat at $3.25 per share and broadly missed the consensus forecast of $7.17 per share.
That earnings miss was jarring, but a closer look indicates its core business is still firing on all cylinders. Let's review five reasons to ignore the bears and buy MercadoLibre after its post-earnings dip.
Image source: Getty Images.
1. Its earnings miss was caused by one-time tax liabilities
MercadoLibre's Q4 earnings were weighed down by $351 million in one-time tax liabilities, which caused its operating income to decline 31% year over year to $240 million. As a result, its operating margin shrank from 11.6% to 5.6%.
But excluding those one-time expenses, its operating income would have risen 69% year over year to $591 million and boosted its operating margin to 13.4%. It would also have likely met or beaten Wall Street's earnings expectations.
NASDAQ: MELI
Key Data Points
2. It's stayed profitable for three straight years
MercadoLibre's earnings growth hit an unexpected speed bump in the fourth quarter, but its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 83% and its earnings per share (EPS) still surged 104% on a generally accepted accounting principles (GAAP) basis for the full year. That marked its third consecutive year of GAAP profitability.
It accomplished that bottom-line growth by selling more profitable products on its first-party marketplace while it expanded its higher-margin third-party marketplace, credit business, and integrated advertising platform. Its market share also continued to grow, and economies of scale diluted its shipping, payment processing, and marketing expenses.
3. Its top-line growth is still accelerating
A closer look at MercadoLibre's key performance metrics indicates its core business is still healthy. Its year-over-year growth in gross merchandise volume (GMV), total payment volume (TPV), and unique active users all accelerated in currency-neutral terms over the past year. Its revenue growth accelerated for two consecutive quarters.
|
Metric |
Q4 2022 |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2024 |
|---|---|---|---|---|---|
|
GMV growth (YOY) |
35% |
43% |
47% |
59% |
80% |
|
TPV growth (YOY) |
80% |
96% |
97% |
121% |
153% |
|
Unique active users growth (YOY) |
18% |
25% |
30% |
36% |
49% |
|
Revenue growth (YOY) |
57% |
58% |
57% |
69% |
83% |
Data source: MercadoLibre. Currency-neutral terms. YOY = Year-over-year.
Its three largest markets -- Brazil, Mexico, and Argentina -- continued to grow rapidly amid tough macro challenges and inflationary headwinds. Its digital payments platform, Mercado Pago, which processes payments for its marketplace as well as third-party businesses, also set a fresh record of 50 million active users in a single quarter.
4. It still has plenty of room to grow
MercadoLibre served 218 million unique active users across its e-commerce and fintech platforms in 2023, but it has plenty of room to grow. According to Mordor Intelligence, the Latin American e-commerce market could expand at a compound annual growth rate (CAGR) of 19% from 2023 to 2028 as internet penetration rates and income levels climb. Its growth could also surge in U.S. dollar terms if its top markets -- especially Argentina -- tame inflation and stabilize their volatile currencies.
5. Its stock is still reasonably valued
For 2024, analysts expect MercadoLibre's revenue to rise 22% in USD terms, its adjusted EBITDA to grow 27%, and for its GAAP EPS to climb 70%. Based on those expectations and its enterprise value of $78 billion, MercadoLibre's stock trades at 4 times next year's sales, 23 times its adjusted EBITDA, and 49 times forward earnings.
Those valuations aren't cheap, but they're very reasonable relative to its growth rates. Amazon -- which is growing a lot slower than MercadoLibre -- trades at 3 times this year's sales and 42 times forward earnings.
A great growth stock with plenty of upside potential
MercadoLibre's stock has already rallied nearly 50% over the past 12 months, but it still has plenty of upside potential. Its stock might remain volatile, but investors who ignore the bears and buy these dips could be well rewarded in the future.
