Shares of MercadoLibre (MELI 6.58%) tumbled out of the gate on Wednesday, falling as much as 14%. As of 11:36 a.m. ET, the stock was still down 10.6%.
The catalyst that sent the online retail and fintech specialist lower was its quarterly financial report, which investors found wanting.
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A mixed bag
For the fourth quarter, MercadoLibre generated revenue of $8.8 billion, up 45% year over year in local currencies. The results were fueled by e-commerce revenue that grew 37% and fintech revenue that surged 61%. The company also generated operating income of $889 million, up 8%, resulting in quarterly net income of $494 million. This resulted in earnings per share (EPS) of $9.74, which tumbled 13%.
To put those numbers in context, analysts' consensus estimates were calling for revenue of $8.56 billion and EPS of $11.66, so investors were clearly focused on MercadoLibre's bottom-line miss.
NASDAQ: MELI
Key Data Points
That said, many of the company's operating and financial metrics were strong. Gross merchandise volume (the total value of products sold on its digital retail platform) was $19.9 billion, up 37% year over year in local currencies, fueled by 83 million unique buyers, up 24%. Total payment volume (TPV) of $83.7 billion climbed 53%.
CFO Martin de los Santos attributed the margin compression to MercadoLibre's decision to lower the threshold for free shipping and the expansion of its cross-border credit card business, which the company views a its "greatest long-term growth opportunity." By attracting new users and locking them into the ecosystem, MercadoLibre increases the lifetime value of each customer. He went on to say that those initiatives resulted in a margin compression of 5 to 6 points. MercadoLibre has a long and successful history of expanding its customer base to accelerate its growth, and that was on full display in Q4.
At 42 times forward earnings, MercadoLibre might seem expensive, but its multiple hasn't been this low since 2018. That allows patient investors to profit from the market's short attention span. Furthermore, given MercadoLibre's long track record of execution, I would suggest the premium is well deserved.
