Shares of leading Latin American e-commerce and fintech behemoth MercadoLibre (MELI 4.88%) are down 13% this week as of 11 a.m. ET on Friday after the company reported fourth-quarter earnings Tuesday afternoon. MercadoLibre grew revenue by 45% in Q4, easily surpassing Wall Street's expectations. However, net income declined 13%, missing analysts' expectations, as the company spent heavily on an array of growth areas, weighing on overall profitability. While this short-term profitability weakness is valid to a degree, it was still an incredible quarter for the company.
NASDAQ: MELI
Key Data Points
In Q4, MercadoLibre:
- grew gross merchandise volume by 35% and unique active buyers by 24%
- increased total payment volume by 42% and fintech monthly active users by 27%
- saw its credit portfolio grow by 90% and assets under management jump 78%
- delivered advertising growth of 67%
- used AI assistants to solve 87% of Mercado Pago user interactions without human interaction
Image source: Getty Images.
While profitability did dip, spurring the market's adverse reaction, the company invested heavily in its free shipping ambitions, its first-party e-commerce operations, its nascent cross-border trade business, and its credit card offerings. As a shareholder, I'm happy to sacrifice some short-term profitability for the long-term potential of these growth areas, so I think this week's sell-off is a bit of an overreaction. For instance, MercadoLibre lowered its free shipping minimum in Brazil (for the third time) to roughly $4. This move hurts profitability today, but the company has already seen increased purchase frequency, stronger efficiencies logistically, and new buyers entering the ecosystem. Furthermore, MercadoLibre's Net Promoter Score reached new records in both e-commerce and fintech across Brazil, Mexico, and Argentina, underscoring its continued best-in-class performance at keeping customers happy.
MercadoLibre currently trades at 30 times forward earnings, which is really reasonable for a company that has grown its revenue by 30% or more for 28 straight quarters. With Latin American e-commerce penetration rates still only half those of the U.S., China, and the U.K., MercadoLibre's long-term growth story has plenty of chapters left. I'm happy to add to my holdings at this fair price.
