Throughout the latest earnings season, we've seen a number of companies that do business overseas take big hits from the strong U.S. dollar. For Latin American e-commerce specialist MercadoLibre (NASDAQ:MELI), dealing with currency pressures has been a constant struggle, as devaluations in some of South America's less-stable economies have had dramatic impacts on it and other businesses across the region.
Coming into Wednesday afternoon's fourth-quarter financial report, investors were confident that MercadoLibre could overcome currency headwinds to further its sales growth, and the company's results show solid success on the revenue front despite seeing the anticipated strain on net income. Let's take a closer look at how MercadoLibre did during the quarter, and what its future prospects look like.
MercadoLibre frees up its marketplace
On the top line, MercadoLibre surpassed all expectations, with sales growing almost 20%, to $161.4 million. That was nearly double the growth rate that investors had expected from the e-commerce company, and those figures were depressed due to ongoing challenges of the Venezuelan market. Net income, however, fell 16% from year-ago levels, with currency impacts accounting for about nine percentage points of that decline. Earnings of $0.76 per share were $0.04 below the consensus forecast.
Despite those mixed results, the details of MercadoLibre's report show some big successes during the quarter and throughout 2014. For the fourth quarter, the number of items the company sold jumped 27%, to 29 million, with the key Brazilian market growing at an even faster pace of nearly 33%. Gross merchandise volumes fell 16%, to $1.8 billion; but in local currency terms, volumes climbed 28% even after excluding the outlier impact of Venezuela. For the year, MercadoLibre topped the 100 million mark in items sold, with gross merchandise volume of $7.1 billion and an 18% jump in overall revenue.
The company's MercadoPagos payment service has also taken big strides toward greater adoption. Payment transactions climbed 58%, to 14.2 million, with total payment volume approaching the $1.1 billion mark, rising by nearly half despite the negative impact of the strong dollar. In addition, MercadoLibre's shipping service, MercadoEnvios, saw greater penetration, with its new launch in Mexico during the quarter. In Brazil, 35% of all sold items shipped through MercadoEnvios, and 14% of items in Argentina used the service.
CFO Pedro Arnt praised the company's results, seeing them as "a reflection of the ongoing success of the enhanced marketplace model we are deploying." Arnt also believes that MercadoLibre's strategic initiatives have potential to bring further growth in the years ahead.
Can MercadoLibre keep growing?
MercadoLibre certainly hasn't stopped looking to the future. The company's acquisition of Business Vision in December should help MercadoLibre bulk up its software development capabilities, which have become increasingly important as the company seeks to broaden its reach across the e-commerce spectrum. At the same time, stressing the value of customer service remains a key component of its overall strategy, even as it looks to build vertically integrated solutions that keep customers within the MercadoLibre ecosystem as long as possible.
Of course, one potential headwind for MercadoLibre remains the strong U.S. dollar. Investors have high hopes that the company will see a major earnings rebound in 2015. Given that much of the decline in earnings in 2014 came from Venezuela's devaluation, it's fair to hope that a repeat of that scenario won't hit MercadoLibre again in 2015. Nevertheless, with commodity markets still lagging, Latin America's growth rates could stay below their past levels, and that could weigh on customers' abilities to use MercadoLibre more extensively.
Despite those possibilities, though, investors seemed generally satisfied with MercadoLibre's results, as the stock climbed 3.5% in the first half-hour of after-hours trading following the announcement. MercadoLibre has a stranglehold on a key regional e-commerce market, and in the long run, that presence should pay off with sizable gains for the company's stock in the future.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends MercadoLibre. The Motley Fool owns shares of MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.