One of the toughest things that companies in Latin America have historically had to deal with is the tendency of countries to make spot devaluations of their currency. Latin American e-commerce giant MercadoLibre (NASDAQ:MELI) has benefited from a relatively stable economic picture in Latin America, but nevertheless, the company has struggled with the weakness in some national economies, especially Venezuela. Coming into Wednesday afternoon's first-quarter financial report, MercadoLibre investors were already braced for some earnings declines because of the recent devaluation of the Venezuelan bolivar, but as it turned out, the company did a good job of overcoming those difficulties and produced substantial sales growth. Let's look more closely at MercadoLibre's latest results and what could lie ahead for the e-commerce specialist.
MercadoLibre rides higher
MercadoLibre posted strong numbers in the first quarter despite its challenges. Net revenue climbed 28% to $148.1 million, outpacing the 20% growth rate that most investors had expected to see. Net income fell to $1.7 million, but when you exclude the impact of the bolivar's devaluation, MercadoLibre's adjusted net income rose 14% to $34.6 million. Similar exclusions produce adjusted earnings of $0.78 per share, well above the $0.69 per share that MercadoLibre earned in last year's first quarter.
Operationally, MercadoLibre had some huge wins during the quarter. Items sold rose 26% from year-ago figures, with 22% more registered users compared to this time last year. Total payment volume under the company's MercadoPago payment program jumped 56%, surpassing the $1 billion mark despite the negative currency impacts, and in terms of local currency, payment volumes doubled on 62% higher transaction counts. MercadoPago's penetration rate climbed to 50% overall, and in the key Brazilian market, that figure rose to more than 90%. In addition, the MercadoEnvios shipping program kept gaining traction, with major milestones in Brazil, Argentina, and Mexico representing impressive adoption rates after just a few months of being available.
CFO Pedro Arnt was pleased with MercadoLibre's progress, citing "the roll-out of our enhanced marketplace services in the areas of payments, financing, shipping, and branded merchant offerings" as creating positive momentum for the company going forward. Arnt believes that continuing to execute on MercadoLibre's multifaceted strategy should keep investors happy with its success.
Where will MercadoLibre grow next?
Perhaps the biggest surprise about MercadoLibre's results is that they come in the face of tough conditions in many of its primary markets. Growth in Brazil in local-currency terms came in at 58% year-over-year, yet the South American giant's economy has struggled under the weight of a big hit to the natural resources markets on which it once relied. Similarly, growth in Argentina weighed in at 94%, even as international investors worry about the nation's potential to default on its sovereign debt obligations in the future. Mexico's growth rate of 32% is relatively tepid by comparison, but even it has had to deal with fallout from falling oil prices.
The good news, though, is that MercadoLibre's results point to the health of consumers in Latin American economies. Even as some of the best-known companies in Latin American nations come under pressure, MercadoLibre suggests that consumer activity has remained more consistent, and that's good news both for the company and for those economies' long-term prospects.
MercadoLibre's positive results helped send the stock higher in after-market trading, with shares climbing about 2.5% in the couple of hours following the announcement. With signs that the slumps in some of the biggest economies in the region could finally run their course and give way to improving conditions, MercadoLibre stands to benefit from any resulting uptick in consumer confidence and spending activity going forward.