Meli Stuff
Image: MercadoLibre.

A troubled economy makes it difficult for any retailer to get people to buy goods. Latin American e-commerce giant MercadoLibre (NASDAQ:MELI) has pegged its growth to the health of the local economy for years, and until recently, that has been a winning move. Coming into Wednesday afternoon's second-quarter financial report, MercadoLibre investors hoped that the company would put Latin America's economic woes behind it and find a way to boost both revenue and net income considerably. Although MercadoLibre reversed a year-ago loss with a solid profit, it wasn't as large as most had expected, and despite some encouraging signs of success, the e-commerce company now faces some tough long-term questions. Let's take a closer look at how MercadoLibre did and what it's likely to see going forward.

MercadoLibre has a mixed quarter
MercadoLibre's second-quarter numbers featured good top-line growth but difficult results on the profit line. Net revenue climbed 17% to $154.3 million, which was quite a bit higher than the 12% growth that most investors were expecting from the e-commerce company. Currency devaluations weighed on net income, however, with $19.5 million representing a nearly 40% decline from 2014's second quarter after making adjustments to reflect the charges MercadoLibre took in last year. Earnings of $0.44 per share were more than a third less than the consensus forecast of $0.68.

Operationally, MercadoLibre once again posted impressive figures that showed it's still on track with its long-term strategy. Growth in items sold accelerated during the quarter, rising 28% to move above the 30 million mark. Although gross merchandise volume was down in dollar terms, it was up 85% using local currencies. Total payment volume for MercadoPago, the e-commerce company's payment program, climbed to $1.21 billion, up 53% in dollar terms, and its penetration on the MercadoLibre platform climbed to 57% thanks to the launch of its latest version in Chile. The MercadoEnvios shipping program has become ever more popular, with more than 40% of all items sold in the key markets of Brazil, Argentina, Mexico, and Colombia using the shipping service.

MercadoLibre's new financing options have also done well. By offering interest-free financing in Brazil, Mexico, and Chile, the company has seen more sellers using the service and accounting for a larger portion of overall sales. The Official Stores initiative has brought nearly 1,000 brands and large retailers onto the platform, and the Classifieds business has also posted solid growth of 19% in the auto sector and 14% in real estate.

CFO Pedro Arnt expressed his optimism at MercadoLibre's ability to overcome tough macroeconomic conditions. In Arnt's words, "We will continue the task at hand of building out and investing behind our enhanced marketplace vision and overall ecosystem, with the increased confidence that these solid results have given us."

Can MercadoLibre get its earnings growing faster?
MercadoLibre covers a huge swath of Latin America, and so it has to deal with vastly different market conditions in the different countries it serves. Net revenue growth in local-currency terms has come predominantly from Venezuela, which saw its figures nearly quadruple from year-ago levels. Yet the devaluations that Venezuela has suffered make those figures less impressive. Similarly, ongoing turmoil in Argentina makes the 90% growth rate there a little less meaningful. More modest growth rates of 26% in Mexico seem more in line with constant-currency conditions, although the Brazilian market has stayed resilient, maintaining its 58% growth rate. For the most part, those growth rates didn't slow markedly during the period, with the biggest hits coming from MercadoLibre's other markets outside its four main countries.

Nevertheless, MercadoLibre continues to get more popular. The total confirmed users at the end of the period soared by 21% to 132.3 million, setting the stage for further gains once economic conditions recover. Even if consumers aren't in a position to use MercadoLibre's services now, just being aware of the company should lead to growth later.

MercadoLibre's big earnings miss initially sent the stock tumbling, but a decline of around 5% in the opening minutes of the after-market session quickly reversed course, and shares were down less than 1% an hour following the announcement. Even with short-term disappointment, investors in MercadoLibre can see the long-term potential the company has. Once economic conditions improve, MercadoLibre should be among the first companies to see marked benefit.

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.