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MercadoLibre (MELI) Down 7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for MercadoLibre (MELI - Free Report) . Shares have lost about 7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is MercadoLibre due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

MercadoLibre's Q2 Earnings & Revenues Beat Estimates

MercadoLibre reported second-quarter 2020earnings of $1.11 per share, beating the Zacks Consensus Estimate of 10 cents. Further, the bottom line improved 258.1% from the year-ago quarter. Notably, the company reported a loss of 44 cents per share in the previous quarter.

Revenues surged 61.1% on a year-over-year basis (123.4% on an FX neutral basis) to $878.4 million. Moreover, the figure surpassed the Zacks Consensus Estimate of $790.8 million.

The top line was driven by accelerating commerce and fintech revenues, which grew 79.5% and 34.1% year over year, respectively.

Moreover, increasing total payments volume (TPV) courtesy of robust Mercado Pago and mobile-point-of-sale (MPOS) business remained a major positive. Moreover, solid TPV growth via Mobile Wallet contributed to the results.

Additionally, increasing traffic and engagement rate by buyers on the company’s online retail platform was a major positive. This increase can be attributed to boom in e-commerce space owing to the coronavirus-induced social distancing and stay-at-home restrictions.

Further, the company’s rising gross merchandise volume (GMV), courtesy of accelerating mobile GMV, which contributed 69.4% to total GMV. Further, mobile GMV soared 272.8% year over year.

Also, strong momentum across free shipment program led to robust shipments growth via Mercado Envios during the reported quarter. Growing penetration of managed networks was also a tailwind.

Quarter in Detail

Brazil: Net revenues in the secondquarter were $465.3 million (52.9% of total revenues), up 37% year over year. This can be attributed to GMV in the country, which improved 58% year over year, courtesy of growing number of items sold in this region. Notably, the company witnessed growing penetration of its fast delivery services especially same day deliveries in the country, which contributed to the results.

Argentina: This market generated revenues of $239.2 million (27.2% of revenues), which soared 110% year over year. The company witnessed solid growth in GMV in this country, which skyrocketed 230% year over year on account of robust marketing campaigns. Accelerating off-platform TPV contributed significantly to the company’s top line in this particular country during the reported quarter.

Mexico: Net revenues in the reported quarter were $125.9 million (14.4% of revenues), up 96% year over year. This primarily came on the back of robust GMV, which improved 122% from the prior-year quarter.

Other countries: These markets generated revenues of $47.9 million (5.5% of total revenues), climbing 83.7% on a year-over-year basis. Notably, the combined GMV of Colombia and Chile surged 200% from the year-ago quarter.

Key Metrics

GMV of $5.04 billion improved 48.5% year over year and 101.5% on FX neutral basis.

New confirmed registered users during the period were 16.9 million, increasing 36.3% on a year-over-year basis.

Number of successful items sold was 178.5million, up 101.2% year over year. Moreover, number of successful items shipped surged 124.4% year over year to 157.5 million. This can be attributed to strong performance of Mercado Envios and optimization strategies for the company’s free shipping program.

Total payment volume (TPV) was up 72.1% on a year-over-year basis to $11.2billion, driven by strong performance of MercadoPago. Further, off-platform payments volume (online-to-offline) that grew 92.1% from the year-ago quarter remained positive.

Additionally, MPOS business witnessed TPV growth of 80.1% year over year. Further, rapid adoption of MercadoLibre’s Mobile Wallet generated $2.1billion in transactions, up 373.2% year over year. Further, user base of mobile wallet climbed 109.3% from the year-ago quarter.

TPV on marketplace was $4.8 billion, up 52.7% year over year. Further, total payments transactions increased 122.9% year over year to 404.8 million.

Unique active users totaled 51.5 million, up 45.1% year over year.

Operating Details

For the second quarter, gross margin was 48.6%, contracting 140 basis points (bps) year over year. This can be attributed to rising warehousing and fulfilment costs.

Operating expenses as a percentage of total revenues were 37.3%, contracting significantly from 52.3% in the prior-year quarter.

The company generated $99.4 million of income from operations in the second quarter, against the year-ago quarter’s loss of $12.5 million.

Balance Sheet

As of Jun 30, 2020, cash and cash equivalents were $1.2 billion, improving from $1.1 billion as of Mar 31, 2020.

Short-term investments were $2.1 billion in the second quarter, up from $1.6 billion in the previous quarter.

Accounts receivable amounted to $42.4 million, up from $34.1 million in the first quarter. Further, inventory at the end of the second quarter was $20.8 million, up from $12.1 million at the end of prior quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted 66.32% due to these changes.

VGM Scores

At this time, MercadoLibre has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, MercadoLibre has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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