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Why Is Mercadolibre (MELI) Down 12.2% Since the Last Earnings Report?

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About a month has gone by since the last earnings report for Mercadolibre, Inc. (MELI - Free Report) . Shares have lost about 12.2% in that time frame, underperforming the market.

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

Recent Earnings

Mercadolibre reported mixed second-quarter 2017 results.

Adjusted earnings of 61 cents missed the Zacks Consensus Estimate by 41 cents while revenues of $317 million beat the same by $14 million.

In the quarter, top-line growth was substantially supported by solid momentum across all the key performance metrics. On a year-over-year basis, units sold grew 41%, gross merchandise volume (GMV) surged 56%, total payment volume grew 76% and total payment transactions increased 63%. Total confirmed registered users, unique buyers and unique sellers accelerated a respective 20.6%. 23.4% and 14.2% for the same time frame.

Mercadolibre continues to make advances with its newly deployed free shipping and loyalty program. In the quarter, the company launched this program in Brazil, Columbia and Chile. The company is also progressing well on the product front. Exiting the quarter, it launched its marketplace shopping cart in Mexico. The company’s mobile initiatives are also delivering results and currently represent two-third of all visitors on its platform and 43% of total GMV.

Revenues

Revenues were up 15.6% sequentially and 58.5% year over year. The improvement was driven by continued strength across multiple geographies.

By geography, Brazil contributed 57% of second-quarter revenues (up 12.7% sequentially and 75% year over year); Argentina accounted for 28% (up 23.3% sequentially and 30% year over year); Mexico brought in 6.4% (up 29.9% sequentially and 2976.3% year over year); Venezuela accounted for 4.5% (down 1.5% sequentially but up a massive 90.1% year on year) and other countries contributed 4.5% (up 10% sequentially and 39.1% year over year).

Margins

Non-GAAP gross profit was $171.6 million, up from $168.9 million in the previous quarter and $126.3 million in the year-ago quarter. Gross margin of 54.2% was down 744 basis points (bps) sequentially and 906 bps year over year. Adjusted operating expenses were $116.7 million, reflecting an increase of 10.6% sequentially and 54.6% year over year. Operating margin of 17.3% was down 579 bps sequentially and 812 bps year over year.

The year-over-year margin compression was due to increased investments toward free shipping and loyalty programs, marketing, chargebacks, as well as higher maintenance, hosting and fraud prevention cost. Pro forma net income was $26.9 million, down 44.5% sequentially and 17.8% year over year.

Balance Sheet

Mercadolibre exited the quarter with cash and cash equivalents of $382.8 million compared with $301.4 million in the prior quarter. The company does not have any long-term debt. Cash from operations was $121.6 million in the second quarter compared with $104.8 million in the prior quarter. Free cash flow was $99.8 million in the second quarter.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 34.3% due to these changes.

Mercadolibre, Inc. Price and Consensus

VGM Scores

At this time, Mercadolibre's stock has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% for this investment strategy.

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

The company's stock is suitable solely for growth investors based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. It's no surprise that the stock has a Zacks Rank #5 (Strong Sell). We expect below average returns from the stock in the next few months.




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