A month has gone by since the last earnings report for MercadoLibre, Inc. (MELI - Free Report) . Shares have lost about 3.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is MELI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Mercadolibre reported first-quarter 2018 loss of 29 cents per share, comparing unfavorably with the Zacks Consensus Estimate for profit of 48 cents per share. The company reported earnings of $1.1 in the year-ago period and 20 cents in the previous quarter.
Revenues declined 10.4% sequentially but increased 19% on a year-over-year basis (30.1% on an FX neutral basis) to $321 million, which missed Zacks Consensus estimate of $421.6 million.
The year-over-year growth was driven by the company’s strong performance across all geographies with the help of its free shipping program and growing adoption of MercadoPago which benefited the gross merchandise volume (GMV).
However, mounting expenses, interest accrual on convertible bonds and increase in income tax dampened the company’s performance in the quarter.
Top Line in Detail
Brazil: Net revenues in the quarter were $184.2 million (almost 57.3% of total revenues), up 15.3% year over year but down 6.6% sequentially. The year-over-year growth was driven by strong GMV which grew 71% year over year and improved sale of mobile-point-of-sale (mPos) devices in this market. Also, total payment in mPos segment grew 450% on a year-over-year basis.
Further, units sold increased 68% from the prior-year quarter. This was attributed to Mercadolibre’s free shipping program which benefited its customer base, although free shipping cost in the reported quarter increased 42.1% from the previous quarter which led to the sequential decline in revenues from this region.
Argentina: This market generated $101.9 million revenues (31.7% of revenues), which improved 42.7% year over year but declined 6.3% sequentially. The year-over-year growth was attributed to improved GMV and units sold which grew 53% and 44% from the year-ago quarter, respectively. This was driven by free shipping and loyalty program called Mercado Puntos.
Mexico: Net revenues in the reported quarter were $17.1 million (5.3% of revenues), up 51.3% year over year but declined 3.4% sequentially. The year-over-year growth was driven by robust shipment which grew 183% from the prior-year quarter, primarily attributed to free shipping program. Further, units sold in Mexican market grew strongly 106% year over year. Also, GMV was up 77% from the year-ago quarter.
Other countries: These market brought in $17.8 million revenues (5.5% of total revenues), which declined 3.2% sequentially but improved 39.1% on a year-over-year basis. Strong growth in units sold with the help of free shipping program was the growth driver in these countries. The program contributed 77% and 50% to the total merchandise volume in Chile and Columbia, respectively.
Mercadolibre witnessed 83% year-over-year growth in units sold in Chile. Also GMV in this country reflected 58% surge from the year-ago quarter. In Columbia, GMV and units sold grew 44.6% and 68% year over year, respectively.
GMV of $3.1 billion increased 34% year over year (42.7% on an FX neutral basis) but decreased 13.9% sequentially.
Total confirmed registered users at the end of the quarter were 223.1 million, improving 5.3% sequentially and 22.4% year over year.
New confirmed registered users during the period were 11.2 million, increasing 4.8% sequentially and 38.3% on a year-over-year basis.
Number of successful items sold was 80.1 million, down 1.3% sequentially but up 50.6% year over year.
Number of successful items shipped increased 8.7% sequentially and 92.3% year over year to 52.5 million. The year-over-year surge was driven by growing penetration in free shipping and loyalty program.
Total payment volume was down 4.6% sequentially but up 57.7% on a year-over-year basis to $4.1 billion.
Total volume of payments on marketplace was $3 billion up 66.7% year over year and flat sequentially.
Total payments transactions saw sequential and year-over-year growth of 1.5% and 68.5% respectively, to 74.3 million.
Unique buyers declined 3.9% sequentially but improved 27.8% year over year to 17 million. Unique sellers were 5 million, up 8.7% sequentially and 21.9% year over year.
For the first quarter, gross margin was 50.7%, which expanded 420 basis points (bps) but contracted 1190 bps year over year. This year over year contraction was due to growing investments in customer services, increasing collection fees and cost of hardware sale.
Adjusted operating expenses came in $192.2 million (59.9% of total revenues), reflecting an increase of 5.5% sequentially and 82.9% year over year.
The company reported operating loss of $29.4 million as against the profit of $63.3 million in the year-ago quarter. The figure was narrower than the loss of $64.6 million in the previous quarter.
Loss was incurred due to increasing investments in branding and customer acquisition, growing general and administrative expenses and bad debt provisions. Also, increasing spending on buyer protection remained negative.
Balance Sheet & Cash Flow
As of Mar 31, 2018, cash and cash equivalents were $350.4 million, compared with $388.2 million as of Dec 31, 2017. Short-term investments were $159.5 million, down from $209.4 million in the previous quarter.
Cash used in operations was $37 million in the first quarter compared with $269 million of cash provided by operations in the previous quarter.
Mercadolibre paid $6.6 million as dividends which remained flat year over year.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been four revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 116.2% due to these changes.
MercadoLibre, Inc. Price and Consensus
At this time, MELI has a subpar Growth Score of D, though it is lagging a bit 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 fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise MELI has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.