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Why Is MercadoLibre (MELI) Down 16.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for MercadoLibre (MELI - Free Report) . Shares have lost about 16.6% 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 the most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;">Mercadolibre reported second-quarter 2018 loss of 25 cents per share wider than the Zacks Consensus Estimate of a loss of 21 cents per share. The figure also compares unfavorably with the earnings of 12 cents in the year-ago quarter but came narrower than the loss of 29 cents in the previous quarter.<br /><br />Revenues increased 4.5% sequentially and 18.1% on a year-over-year basis (44% on an FX neutral basis) to $335.4 million, surpassing the Zacks Consensus estimate of $331.8 million.<br /><br />The company&rsquo;s strong performance across all geographies drove year-over-year top-line growth. Further, growing adoption of MercadoPago and robust shipments through MercadoEnvios contributed well to the reported quarter results.<br /><br />Additionally, the company&rsquo;s mobile-point-of-sale business gained traction during the second quarter and accounted for 43.3% of the total off-platform payment volume which remained positive throughout the quarter.<br /><br />All these factors aided growth in the company&rsquo;s gross merchandise volume (GMV) in the second quarter.<br /><br />Further, Mercadolibre experienced impressive year over year growth of 72% in its non-marketplace revenues which came in $179.2 million.<br /><br /><strong>Top Line in Detail</strong><br /><br /><strong>Brazil:</strong> Net revenues in the quarter were $195.8 million (58.4% of total revenues), up 24.6% year over year and 6.3% sequentially. Year-over-year growth was driven by improved GMV which surged 44% year over year. Revenues were further aided by strong sales of mPOS devices which led to 550% year-over-year growth in total payment volume (TPV). All these benefited the company&rsquo;s off-platform payment volume which soared 170% year over year.<br /><br />However, the company faced sluggish growth on a sequential basis in its metrics in the country due to increase in prices. Mercadolibre suffered from price hike by its postal partner and also the strike called by truckers during the second quarter. In the previous quarter, GMV grew 71%. Further, units sold increased 43% from the prior-year quarter but declined from 68% growth in the first quarter. All these factors impacted the shipping subsidies in the country.<br /><br /><strong>Argentina:</strong> This market generated $100.1 million revenues (29.8% of revenues), improving 13.7% year over year but declining 1.8% sequentially. Year-over-year growth can be attributed to robust GMV and units sold which grew 57% and 54% from the year-ago quarter, respectively. This was driven by free shipping and promotional initiatives. Further, significant growth in off-platform payment volume in Argentina reached 100% from the year-ago quarter. This was backed by TPV in mPOS segment which surged a massive 550% on a year-over-year basis. Moreover, rising shipment adoption via Mercadolibre&rsquo;s cross-docking centers remained positive.<br /><br /><strong>Mexico:</strong> Net revenues in the reported quarter were $17.5 million (5.3% of revenues), up 62% year over year and 2.3% sequentially. Year-over-year growth came on the back of robust unit sales which grew 91% from the prior-year quarter, primarily attributable to free shipping program which accounted for 92% of the total shipments. Additionally, GMV was up 73% from the year-ago quarter. The company witnessed strong performance by its mPOS segment which drove the revenues further.<br /><br /><strong>Other countries:</strong> These markets brought in $21.9 million revenues (6.5% of total revenues), surging 23% sequentially and 58.7% on a year-over-year basis. In Columbia, GMV and units sold grew 45% and 100% year over year, respectively.<br /><br />Additionally, Mercadolibre witnessed 82% year-over-year growth in units sold in Chile, owing to robust free shipping program and strong performance of MercadoPago. Furthermore, GMV in this country reflected a surge of 53% from the year-ago quarter.<br /><br /><strong>Key Metrics</strong><br /><br />GMV of $3.13 billion increased 15.2% year over year (35.9% on an FX neutral basis) and 0.3% sequentially. This was primarily attributed to increasing mobile penetration which reached 55% in the reported quarter.<br /><br />Total confirmed registered users at the end of the reported quarter were 234.9 million, improving 5.3% sequentially and 22.8% year over year.<br /><br />New confirmed registered users during the period were 11.8 million, increasing 5.3% sequentially and 31.2% on a year-over-year basis.<br /><br />Number of successful items sold was 85.4 million, up 6.6% sequentially and 38.9% year over year.<br /><br />Number of successful items shipped increased 0.6% sequentially and 58.1% year over year to 52.8 million. Growing penetration in free shipping, loyalty programs and customer acquisition initiatives drove the year over year growth.<br /><br />Total payment volume was up 8% sequentially and 40.6% on a year-over-year basis to $4.43 billion. This was attributed to strong performance of MercadoPago.<br /><br />Total volume of payments on marketplace was $2.8 billion up 27.3% year over year but declined 6.7% sequentially.<br /><br />Total payments transactions witnessed sequential and year-over-year growth of 15.1% and 64.1%, respectively, to 85.5 million.<br /><br />Unique buyers declined 0.6% sequentially but improved 15.7% year over year to 16.9 million. This was attributed to growth in unique buyers in Mexico, Chile, Argentina and Colombia. Unique sellers were 4.2 million, remaining flat year over year but declining 16% from the previous quarter.<br /><br /><strong>Operating Details</strong><br /><br />For the second quarter, gross margin was 47.6%, contracting 1280 basis points (bps) year over year. This can be attributed to increasing collection fees and cost related to transition of infrastructure on public clouds. Further, expenses related to mPOS devices and issuance of MercadoPago credit and debit cards lowered the margins.<br /><br />Adjusted operating expenses came in $188 million (56% of total revenues), reflecting an increase of 35.5% year over year.<br /><br />The company reported operating loss of $28.2 million against the year-ago quarter profit of $30 million.<br /><br /><strong>Balance Sheet &amp; Cash Flow</strong><br /><br />As of Jun 30, 2018, cash and cash equivalents were $489.1 million, increasing from $350.4 million as of Mar 31, 2018. Short-term investments were $69.4 million, down from $159.5 million in the previous quarter.<br /><br />In the second quarter, cash generated from operations was $144.2 million compared with $37 million of cash used in operations during the first quarter.</p>

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -95.29% due to these changes.

VGM Scores

At this time, MercadoLibre has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 D. 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 indicates a downward shift. It's no surprise MercadoLibre has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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