A month has gone by since the last earnings report for MercadoLibre (MELI - Free Report) . Shares have added about 3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MercadoLibre due for a pullback? 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 Reports Loss in Q3, Revenues Up Y/Y
MercadoLibre reported third-quarter 2018 loss of 23 cents per share wider than the Zacks Consensus Estimate of a loss of 10 cents per share. The figure also compares unfavorably with earnings of 63 cents in the year-ago quarter but came narrower than the loss of 25 cents in the previous quarter.
Revenues increased 5.9% sequentially and 16.5% on a year-over-year basis (58.3% on an FX neutral basis) to $355.3 million, surpassing the Zacks Consensus estimate of $349 million.
The strong performance of MercadoPago aided growth in total payment volume (“TPV”) of the company during the reported quarter which in turn drove the top line. Robust shipments via MercadoEnvios also aided revenues.
Additionally, the company’s online-to-offline payment offerings continued to gain traction in the third quarter which contributed well to the revenue generation.
Mobile-point-of-sale business continued to gain traction during the third quarter and accounted for 46.5% of the total off-platform payment volume which remained positive throughout the reported quarter. Further, the company witnessed rapid adoption of its Mobile Wallet whose active payers totaled million at the end of the quarter.
Top Line in Detail
Brazil: Net revenues in the third quarter were $220.8 million (62.1% of total revenues), up 25% year over year. Year-over-year growth was driven by improved gross merchandise volume (GMV) which surged 33% year over year. Further, gross billings which surged 34.6% on a year-over-year basis also aided the top line in this region. Additionally, growing adoption of the company’s mobile wallets in Brazil was a major positive.
Argentina: This market generated $83.7 million revenues (23.6% of revenues), down 8% year over year. This can primarily be attributed to devaluation of Argentine Peso during the reported quarter and other macro headwinds. However, the company’s free shipping and loyalty programs aided year-over-year growth of 49% to GMV in this country. Further, MercadoLibre is witnessed growing adoption of its mobile wallets and the latest Asset Management service in Argentina.
Mexico: Net revenues in the reported quarter were $29 million (8.2% of revenues), up 152.2% year over year. Year-over-year growth came on the back of robust GMV which grew over 67% from the prior-year quarter, primarily attributable to free shipping program and winning customers. Additionally, gross billings were up 73% from the year-ago quarter. Further, the company’s strong mobile wallet initiatives remained a major catalyst in the third quarter.
Other countries: These markets brought in $21.8 million revenues (6.1% of total revenues), surging 37.9% on a year-over-year basis. The company’s gross billings in these countries were up 34.8% on a year-over-year basis.
GMV of $2.99 billion decreased 2.6% year over year increased by 27.9% on an FX neutral basis. This can primarily be attributed to decline in the company’s free shipping offers.
Total confirmed registered users at the end of the reported quarter were 248.9 million, improving 23.7% year over year. Further, new confirmed registered users during the period were 14 million, increasing 40% on a year-over-year basis.
Number of successful items sold was 83.5 million, up 12.5% year over year. Moreover, number of successful items shipped increased 30.2% year over year to 54.3 million. This was driven by strong performance of MercadoEnvios. The number of items shipped via MercadoEnvios came in at 54.3 million, up 30.2% on a year-over-year basis.
Total payment volume (TPV) was up 24.1% on a year-over-year basis to $4.55 billion. This was due to strong performance of MercadoPago which contributed $4.6 billion to TPV. Notably, the figure surged 24.1% from the year-ago-quarter.
Total volume of payments on marketplace was $2.72 billion up 4.9% year over year. Further, total payments transactions increased 66.8% year over year to 103.9 million.
Unique buyers improved 9.8% year over year to 17.9 million. Moreover, unique sellers were 4.3 million, down 6.5% from the previous year quarter.
For the third quarter, gross margin was 47.8%, contracting 990 basis points (bps) year over year. This can be attributed to increasing expenses related to transition of infrastructure on public clouds, free shipping subsidies, warehousing and discounts on mPOS devices.
Adjusted operating expenses came in $180.7 million (50.9% of total revenues), reflecting an increase of 21.9% year over year.
The company reported operating loss of $11 million against the year-ago quarter profit of $27.5 million.
Balance Sheet & Cash Flow
As of Sep 30, 2018, cash and cash equivalents were $1.03 billion, increasing from $489.1 million as of Jun 30, 2018. Short-term investments were $67 million, down from $69.4 million in the previous quarter.
In the third quarter, cash generated from operations was $96.6 million compared with $144.2 million in the second 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 -2387.5% due to these changes.
At this time, MercadoLibre has a nice Growth Score of B, 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 bottom 20% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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.