MercadoLibre Stock Plunges After Earnings Miss

MercadoLibre (MELI), often referred to as the "Amazon of Latin America," saw its stock price tumble early Thursday after the company reported third quarter earnings that fell short of analyst expectations. Despite posting strong sales growth, the e-commerce giant's profit margins were negatively impacted by investments in shipping operations and credit card originations, leading to a significant decline in the company's share price.

MercadoLibre reported adjusted earnings of $7.83 per share on sales of $5.31 billion for the September-ended quarter. Analysts polled by FactSet had projected the Uruguay-based company would post adjusted earnings of $10 per share on sales of $5.28 billion. For the same period a year earlier, MercadoLibre posted adjusted earnings of $7.16 per share on sales of $3.76 billion.

On the stock market today, MercadoLibre stock is down more than 8% at 1,945 in premarket trading. The company's operating income of $557 million missed estimates of $758 million, as operating margin was negatively impacted by accelerating growth in the credit portfolio, an ongoing mix shift to credit cards, and higher fulfillment-related costs.

Wedbush analyst Scott Devitt noted that MercadoLibre's earnings miss was primarily due to these factors, stating, "Operating margin was negatively impacted by accelerating growth in the credit portfolio and an ongoing mix shift to credit cards (which carry lower margins), as well as higher fulfillment related costs as the company opened six fulfillment centers during the quarter."

Despite the earnings miss, Devitt rates MercadoLibre stock as outperform and upped his price target on MELI shares to 2200, from 2000, following the report. He believes that investors should take advantage of any dislocation in shares due to near-term margin uncertainty and continue to see multiple levers to drive long-term margin expansion. This includes a growing advertising business, benefits from the scale of MercadoLibre's fulfillment network, and improving margins as new credit card products mature.

MercadoLibre's fintech arm, Mercado Pago, also experienced significant growth during the quarter. The total volume of payments handled by Mercado Pago climbed 34% to $50.7 billion, while the gross merchandise volume sold through its e-commerce marketplace climbed 14% year over year to $12.9 billion. The company's competitive position is strengthening as retention improves across its businesses, giving it great confidence in its ability to capitalize on growth opportunities in the future.



In conclusion, MercadoLibre's earnings miss in the third quarter was primarily attributed to investments in shipping operations and credit card originations, which negatively impacted profit margins. Despite the near-term impact on profitability, these investments are expected to drive long-term growth and reinforce MercadoLibre's competitive position in the Latin American market. As the company continues to execute on its growth strategy, investors should monitor its progress and consider the potential for long-term gains.