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MercadoLibre Sees 20% Drop After Earnings Miss, Growth Continues

MercadoLibre faces challenges post-earnings, with a 20% drop in stock. Despite profitability concerns, growth in e-commerce and payments offers optimism for long-term investors.

Date: 
AI Rating:   5

Stock Performance and Earnings Impact

MercadoLibre (NASDAQ: MELI) has recently experienced a decline of about 20% following its latest earnings report, primarily due to missing profit expectations. The company's EBIT margin saw a notable drop of 7.4 percentage points year over year in the third quarter, reflecting increasing growth investments and issues related to bad debt. Furthermore, it is crucial to highlight that MercadoLibre reported negative free cash flow, which warrants investor concern.

Strong Revenue Growth Despite Challenges

Despite these short-term profit challenges, MercadoLibre's revenue growth remains robust. The company’s e-commerce marketplace sold 28% more items compared to the previous year, and it expanded its active buyers by more than 10 million. Additionally, its Mercado Pago payment processing business exhibited impressive growth of 34% year over year, achieving over $200 billion in annualized payment volume. The credit business is also expanding rapidly, boasting $6 billion in outstanding loan balances, a staggering 77% increase from the third quarter of 2023.

Future Catalysts and Market Potential

While short-term profitability may be in question, long-term opportunities abound. E-commerce penetration in Latin America is significantly lower than in the United States, and the market’s logistics improvements are likely to facilitate online sales growth. Furthermore, MercadoLibre’s less developed business segments, such as its credit card service and investment platform, have demonstrated substantial growth potential.

Valuation Perspective

Investors should also note that despite a 180% increase in share value over the past five years, MercadoLibre's valuation metrics have improved. The stock is currently trading at a historically low price-to-sales ratio, which is considerably lower than in previous years. This suggests that while the stock has faced short-term challenges, it may be undervalued given its growth trajectory and market opportunities.

Conclusion

Even with a 20% price drop, MercadoLibre remains an attractive option for long-term investors, especially given its growth momentum and significant future opportunities. Investors who are prepared to weather some volatility may find this an opportune time to invest, as the overall metrics indicate strong underlying growth despite recent challenges.

Stocks:  MELI AMZN