MercadoLibre Earnings: Solid Quarter As Argentina Pressure Offset by Strength in Brazil and Mexico

The bar must be set pretty high when 31% sales growth and 960 basis points of operating margin expansion constitute "meeting" expectations, but that's largely the world we live in for Latin America's largest e-commerce operator. Wide-moat MercadoLibre continues to generate outsize growth despite a challenging backdrop, growing its gross merchandise volume by 12%, 24%, and 52% in Argentina, Brazil, and Mexico (in U.S. dollars), respectively, during its second quarter, taking share in each market and incrementally growing its fulfillment penetration, to 46%. While the firm narrowly missed our expectations going into the quarter, with $3.42 billion in sales and $5.16 in diluted EPS falling just shy of our $3.49 billion and $5.55 estimates, respectively (attributable to an unusually large $182-million foreign-exchange loss in Argentina), we're encouraged by both margin expansion and strong results in Brazil and Mexico. On balance, a slight miss on quarterly sales and earnings is offset by time value, and we expect to make few changes to our $1,250 intrinsic valuation.