MercadoLibre Earnings: Great Result Offers Salient Glimpse of Future Prospects

Wide-moat MercadoLibre produced another great quarter despite turbulence in its Argentine home market, assuaging investor concerns and offering a mouthwatering glimpse of the profitability that the firm can achieve in the medium term. The firm grew sales by a striking 40% in dollar terms, with $685 million in operating profit and an 18.2% quarterly operating margin representing all-time high water marks. This validates our view that the largest online commerce marketplace can achieve 20% operating margins in the long term, though we expect near-term moderation as management prudently prioritizes investments in its fulfillment network, recently rebranded Meli+ loyalty program, and its financial services ecosystem. We plan to raise our $1,260 fair value estimate by a mid-single-digit percentage after digesting the results.