MercadoLibre Earnings: Great Result Offers Salient Glimpse of Future Prospects

Wide-moat MercadoLibre MELI 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.

It was good to see the firm generate strong growth in both Brazil (38% GMV growth) and Mexico (59%) given recent pressures in Argentina, bringing those segments’ contribution margin to 65% of total operating profit. MercadoLibre continues to increase its foothold in Brazil and Mexico, growing its Fintech operations in those markets by 36% and a stunning 97%, respectively, and credit revenue by 6% and 70%, respectively, during the quarter. Importantly, the operator continues to bolster its suite of financial services, likely driving its 36% growth in active users across its finance and commerce properties.

We continue to expect a slowdown in 2024, penciling in 13% GMV growth (down from our 26% projection for 2023) across geographies as consumers tighten their belts on discretionary spending—a view we justify by pointing to ongoing declines in items per active user, a behavior that typically corresponds with a broader pullback in discretionary spending. Nevertheless, MercadoLibre’s long-term prospects are salient, and its entrenchment in the Latin American online commerce and financial technology ecosystems appears to be growing ever stronger.