MercadoLibre Earnings: Strong, Profitable Quarterly Growth Suggests That the Best Is yet To Come
Wide-moat MercadoLibre’s MELI robust comps are becoming its own toughest competition; the Latin American e-commerce stalwart posted 43% foreign exchange-neutral growth in gross merchandise volume, 96% foreign exchange-neutral growth in total payment volume, and a healthy 11.2% operating margin during a fantastic first quarter. While the firm continues to fire on all cylinders, results clocked in pretty much in line with our expectations, as both $9.4 billion in GMV and $37 billion in TPV aligned with our own estimates. EPS of $3.97 arrived just shy of our $4.01 forecast, but we remain extremely impressed with management’s ability to efficiently deploy capital across a sprawling suite of business segment and country combinations. As we digest results, we plan to raise our $1,200 fair value estimate by a low-single-digit percentage, consistent with time value. Shares look fairly priced.
With a track record of moat-accretive investments, we harbor no qualms with management’s decision to increase engineering headcount by 12% in the year to come as it builds out its advertising platform (ads comprised 1.4% of quarterly GMV, up 30 basis points annually) and auxiliary financial products, seeking “financial pre-eminence” with its 100 million quarterly active users (representing a striking 14.9% of the total population of Latin America). On the other side of the coin, we applaud leadership’s prudence in pursuing a measured rollout of its loss-making first-party business (up 8% annually) and limiting growth in its credit book to lower-risk cohorts against a challenging macroenvironment.
Considering the suite of near-term regional risks, we expect more measured growth in 2023 and 2024, driven by slower growth in items per buyer (e-commerce skews heavily toward discretionary purchases, by and large) before a more pronounced uptick in 2025. As we consider the firm’s mix of businesses and profitable ads platform, we continue to view 20% long-term operating margins as achievable.
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