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Why Is MercadoLibre (MELI) Up 19.9% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for MercadoLibre (MELI). Shares have added about 19.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MercadoLibre due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

MercadoLibre Reports Earnings Against Estimated Loss in Q1

MercadoLibre reported first-quarter 2019 earnings of 13 cents per share against the Zacks Consensus Estimate of a loss of 1 cent per share. Notably, the company reported a loss of 29 cents in the year-ago quarter and 5 cents in the previous quarter.

Revenues increased 5.9% sequentially and 16.5% on a year-over-year basis (92.9% on an FX neutral basis) to $473.8 million, surpassing the Zacks Consensus Estimate of $412.7 million.

The strong performance of MercadoPago aided growth in total payment volume (TPV) of the company during the reported quarter which in turn drove the top line. Robust shipments via MercadoEnvios also aided revenues. This was primarily attributed to strengthening free shipment program of the company.

Additionally, the company’s online-to-offline payment offerings continued to gain traction in the first quarter which contributed to the results.

Mobile-point-of-sale business continued to gain traction during the first quarter and accounted for 43.9% of the total off-platform payment volume which remained positive. Further, the company witnessed rapid adoption of its Mobile Wallet during the reported quarter.

Top Line in Detail

Brazil: Net revenues in the first quarter were $302.4 million (63.8% of total revenues), up 64.2% year over year. Year-over-year growth was driven by improved gross billings which surged 29.8% on a year-over-year basis. Further, gross merchandise volume (GMV) surged 18% year over year in this region.

Argentina: This market generated $93.8 million revenues (19.8% of revenues), down 7.9% year over year. Gross billings in this country went down 2.9% from the year-ago quarter. However, the company experienced solid growth in GMV in this country. GMV was up 70% year over year.

Mexico: Net revenues in the reported quarter were $54.6 million (11.5% of revenues), up 219.3% year over year. Year-over-year growth came on the back of robust GMV which improved over 48% from the prior-year quarter. Additionally, gross billings were up 108.2% from the year-ago quarter.

Other countries: These markets generated revenues of $23 million (4.9% of total revenues), surging 29.2% on a year-over-year basis. The company’s gross billings in these countries were up 14.7% on a year-over-year basis.

Key Metrics

GMV of $3.09 billion decreased 1.2% year over year but increased by 26.6% on FX neutral basis.

Total confirmed registered users at the end of the reported quarter were 280.1 million, improving 25.5% year over year. Further, new confirmed registered users during the period were 12.3 million, increasing 9.8% on a year-over-year basis.

Number of successful items sold was 82.8 million, up 3.4% year over year. Moreover, number of successful items shipped increased 18.8% year over year to 62.4 million. This was driven by strong performance of MercadoEnvios. The number of items shipped via MercadoEnvios came in at 62.9 million, up 18.6% on a year-over-year basis, thanks to robust free shipping program.

Total payment volume (TPV) was up 35.1% on a year-over-year basis to $5.64 billion. This can be attributed to strong performance of MercadoPago.

Total volume of payments on marketplace was $2.89 billion up 3.1% year over year. Further, total payments transactions increased 93.7% year over year to 143.9 million.

Unique buyers improved 10.6% year over year to 18.8 million. Moreover, unique sellers were 4.2 million, down 16% from the prior-year quarter.

Operating Details

For the first quarter, gross margin was 50%, contracting 70 bps year over year. This can be attributed to increasing expenses related to shipping carriers.

Adjusted operating expenses as a percentage of total revenues came in 47.9%, declining from 59.9% in the year-ago quarter.

The company reported operating income of $10.1 million against the year-ago quarter loss of $29.4 million.

Balance Sheet & Cash Flow

As of Mar 31, 2019, cash and cash equivalents were $1.29 billion, increasing from $440.3 million as of Dec 31, 2018. Short-term investments were $1.65 billion, down from $461.5 million in the previous quarter.

In the first quarter, cash generated from operations was $138.4 million compared with $34.8 million in the fourth quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 456% due to these changes.

VGM Scores

Currently, MercadoLibre has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise MercadoLibre has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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