EN
MercadoLibre's Growth Slows as Margin Shrinks: Rapid Earnings Reaction
Key Points
Revenue grew 45%, but currency-neutral growth slowed for a fourth straight quarter.
Spending on shipping, marketing, and credit pushed operating margin lower again.
Net income rose mainly because of a lower tax bill and smaller currency losses.
MercadoLibre (NASDAQ:MELI) grew third-quarter revenue 45% to about $10.8 billion, but operating income fell 6% to $676 million. Shares fell about 10% in early after-hours trading. The company is spending more on shipping, marketing, and credit even as its currency-neutral growth slowed for a fourth straight quarter. Each new dollar of sales now earns less profit than it did a year ago.
Key Numbers
- Revenue growth: 41% currency-neutral, down from 43% in Q2.
- Operating margin: 6.3%, down from 6.7% in Q2 and 9.8% a year ago.
- Provision for doubtful accounts: $1.34 billion, up 65% from $815 million.
- Credit portfolio: almost $18 billion, up 62% year over year.
What It Means
Shipping did the most damage. MercadoLibre made free shipping easier to get in Brazil last year, so buyers now order cheaper items in smaller baskets. That brings in less revenue per package. The company also added almost 20% more warehouse space in one quarter, and new space costs money before orders fill it.
Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
Credit is the other drag. The company books expected losses the moment a card balance is drawn, but interest income arrives months later. So a fast-growing card book hurts profit today even if each group of borrowers pays off over time. Loan quality held steady, with 15- to 90-day late loans at 7% of the portfolio.
Net income rose 6%, but the business didn't drive it. A lower tax bill and smaller currency losses did. The letter also gives no financial guidance, so the margin recovery rests on management's word for now.
What to Watch Next
Watch whether operating margin steadies in Q4 as peak-season orders fill the new warehouses. Also watch fintech revenue, where currency-neutral growth slowed to 40% from 47% in Q2.
David Kretzmann has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.