What Happened?
Shares of Latin American e-commerce and fintech company MercadoLibre (NASDAQ:MELI) fell 16.3% in the afternoon session after the company reported weaker-than-expected third-quarter earnings.
The main reason for the drop was its operating income margin miss, which stemmed from investments in its credit and logistics businesses. Specifically, its higher loan originations in the quarter led to the recognition of bad debt upfront (the expected losses on the loans). The new loan originations came from credit cards and moving up-market to higher-quality customers - these new accounts have lower default risk (credit cards have shorter duration), so they come with lower yields that result in a lower blended NIMAL spread (aka margins).
Even though the stock is down on the news, we're happy with the development as the new loans not only grow the company's loan book and are additive to total profit dollars but also reduce the risk of the broader credit portfolio while increasing MELI's market share and stickiness with customers. MercadoLibre also delivered impressive revenue growth this quarter - we wouldn't worry too much about the drop if you're a shareholder.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy MercadoLibre? Access our full analysis report here, it’s free.
What The Market Is Telling Us
MercadoLibre’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. Moves this big are rare for MercadoLibre and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock gained 13.5% on the news that the company reported strong second-quarter earnings results. MercadoLibre blew past analysts' revenue expectations this quarter thanks to its better-than-anticipated GMV growth. Its EPS also beat Wall Street's estimates, and the company noted some of its investments from prior quarters are starting to pay off and solidify its leadership position. Zooming out, we think this was a fantastic quarter that should have shareholders cheering.
MercadoLibre is up 15.3% since the beginning of the year, but at $1,764 per share, it is still trading 17.6% below its 52-week high of $2,140 from September 2024. Investors who bought $1,000 worth of MercadoLibre’s shares 5 years ago would now be looking at an investment worth $3,584.
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