On Thursday, BTIG adjusted its outlook on MercadoLibre (NASDAQ:MELI), reducing the price target to $2,200 from the previous $2,250, while still recommending a Buy for the stock. The firm noted that despite a solid top-line performance, MercadoLibre's shares fell by 9% in after-hours trading, as the earnings report did not meet the high expectations investors had for the company.
Gross Merchandise Volume (GMV) and Total (EPA:TTEF) Payment Volume (TPV) fell short of analyst expectations, with GMV reported at $12.9 billion against a consensus of $13.0 billion and TPV at $50.7 billion compared to the anticipated $52.0 billion.
The most significant concern was the company's profitability, with adjusted EBITDA/EPS reported at $714 million/$7.83, which was below the Street's forecast of $923 million/$10.00. The margin was mainly impacted by MercadoLibre's strategic decision to expand its credit card business, issuing 1.5 million new cards in the quarter. This led to a 166% increase in credit card TPV and a 172% rise in credit card receivables, which now account for 39% of the total credit portfolio, up from 37% in the second quarter of 2024 and 25% in the third quarter of 2023.
The aggressive expansion into the credit card market is part of MercadoLibre's strategy to leverage the card to promote the adoption of its broader fintech ecosystem. The initiative seems to be bearing fruit, as evidenced by a 4.2 million increase in Fintech Monthly Active Users (MAUs), marking the second-best quarter since the company began reporting this metric in the first quarter of 2023. Moreover, credit quality metrics showed improvement, with nonperforming loans (15-90 days) decreasing by 40 basis points sequentially to 7.8% of the total portfolio.
Despite these positive user growth indicators, margins were also affected by one-time factors, including an 80 basis points impact from customer refunds and 70 basis points from accruals related to the company's Long-Term Retention Plan. Consequently, the comparable operating margin contracted by 740 basis points, with 340 basis points attributed to higher bad debt expense.
BTIG's price target adjustment reflects a mix of foreign exchange considerations and a reduced operating margin forecast. Nonetheless, the firm remains optimistic about MercadoLibre's dominant market position and its assertive efforts to gain market share during a pivotal period for digital expansion in Latin America.
In other recent news, MercadoLibre has been a focal point of several analyst evaluations and financial developments. Barclays (LON:BARC) maintained its $2,500 price target on the company, despite its third-quarter performance slightly missing consensus predictions. However, the company's revenues exceeded forecasts, indicating a strong financial footing.
In addition, Citi raised its stock target for MercadoLibre to $2,480, while Redburn-Atlantic initiated coverage with a Buy rating and a price target of $2,800. On the other hand, JPMorgan downgraded the stock to Neutral, citing concerns over increased expenses from logistics and credit card business expansion.
MercadoLibre's recent financial growth includes a loan of $30,000 to Brazilian entrepreneurs, leading to a 40% increase in their sales. The company's fintech business reported a near 50% growth rate, with projected digital advertising revenues of $1 billion this year.
Moreover, changes to its board of directors and audit committee have been announced, with the appointment of Mr. Stelleo Tolda as a Class I director and a member of the audit committee. These are among the recent developments shaping MercadoLibre's trajectory in the e-commerce and fintech landscapes.
InvestingPro Insights
MercadoLibre's recent financial performance and strategic moves align with several key insights from InvestingPro. The company's aggressive expansion into the credit card market, which impacted its short-term profitability, is reflected in its impressive revenue growth. According to InvestingPro data, MercadoLibre's revenue grew by 36.65% over the last twelve months, with a notable 41.28% growth in the most recent quarter. This robust top-line performance supports the InvestingPro Tip that MercadoLibre is a "Prominent player in the Broadline Retail industry."
Despite the short-term margin pressure, MercadoLibre maintains "Impressive gross profit margins" of 52.46%, as highlighted by another InvestingPro Tip. This suggests that the company's core business remains strong, even as it invests in growth initiatives like the credit card expansion.
The market's reaction to MercadoLibre's earnings report, which led to a 9% drop in after-hours trading, may present an opportunity for investors. The stock is "Trading at a low P/E ratio relative to near-term earnings growth," with a PEG ratio of 0.88, indicating potential undervaluation relative to its growth prospects. This could explain why BTIG maintains a Buy recommendation despite lowering its price target.
For investors seeking more comprehensive analysis, InvestingPro offers 17 additional tips for MercadoLibre, providing a deeper understanding of the company's financial health and market position.
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