Shares of latin American e-commerce and fintech company MercadoLibre (NASDAQ:MELI) fell 16.3% in the afternoon session after the company reported weaker third-quarter earnings.
The main reason was that it missed on operating income margin because it ramped up investments in its credit and logistics businesses. Ramping up loan originations leads to the recognition of the allowance for doubtful accounts upfront (the expected losses on the loans). However, the new loan originations came from credit cards and moving up-market to higher-quality customers. Because these new accounts have lower default risk, the yields are lower and result in a lower blended NIMAL spread (aka margins).
However, the new loans are additive to overall profit dollars, lower the risk of the broader credit portfolio, and increase MELI’s market share and stickiness/wallet share with customers. On the other hand, MercadoLibre delivered impressive revenue growth this quarter. Overall, the stock is reacting to the bottom line miss.
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.
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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