MercadoLibre Stock Soars on Q1 Earnings Report: What to Know

Latin America is a region of the world that seems to be a little late to the party in terms of adapting e-commerce into their everyday life. However, that seems to be changing fast thanks to MercadoLibre (NASDAQ:MELI), which is a rapidly growing online commerce and payments business. The company reported solid Q1 earnings last week and rose to all-time highs of $805.84 as a result. Although the company has been making headwinds in the stock market, it’s still a business that is flying under the radar for many investors.

Its quite likely that we are entering the golden age of e-commerce, and well-run businesses such as MercadoLibre are leading the way. Often times described as “Latin America’s answer to Amazon”, the business is really making waves in a region that is quickly catching on to the convenience and efficiency that e-commerce has to offer. MercadoLibre’s stock experienced massive gains in April and May has attracted a lot of attention lately, but the real question is whether or not they can sustain the growth that the market is pricing in.

Let’s take a look at some of the highlights from MercadoLibre’s earnings report below and clarify just why the stock is soaring so high.

Strong Growth

Investors love to see when a company is growing their business, and this is a big reason why MercadoLibre’s stock price reacted so well to their earnings release. Although they reported an operating loss of $29.7 million as a result of large marketing expenses, the company grew its revenue figures by 70.5% to $652.1 million for the quarter, which beat estimates.

Perhaps the most exciting growth for MercadoLibre is occurring in their gross merchandise volume and total payments volume, which are both signs that more and more Latin Americans are exploring all that MercadoLibre has to offer. Their online marketplace business experienced a solid jump with a 34.2% increase in year-over-year gross merchandise figures. Even with the impact of the global health crisis, the company experienced gross merchandise volume growth of 73% in April. This type of growth bodes well for the company going forward and is a big reason why the stock soared up after earnings.

Diverse Business Model

Most people would be impressed with the fact that MercadoLibre is taking over the e-commerce ecosystem in Latin America, but the truth is that the company offers much more than just e-commerce. Their diverse business model also includes a credit business, a payment platform, asset management, and a logistics operation. That means this business is positioned well to dominate a rapidly growing market similar to what Amazon has done in the United States.

Mercado Pago, the payment platform offered by MercadoLibre, is making waves thanks to its massive growth. If you’ve ever visited a Latin American country before, you probably realized that cash is still used quite frequently in everyday life. Mercado Pago is addressing this by helping businesses and individuals process payments digitally. All of the numbers from the earnings report suggest that Mercado Pago is quickly becoming a success. The total payment volume for the platform rose 82.2% year over year and total payment transactions totaled 290.7 million for the quarter.

The region is quickly adapting mobile point-of-sale systems that allow small businesses to process digital transactions directly from their stores. Mercado Pago is an exciting development in a very diverse business model.

Short-Term Risks

Although the company had a nice quarter and is positioned well to grow, the company is not without its short-term risks. The company’s management was hesitant to commit to forward guidance on the earnings call and we all know about the impact that the global health crisis is having on the world’s economy. Latin America had solid GDP growth estimates prior to the pandemic, but it might be a slow road to recovery for the region. The growth in Brazil was also not the strongest this quarter, so keep an eye on the numbers in that country going forward since it is one of the largest in Latin America.

Worth Watching MELI Stock

The number of people using MercadoLibre is steadily rising, but that won’t mean too much if the economies of the countries that MercadoLibre serves are sluggishly getting back to normal. With that said, MercadoLibre is positioned to thrive once the economies of Latin America start making their way back to normal. It seems that the global health crisis has the chance to accelerate the shift to online retail shopping for the entire region. This is a company with massive potential that is worth keeping an eye on in the coming months, even after its big run over the last few months.