MELI Stock: 4 Things to Know Before Mercado Libre Earnings
Mercado Libre (Nasdaq: MELI) is one of the most exciting companies to watch grow, returning over 375% during the pandemic. Yet, MELI stock is down over 50% from its all-time highs.
The high-flying e-commerce and Latin American payments company continues its record-breaking growth. With Mercado Libre’s first-quarter earnings due May 5, will we see MELI stock break out of its downtrend?
For one thing, the company’s expansion is not slowing, with gross merchandise volume (GMB) reaching a record $8 billion. But, can the company keep up the momentum with inflation slimming margins?
Earnings season has been intense so far, with growth stocks like Amazon (Nasdaq: AMZN) and Netflix (Nasdaq: NFLX) selling off afterward. Keep reading to learn what to look for in Mercado Libre Q1 earnings and how it will affect MELI stock.
No. 4 Record-Breaking Growth
Although MELI stock has lost over half its value, the company is achieving what most could only dream of. For one thing, the e-commerce firm’s top line has grown by double-digits YOY every quarter since Q1 2016.
The most recent quarter shows no signs of slowing down with another record-breaking performance.
- Items Sold: 288 million, +25% YOY
- Net Revenue: $2.1 billion, +74% YOY
- Credit Portfolio: $1.7 billion, +253% YOY
- Gross Merchandise Value: $8 billion, +32% YOY
Latin America’s largest ecommerce firm is getting even bigger with its new credit card, driving strong demand for services. Moreover, with new cryptocurrency and insurance launches, analysts expect the momentum to continue.
In fact, according to nine analysts, MELI stock price is undervalued by over 50%, with a price target of $1,500. But, the most important takeaway from the report is improving profitability. Compared to Q4 2020, gross profit margin improved 4% while operating margin crossed breakeven. With this in mind, improving profits may create a buying case for MELI stock at these levels.
MELI stock will likely see more demand if Mercado Libre can continue the momentum in Q1 while maintaining growth. Then again, peers like Amazon are feeling the effects of inflation, with AMZN slipping over 17% since releasing earnings on the 28. At the same time, much of Amazon’s problems are due to shipping rates and labor shortages in China.
No. 3 MELI Stock a Better Buy Than Amazon?
Amazon and Mercado Libre are more closely tied than many investors realize. Over the past ten years, MELI stock has gained 953%, while Amazon is up 995%.
Although Amazon generates over $100 billion a quarter compared to Mercado’s $2 billion in Q4, MELI stock is outpacing AMZN. For example, since the pandemic lows, MELI stock is up 132% compared to Amazon’s 47% return.
To be fair, much of the difference is due to Amazon’s earnings selloff. Will we see the same from Mercado’s first-quarter earnings? It’s possible. But, with Mercado’s payments and credit services seeing heavy demand, we may see a surprise beat.
After all, digital services can help MELI grow without adding high costs. For example, Amazon Web Services (AWS) generates most of the company’s operating income at $4.1 billion. In fact, services are now the main primary revenue driver for Amazon.
Likewise, MELI will need to lean into its services to improve profits while still supporting growth. At the same time, fuel costs are likely to cut into margins, much like Amazon. After a record holiday season, we could see a slowdown in commerce sales.
Nonetheless, Mercado Libre looks to expand its lead in the Latin American market. With a presence in 18 nations and growing demand for more accessible services, will MELI stock take advantage?
No. 2 A $160 Billion Opportunity
According to new research, Brazil, Argentina, and Mexico rank in the top 10 countries where eCommerce will grow the quickest. More importantly, these happen to be MELI’s biggest markets.
Even though eCommerce is expected to slow this year, Latin America expects to see double-digit growth in many areas. For example, Brazil expects 22% growth while Argentina (18%) and Mexico (18%) are not too far behind.
The e-commerce market in L.A. is expected to at least double ($160 billion) by 2025. With Mercado being the first and most established, they have a massive opportunity ahead of it.
Furthermore, after buying logistics provider, Kangu, the firm is solidifying its position in these markets. With over 5,000 pick-up and drop-off points, the new “Meli Places” covers Brazil, Mexico, Argentino, Chile and Columbia.
Mercado can offer free same-day deliveries as a result, promoting a superior customer experience. Not only that, but the network makes it easy for buyers and sellers to pick up, drop off or return.
Mercado almost covers the entire value chain between e-commerce, digital payments and logistics. MELI’s other services include money management, cryptocurrency, ads and listing solutions.
As can be seen, Mercado Libre is building a technology powerhouse. Will it pay off in the long run for MELI stock investors?
No. 1 MELI Stock Forecast: Will We See Relief
Mercado Libre’s strategy is paying off so far. By building a complete ecosystem, the company continues dominating in one of the fastest-growing markets.
Moreover, with a growing tech portfolio, the firm is diversifying into higher-margin opportunities. With sales, earnings and free cash flow (FCF) improving from last year, Mercado is in one of the strongest positions it’s ever been.
With this in mind, as the company continues expanding, we will likely see higher debt. And higher debt levels are a risk, especially when growth slows.
If this is the case and growth slows, we could see MELI shares selloff like Amazon and Netflix. But, with ample market opportunity and a diverse business, MELI should be an exciting asset to own over the next few years.
MELI stock will likely see more volatility with higher energy prices and slowing global growth. That said, in the long run, MELI stock looks like a top growth stock to buy and hold.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.