What Happened:

Shares of latin American e-commerce and fintech company MercadoLibre (NASDAQ:MELI) jumped 11.3% in the morning session after the company reported first quarter results, which blew past analysts' revenue and EPS estimates, driven by better-than-expected GMV on its e-commerce platform. The company stated it's seeing record levels of retention for its newest customer cohorts and strong traction for MELI+ as loyalty members are spending more than non-loyalty members. MercadoLibre's ad business is also growing nicely (64% year on year) and reached 1.9% of GMV, up from 1.4% in the same quarter last year. 

On the other hand, the company's TPV missed Wall Street's projections, but looking under the hood, traction was still strong. MercadoPago users were up 38% year on year to 49 million MAUs, while assets under management were up 90% year on year. The credit quality of its loan book also rose, with late payments (90 days+) falling ten percentage points year on year. 

Turning to macro, Brazil and Mexico are still performing extremely well, while Argentina is still struggling. Despite the Argentina headwinds, MELI still posted better consumption trends than the broader economy, which is encouraging. We're hopeful Argentina can turn it around with Javier Milei as its new president.

Is now the time to buy MercadoLibre? Access our full analysis report here, it's free.

What is the market telling us:

MercadoLibre's shares are very volatile and over the last year have had 8 moves greater than 5%. But moves this big are very rare even for MercadoLibre and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 2 months ago, when the stock dropped 13.4% on the news that the company reported fourth-quarter results that missed analysts' operating margin estimates. Looking under the hood, however, we can see that its lower profitability was caused by 1) non-recurring, non-cash expenses of $351 million that are mostly related to outstanding tax liabilities from a 2014 court case it had with the Brazilian federal tax authority, 2) lower Logistics segment margins as it offered more free shipping to customers in Brazil and Mexico through its MELI+ loyalty program (similar to Amazon Prime), and 3) strong growth in its 1P commerce business (54% year-on-year growth), which has lower margins than its 3P marketplace business because in 1P, the company buys and holds inventory on its balance sheet. 

MercadoLibre reported robust user growth this quarter, enabling it to beat analysts' revenue, total payment volume (TPV), and gross merchandise volume (GMV) estimates (TPV of $56.5 billion vs estimates of $49 billion, GMV of $13.5 billion vs estimates of $12.4 billion). Specifically for TPV, the company's new credit card offering for its Brazil and Mexico customers stood out, helping accelerate off-platform TPV growth to 64% year on year in Q4 vs 55% growth for the full year 2023 (off-platform refers to payments transacted outside its e-commerce marketplace). Profitability across its entire credit book rose to nearly a 40% margin, which is also quite impressive. We believe MELI achieved this profitability because it can underwrite its customers better than traditional banks through its access to granular transaction-level data from its commerce business. Double-clicking into the commerce business, two segments stood out during the quarter: Logistics and Advertising. 

On the Logistics side, MELI delivered more items per vehicle in 2023 as customers increasingly utilized MELI+. The increased deliveries per vehicle boosted the company's efficiency, and it ended 2023 having shipped over 50% of all e-commerce orders in Brazil and over 80% of all e-commerce orders in Mexico. Furthermore, it fulfilled 52% of orders in one day or less and 75% within 48 hours. On the nascent but rapidly growing advertising side of the business, MercadoLibre added 50,000 new advertisers to its platform in 2023 and grew its advertising revenue by 70% year on year.

MercadoLibre is up 9.3% since the beginning of the year, and at $1,673 per share it is trading close to its 52-week high of $1,818 from February 2024. Investors who bought $1,000 worth of MercadoLibre's shares 5 years ago would now be looking at an investment worth $2,886.

Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefitting from the rise of AI, available to you FREE via this link.