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MELI is an e-commerce, logistics and fintech leader in Latin America. It has a thriving marketplace and fulfillment business, with support for 3rd party merchants. It also features a rapidly growing financial services suite and payments platform, entertainment offerings through partnerships, a budding ads business and a loyalty program called MELI+. The business model resembles Amazon without cloud computing. Here are the names of its various products:
The e-commerce marketplace is called Mercado Marketplace.
Logistics/Shipping is called Mercado Envios. Mercado Envios Full is its full-service logistics business for merchants. It handles all inbound and outbound activity, packaging and returns. It’s similar to Supply Chain by Amazon.
The financial services business is called Mercado Pago, with its credit business called Mercado Crédito.
Mercado Shops is its white-label store builder for other merchants to create a site that's fully integrated into the Mercado Libre platform.
Mercado Play is its entertainment business. Key partnerships with Disney help fill out the library.
Acquiring TPV (Total Payment Volume) refers to the piece of Mercado Pago that lets merchants seamlessly tap into these easier payment options, augmenting conversion rates (through software and point-of-sale hardware). Acquiring TPV happens whenever Mercado Pago is used as the main payment facilitator/processor on the marketplace or on a merchant’s own site (“off-platform” acquiring TPV).
a. Demand
Beat revenue estimate by 4.3%.
Commerce revenue beat by 7%.
Fintech revenue beat by 1.8%.
Beat gross merchandise value (GMV) estimate by 3.3%.
36% foreign exchange neutral (FXN) GMV growth beat 33% estimate. The beats were driven by Brazil, as Mexico was in line and Argentina missed growth expectations. Brazil is where the bulk of the competitive concerns reside, so this is great to see.
Beat total payment volume (TPV) estimate by 9%.
b. Profits
Beat EBIT estimate by 2.7%. EBIT margin came in about as MELI leadership said it would last quarter.
Beat 9.4% Brazil contribution margin estimate by 50 basis points (bps; 1 basis point = 0.01%).
Brazilian contribution margin improved Q/Q due to comping against a decision to expand into longer-duration loans that required a near-term spike in provisioning. This was expected. The Y/Y decline is tied to the free shipping decision MELI made last year.
Missed 43% GPM estimate by 210 bps.
Missed 17% Mexico contribution margin estimate by 390 bps.
Mexican contribution margin fell Q/Q and Y/Y due to investments to win more Acquiring TPV business and the tax law change leading to modest demand softening. They loaded up on inventory to support expected demand and to get ahead of point-of-sale (POS) device hardware inflation.
Missed 37% Argentina contribution margin estimate by 310 bps.
Argentinian contribution margin fell due to the same Acquiring TPV reasons as Mexico.
Beat $8.77 EPS estimate by $0.42.
FCF margin was pressured by 60% Y/Y Capex growth and around 155% Y/Y credit investment growth.
Overall bad debt expense rose Y/Y due to rapid credit portfolio growth rather than credit health deterioration. Leadership said many times that credit health is entirely fine. We’ll work through the data supporting this later in the piece.
Gross margin is suffering from last year’s lowered free shipping threshold and some more promotions in Brazil we’ll get to later. That, paired with hefty credit issuance and investments in Mexican Acquiring TPV growth, explains most of the ongoing GPM decline. MELI actually notched 250 bps of OpEx efficiency gains last quarter. They decided to take that and invest it back into the things already mentioned, which count as input costs and amplify the current GPM headwind.
c. Balance Sheet
$5.6B cash & equivalents.
$13B restricted cash.
$13.2B debt.
0% Y/Y dilution.
d. Valuation (never any guidance)
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