Table of Contents
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Quick Refresher:
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 fast-growing ads business and a loyalty program called MELI+ where it aggregates broad-ranging product utility into one unique consumer bundle. 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 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). They’re taking wallet share “across all markets” thanks to popular credit, bank service and solutions like point of sale software and sales data analytics.
a. Demand
Slightly beat revenue estimate.
Beat total payment volume (TPV) estimate by 3%.
Slightly missed gross merchandise value (GMV) estimate; beat 32% foreign exchange neutral (FXN) GMV growth estimate by 0.6 points.
36% Brazil FXN GMV growth beat by 2 points.
40% Argentina FXN GMV growth beat by 2 points.
21% Mexico FXN GMV growth missed by 5 points. More later.
b. Profits
Missed 41.2% GPM estimate by 50 bps.
Missed EBIT estimate by 6.8%.
Missed $9.33 EPS estimate by $0.50.
Net income rose 6% Y/Y despite EBIT falling 6% Y/Y due to tax help and smaller foreign exchange losses compared to last year.
Without the tax help, net income margin would have been 150 bps lower.
FCF includes $503M in CapEx vs. $357M Y/Y and $600M in net fintech funding vs. about $1.15B Y/Y (ex-3P funding).
Shipping represented another 40 bps of gross margin headwind compared to last quarter, with a 60 bps benefit from merchant fees more than offset by higher costs. The higher costs were tied to three things. Revenue per shipment fell as the free shipping initiative in Brazil invited customers to order cheaper goods online without incurring added fulfillment fees. Energy inflation and a 20% sequential boost to overall fulfillment square footage ahead of the holidays (as it usually does) made up the rest of the headwind. On the fintech side, some loan program discounts in Brazil also had a modest impact. Outside of input costs, recruitment expenses tied to the capacity expansion just mentioned and spending more on affiliate marketing in Brazil drove another 60 bps of combined operating deleveraging.
Offsetting these headwinds were product development leverage and a 30 bps Q/Q benefit from lapping POS inventory stockpiling amid memory inflation. Taking everything together, we’re left with the margin trends seen below.
c. Balance Sheet
$7.4B cash & equivalents.
$21B card + loan receivables.
$1.5B investments.
$16.2B debt. Added $1B in bonds in September.
Share count flat Y/Y.
d. Valuation
MELI trades for 1.8x sales and 40x EPS. EPS is expected to fall by 3% Y/Y this year before growing by 46% next year and 41% the year after.
e. Call, Letter and Presentation
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