Latin America e-commerce giant MercadoLibre Inc. reported a surge in profits in the fourth quarter, even before the meltdown of Brazil’s Americanas SA brought “tactical” opportunities in its largest market.
(Bloomberg) — Latin America e-commerce giant MercadoLibre Inc. reported a surge in profits in the fourth quarter, even before the meltdown of Brazil’s Americanas SA brought “tactical” opportunities in its largest market.
Operating margins jumped to 11.6% from 1.1% a year earlier, above the 6.8% forecast by Wall Street, fueled by growth from its highly-profitable digital advertising business. Net income totaled $164.7 million, topping all estimates, while net sales for the three months through Dec. 31 rose to record $3 billion, in line with forecasts.
“We saw a very interesting acceleration in the advertising line, which is very strategic for us,” said Andre Chaves, a senior vice president at the Buenos Aires-based firm, in an interview Thursday. The company also focused on lower-risk consumers as it slows down credit origination, he said, adding that MercadoLibre gained market share in Brazil in the period.
Shares of MercadoLibre opened 2.4% higher in New York Friday before paring gains, bucking a 1.6% decline for the tech-heavy Nasdaq 100 Index.
Investors are expecting MercadoLibre to emerge as one of the winners from the 42 billion reais ($8.1 billion) meltdown of Brazil’s century-old retailer Americanas. Shares of the Argentine rival enjoyed the biggest January gain on record on anticipation that it will increase its bargaining power in talks with suppliers and accelerate growth after Americanas filed for bankruptcy protection last month.
Chaves acknowledged it was a “a very relevant event,” but declined to comment on the expected impact over the company’s operations in the first quarter. MercadoLibre doesn’t rule out looking at assets from Americanas or other companies “if we believe that there is a very clear case on how this would add to the things that we are building.”
“We have tactical plans amid disruptions” in the Brazilian market, Chief Financial Officer Pedro Arnt said in an earnings call with analysts and investors later on Thursday. The company will look to lean into opportunities for market-share gains, he added.
Analysts at Bank of America Corp. estimate the Americanas crisis could add as much as 20 percentage points to the company’s gross merchandise volume growth in Brazil, according to a report reaffirming a buy rating for the stock.
“We perceive initial signs of MELI market share improvement as it attempts to fill the vacuum created by the Americanas bankruptcy protection filing,” the analysts led by Robert Ford Aguilar wrote in the note.
MercadoLibre is looking to increase investment in Latin America this year from $10 billion in 2022, as it isn’t “done yet” with building out its logistic network, said Chaves, who declined to give a specific figure.
The company’s loan book remained stable from a quarter earlier at $2.8 billion, with early delinquency indicators — loans overdue up to 90 days — falling to 10.3% in December from 13.1% in September. Still, the percentage of loans more than 90 days overdue grew to 29.6% from 24% in the third quarter — slightly higher than Goldman Sachs Group Inc.’s 29% estimate.
Other key points:
- The company is not being “pressured” to trim headcount, as other large tech companies have in recent weeks, because it was cautious in adding workers in recent years and given its high margin growth, Chaves said
- “Everything points to another good year, but the market’s very fluid so we have to be flexible,” he said
- Latin American buyers are social and this presents “opportunities” for the ecosystem in areas including the metaverse, social commerce or other advertising possibilities
- MercadoLibre is operating near full capacity on logistics in some geographies and expects some incremental logistics investments in 2023, Arnt said in the earnings call
- MercadoLibre’s joint SPAC with venture-capital firm Kaszek has narrowed potential targets to “a few” but would consider returning the money to custodians if it doesn’t find one, Arnt added in an interview with Bloomberg TV
- Payment volume $36.0 billion, estimate $35.1 billion
- Gross merchandise volume $9.6 billion, estimate $9.4 billion
- Net income $164.7 million, estimate $105.2 million
–With assistance from Shery Ahn and Haidi Lun.
(Updates with stock move in fourth paragraph, analyst commentary in eighth.)
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