Key Highlights

  • MercadoLibre shares were trading up 5.28% at $1,749.91, against a prior close of $1,662.16.
  • Third-quarter results are due after today’s close, with Revenue expected near $10.7 billion, up about 44%.
  • Second-quarter Operating Margin fell to 6.7% from 12.2% a year earlier.
  • Brazilian-linked Assets sold off after the election, with the stock down about 10% in a week.
  • Citigroup upgraded the stock to Buy on October 27.

Shares Recover Part of a Post-Election Selloff Before the Report

MercadoLibre (NASDAQ:MELI) shares were trading up 5.28% at $1,749.91 on Wednesday, ahead of third-quarter results due after today’s close. The move partly recovers a drop of roughly 10% in a week for Brazilian-linked assets after Brazil’s election. The Nasdaq Composite was up about 1.9%, the Dow Jones Industrial Average about 2.9% and the S&P 500 about 1.8%, with easing Treasury yields supporting growth names. Volume was lighter than average.

Based in Montevideo, the company is Latin America’s largest E-commerce and Fintech ecosystem, operating across 18 countries with its largest markets in Brazil, Mexico and Argentina. Its Mercado Pago payments arm and Mercado Envios logistics network sit alongside the marketplace, and it employs roughly 124,000 people.

Operating Margin Is the Number Investors Want to See Stabilize

Second-quarter operating margin was 6.7%, against 12.2% a year earlier, after spending on free shipping, logistics and Credit card expansion and competition from Amazon (NASDAQ:AMZN) and others. The company does not give guidance, so the print itself carries the weight.

Consensus calls for revenue near $10.7 billion, up about 44% from $7.41 billion a year ago, and EPS near $9.27, against $8.32 in the year-ago quarter. In the second quarter, EPS of $9.19 topped expectations of roughly $8.65 to $8.69, and revenue of $10.17 billion rose 50%. The company has beaten EPS estimates in three of the last seven quarters. Daily active users reached 89 million, up 25.4%.

Valuation at 47.6 Times Trailing Earnings Raises the Bar for Results

MercadoLibre has a market Capitalization of $88.71 billion and trades at 36.37 times forward earnings and 47.60 times trailing earnings, on trailing EPS of $36.77. The 52-week range runs from $1,495.00 to $2,342.00, leaving the shares about 25% below the high.

The average analyst price target sits near $2,250, and Citigroup upgraded the stock to Buy on October 27. In September the company closed a $1.0 billion offering of 5.850% senior notes due 2036.

Credit Quality, the Real and User Growth Shape the Post-Earnings Reaction

Beyond margins, investors will look at Brazil trends, the effect of a weaker real, credit book quality and user growth. The stock is down about 10% over the past month, and its average post-earnings move over the past decade is about 11.7%, so a large reaction in either direction is possible.