What Happened?
Shares of latin American e-commerce and fintech company MercadoLibre (NASDAQ:MELI) jumped 12.7% in the morning session after the company delivered impressive fourth-quarter 2024 results, which blew past analysts' EPS and EBITDA expectations. In addition, its revenue and number of unique active users outperformed Wall Street's estimates. Drivers of the company's performance included better-than-anticipated TPV (total payment volume) growth, healthy adoption of its credit card offering, and fixed cost leverage from its logistics division. Zooming out, we think this was a solid quarter.
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What The Market Is Telling Us
MercadoLibre’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. Moves this big are rare for MercadoLibre and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 4 months ago when the stock dropped 16.3% on the news that the company reported weaker third-quarter earnings. The main reason was that it missed on operating income margin because it ramped up investments in its credit and logistics businesses. Ramping up loan originations leads to the recognition of the allowance for doubtful accounts upfront (the expected losses on the loans). However, the new loan originations came from credit cards and moving up-market to higher-quality customers. Because these new accounts have lower default risk, the yields are lower and result in a lower blended NIMAL spread (aka margins). However, the new loans are additive to overall profit dollars, lower the risk of the broader credit portfolio, and increase MELI's market share and stickiness/wallet share with customers. On the other hand, MercadoLibre delivered impressive revenue growth this quarter. Overall, the stock is reacting to the bottom line miss.
MercadoLibre is up 28.3% since the beginning of the year, and at $2,264 per share, has set a new 52-week high. Investors who bought $1,000 worth of MercadoLibre’s shares 5 years ago would now be looking at an investment worth $3,078.
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