Bloomberg Línea — Latin American e-commerce giant MercadoLibre (MELI) continues reaping the rewards of its investments and has reported record revenue and operating income in third quarter, while maintaining profitable growth.
The company’s shares rose 7.41% after the market closed Thursday, on a day when its US peer Amazon (AMZN) suffered its longest streak of daily stock declines since August 2019.
Beating analysts’ expectations, who had forecast net revenue of $2.69 billion, MercadoLibre reported revenue of $2.7 billion to third quarter ending September 30, up 44.9% in dollar terms and 60.6% in local currency compared to the same period of 2021, the company said Thursday.
Net income was $129 million, up 35.8% year-over-year, resulting in net income of $2.57 per share, up 33.8% from the same period last year.
Operating income was $295.9 million, an increase of 84.5% in US dollars.
“We are both competitively and financially in a positive business moment, we grew by gaining margin,” said André Chaves, director of strategy, corporate development, and investor relations at Mercado Libre, in an interview with Bloomberg Línea.
Brazil, a market that represents 53% of MercadoLibre’s total net revenue, accounted for $1.4 billion in revenue, up 33.9%. Analysts had expected revenues of $1.47 billion for that market.
“At a time when capital is tighter and competition is increasing for built capabilities, companies that have historically invested in better products and better technologies end up excelling. We are among these companies”, said Chaves, who considers that the market has been cautious in evaluating technology companies.
MercadoLibre’s shares have slipped 41.6% over the past year, with a market value below $45 billion.
“We have gained a lot of market share in retail in several countries. I would rather gain market share in a scenario where the market is growing a lot, but it is very tough. Still, we have gained market share in all our geographies and business lines very consistently,” Chaves said.
In contrast, US competitor Amazon saw its shares trade at their lowest level since March 2020 on the back of its report released last week when it projected the slowest growth in its history for fourth quarter.
On Thursday, Amazon also said it would pause “incremental new hiring” to cope with a slower economy.
MercadoLibre does not make projections for the last quarter of the year and Chaves says he does not like to talk about competitors either. He says it’s hard to say whether Amazon’s slowdown can be looked at as a trend that other e-commerces will follow next quarter.
“When Amazon talks publicly, they’re usually talking a lot about the US and European business, not necessarily Latin America, which may or may not be at a different pace in Q4,” Chaves said. “You can’t say that the trend is a slowdown, and I’m very careful about reading those statements, especially in companies that are global, because they may be in a moment of a generalized downturn but they may continue to invest in some geographies.”
Chaves also said that MercadoLibre did not have to make any revision of plans or staffing because “we were already very careful in how we grew”.
This year, MercadoLibre went from 8,000 to 12,000 engineers. “For us, that’s a long-term investment. We believe that is where we will continue to build our differential,” Chaves said. Even at a more difficult time for the market, Brazil, Argentina and Mexico have had good performances in the quarter and remain “very solid” businesses, he said.
Fintech growth faster than retail
Revenue from MercadoLibre’s fintech business, Mercado Pago, grew 93.7% in dollars to $1.2 billion in third quarter, compared with Q3 2021. Although the segment has yet to surpass the revenue generated by the marketplace business, the company’s financial arm is growing faster.
“We don’t give guidance, but we believe that at some point the fintech business will overtake the retail business, yes,” Chaves said.
In recent days, MercadoLibre has launched a feature for Mexican customers to hold cryptocurrencies such as Ethereum and Bitcoin in its digital wallet. Already operating in Brazil, the company plans to expand the service to other countries in which it operates, as well as expand its own cryptocurrency, MercadoCoin, “as regulators allow,” Chaves said.
Even with the so-called ‘crypto winter’, Chaves said MercadoLibre believes in blockchain technology and will keep investing and thinking of new use cases. In Brazil, MercadoCoin is not yet enabled for all users. As a first step, MercadoLibre will use its token as cashback but is studying other possibilities for using the currency.
The company keeps just under 1% of its cash assets in cryptocurrencies, it said.
“It’s something we intend to keep in the portfolio as a diversification of the treasury, even to be able to have these operations oiled, to know how to deal with the traditional market,” Chaves said.
At a time when high interest rates are deteriorating the quality of the credit market and worsening default rates, such as non-performing loans, Chaves says MercadoLibre prefers to look at the profitability of the portfolio as a metric. “This profitability is fine, and signals a business that remains very healthy, with a slight margin expansion in credit,” he said.
Chaves explains that NPLs are worse not because the company has seen a degradation in credit quality, but because it has slowed origination.
“When we generate less new credit, I have less new credit in the denominator, and I am simply rolling over the credits that I already knew would perform poorly as NPLs,” he said.
“Those credits were already provisioned. We have always been very conservative in anticipating those losses. That is why, unlike most market players, NPLs do not have any practical effect. We have encouraged investors to look less at NPLs and more at the profitability of the portfolio, precisely because we are very conservative when it comes to making provisions,” Chaves said.