Bloomberg Línea — MercadoLibre (MELI) posted record revenues of $2.6 billion for second quarter, an increase of 56% year-on-year, and surpassing analysts expectations of $2.5 billion.
The regional e-commerce giant beat forecasts for all key metrics. Analysts expected a gross margin of 45.9%, but the company posted a 49% gross margin for the second quarter.
MercadoLibre’s gross profit was almost $1.3 billion, an increase of 70.3% in dollar terms compared to the same period of the previous year. Net income also jumped in first half, to $123 million, up 79.8%, with an improvement in the total margin year over year.
The operating result was set a record, of $250 million, with growth of 50.6% in dollar terms, with percentage margins similar to last year, the company said.
“We’ve always had an efficiency head,” said André Chaves, senior vice president of strategy, corporate development and investor relations at the company, in an interview with Bloomberg Línea.
He said that, in the last 18 months, the company began to report to investors that, given the size of the business, the strategy would be to gain market share and profitability.
Net revenues more than double
In the second quarter, MELI’s net revenue more than doubled to $2.2 billion. Chaves said the successive revenue records is related to building products and technology. “Each block built results,” he said. The company does not share guidance for the next quarter.
MercadoLibre roughly beat analysts consulted by Bloomberg News regarding expectation for commerce revenues. They forecasted commerce revenues at $1.48 billion, and MELI’s net revenue from the commerce business increased 23% in dollars year-on-year to $1.4 billion, driven by the strength of its marketplace, expanding digital advertising, and with 41 million unique shoppers in the quarter.
The company said consumers remain active, generating growth in the number of items per buyer compared to the previous quarter.
Brazil net revenues also surpassed the $1.37 billion analysts expected. Mercado Libre reached $1.4 billion with its Brazilian net revenue growing 52.5% and accounting for more than half (56%) of Meli’s total net revenue. As Argentina faces a tough time with the devaluation of the peso, Chaves says results for the second quarter were not affected by foreign exchange and the weak peso.
“Every remittance of dollars, we withdraw from Argentina and buyback stock from the parallel blue dollar, which ends up being adjusted in our net profit result. The impact of the currency was deeper in the end of July, so we are not seeing this in the second quarter,” he said.
MercadoLibre’s fintech arm also beat the $1.04 billion estimate, as Mercado Pago’s net revenue grew 112.5% year-on-year in dollars, to $1.2 billion. Mercado Pago’s revenues also surpassed the $1 billion mark for the first time.
In the second quarter, Mercado Pago surpassed 38 million active users, an increase of 26.3%, with growth in all markets in the region, especially in payment services via QR code, transfers within the ecosystem and credit users. Chaves told Bloomberg Línea that Mexico will likely be the next country in which Mercado Pago’s credit card will be launched.
The credit card is an important consumer monetization strategy, as the company increasingly moves to financial products beyond the marketplace, its core business.
Credit concerns
In recent reports and conference calls with investors, shareholders expressed concerns about the quality of credit originated by fintechs. Asked about defaults, Chaves said MercadoLibre’s portfolio is distinct from other players because it is “high growth”, and had an annualized margin of 34%.
“Our portfolio is very different from most credit portfolios. It has a short duration. In a quarter that we originate a lot of credit, the NPLs (non-performing loans) go down artificially, and in quarters where we grow the loan portfolio a little, the NPLs go up artificially.”
The loan portfolio totaled almost $2.7 billion in second quarter, down from $2.4 billion at the end of Q1 2022.
MercadoLibre said it granted more than $2 billion in credit, more than triple that of the same quarter last year. According to the company, with profitability margin increase in second quarter, the credit business contributed to operating margin expansion.
In July, MercadoLibre announced a $233 million capital raise with Goldman Sachs to expand credit lines in Brazil and Mexico.
Analysts forecast a payment volume of $26.81 billion, and Mercado Pago reached $30.2 billion for the first time, up 72.1% in dollar terms and 83.9% in constant currency. This increase is seen in both acquisition of and use of its digital wallet, according to the company.
Total transaction volume in the period grew 72.9% compared to last year, topping nearly 1.2 billion in Q2, the third consecutive quarter with the metric above 1 billion. Analysts had estimated $1.18 billion.
In Brazil, Mercado Pago offers cryptocurrencies through its partnership with Paxos. Chaves did not disclose which market will be the next market to receive cryptocurrencies in the next few quarters, but said the company is in talks with local regulators.
Adjustments amid the macroeconomic scenario
In Argentina and Mexico, MercadoLibre said the macroeconomic backdrop has forced the company to make adjustments to marketplace commissions to cut cost increases. Among the adjustments, the company raised the minimum price to sell on the platform, and the amount of the fixed cost per unit sold for products worth less than $5,500.
“They were small adjustments because of the interest rate increase. In Brazil, it was other types of adjustments in some lower price ranges,” Chaves said, adding that Mercado Libre absorbs much of the interest rate increase.
“We always pay our seller in a single installment, unlike other players,” he said.
The marketplace’s total sales grew 26.2% year over year in constant currency, with a volume of $8.6 billion in second quarter. Brazil stands out in the region, with an 18.6% increase in gross merchandise volume, in constant currency, and 143 million items sold in the period - with 6.6 items per buyer, the highest level of the historical average for the second quarter.
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