Why MercadoLibre Stock Plunged Today

stock free market (Mellie -10.81%) It fell today as gross margins fell and expectations of slower growth overshadowed a strong quarter. The company’s reported profits were also impacted by a one-time tax liability.

As a result, the stock was down 12.9% as of 10:31 a.m. ET.

Image source: Getty Images.

MercadoLibre’s hot streak has cooled.

Latin American e-commerce and digital payments specialists have had their best performance in history, posting robust growth at the height of the pandemic.

But that wasn’t enough to impress investors, as high expectations were already priced into the stock.

Sales reportedly increased 42% to $4.26 billion. This is an 83% increase on a currency-neutral basis as Argentina’s inflation soars. The result surpassed expectations of $4.12 billion.

We saw strong growth in both e-commerce and fintech. Total merchandise volume reportedly increased 40% to $13.5 billion, while total payment value increased 57% to $56.5 billion.

However, the company’s gross margins compressed by approximately 270 basis points due to lower transportation revenues, higher first-party revenues (lower margins than market revenues), and lower credit revenue contribution.

Reportedly, adjusted operating profit rose 78% to $572 million, although net income was flat due to tax obligations.

What’s next for MercadoLibre?

MercadoLibre does not provide guidance, and investors seem concerned that the company will have difficulty sustaining its explosive growth rate. A comment on the earnings call said the company appeared to expect its 29% revenue growth in the fourth quarter to slow in 2024 due to problems in Argentina, which recently devalued its currency.

However, our overall business continues to perform well and our high-margin businesses such as advertising and strategic priorities such as transportation continue to grow.

The 78% increase in adjusted operating profit also shows that the business is executing effectively. So today’s sell-off appears to be a temporary phenomenon rather than a cause for concern.