MercadoLibre stock tumbled Thursday after the Latin American e-commerce company reported third quarter earnings that were below expectations, despite sales that beat consensus.
MercadoLibre said late Wednesday that it earned an adjusted $7.83 per share on sales of $5.31 billion for the September-ended quarter. Analysts polled by FactSet projected the Uruguay-based company would post adjusted earnings of $10 per share on sales of $5.28 billion.
For the same period a year earlier, MercadoLibre posted adjusted earnings of $7.16 per share on sales of $3.76 billion.
On the stock market today, MercadoLibre stock fell 16.2% to close at 1,774.05. Shares broke sharply below MercadoLibre's 21-day and 50-day moving averages but found support above MELI's 200-day moving average. The gap downward also placed MercadoLibre stock beneath the edge of a flat base pattern that had a 2161.73 buy point, according to MarketSurge.
MercadoLibre: Earnings Miss
Often called the Amazon.com of Latin America, MercadoLibre operates an e-commerce platform across 18 countries. Its largest markets are Brazil, Mexico and Argentina, where it was founded. It also offers Mercado Pago, a fintech business that includes a Venmo-like digital wallet popular in the region.
The e-commerce firm said in a shareholder letter that investments in its shipping operations and credit card originations bit into its profit for the quarter. Wedbush analyst Scott Devitt noted that MercadoLibre's operating income of $557 million missed estimates of $758 million.
"Operating margin was negatively impacted by accelerating growth in the credit portfolio and an ongoing mix shift to credit cards (which carry lower margins), as well as higher fulfillment related costs as the company opened six fulfillment centers during the quarter," Devitt wrote.
Devitt rates MercadoLibre stock as outperform and upped his price target on MELI shares to 2200, from 2000, following the report.
"We think investors should take advantage of any dislocation in shares due to near-term margin uncertainty and continue to see multiple levers to drive long-term margin expansion," Devitt wrote.
That includes a growing advertising business, he added, benefits from the scale of MercadoLibre's fulfillment network and improving margins as new credit card products mature.
MercadoLibre Stock: Technical Analysis
However, from a technical standpoint, MercadoLibre is a sell according to IBD analysis. It gapped below its 50-day moving average in massive volume. Indeed, Leaderboard exited its position Thursday morning for the same reason. The stock did the same thing when it reported earnings in February. It took six months of consolidation before it made a new high in early October.
Meanwhile, the total volume of payments handled by MercadoLibre's fintech arm climbed 34% to $50.7 billion for the September quarter. The gross merchandise volume sold through its e-commerce marketplace climbed 14% year over year to $12.9 billion.
"Our competitive position is strengthening as retention improves across our businesses," MercadoLibre's shareholder letter said. "This gives us great confidence as we invest to fully capitalize on the many growth opportunities that are ahead of us, knowing that our ecosystem is uniquely placed to capture those opportunities."
