MercadoLibre misses quarterly profit estimates but revenue exceeds expectations

Shares of the Uruguay-headquartered firm rose as much as 7% in post-market trading following the results, before paring some gains to trade up about 2%. The stock had gained 3% during the regular session ahead of the earnings release.
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MercadoLibre, which runs an e-commerce platform and financial tech firm Mercado Pago across Latin America, reported net income of $559 million for the October-to-December quarter. Analysts polled by LSEG had expected a $587 million profit.
MercadoLibre’s senior vice president of investor relations, Leandro Cuccioli, told Reuters the profit decline came from a margin compression led by the firm’s decision to increase investments focused on long-term performance.
He cited the issuance of more credit cards – which increase provisions – the expansion of free shipping and plans to increase sales directly to customers, a format known as 1P, among those investments.
The company’s revenue rose about 45% year-on-year to $8.8 billion, above the $8.5 billion expected by analysts. Cuccioli said this was helped by a 35% increase, on a currency-neutral basis, of sales in Brazil and Mexico, when measured by gross merchandise value.
Meanwhile, income from operations, or earnings before interest and taxes (EBIT), rose some 8% to $889 million, near estimates of $891 million. EBIT margin fell to 10.1% from 13.5% a year earlier.
Analysts and investors have been debating the impact of MercadoLibre’s investments on short-term profitability, with many looking for clues on how soon margins might recover.
Cuccioli said MercadoLibre believes it is still early days for penetration of online purchases in its business markets.