MercadoLibre Q2 2024 Earnings Analysis
Dive into $MELI MercadoLibre’s Q2 2024 earnings with review of financial performance, key metrics, operating expenses, dilution, customer growth, future outlook
Financial Results:
↗️$5,073M rev (+48.6% YoY, +42.7% LQ) beat est by 8.4%
↘️GM (46.6%, -3.7%pp YoY)
↘️Operating Margin (14.3%, -2.0%pp YoY)
↘️FCF Margin (33.5%, -4.5%pp YoY)
↗️Net Margin (10.5%, +2.8%pp YoY)🟢
↗️EPS $10.48 beat est by 22.9%🟢
Revenue By Segment
Commerce
↗️$2,970M Commerce Revenue (+53.4% YoY, +131.1% FX-Neutral)
↗️421M Successful Items Sold (+30.0% YoY, +36)
↗️57M Unique Marketplace Buyers ( +19.0% YoY, +3.1)
➡️$12,647M GMV (+20.0% YoY, +83.0% FX-Neutral)
↗️Commerce Take Rate (23.5%, +1.5%pp QoQ,+5.1%pp YoY)🟢
Fintech
➡️$2,103M Fintech Revenue (+42.2% YoY, +92.2% FX-Neutral)
➡️$46,328M TPV (+10.0% YoY, +10.0% FX-Neutral)
➡️52 Fintech Monthly Active Users (+37.2% YoY, +3.0)
↗️Fintech Take Rate (4.5%, +0.0%pp QoQ,+1.0%pp YoY)🟢
Credit Portfolio
↗️$4,904M Credit Portfolio (+50.9% YoY)
↘️Credits NPL 15-90 (8.2%, -1.1%pp QoQ)🟢
↗️Credits NPL >90 (18.5%, +0.6%pp QoQ)🟡
↘️Credits NPL >15 (26.7%, -0.5%pp QoQ)🟢
Operating expenses
↘️S&M+Provision for doubtful accounts/Revenue 18.9% (19.7% LQ)
↘️R&D/Revenue 9.1% (10.6% LQ)
↗️G&A/Revenue 4.3% (4.3% LQ)
Dilution
↗️Basic shares up 1.1% YoY, +0.2%pp QoQ
↗️Diluted shares down -0.9% YoY, +0.2%pp QoQ🟢
Key points from MercadoLibre’s Second Quarter 2024 Earnings Call:
Quarterly Performance:
MercadoLibre achieved revenues of $5.1 billion, a 40% increase year-over-year, with a net income of $531 million, resulting in a 10.5% net income margin, the highest in eight years. MercadoLibre reported strong growth across its commerce and fintech sectors in Q2 2024, with significant increases in GMV, especially in Brazil (36% growth) and improvements in Mexico.
Logistics, Fulfillment Center in Texas:
MercadoLibre opened its first fulfillment center outside of Latin America in Texas, USA, aiming to expand the assortment of products offered to Mexican consumers by including U.S. sellers in its ecosystem. This move is designed to complement the existing cross-border business from China to Mexico and ensure faster delivery times within a couple of days to the north of Mexico and approximately three days to Mexico City.
Robotics in Distribution Centers:
The company launched more than 300 robots in its distribution center in Cajamar, Brazil. These robots collaborate with the human workforce to transport shelves of products, optimize processing times by 20%, and reduce the physical burden on workers. This innovation increases storage capacity by up to 15% per square meter and improves the efficiency of repetitive tasks like product sorting.
Slow Shipments:
MercadoLibre introduced "slow shipments," which allow the company to optimize its logistics operations by processing products during periods of low activity and shipping them when there is idle capacity in the network. This innovation provides more flexible shipping options for customers and enhances efficiency.
MercadoLibre Delivery Day (MDD):
This initiative focuses on last-mile delivery efficiency by enabling several deliveries to a single address in one drop. This approach reduces the number of stops required, thereby diluting last-mile delivery costs and improving operational efficiency.
Integration of AI and Technology:
The company continues to leverage AI across various aspects of its business to improve efficiency and customer experience. For instance, AI is used to enhance product recommendations, improve the quality of product images, and automate responses from sellers, thus increasing conversion rates. AI tools are also deployed to consolidate product reviews and optimize customer support interactions.
Advertising Business:
The advertising business achieved a penetration of 2% of GMV, marking a 40 basis points improvement year over year. Revenue from advertising grew by 51% year over year in dollar terms for the eighth consecutive quarter, indicating robust growth and effectiveness.
Significant performance improvements were noted from cross-border sellers and first-party (1P) brands, with the Traffic Acquisition Strategy (TAS) product remaining the majority contributor to the advertising revenue.
Strong Performance in Brazil and Mexico:
Commerce experienced notable growth, particularly in Brazil where GMV grew by 36%. In Mexico, there was positive growth, reversing negative trends from the previous quarter.
Fintech:
The fintech sector saw a significant increase in monthly active users, surpassing 50 million for the first time.
Mercado Pago continues to support and drive the growth of the commerce sector through its integration, offering solutions that facilitate transactions on the MercadoLibre platform.
The consumer and merchant credit books grew threefold compared to the previous year.
Credit portfolios showed stability or improvement in individual products year over year.
Argentina:
Positive turnaround highlighted in Argentina, particularly after a challenging first quarter. This recovery was evident in both the commerce and fintech sectors.
A significant development was the recent legislation passed in Argentina that removes tax withholding requirements on electronic payments at the federal level. This change is expected to boost the adoption of electronic payments by eliminating a previously existing disadvantage compared to cash transactions.
Future Outlook:
The company plans to keep investing in its strategic initiatives, which include enhancing logistics through technological advancements such as robotics and expanding its fulfillment network, including the new center in Texas, USA.
The interplay between the commerce and fintech segments is seen as a key driver of future growth, with fintech solutions continuing to enhance commerce operations and vice versa.
Management comments on the earnings call.
Customers:
Ariel Scharfstein, Commerce President: "We are continuously innovating to enhance our customer experience. For example, with our new fulfillment centers and technological innovations like robotics, we aim to ensure faster and more reliable delivery for our customers, solidifying their trust and satisfaction with MercadoLibre."
Competitors:
Martin Delos Santos, CFO: "In markets like Brazil and Mexico, we are not just keeping pace but are accelerating past our competitors by focusing on core strengths such as superior logistics, comprehensive fintech solutions, and an unmatched customer experience."
Commerce:
Ariel Scharfstein, Commerce President: "Our commerce segment has shown remarkable growth, particularly in Brazil, where we've seen GMV surge by 36%. This is a direct result of our strategic initiatives, which focus on enhancing product selection, competitive pricing, and improving shipping options."
Fintech:
Oswaldo Jimenez, Fintech President: "The fintech sector has surpassed significant milestones this quarter, with over 50 million active users now engaged with Mercado Pago. Our continuous investment in innovative payment solutions and credit services is fueling both our fintech growth and enhancing our commerce platform."
Argentina:
Martin Delos Santos, CFO: "This quarter marked a significant turnaround in Argentina, with both commerce and fintech showing positive recovery. The recent legislative changes regarding tax withholdings on electronic payments will further catalyze this growth, enabling more merchants and consumers to transition to digital solutions confidently."
Future Outlook:
Marcos Galperin, CEO: "As we celebrate our 25th anniversary, our future looks brighter than ever. We are deeply committed to driving growth through innovation, operational excellence, and market expansion. The strategies we have in place are robust, and we are excited about the endless possibilities that lie ahead for MercadoLibre."
Thoughts on MercadoLibre Earnings Report $MELI:
🟢 Pros:
+ MercadoLibre remains the preeminent e-commerce and fintech player in Latin America
+ Revenue increased by +48.6% YoY, accelerating from the previous quarter's +42.7%
+ Company increasing margins and profitability
+ Both commerce and fintech revenues showed acceleration
+ The take rates for commerce and fintech increased from the previous quarter
+ The fintech segment experienced strong growth in monthly active users
+ Non-performing loans (NPL) for credits over 15 days are declining
+ GMV growth stabilizing at +20% YoY
+ The number of successful items sold on the Mercado Libre marketplace increased by 9% QoQ and accelerates to +30% YoY
+ Strong number of Unique Marketplace Buyers added
+ Risks associated with inflation in Argentina are decreasing, with expected improvements in e-commerce due to legislative changes.
🟡 Neutral:
+- Dilution at 1.1% YoY
+- Gross margin slightly decreased from Q2 2023 due to higher rates
+- The percentage of Credits NPL >90 slightly increased relative to the previous quarter but significantly decreased compared to last year