MercadoLibre Surges to Highest Since May as Profits Double

Shares from e-commerce and fintech provider MercadoLibre Inc. surged to their highest since May as business booms and the firm seeks to allay concern over its Argentina exposure ahead of a key vote this month.

(Bloomberg) — Shares from e-commerce and fintech provider MercadoLibre Inc. surged to their highest since May as business booms and the firm seeks to allay concern over its Argentina exposure ahead of a key vote this month.

The company’s US-traded shares advanced as much as 13% on Thursday, their biggest intraday move in nine months, to over $1,300. 

Net income more that doubled from a year earlier to $261.9 million in the second quarter, above the $213.9 million forecast by analysts, as it continued to gain market share in Brazil and also benefited from accelerated growth at its highly-profitable digital advertising business. Operating margins totaled 16.3%, beating even the most bullish estimate. 

While an inflationary environment in Argentina — which accounts for 24% of the company’s sales — led to “flat-ish” marketplace volumes in the country, it also boosted demand for offerings from its fintech division, according to Andre Chaves, a senior vice president at the firm. That led to an 80% jump in the number of users of investment products and invested resources, he said in an interview.  

Read More: Argentina’s Dollar Fever Sparks $1.4 Billion Issuance Spree 

“The tough momentum helped people to be more conscious about how they’re protecting their incomes,” Chaves said. “An incoming market-friendly government and slowing inflation after the elections would definitely be favorable for the marketplace as it would free up income for discretionary spending.”

The company gave further disclosure on the impact of any potential macroeconomic changes over its Argentine business. A currency depreciation of 100% would negatively impact its operating income by about 22%, MercadoLibre said, adding that the hit would be offset by the fact the company has a lot of peso-denominated expenses allocated in other markets such as Brazil and Mexico.

“As a result of our cash management strategy in Argentina, we believe that our net income and cash flow already incorporate much of the potential effect of a devalued exchange rate,” the company said in a separate note.

Read More: IIF Sees Market Volatility Ahead in Argentina Even With IMF Deal

Shares of MercadoLibre had underperformed the Nasdaq 100 Stock Index since the company posted better-than-expected results in early May. The stock has been under pressure amid fears related to greater competition from international players and the firm’s exposure to Argentina. 

The management addressed “some key investor concerns” on Argentina and profitability “continued to surprise (by a lot) to the upside,” Goldman Sachs analysts led by Irma Sgarz wrote in a report. 

Read More: Traders Go to US for Argentina Stocks to Hedge Election Bet 

Argentina holds primary elections on Aug. 13, and its government just closed a deal with the International Monetary Fund while it moves to fight inflation and avoid a messy currency devaluation. 

Brazil share

MercadoLibre’s net sales in the three months through June 30 jumped to a record $3.4 billion, lifted by strong growth in its 1P — direct sales — segment in Brazil, Chaves said. 

The firm is eyeing further market share gains in the country, which accounts for the bulk of sales, while also looking to beef up its offering of cross-border products following a recent government decision that exempted all cross-border purchases of up to $50 from import tariffs, a move that could attract new players and intensify competition from Chinese firms such as fast-fashion retailer Shein.

Other key points from results and the interview:

  • The company’s fintech segment accounted for about 44% of total revenue
  • Payment volume $42 billion, estimate $40.1 billion
  • Gross merchandise volume $10.5 billion, estimate $9.95 billion
  • Credit environment has been improving, leading to a reduction in non-performing loans
  • MercadoLibre accelerated the pace of credit-card issuance in Brazil

–With assistance from Luiza Butzge.

(Updates stock move in second paragraph, adds analyst commentary in ninth.)

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