TLDR
- MercadoLibre stock has fallen roughly 15% since Q2 earnings on August 4, now trading at $2,174 per share after margin compression concerns
- The company reduced Brazil’s free shipping threshold from 79 reais to 19 reais in June, driving 29% gross merchandise volume growth
- Q2 revenue rose 34% year-over-year to $6.8 billion, while the credit portfolio expanded 91% and fintech assets under management doubled
- MercadoLibre acquired its first drugstore in Brazil to test online pharmaceutical sales in the country’s multi-billion-dollar medicine market
- Wall Street analysts maintain a Strong Buy rating with an average price target of $2,890, indicating 32% upside potential
MercadoLibre shares have dropped about 15% since the company reported second quarter earnings on August 4. The stock traded between $2,300 and $2,500 throughout September before declining further in October to $2,174 per share.
The selloff came after investors reacted to margin compression driven by higher shipping costs. Management cut Brazil’s free shipping threshold from 79 reais to 19 reais in June, which boosted sales but increased fulfillment expenses.
The move was a defensive response to competition from Chinese retailers Temu and Shein. Other competitors like Shopee and Amazon have also been expanding into Latin American markets.
Q2 revenue climbed 34% year-over-year to $6.8 billion. However, net income came in roughly 14% below consensus expectations.
The free shipping strategy produced results in volume. Gross merchandise volume increased 29% year-over-year in the quarter.
Items sold grew 31% year-over-year. Advertising revenue jumped 38% during the same period.
Fintech and Credit Growth Accelerate
The company’s fintech segment showed strong performance. Assets under management doubled compared to the prior year.
The credit portfolio expanded 91% year-over-year. The portfolio now totals over $9 billion.
MercadoLibre’s shipping arm, Mercado Envios, handled 57% of shipments across the region in Q2. In Mexico specifically, the company managed over 75% of deliveries.
Latin American logistics costs can reach up to 35% of product value. This compares to just 8-10% in developed markets.
MercadoLibre avoids many of the customs delays and import duties that international competitors face. The company benefits from its established infrastructure in the region.
New Pharmacy Business Launch
MercadoLibre announced plans to enter Brazil’s online pharmaceutical market. The company acquired its first drugstore to test online medicine sales.
Fernando Lunes, the company’s Brazil head, confirmed the move in a call with journalists on October 9. He said the firm is also working with Brazilian authorities on pharmaceutical sector regulations.
Lunes noted that current regulations create operational challenges for the sector. The company views this as a first step into Brazil’s multi-billion-dollar online medicine market.
Analysts project 40% annualized normalized earnings per share growth over the next few years. Revenue is expected to grow at about 25% annually during the same timeframe.
The stock currently trades at a forward non-GAAP ratio of nearly 50 times earnings. The 14-day RSI reading sits near 30.
Wall Street maintains a Strong Buy consensus rating on the stock. The rating includes 11 Buy recommendations, two Hold ratings, and zero Sell ratings.
The average analyst price target stands at $2,890.38. This represents roughly 32% upside from current levels over the next 12 months.
