Investor jitters evident in $MELI’s declining value could weigh on Latin American startups
valuations down of major tech companies, including a host of recent IPOs, were partially triggered by lackluster guidance. As we saw this morning with Upstart, targeting can trump bottom line when it comes to establishing investor sentiment about a particular company.
However, for a company that is currently in the public market sanctions box, the picture is harder to parse. Mercado Libre ($MELI), after reporting gains last week, has seen its value shrink drastically. On May 4, Mercado Libre closed at $1,023.21 per share. On May 5, the day it reported its first-quarter performance, the company’s shares closed at $913.22 each. Yesterday, shares of the company fell to a close of just $770.99.
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And that is later Mercado Libre posted higher-than-expected revenue growth in the first quarter of 2022. Why the drop in value if the company’s recent results weren’t too bad? MercadoLibre’s comments on its market indicate that it is facing difficult conditions stemming from a number of sources, including consumer spending, rising interest rates, foreign exchange and inflationary pressures.
Mercado Libre, a Latin American e-commerce and fintech company, went public in 2007, making it an older public company. But their results provide a fascinating look inside the digital commerce and fintech industries in a host of Latin American countries, making their results and investor response incredibly important.
How is that? The Exchange has tracked startup and venture capital activity in Latin America for some time. The numbers have been staggering. The performance of your underlying market is therefore a critical data point; if the technology market in the region is in decline, it could slow the growth of a host of startups and billions of invested capital.
So what can we learn from MercadoLibre’s earnings report and subsequent valuation drop? It is not a simple question. We are going to explore.
Results of the first quarter of 2022 of Mercado Libre
In the first quarter of 2022, Mercado Libre reported net income of $2.25 billion, 63% more than the previous year’s result of $1.38 billion. The company’s gross profit surpassed the $1 billion mark, allowing Mercado Libre to post $139 million in operating profit and $65 million in net income. Each figure was an improvement over the previous year’s results.
Rapid growth and increased profitability are not a bad mix of results. So how did Mercado Libre perform compared to expectations? Best in terms of revenue, with the street anticipating just $2.01 billion in revenue. As far as earnings per share goes, however, the company’s $1.30 earnings were below the anticipated $1.66 per share.
Keeping with the good news for now, Mercado fintech net income expanded from $467 million in the first quarter of 2021 and $773 million in the fourth quarter of 2021 to $971 million in the first quarter of this year. The acceptance rate of fintech products also increased, while total payment volume increased 81% year-over-year (exchange-neutral) to $25.3bn, and transactions increased 73% to 1.1bn, again compared to the same quarter of the previous year. .
It’s a solid set of results, yes? So, let’s flip the coin and see what issues might be causing MercadoLibre’s share price to drop and what issues it might pose for Latin American startups.