Quarterly reporting maybe great for transparency but it can be a curse for long-run growth stocks, as investors in MercadoLibre (MELI:NASDAQ) are finding out.
The stock was thumped last week (7 November) after a third-quarter report saw sales surge but profits miss expectations. Quarterly revenue jumped 35% year-on-year to $5.31 billion, beating forecasts by $30 million, but EPS (earnings per share) fell well shy of $10 expectations at $7.83, while payment volumes were also a little light on forecasts, albeit partly due to product mix changes.
WHAT HAS HAPPENED SINCE WE SAID BUY?
A lot of operational progress. Remember, this is a chrysalis of a business, one transitioning from a pure online retail platform into Latin America’s premier digital finance provider, and there are bound to be bumps in that road. Finance chief Martin de los Santos flagged the importance of investments in some of the firm’s strategic initiatives, ‘one of which is credit’.
‘The credit card is an important part of our fintech strategy’, and perhaps an area where analysts had underestimated short-term costs, said de los Santos.
Aggressive expansion into the credit card market is part of MercadoLibre’s strategy to leverage the card to promote the adoption of its broader fintech ecosystem. ‘The initiative seems to be bearing fruit, as evidenced by a 4.2 million increase in Fintech Monthly Active Users, marking the second-best quarter since the company began reporting this metric in the first quarter of 2023,’ said analysts at BTIG.
WHAT SHOULD INVESTORS DO NOW?
There’s a strong argument that there is never a bad profit and a near-30% return could be siphoned off and allocated elsewhere, but that is not what Shares would do.
We retain high conviction over the enormous opportunity in front of MercadoLibre. Recycling profit into a better opportunity will be difficult to find given EPS growth of 80% and 30% this year and next. That suggests to us investors should consider topping up stakes not downsizing.
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Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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