Investors’ jitters in the falling value of $MELI could affect Latin American startups
The falling valuations of major tech companies, including many recent IPOs, were driven in part by poor guidance. As we saw with Upstart this morning, guidance can outpace lagging results when it comes to determining investor sentiment about a particular company.
However, for one company currently in the public market penal court, the picture is more difficult to parse. MercadoLibre ($MELI) has seen its value contract sharply after reporting gains last week. On May 4, MercadoLibre 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, the company’s stock plunged to a close of just $770.99.
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And that is after MercadoLibre posted greater-than-expected sales growth in the first quarter of 2022. Why the decline in value if the company’s recent results weren’t too bad? MercadoLibre’s comments on its market indicate that it faces difficult conditions from a number of sources, including consumer spending, rising interest rates, foreign exchange and inflationary pressures.
MercadoLibre, a Latin American e-commerce and fintech company, went public in 2007, becoming an older publicly traded company. But the results offer a fascinating glimpse into the digital trading and financial technology industries in many Latin American countries, making the results and investor response incredibly important.
How’s that? The Exchange has been tracking Latin American startup and venture capital activity for quite some time. The numbers were astounding. How their underlying market performs is therefore a critical data point; if the technology market in the region shrinks, it could slow the growth of many startups and billions in invested capital.
So what can we learn from MercadoLibre’s earnings report and the resulting fall in valuation? It’s not a simple question. Let’s investigate.
MercadoLibre . Q1 2022 results
In the first quarter of 2022, MercadoLibre reported net sales of $2.25 billion, up 63% from a year ago of $1.38 billion. The company’s gross profit reached the $1 billion mark, enabling MercadoLibre to record $139 million in operating profit and $65 million in net income. Each figure was an improvement from a year ago results.
Rapid growth and rising profitability are hardly a bad mix of results. So how did MercadoLibre perform against expectations? Better in terms of revenue, with the street only forecasting $2.01 billion in revenue. However, when it came to earnings per share, the company’s earnings were $1.30 lower than the expected $1.66 per share.
Good news for now: Mercado’s net fintech revenue increased 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 take rate for fintech products also increased, as total payment volume increased 81% year-over-year (FX neutral) to $25.3 billion, with transactions rising 73% to 1.1 billion, again compared to the same quarter a year earlier. year ago .
It’s a solid set of results, yes? So let’s flip the coin and look at the problems that could be causing MercadoLibre’s stock price to fall, and what problems it could pose for Latin American startups.