MercadoLibre Inc. (NASDAQ:MELI) saw its stock drop in premarket trading Thursday after the Latin American e-commerce and fintech giant reported third-quarter results that were a bit of a mixed bag. Revenue came in strong, but higher shipping costs and marketing spending put a dent in profits.
Revenue rose to $10.75 billion, beating Wall Street’s estimate of $10.66 billion. However, earnings of $8.83 per share missed analysts’ estimate of $9.27. So top line good, bottom line not so much.
Net revenue and financial income grew 41% year over year on a currency-neutral basis. Advertising revenue jumped 58%, while acquiring revenue increased 42%. Not too shabby.
Brazil Growth Accelerates
Brazil’s gross merchandise volume rose 36%, while items per buyer increased 16%. Lower free-shipping thresholds helped boost shopping frequency. Meanwhile, fintech monthly active users grew 29%, assets under management climbed 67%, and the credit portfolio expanded 62%.
But management signaled a more cautious lending approach amid weaker credit conditions in Brazil and Argentina. Nonperforming loans remained stable, so that’s a silver lining.
Higher Shipping Costs Squeeze Margins
Operating margin narrowed to 6.3% from 6.7% in the previous quarter as shipping costs and marketing expenses increased. Higher shipping costs created a 60-basis-point margin headwind. Meanwhile, fulfillment capacity expanded roughly 20% sequentially.
However, cost per shipment fell 5% year over year and 14% from levels before the shipping threshold change. In September, certain lower-value free shipments in Brazil became contribution-positive for the first time, signaling improving logistics efficiency. So there’s progress on that front.
Affiliate Orders Surge 240%
MercadoLibre increased marketing spending by 40 basis points sequentially to 11.6% of revenue, largely to expand its Brazilian affiliate program. Affiliate orders surged 240% year over year, while the network expanded to more than 12 million members across Latin America. Management expects social commerce to drive further growth through affiliate marketing, live shopping and short-form videos.
Betting on AI and Faster Deliveries
MercadoLibre increased artificial intelligence spending by $30 million sequentially to improve customer engagement and efficiency. The company is also testing faster deliveries through Envíos Ahora, using its existing logistics, payments and merchant network. Management expects quicker deliveries to boost conversions and potentially improve margins without significant infrastructure spending.
MELI Price Action: MercadoLibre shares were down 5.30% at $1647.74 during premarket trading on Thursday, according to market data.
