FYI - it was just reported (SEC filings) that MELI owns $29M in Bitcoin. So, if you are a MELI investor, you are now a Bitcoin investor. It’s a tiny % of their market cap, but you have to start somewhere. And this was as of March 31 - so its possible they bought more on the recent dip.
Expect to see more reports like this in the coming quarters.
Anyone want to talk about MercadoLibre’s quarterly results or are we all on board with MELI and good with the ER? Or did everyone rush off to buy Russian and Chinese stocks instead and leave me holding the bag on this one?
I thought this was a very strong print. All in the face of a full blown crisis in Argentina and following on from some one off items in this and previous quarter comps. I just feel this business is both high performing and as bullet proof as you can get - which is pretty handy in LatAm.
Q1 2024 Results:
Numbers:-
Q1 GAAP EPS of $6.78 beats by $0.83.
Revenue of $4.33B (+35.7% Y/Y) beats by $460M.
Net revenues and financial income of $4.3 billion, up 36% year-over-year and 94% on an FX neutral basis
Income from operations of $528 million, with a 12.2% margin
Net income of $344 million, with a 7.9% margin
$40.7 billion Total Payment Volume, up 35% year-over-year and 86% on an FX neutral basis $11.4 billion Gross Merchandise Volume, up 20% year-over-year and 71% on an FX neutral basis
Narrative:-
MELI’s e-commerce business attracted strong demand in Q1, despite high comparable figures in the year ago quarter and Easter falling in Q1 this year versus Q2 last year. Gross merchandise volume on its platform jumped 20% Y/Y to $11.4B.
We continue to see good traction with MELI+, our loyalty program
“Our focus on operational excellence in our shipping network resulted in late deliveries reaching record lows, whilst the average speed of our delivery promises is close to record highs in Q1’24, despite initiatives like MELI Delivery Day reducing average speed,” the company said.
“This was helped by an increase in fulfilment penetration of almost 8ppts YoY, which means we surpassed the 50% mark for the first time in Q1’24, reaching an average of 52%,” MELI added.
MercadoLibre did acknowledge that “Argentina had a difficult quarter in Commerce,” with items sold in the country falling 4% Y/Y.
Argentina has been grappling with soaring inflation, though prices have cooled from a three-decade-high monthly rate in December last year to March. “Our marketplace model is resilient to this type of macro situation, so the business has outperformed wider consumption trends in Argentina,” MELI said.
Turning to MercadoLibre’s fintech services business, the company’s Mercado Pago payments platform reached 49M monthly active users in Q1, compared to 36M a year ago. Total payment volume on the platform climbed 35% Y/Y to $40.7B.
Assets under management (“AUM”) grew strongly (+90% YoY) in Q1’24. AUM more than doubled YoY in Brazil and Mexico, and grew at 64% YoY in Argentina despite the devaluation of the Argentine Peso. Asset management is a good entry door to our fintech platform, and in Q1’24, users of this product doubled YoY in Argentina and tripled in Mexico
“We are seeing better retention and an increase in the average number of products used on our platform in our more recent cohorts. These higher user and engagement trends are particularly strong in Brazil,” MELI said of its fintech services business.
Our geographies outside of Argentina delivered excellent results, with YoY income from operations margin expansion of 560bps (as detailed in our Q1’24 investor presentation) on a reported basis. This was due to higher Ads penetration, better profitability in Credits and 1P, and dilution of Sales & Marketing, G&A and Product Development expenses.
The Q1’24 consolidated income from operations margin of 12.2% declined by 90bps YoY when compared to Q1’23 recast figures. This includes the following headwinds from reporting updates: a) 120bps from the increase in shipping revenue booked on a gross basis; and b) 90bps due to the YoY decline in reclassified Mercado Pago interest income & expenses. So on an underlying basis - which excludes reporting updates and compares with figures disclosed last year - the margin would have improved by 120bps YoY (as detailed in our Q1’24 investor presentation).
“In Commerce, we still see plenty of opportunity for more buyers, more frequency and more retail to shift online; in Fintech, we see substantial demand for better and simpler financial services, as well as the trend of digitalization of cash,” the company said.
Letter to Shareholders here:-
https://api.mziq.com/mzfilemanager/v2/d/098a2d95-0ea8-4ed5-a340-d9ef6a2b0053/2ff0f141-ac16-6c7d-f47e-c9ff03c0da9e?origin=1
Investor Presentation here:-
https://api.mziq.com/mzfilemanager/v2/d/098a2d95-0ea8-4ed5-a340-d9ef6a2b0053/0f876afb-d145-fda6-f992-06f452224123?origin=1
Transcript here:-
https://seekingalpha.com/article/4689213-mercadolibre-inc-meli-q1-2024-earnings-call-transcript
You said Russian because you didn’t want to look up how to spell Kazakhstan, right? I almost did too.
But seriously, great point about Argentina. They of course took a hit there but it was hardly noticeable in the big picture.
I haven’t actually looked too closely at the numbers, because I admit, I was frustrated that they restated revenue. If someone has a simple explanation of why they did it, I’m all ears. I just hate things like that. But I think we can glean a lot just from one section of the one-pager factsheet:
My first take-aways are that wow, Argentina didn’t really take as big of a hit as I might have expected…must be a lot of growth offsetting the currency getting smacked. Also, MELI is very much a Brazil story. Good growth in Mexico for sure, but Brazil was responsible for 59% of the revenue this quarter. And most of the growth was commerce (which I kind of like as Fintech is complicated).
In Mexico the growth was slightly skewed toward fintech. Interesting that their commerce growth was less than Brazil’s even from a much smaller base.
And of course, currency might affect all of this. But in general, everything looks solid, from what I can tell. Not the easiest company to follow, but it still seems like quality to me, and maybe still undervalued, although I did trim a bit on the run-up. I want to hold this, but I’m happy with a small position, as I have to admit I don’t understand the numbers as well as I do other companies.
Bear
LOL Bear - busted. Actually I was just joking but in a semi serious fashion trying to make the point about what risk exposures investors might want to open themselves to.
Was this the restatement issue you were referring to?:-
“2023 figures have been recast including the reclassification of Mercado Pago interest income & expenses, as described in more detail in our 10-Q.”
Change in the presentation of certain financial results
Mercado Pago Fintech platform operations have significantly evolved during the last several years, not only because of the increase in the volume of transactions but also as a result of transitioning from being a non-regulated business to a regulated business, subject to the oversight of central banks and other regulators in the various countries in which the Company operates (refer to Note 3 – Fintech Regulations to the consolidated financial statements in the Company’s 2023 10-K for further details).
Many of the regulations to which the Company is subject require that the Company, among other things, maintain liquidity reserves to guarantee the funds on users’ account balances in their Mercado Pago digital accounts. Depending on the country, these reserves can be partially or totally invested. During the last several years, these new regulations, coupled with the increase in the volume of transactions, have led the Company to view interest income and other financial gains from investments of these liquidity reserves as part of the Company’s operations.
Furthermore, the evolution of Mercado Pago’s activities themselves has resulted in the Company managing a significant volume of cash, cash equivalents and investments. This is due to an increase in users’ account balances in their Mercado Pago digital account managed by the Company, and an increase in the level of the Company’s indebtedness to finance those operations. As a result, Mercado Pago’s available cash, together with the financing activities, have generated a significant volume of interest income and other financial gains and interest expenses and other financial losses, respectively.
The Company believes that these regulatory trends and related activities will continue and, therefore, with the goal of creating a better measure of the performance of the Company, the Company decided to reclassify and present certain financial results from “Other income (expenses)” to “Net revenues and financial income” and “Cost of net revenues and financial expenses,” in the statement of income, starting January 1, 2024 and for all prior periods presented.
The reclassified financial results are related to activities that are needed or mandatory for Mercado Pago’s operations, and consist of:
■interest income derived from investments, cash and cash equivalents, generated as part of the treasury strategy of the fintech business and because of the different regulations that require liquidity reserves, net of sales taxes;
■interest expense and other financing costs generated by the different sources of funding of the fintech activities; and
■gains and losses of derivatives hedging risks related to Mercado Pago’s activities.
Reclassification of prior year results
According to the Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements, the Company should present in a consistent manner all periods presented within the accompanying unaudited interim condensed consolidated financial statements. Therefore, prior period balances have been reclassified for consistency with the current presentation. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2023 10-K.
This reclassification did not have an impact on previously reported net income, earnings per share, retained earnings or other components of equity or total equity.
Here’s the 10k…
https://seekingalpha.com/filings/pdf/17509204
AnalogKid70
You were interested in the bitcoin holdings and exposure…
Their $29M Bitcoin was at a cost base of $6M. In their December report the valuation was $17M but still at a cost base of $6M so not sure how much recent buying they have been doing as it appears to be growth in Bitcoin valuation rather than fresh Bitcoin investing.
They also hold $11M in Ether from a cost base of $3M - again as of December it was only valued at $7M and still at a cost base of $3M.
So it appears their Crypto assets are residual from previous investing. In any case it is minuscule vs their Net Assets and Enterprise Value.
Also of slightly higher amounts but nothing too alarming - this is their exposure in terms of reported customer safeguarding account exposure…
" Customer crypto-assets safeguarding assets and liabilities
As of March 31, 2024 and December 31, 2023, the fair value of the crypto-assets held in customers’ names by third-party service providers that the Company recognized on its consolidated balance sheets for both the crypto-asset safeguarding liability and the corresponding safeguarding asset, which are included in “Customer crypto-assets safeguarding liabilities” and “Customer crypto-assets safeguarding assets,” respectively, was $71 million and $34 million, respectively, which consisted of $41 million and $18 million of Bitcoin, $15 million and $7 million of Ether, and $15 million and $9 million of other crypto-assets, respectively."
SOFI recently exited custodian crypto safeguarding and trading. I’m not sure how valuable it is to Fintech customers in LatAm or to MercadoLibre.
Ant
I believe SoFi had to exit for regulatory reasons.
“SoFi’s bank charter was approved conditionally on a two-year conformance period for its crypto activities, meaning it had to either garner necessary regulatory approvals or to exit the digital assets market entirely.”
In related news, JPM (yes, that JPM who has been mega-negative Bitcoin for years) now holds a small amount of several Bitcoin ETFs. So does Wells Fargo. Both with small holdings ATM. Square (Block) has just announced that they will be purchasing Bitcoin for their balance sheet on an ongoing basis. I could name many other well known financial institutions.
Hi Ant,
I’m still strong into MELI. I was occupied this week with travel and celebrations for my son graduating from college.
I’m happy with the continued improvement in fulfillment and with TPV.
Things that stood out to me were:
2.Total Payment Volume $40.7B 53.1%.
Usually TPV grows much faster than the ecommerce business. However, Argentina is damaging this significantly, but not killing the business, so they should be able to navigate around those inflation problems.
Unique fintech users are up about 9% YOY.
Advertising is up 64% YOY, but I couldn’t find revenue and margin information broken out for it. It looks like someday it could be important, but it doesn’t move the needle now.
Overall, it looks like MELI is righting the ship, but they have not completed their work with regards to Argentina’s situation. I’m confident that they will and I am especially confident that the economies of the countries they serve will continue to grow.
Best,
bulwnkl
Long MELI 19%
Congrats on your son’s graduation bulwnkl!
I like how you find 56.5% in FX Neutral GMV “steady growth”.
On Advertising - they haven’t given revenue and margin as such but I think they did relate it back to “take rate” and it is starting to make an impact - I suspect it will be reported pretty soon. Usually advertising is very high margin.
What I haven’t seen mentioned or addressed in Q&A is their move into remittance. Maybe it’s buried in financial services somewhere.
BTW StoneCo the Brazilian payments player announced results last night - they completely sucked. Revenues only grew 13.8% and that is in local currency (constant currency / FX Neutral in MELI language). Can’t help but feel MELI and NU are eating their lunch. NU results out tomorrow.
NU’s consensus: [EPS Estimate is $0.08] and the consensus Revenue Estimate is $2.53B (+56.2% Y/Y).
FWIW DLocal results also out tomorrow:
The consensus [EPS Estimate is $0.12] (+9.1% Y/Y) and the consensus Revenue Estimate is $189.84M (+38.3% Y/Y).
Ant
To answer your question on the GMV growth, I had an oversight when I copied cells on my spreadsheet. GMV is $11.37B, which is up 20% YOY, so not great. My bad.
Argentina seems to be at the root of the struggles. Interesting to me, Argentina announced that it will begin to print 10,000 peso notes, which is equivalent to 9 USD (black market rate) on 5/6. Although President Milei’s austerity program is probably slowly decreasing inflation, people are in severe economic pain, and the transportation workers have been striking. Still, about half the country still supports Milei, so maybe the austerity policies be in place long enough to reduce inflation.
South America is a fascinating place, with growing populations, growing economies, and tremendous resources. MELI knows how to navigate the labyrinth of economic systems and cultures. They seem to be slowly righting the ship.
Best,
bulwnl
Actually it was up 71% on an FX neutral basis, so even better than the 56% you had erroneously.
Bear
Bear, this is one case where I don’t think you can handwave currency translation away - normally it’s fine because we expect reversion, but LATAM and run away inflation seems to be a persistent trend, not a mean reverting one - the growth really is closer to 20% than 71% (to put it simply people are paying “more” in currency to buy the same amount of things, not buying more things)
Alphalite - actually the use of constant currency or FX neutral calculations is used to understand the like for like nature of local performance rather than of any mean reversion expectation of future trends and certainly not adjustment of earnings given we are investors from a USD perspective.
It just helps recognise the actual performance of the business rather than simply exchange rate movements. Inflation is present in USD or any other currency as well as local LatAm currencies.
Sure Argentina has a particular issue and local business performance is probably worth looking at in terms of volume trends rather than value trends to best understand what is happening there.
Ant
thought exercise for you ant, say inflation in country X was 40% and sales of company A which operates exclusively in X increased by 70%, while inflation in country Y was 5% and sales of company B which operates exclusively in Y increased by 50%, which company reported better results?
Spoiler: Constant currency growth rate of company A in country Y in this case would be 27.5%
I get that but that is not what is happening. Latin America and most emerging markets are not experiencing inflation rates such as 40%.
Inflation apart from a couple of countries and a couple of spikes has been declining for decades in LatAm and has spend most of the last 10 years well under 5%.
Here’s the World Bank data if you prefer that:
Here’s 2022 the peak inflation year broken out by country. Most came in at single digits.
Not far removed from US, UK and Europe numbers.
Ant
But ant, you are literally providing figures for the reason for the 20% to 71% adjustment - I will use the world bank open date link you provided since macrotrends doesn’t have Argentina data
from MELI’s 2023 10-K, segments:
Add it all together and you get 23%, not 40%, but still a significant amount, and certainly not single digits. These are 2022 figures, and to get from 71% to 20% means a ~35% adjustment, so I’m guessing inflation was either worse in 2023 (a quick google search says Argentina 2023 inflation was 200%+ which would certainly move that calculation) or the currency traders are down on LATAM prospects which led currency exchange changes to be worse than actual inflation. Additionally, given a choice on whether to trust the market (currency exchange rates) or government (published inflation rates), I would take market signals as a stronger sign.
Leaving aside Argentina as I said - it is an outlier, the average of the others would be the same as US inflation which was ~8% for 2022.
Ant
Argentina is 22% of their business! how can you leave it aside? If you increased your prices 200% in 2023 on a quarter of your business so you can sprint just to stay in the same place, would it make sense for the investment community to give you credit for a 200% increase in revenue on that portion of your business?
I guess that’s my point I’m not trying to adjust or restate earnings with FX neutral comparisons. I’m just trying to understand the performance of the underlying business. Given that the vast majority of LatAm has an inflation level at parity with the US, I’m ok about using the FX neutral rate. Fortunately MELI break everything down at a sub continent level - many on a country by country basis so we can look at values and volumes comparison at that level.
If you are so worried about inflation in reporting then that should also apply to US companies and you should be discounting US revenues by their inflation rates and what’s more require one to look at volume comparison as inflation hits different basket composites differently.
Whilst I’m ok at looking at FX neutral generally of course with instances such as Argentina we have to consider inflation as well as exchange rate devaluations.
Like I said in the vast majority of cases, inflation is not too different to USD inflation, FX neutrality is simply the way of removing exchange rate fluctuations out of the equation in order to see like for like underlying growth (not ex-inflation growth).
Ant
Great point and good way to look at it, I think. “Items sold” is actually a metric they give and it was up ~25%.
Bear
Bear,
I consider both FXN and USD reporting. Of course, the results we care about the most are USD, because we use the almighty dollar to live. BUT, and this is a big BUT, if Mexican, Brazilian, or other LA currencies strengthen just a little bit compared to the USD, that could unlock a torrent of grown for us, so yeah, the 71% is important to keep in the back of our minds too.
With our deficit spending and somewhat similar inflation situations, it’s not a stretch to see this happening in the near future.
Best,
buwlnkl
