MercadoLibreMELI

MercadoLibre brought in 10.2 billion dollars in revenue last quarter, a 50 percent jump from the year before. This is the fastest growth the company has seen in four years. The business earned 466 million dollars in profit, even as it spent more to expand its delivery network and its digital bank, Mercado Pago.

While the company is spending heavily to win more customers, the core business is getting more efficient as it scales. It is successfully moving beyond just being a website for buying goods and is becoming a primary bank for millions of people in Brazil and Mexico. This shift makes the business more useful to its customers and harder for rivals to compete with over the long run.

Source: Business Wire

MercadoLibre brought in $10.2 billion in revenue last quarter, a 50 percent jump from a year ago that easily beat analyst targets. The company is seeing massive growth in its fintech arm, with the total amount of money moving through its payment systems reaching $101 billion. Brazil remains the strongest engine for the business, helping drive a 44 percent increase in the total value of goods sold on its marketplace.

Operating profit fell 17 percent to $683 million because management is choosing to spend more on things like free shipping and expanding its credit business. This is a deliberate trade-off. They are sacrificing some profit today to lock in more customers and build a larger logistics network, which makes the platform harder for rivals to compete with over the long run.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Ecosystem users driving growth: The number of people using both the shopping and finance platforms grew 37% to reach a record high. These joint users are the engine of the business, as they bought 55% more items and held twice as much money in their accounts compared to users who only use one service.
• Ad business reaches milestone: Advertising revenue grew 62% to claim more than 10% of the entire digital ad market in Latin America for the first time. This high-profit business is getting a boost from new artificial intelligence tools that help tens of thousands of sellers manage their budgets automatically.
• Credit card expansion: The company issued 2.6 million new credit cards this quarter, up from 1.6 million a year ago. While this rapid growth temporarily lowered the profit margin on cards to -2.5%, management expects profitability to improve as these new customers mature and shop more frequently on the marketplace.
• Strategic price cuts: Operating profit margin fell to 6.7% from 12.2% a year ago because the company chose to spend more on free shipping and price discounts. Management is intentionally trading short term profits for market share, which helped drive a 56% increase in the number of items sold in Brazil.
• Investment in future capacity: The company expects to continue investing at a high pace to capture the early stages of Latin America's digital shift. Capital spending reached $441 million this quarter, up from $287 million last year, as the business builds out more logistics and technology to handle rising demand.

Our take: A very strong quarter that shows the power of the company's dual strategy. By sacrificing some current profit to lower shipping costs and issue more credit cards, the company is locking in its most valuable customers. This aggressive reinvestment makes the business harder to compete with and reinforces the long-term case for owning it.