MercadoLibre stock pushed higher Tuesday, reversing initial losses following the Latin America-focused e-commerce company's mixed second-quarter results. The gains build on a 40% rally coming into the report, as investors shrugged off an earnings miss that MercadoLibre pinned on a decision to expand free shipping in Brazil.
Uruguay-based MercadoLibre late Monday reported adjusted earnings of $10.31 per share for the June-ended quarter, down 1.6% from a year earlier. That missed the $11.93 per share that analysts polled by FactSet were forecasting. Sales increased 34% to $6.79 billion, ahead of analyst estimates of $6.67 billion.
Often called the Amazon of Latin America, MercadoLibre operates an e-commerce platform in Brazil, Mexico, Argentina and 15 other countries. MercadoLibre also offers Mercado Pago, a fintech business that includes a Venmo-like digital wallet popular in the region.
Total gross merchandise volume for the e-commerce business rose 21% to $15.3 billion. Total payment volume for MercadoLibre's fintech operations grew 39% to $64.6 billion, according to the company's shareholder letter.
On the stock market today, MercadoLibre stock rallied more than 2% to 2,462 in recent trades. That's after MELI stock was down as much as 5% in after-hours trading Monday, immediately after the company published its results. A bounce further above MercadoLibre's 50-day moving average could offer an early entry, following the stock's recent pullback.
MercadoLibre's Brazil Competition
In a letter to investors, the company said investments in free shipping and seller discounts weighed on margins. MercadoLibre lowered the minimum checkout costs for free shipping for customers in Brazil in June.
"Forgone revenue from incremental free shipping and seller shipping discounts (implemented in June) flows directly through to the income from operations line," the company said.
Brazil is the company's largest overall market. But MercadoLibre is facing stepped-up competition there from Amazon, PDD Holdings' Temu and Shopee, which is owned by Sea Ltd..
MercadoLibre said in its shareholder letter that the initial results from the change in Brazil are "encouraging." Total items sold in Brazil increased 34% year over year in June, an acceleration vs. the rate at the start of the quarter, the company said.
Wedbush analyst Scott Devitt reiterated a buy rating for MercadoLibre following the report but lowered his price target to 2,700 from 2,800.
"Investors will more closely debate the company's near-term margin trajectory and the impact of rising competitive intensity in key markets," Devitt wrote. "Investments to attract new sellers and increase buyer engagement will continue to weigh on margins in the near-term, as the company faces a period of initial deleverage to better position the marketplace for durable long-term growth."
But, "the risk/reward remains attractive for a market share leader with an exceptional management team and defensible moat supported by decades of investment," he added.
MercadoLibre Stock Up 41% Ahead Of Q2 Results
Heading into Tuesday trading, MercadoLibre shares had gained 41% this year, and were ahead 34% compared with 12 months ago.
While MercadoLibre stock has significantly outperformed the S&P 500 this year, shares took a step back in July. MELI stock closed 9% lower for the month. Shares slumped after President Donald Trump declared a 50% U.S. tariff on goods from Brazil.
Coming into the report, MercadoLibre stock had an IBD Composite Rating of 98 out a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
The score placed MercadoLibre as the No. 4 stock among 59 in the Retail-Internet industry group tracked by IBD. The Retail-Internet group has been a strong performer this year. It ranks fourth among 197 industry groups tracked by IBD, based on six-month price performance.
