The stunning success of MercadoLibre Inc. (MELI, Financial) continues to draw excitement from investors after a strong third quarter and record-breaking Black Friday sales. Already in an impressive position compared to its peers, the chance for further growth with a potential partnership with Meta Platforms' (META, Financial) WhatsApp is fueling anticipation.
While Brazil's e-commerce sector was largely flat in November, MercadoLibre shined thanks to its fintech and e-commerce platforms' performance, which saw significant jumps in revenue, user activity, payment volume and gross merchandise volume. Investors can look forward to continued success as the giant online retailer negotiates what could be one of its most profitable deals yet.
WhatsApp might become MercadoLibre's next source of revenue
MercadoLibre's Mercado Pago, the company's financial platform, has been identified as a potential candidate in phase one of WhatsApp's plan to launch a payment service within the app in Brazil. Earlier in December, MercadoLibre announced that it is among the companies being considered by WhatsApp to allow users to process payments. The users will be able to chat as well as purchase items from businesses within the app.
The in-app transactions will be done to businesses within the directory via debit cards and credit cards. Even though the companies did not disclose the financial terms or progress of the negotiations, it has huge potential to be profitable for both parties. Outside of Asia, WhatsApp has a high penetration in Brazil. According to Statista, there will be an estimated 147.37 million WhatsApp users in the country in 2022. After the news was announced, MercadoLibre's stock went up by 2%.
MercadoLibre's Black Friday sales stun the market
The e-commerce companies in Brazil suffered a huge blow during Black Friday. According to NielsenIQ, gross revenue declined by 23% from Nov. 21 to Nov.27 compared to last year. However, MercadoLibre was the only company that performed outrageously well during this period. The company saw its Black Friday sales jump 19% compared to last year. Fashion and electronics were the winning categories, and the company pinned the increased sales in fashion on consumers purchasing Brazil-themed apparel because of the ongoing FIFA World Cup.
Mercado Pago saw growth in sales, both retail and physical, of 38% compared to the rest of the sector as per the data of the Cielo do Varejo Ampliado Index. The transaction volume using PIX, an instant payment system, rose 52% compared to the year-ago period.
MercadoLibre's stellar third-quarter results are a rarity in the e-commerce sector.
Amid a bleak e-commerce market, MercadoLibre posted solid third-quarter results. During the quarter, the company generated $2.7 billion in revenue, growth of 61% year over year on a currency-neutral basis. The growth is credited to Mercado Pago, which had 41.6 million active users for the first time, compared to 31.6 million in the same period last year. Under its partnership with brick-and-mortar stores to promote credit card payments, Mercado Pago sold under 1 million mobile point-of-sale devices. As a result, the fintech revenue for the quarter rose by 115% year over year to $1.2 billion. Meanwhile, commerce revenue grew 33% versus last year to $1.47 billion.
Impressive growth was also recorded in the company's off-platform total payment volume, which soared 122% to $23 billion. Surprisingly, the on-platform total payment volume only increased 76% to $32.2 billion. The gross merchandise volume was an impressive $8.6 billion, up 32% year over year. During the quarter, the company sold 284.3 million items, a growth of more than 9% year over year.
MercadoLibre's platform had 88.3 million unique active users in the third quarter. Highlighting profit expansion, the management team mentioned the operating income grew 85% to $296 million and the operating margin jumped to 11%, an expansion of 500 basis points. The earnings per share were $2.57, an increase of 34%.
Mercado Ads is only a budding segment, but advertisers are already flocking to it. In the third quarter, the penetration of the ads business over the gross merchandise volume was 1.3%, up from 0.9% year over year. The management team underlined the progress, highlighting it was because of various improvements to the ad tools.
The company had a strong balance sheet at the end of the quarter with $3.4 billion in cash and short-term investments.
Takeaway
MercadoLibre has repeatedly proven that it can keep up with the changing demands of consumers. It offers a number of products, competitive prices, quick and efficient delivery services, operates in a variety of businesses and records constant expansion in segments.
Unlike its peers that are struggling to produce positive results amid the changing patterns of consumer spending, MercadoLibre is thriving and growing. A look at its record indicates the company's growth pattern is likely to continue no matter the macroeconomic conditions, which is why it is a favorite among investors.
