MercadoLibre slumps as Q3 profit disappoints amid higher spending

Shares in MercadoLibre (NASDAQ:MELI) fell more than 8% in premarket trading Thursday after the Argentine e-commerce company posted worse-than-expected earnings for the September quarter.

Specifically, the company reported third-quarter earnings per share (EPS) of $7.83, significantly short of the consensus estimate of $10.57.

It generated a revenue of $5.31 billion for the period, slightly above the consensus forecast of $5.27 billion.

In a letter to shareholders, MercadoLibre attributed the profit decline to increased spending on its shipping network and the growth of its credit card business.

"What probably happened is that the market did underestimate the amount of investments we are doing in credit card," MercadoLibre CFO Martin de los Santos told Reuters.

The total payments processed by its fintech division rose 34% year-over-year, reaching $50.7 billion in the quarter.

Meanwhile, gross merchandise volume from its e-commerce marketplace increased 14% from the previous year to $12.9 billion.

Commenting on the report, Bank of America (NYSE:BAC) analysts said they "view any share price weakness as a particularly attractive buying opportunity," reiterating a Buy rating on MELI stock. 

MercadoLibre reported operating earnings (EBIT) of $557 million for the quarter, marking a nearly 30% decline from the same period last year and falling short of analyst expectations of $783 million.

The company's EBIT margin dropped to 10.8%, down from 18.2% in the previous year.

Mercado Pago, the company’s financial services division, saw its credit portfolio expand to $6 billion, a 77% increase year-over-year and the fastest growth rate since Q1 2022.

Barclays (LON:BARC) analysts said while it may take a while for the order of magnitude of MELI's logistics investments and credit mix dynamics to get better reflected in consensus projections, investors need to "keep the big picture in mind."

"MELI is the market leader in e-comm in Brazil, with an expanding moat from its logistics and growing profit pool from advertising," they emphasized.

"We think the potential pullback in shares near-term will prove an attractive entry point for new positions or add to existing positions."