Why MercadoLibre Stock Sank Today

Shares of Latin American e-commerce platform, logistics network, and financial technology (fintech) giant MercadoLibre (NASDAQ: MELI) sank on Thursday after reporting financial results for the third quarter of 2024. The company's profits came up quite short of expectations. And that's why MercadoLibre stock was down nearly 16% as of 1 p.m. ET.

Investors are worried about profits

MercadoLibre still has no problem whatsoever with growth -- its Q3 revenue was $5.3 billion, which was up 35% year over year and ahead of expectations. But the company's net profit margin was 7.5%, which was quite a drop from its 9.5% margin in the same quarter of last year. This worked out to earnings per share (EPS) of $7.83. But analysts had expected EPS closer to $10.

Management knew investors would have questions so it wasted no time in explaining why margins contracted. MercadoLibre wants to increase the number of people using its credit cards and it wants to improve on its already top-tier logistics services. The anticipated rise in credit necessitated putting more money aside for potential losses. And investments in infrastructure obviously cost money.

While there was an explanation from MercadoLibre, investors don't seem satisfied, as evidenced by the stock price today.

What should investors do now?

I can't help but think that investors are missing MercadoLibre's forest for the trees today. The company is still growing at an impressive pace. And even with lower margins, it still earned nearly $400 million in Q3 net income -- that's nothing to sneeze at and still left room to invest in future growth.

In short, I believe investors are overreacting with MercadoLibre stock today and, as a shareholder, I'm not personally concerned.

In fairness, however, MercadoLibre does need its investments to pay off with growth. Therefore, shareholders should watch e-commerce adoption trends and growth in its credit portfolio in coming quarters. But the company has a track record of fruitful investments back into its business so there's plenty of reason for optimism.

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Jon Quast has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.