Mercado Libre (NASDAQ: MELI) share prices imploded after the Q3 results because of the large miss with the bottom line result, opening up a significant opportunity for investors. The miss is primarily due to business investment, including the fintech and merchant segments, which is ultimately good news for investors.
Investments include six new fulfillment centers that help the eCommerce/fintech platform scale while maintaining high user satisfaction for merchants and consumers. The miss is a surprise but also not surprising, given the growth trajectory and results of past investment decisions. The company sustains a high double-digit growth pace aided by such moves and will likely maintain that pace in 2025.
Mercado Libre Had a Strong Quarter, Optimistic About the Future
Mercado Libre had a strong quarter despite the impacts of regional inflation in its three key markets: Mexico, Brazil, and Argentina. The company’s reported revenue came in at $5.31 billion, up 35.1%, to outpace the consensus estimate reported by MarketBeat. The strength was driven by widening territory and deepening penetration of services for merchants and consumers in both operating segments. The company reports double-digit gains in both segments and all regions, with transactions per user compounded by solid growth in user count. Internal metrics such as total payment volume, gross merchandise volume, and unique buyers are up by 34%, 14%, and 21%, respectively, pointing to sustained strength in FQ4 and 2025.
The margin news is shocking but mitigated by two things. The first is reinvestment and the expected return for sustained high double-digit growth for both business segments. The second is the company’s robust financial health. The balance sheet shows the impact of investments with cash down and liabilities rising. Still, those are offset by positives that include increased inventory, receivables, investments, and property, which more than offset the negatives. The net result is low leverage with long-term liabilities of only 1.1x equity and a 30% increase in shareholder equity.
Analysts refrained from knee-jerk responses to the news, leaving the positive sentiment trends intact. Those include increasing coverage, firming sentiment, and an upwardly trending consensus price target. The 17 analysts tracked by MarketBeat are six more than last year, up 55%, and show a high conviction, with 88% of them rating at Buy or higher. The consensus target offers only a 10% upside from critical support targets but would be a new all-time high when reached. The revision trend, however, is strong and suggests a move to the $2400 to $2500 range is likely. That’s good for a 20% to 25% increase from the critical support target, likely reached sometime in 2025.
Mercado Libre Is a High-Quality Target for Stock Split Investors
Among the opportunities for Mercado Libre investors is a stock split. A stock split doesn’t alter the company’s fundamental appeal but makes the shares more accessible to smaller traders and easier for the company to buy in bulk. The company may split because of the share price, which is running near $2100 and well above levels where others have split before. The real takeaway is that companies that split their stock do so because of their high value. This value is likely to continue increasing over time because of the fundamentally excellent quality of the business. Data from Bank of America has shown that companies that split their stock tend to outperform their peers and the broad market over time; Mercado Libre fits the bill.
The price decline in Mercado Libre is a signal for the market. Either the market will confirm support at the previous high, or it won’t. If it doesn’t, the bullish outlook is wrong, or the timing needs to be re-examined. If it does, the market will likely continue higher over the next year and reach $2400 by early summer 2025.
