10-QPeriod: Q2 FY2010

MERCADOLIBRE INC Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 6, 2010For Securities:MELI

Summary

MercadoLibre, Inc. (MELI) reported its financial results for the second quarter and the first half of 2010. The company demonstrated significant revenue growth across its Marketplace and Payments segments, with a particularly strong performance from MercadoPago, which grew by 73.8% in the first half of the year. Overall net revenues increased by 34.4% year-over-year for the first half of 2010. This growth was driven by a 30.4% increase in Gross Merchandise Volume (GMV) for the Marketplace and a 104.6% increase in Payments volume. Despite strong revenue growth, the company experienced a slight decrease in its Marketplace take rate and a more notable decrease in its Payments take rate, largely due to changes in fee structures and interest rate environments. The company also saw improvements in operational efficiency, with operating income margins increasing significantly due to economies of scale. Net income rose by 76.4% to $21.3 million for the first half of 2010. Cash flow from operations more than doubled compared to the prior year, providing strong liquidity. However, the company is navigating currency volatility in Latin America, particularly in Venezuela, which led to a reported decrease in USD-denominated revenues from that region, despite local currency growth. The company continues to invest in technology and sales and marketing to support its growth strategy.

Financial Highlights

46 data points
Beta

Revenue

$52.51M

78.3% Gross Margin

Net Income

$11.67M

22.2% Net Margin

EPS (Diluted)

$0.26

Total Assets

$208.64M

Cash & Equivalents

$31.57M

Free Cash Flow

$12.13M

Financial Statements
Beta
Revenue$52.51M
Cost of Revenue$11.41M
Gross Profit$41.10M
Operating Expenses$22.28M
Operating Income$18.81M
Interest Expense$3.36M
Net Income$11.67M
EPS (Basic)$0.26
EPS (Diluted)$0.26
Shares Outstanding (Basic)44.12M
Shares Outstanding (Diluted)44.15M

Key Highlights

  • 1Net revenues increased by 34.4% to $98.4 million for the six months ended June 30, 2010, compared to $73.2 million for the same period in 2009.
  • 2The Payments segment showed robust growth, with revenues increasing by 73.8% to $28.3 million for the six months ended June 30, 2010, and now representing 28.7% of total net revenues.
  • 3Gross Merchandise Volume (GMV) for the Marketplace grew by 30.4% for the six months ended June 30, 2010, compared to the prior year.
  • 4Total payment volume through MercadoPago surged by 104.6% for the six months ended June 30, 2010, indicating strong adoption of the payments platform.
  • 5Operating income increased by 79.1% to $34.3 million for the six months ended June 30, 2010, reflecting improved operational efficiencies and economies of scale.
  • 6Net income grew by 76.4% to $21.3 million for the six months ended June 30, 2010, demonstrating strong profitability improvements.
  • 7Cash flow from operating activities more than doubled to $26.1 million for the six months ended June 30, 2010, compared to $13.0 million in the prior year, indicating healthy cash generation.

Frequently Asked Questions

The primary driver of MercadoLibre's revenue growth is the strong performance of both its Marketplace and Payments segments. The Payments segment, particularly MercadoPago, is growing at a faster rate (73.8% year-over-year for the first half of 2010) than the Marketplace segment (23.2% year-over-year for the first half of 2010), indicating increasing adoption and utilization of its payment solutions.

MercadoLibre manages currency fluctuations by transferring excess cash and cash equivalents to U.S. dollar-denominated accounts in the United States. The company also notes that the devaluation of local currencies, particularly in Venezuela, has negatively impacted its reported USD revenues from that region, despite local currency growth. Recent changes in Venezuelan foreign exchange regulations are also being closely monitored for their impact.

The decrease in the Marketplace take rate (from 4.8% to 4.7% in Q2 2010) and the Payments take rate (from 12.4% to 10.4% in Q2 2010) suggests that revenue growth is not entirely keeping pace with transaction volume growth. For the Marketplace, this is attributed to a shift in listing types, country mix, and the introduction of free listing options. For Payments, the decrease in the take rate is primarily due to reduced installment-related financial charges, likely reflecting lower interest rates.

MercadoLibre continues to view product development as a key competitive advantage and intends to invest in hiring engineers to enhance its platforms. Similarly, the company plans to continue investing in sales and marketing to drive user acquisition and engagement, although it notes that the cost of online advertising as a percentage of net revenue has decreased due to optimized investment allocation.