10-QPeriod: Q2 FY2011

MERCADOLIBRE INC Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 9, 2011For Securities:MELI

Summary

MercadoLibre Inc. (MELI) reported strong revenue growth for the second quarter and first half of 2011, with net revenues increasing by 32.1% and 32.9% respectively, compared to the prior year. This growth was primarily driven by a significant increase in Gross Merchandise Volume (GMV), up 33.8% year-over-year in the quarter, and a 28.4% increase in items sold. The company's integrated e-commerce ecosystem, encompassing marketplace, payments (MercadoPago), advertising (MercadoClics), and online stores (MercadoShops), continues to expand across Latin America. Financially, the company demonstrated improved profitability with operating income increasing by 18.7% in the quarter and net income growing by 27.2% to $14.8 million. Cash flow from operations also showed a healthy increase. While the company is navigating various legal proceedings and foreign currency risks, particularly in Venezuela, its strong revenue performance and operational expansion indicate positive momentum. The company also continues its practice of paying quarterly cash dividends.

Financial Highlights

51 data points
Beta

Revenue

$69.38M

75.6% Gross Margin

Net Income

$14.82M

21.4% Net Margin

EPS (Diluted)

$0.34

Total Assets

$308.53M

Cash & Equivalents

$44.25M

Free Cash Flow

$8.20M

Financial Statements
Beta
Revenue$69.38M
Cost of Revenue$16.94M
Gross Profit$52.44M
Operating Expenses$30.89M
Operating Income$21.55M
Interest Expense$881K
Net Income$14.82M
EPS (Basic)$0.34
EPS (Diluted)$0.34
Shares Outstanding (Basic)44.14M
Shares Outstanding (Diluted)44.15M

Key Highlights

  • 1Net revenues grew by 32.1% year-over-year to $69.4 million in Q2 2011 and 32.9% to $130.8 million in the first half of 2011.
  • 2Gross Merchandise Volume (GMV) increased by 33.8% in Q2 2011 and 28.4% in the first half of 2011 compared to the prior year.
  • 3Operating income grew by 18.7% to $21.6 million in Q2 2011, and net income increased by 27.2% to $14.8 million.
  • 4Confirmed registered users reached 58.4 million by the end of the period.
  • 5MercadoPago, the integrated online payments solution, processed $541.1 million in total payment volume during the first half of 2011, more than doubling year-over-year.
  • 6Capital expenditures increased to $13.4 million in the first half of 2011, including the acquisition of office space in Venezuela.
  • 7The company continued to pay quarterly cash dividends, distributing $3.5 million in the second quarter of 2011.

Frequently Asked Questions

MercadoLibre's revenue growth was primarily driven by a substantial increase in Gross Merchandise Volume (GMV), which rose by 33.8% year-over-year in the second quarter of 2011. This was supported by a 26.3% increase in the number of items sold and a positive impact from currency exchange rates, particularly the appreciation of the Brazilian Real.

MercadoLibre's Venezuelan operations are complex due to the country's highly inflationary status, leading to the U.S. dollar being the functional currency. While the company acquired office space in Venezuela for $6.6 million, it faces ongoing challenges with currency exchange mechanisms and restrictions on dividend distributions. Despite these complexities, MercadoLibre does not expect these restrictions to significantly impact its investment plans in Venezuela.

Sales and marketing expenses increased due to several factors, including a one-time loss of $1.6 million related to payment processor issues in Brazil, increased chargebacks on MercadoPago, higher compensation costs to retain talent, and increased use of buyer protection programs. While these expenses are growing, they are being managed as a percentage of net revenues, which remained relatively stable.

MercadoLibre is involved in various legal proceedings, particularly in Brazil, related to alleged fraud, intellectual property infringement, and customer service levels. The company has established reserves for probable losses and is contesting claims where the risk of loss is considered possible or remote. Additionally, the company is exposed to market risks from foreign currency fluctuations and interest rate changes.