10-QPeriod: Q2 FY2014

MERCADOLIBRE INC Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 11, 2014For Securities:MELI

Summary

MercadoLibre, Inc. (MELI) reported its financial results for the second quarter ended June 30, 2014. The company experienced revenue growth across most segments, with Brazil and Argentina showing strong performance. However, a significant event during the quarter was a substantial impairment charge of $49.5 million related to two office spaces in Venezuela due to the deteriorating economic conditions and currency devaluation in the country. This impairment, combined with foreign currency losses, led to a net loss for the quarter. Financially, MELI secured $330 million in convertible senior notes to bolster its capital. The company's liquidity remains strong, with significant cash and investments on hand. Despite the challenges in Venezuela and some ongoing legal proceedings in Brazil and Argentina, the company continues to invest in its technology and expansion, particularly noting the acquisition of real estate classifieds companies in Chile and Mexico. Investors should monitor the impact of macroeconomic conditions in Latin America, especially in Venezuela and Argentina, as well as the company's growth strategies and effective management of its operations.

Financial Highlights

50 data points
Beta

Revenue

$131.85M

72.4% Gross Margin

Net Income

-$25.59M

-19.4% Net Margin

EPS (Diluted)

$-0.58

Total Assets

$887.96M

Cash & Equivalents

$385.52M

Free Cash Flow

$52.61M

Financial Statements
Beta
Revenue$131.85M
Cost of Revenue$36.37M
Gross Profit$95.48M
Operating Expenses$101.39M
Operating Income-$5.91M
Net Income-$25.59M
EPS (Basic)$-0.58
EPS (Diluted)$-0.58
Shares Outstanding (Basic)44.15M
Shares Outstanding (Diluted)44.18M

Key Highlights

  • 1Revenue growth across most geographic segments, with Brazil and Argentina showing strong double-digit increases in net revenue.
  • 2Significant impairment of long-lived assets totaling $49.5 million recognized in Venezuela due to adverse economic conditions and currency devaluation.
  • 3Issued $330 million in 2.25% convertible senior notes due 2019, strengthening the company's capital position.
  • 4Reported a net loss for the quarter of $(25.6) million, impacted by the Venezuelan impairment charge and foreign currency losses.
  • 5Acquired online real estate classifieds companies in Chile and Mexico for $38.1 million to expand service offerings.
  • 6Continued investment in product and technology development, with a 25.4% year-over-year increase in expenses for the six-month period.
  • 7Maintained a strong liquidity position with $385.5 million in cash and cash equivalents as of June 30, 2014.

Frequently Asked Questions

The primary driver of the net loss in the second quarter of 2014 was a significant impairment charge of $49.5 million related to long-lived assets in Venezuela, coupled with foreign currency losses stemming from the devaluation of the Venezuelan bolivar and operational challenges in the country.

MercadoLibre strengthened its financial position by issuing $330 million in convertible senior notes due 2019. This issuance provided additional capital to fund operations, potential acquisitions, and other corporate purposes.

Key risks highlighted for investors include the adverse economic conditions and political instability in Latin America, particularly in Venezuela and Argentina, which can impact currency exchange rates, inflation, and overall business operations. Additionally, the company faces risks related to its convertible senior notes, including the ability to repay them at maturity and the potential impact on liquidity and financial flexibility.

The increase in direct costs in Venezuela for the Q2 2014 period was heavily influenced by the $49.5 million impairment of long-lived assets. While some cost components like direct costs (excluding the impairment) decreased, the overall direct contribution was significantly negative due to this impairment charge.