10-QPeriod: Q2 FY2017

MERCADOLIBRE INC Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 4, 2017For Securities:MELI

Summary

MercadoLibre, Inc. (MELI) reported strong revenue growth in the second quarter of 2017, with net revenues increasing by 58.5% year-over-year. This growth was driven by robust performance across its marketplace and non-marketplace services, particularly in Brazil and Argentina. The company experienced significant increases in key operational metrics such as successful items sold, total payment volume, and shipped items. Despite strong revenue growth, gross profit margins saw a decline due to increased penetration of payment and shipping solutions and higher customer support and hosting costs. Operating income margins also decreased, reflecting these increased costs and continued investment in product development, sales, and marketing. The company also faced significant foreign currency losses, primarily due to the devaluation in Venezuela, which impacted net income. MELI continues to focus on long-term growth in Latin America and is actively managing its investments despite economic challenges in certain regions.

Financial Highlights

52 data points
Beta

Revenue

$283.88M

60.4% Gross Margin

Net Income

$5.32M

1.9% Net Margin

EPS (Diluted)

$0.12

Total Assets

$1.51B

Cash & Equivalents

$382.79M

Free Cash Flow

$105.68M

Financial Statements
Beta
Revenue$283.88M
Cost of Revenue$112.33M
Gross Profit$171.55M
Operating Expenses$141.53M
Operating Income$30.02M
Interest Expense$4.59M
Net Income$5.32M
EPS (Basic)$0.12
EPS (Diluted)$0.12
Shares Outstanding (Basic)44.16M
Shares Outstanding (Diluted)44.16M

Key Highlights

  • 1Net revenues increased by 58.5% to $316.5 million in Q2 2017 compared to Q2 2016.
  • 2Total Payment Volume (TPV) increased by 73.5% year-over-year for the three-month period ended June 30, 2017.
  • 3Gross profit margin decreased from 63.3% in Q2 2016 to 54.2% in Q2 2017, impacted by higher costs of services and sales taxes.
  • 4Significant foreign currency losses of $21.8 million were recorded in Q2 2017, primarily due to the devaluation of the Venezuelan bolivar.
  • 5Impairment charges of $2.8 million were recognized in Q2 2017, related to Venezuelan real estate investments, compared to $13.7 million in Q2 2016.
  • 6Operating income margin decreased from 16.1% in Q2 2016 to 9.5% in Q2 2017 due to higher operating expenses.
  • 7The company continues to invest heavily in sales and marketing, with expenses increasing by 117.5% year-over-year in Q2 2017.

Frequently Asked Questions

MercadoLibre reported a significant increase in net revenues, growing 58.5% to $316.5 million for the three-month period ended June 30, 2017, compared to $199.6 million in the same period of 2016. This growth was broad-based across its segments, with Brazil and Argentina showing particularly strong performance.

Profitability was impacted by several factors. Gross profit margins declined due to increased costs associated with higher penetration of payment and shipping solutions, along with higher customer support and hosting expenses. Operating income margins also decreased due to higher costs of net revenues and increased sales and marketing expenses. Additionally, significant foreign currency losses, primarily from Venezuela, negatively affected net income.

MercadoLibre continues to focus on long-term growth opportunities in Latin America, believing that execution of its strategic initiatives will create stockholder value. Despite weak global macroeconomic conditions and currency devaluations in the region, the company expects revenue growth to continue, although it acknowledges potential impacts on U.S. dollar-denominated revenues. It is actively managing its investments and operations, including those in challenging environments like Venezuela.

The Venezuelan economy's high inflation and currency devaluation have led to significant foreign exchange losses for MercadoLibre. In Q2 2017, the company recorded a $22.0 million foreign exchange loss due to re-measuring its bolivar-denominated assets and liabilities at the DICOM exchange rate. This also led to an impairment of $2.8 million in Venezuelan real estate investments. Despite these challenges, the company is committed to its investment in Venezuela and actively manages its operations there.