01—Abstract
Summary
Summary of the 10-Q filed August 9, 2018. Cited figures are marked; the original filing is the authoritative source.
MercadoLibre Inc. (MELI) reported its financial results for the period ending June 29, 2018, in its 10-Q filing.
The company experienced significant revenue growth, with an 18.6%a increase in net revenues for the six-month period and an 18.1% increase for the three-month period compared to the prior year. This growth was driven by increases in gross merchandise volume, successful items sold, and successful items shipped. However, gross profit margins saw a decline from 61.5% to 49.1% for the six-month period year-over-year, primarily due to increased shipping subsidies, higher penetration of payment and shipping solutions, increased cost of products sold, customer support, and hosting costs.
Operating expenses also rose, leading to an operating loss for both the six and three-month periods, compared to an operating income in the prior year. The company also noted the adoption of ASC 606, impacting revenue recognition, and the impending transition of its Argentine operations to highly inflationary accounting status.
02—Key points
Key Highlights
- Net revenues increased by 18.6% for the six-month period and 18.1% for the three-month period ended June 30, 2018, compared to the prior year.
- Gross profit margins declined significantly, from 61.5% to 49.1% for the six-month period year-over-year, driven by increased shipping subsidies and higher costs of net revenues.
- The company reported an operating loss for both the six-month ($57.7 million) and three-month ($28.2 million) periods ended June 30, 2018, a reversal from the prior year's operating income.
- Sales and marketing expenses more than doubled in the six-month period ended June 30, 2018, increasing by 87.4% year-over-year, driven by higher marketing spend and buyer protection program expenses.
- Argentina's economy was designated as highly inflationary, requiring a transition to U.S. dollar functional currency for accounting purposes starting July 1, 2018.
- The company suspended dividend payments in Q1 2018 to reinvest capital into business growth opportunities.
- Cash provided by operating activities decreased substantially by 52.7% to $107.2 million for the six-month period ended June 30, 2018, compared to the prior year.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q2 FY2018, Mercadolibre Inc lost $0.03.
- Revenue$335.4M100.0%
- Cost of revenue−$175.6M52.4%
- Gross profit$159.7M47.6%
- Operating costs−$188.0M56.1%
- Operating income−$28.2M8.4%
- Interest, other & tax$17.0M5.1%
- Net income−$11.3M3.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2018filed August 9, 2018Financial Statements
Q2 FY2018 against Q2 FY2017
| Line item | Q2 FY2018Q2 FY2017 | Change |
|---|---|---|
| Revenue | $335.38M$283.88M | +18.1% |
| Cost of Revenue | $175.63M$112.33M | +56.4% |
| Gross Profit | $159.75M$171.55M | −6.9% |
| R&D Expenses | $33.44M— | — |
| Operating Expenses | $187.99M$141.53M | +32.8% |
| Operating Income | -$28.24M$30.02M | −194.1% |
| Interest Expense | $4.76M$4.59M | +3.7% |
| Net Income | -$11.25M$5.32M | −311.6% |
| EPS (Basic) | $-0.25$0.12 | −308.3% |
| EPS (Diluted) | $-0.25$0.12 | −308.3% |
| Shares Outstanding (Basic) | 44.16M44.16M | 0.0% |
| Shares Outstanding (Diluted) | 44.16M44.16M | 0.0% |
05—Questions
Frequently Asked Questions
What were the main drivers of MercadoLibre's revenue growth in this period?
MercadoLibre's revenue growth was driven by increases in gross merchandise volume (GMV), successful items sold, and successful items shipped. The non-marketplace segment, particularly payment fees, also contributed significantly to revenue growth.
Why did MercadoLibre's gross profit margin decrease significantly?
The decline in gross profit margin was primarily due to increased shipping subsidies (which are netted from revenues under ASC 606), higher penetration of payment and shipping solutions (which have incremental costs), increased cost of products sold, and higher customer support and hosting costs.
What is the impact of Argentina's 'highly inflationary' status on MercadoLibre?
As of July 1, 2018, MercadoLibre's Argentine operations are considered highly inflationary. This requires the company to change the functional currency for Argentina from Argentine Pesos to U.S. dollars for accounting purposes. While the company does not anticipate a significant impact on revenues and expenses due to prior translation practices, it does expose the company to foreign exchange gains or losses on monetary assets and liabilities denominated in Argentine Pesos.
What is the company's strategy regarding capital allocation and dividends?
MercadoLibre has suspended its quarterly cash dividend payments as of the first quarter of 2018. The company's Board of Directors concluded that reinvesting capital into various business projects and platforms is expected to generate greater returns for shareholders compared to dividend payouts.
06—Continue