As markets shift, MercadoLibre’s falling share price shows no company is safe

The declining valuations of major technology companies, including a host of recent IPOs, were partially triggered by lackluster guidance. As we saw this morning with Upstart, guidance can trump trailing results when it comes to setting investor sentiment about any particular company.

For one company currently in the public market penalty box, however, the picture is harder to parse. MercadoLibre ($MELI), after reporting earnings last week, has seen its value sharply contract. On May 4, MercadoLibre closed at $1,023.21 per share. On May 5, the day it reported its first-quarter performance, shares of the company closed at $913.22 apiece. Yesterday, the company’s stock slipped to a close of just $770.99.

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And that’s after MercadoLibre posted greater-than-expected Q1 2022 revenue growth. Why the decline in value if the company’s recent results weren’t too poor? MercadoLibre’s remarks about its market indicate that it is facing uphill conditions stemming from a number of sources, including consumer spending, rising interest rates, foreign exchange, and inflation pressures.

MercadoLibre, a Latin American e-commerce and fintech company, went public in 2007, making it an older public company. But its results provide a fascinating look inside the digital commerce and financial technology industries in a wealth of Latin American countries, making its results, and investor response, incredibly important.

How so? The Exchange has tracked Latin American startup and venture capital activity for some time. The numbers have been astounding. How their underlying market performs is therefore a critical data point; if the technology market in the region is in decline, it could slow the growth of a host of startups and billions worth of invested capital.

What then can we learn from MercadoLibre’s earnings report and ensuing valuation decline? It’s not a simple question. Let’s explore.

MercadoLibre’s Q1 2022 results

In the first quarter of 2022, MercadoLibre reported net revenues of $2.25 billion, up 63% from a year-ago result of $1.38 billion. The company’s gross profit crested the $1 billion mark, allowing MercadoLibre to post $139 million worth of operating profit and $65 million worth of net income. Each figure was an improvement from year-ago results.

Quick growth and rising profitability are hardly a poor mix of results. So how did MercadoLibre perform compared to expectations? Better in revenue terms, with the street only anticipating $2.01 billion worth of top line. However, when it came to per-share profit, the company’s $1.30 in earnings was under an anticipated $1.66 per share.

Sticking to good news for now, Mercado’s net fintech revenues expanded from $467 million in Q1 2021 and $773 million in Q4 2021 to $971 million in the first quarter of this year. Take rate for fintech products ticked up as well, while total payment volume rose 81% on a year-over-year basis (FX neutral) to $25.3 billion, with transactions rising 73% to 1.1 billion, again compared to the year-ago quarter.

It’s a solid set of results, yeah? So let’s flip the coin and look at the issues that could be the cause of MercadoLibre’s falling share price, and what problems it could pose for Latin American startups.