Río de Janeiro — MercadoLibre (MELI) posted an operating profit of $340 million for the first quarter of 2023, an increase of 145% year-on-year. The company had a margin of 11.2%, exceeding analysts’ expectations. The operating profit margin was 6.2% in the same period last year. The shares rose nearly 5% in the after-market.
The Argentine e-commerce and fintech giant, which had slowed down its credit card offering during 2022, resumed growth in this segment between January and March. MercadoLibre’s credit card performance improved in recent months and the company began to issue more of them in Brazil.
For the period ending March 31, the e-commerce company posted revenue of $3 billion, up 58.4% in constant currency compared to the same period last year. In the fourth quarter of 2022, this growth was 57%.
“The combination of growth with profitability sets us apart when we look at other technology companies both in and out of the region,” said Richard Cathcart, MercadoLibre’s director of Investor Relations in Latin America, in an interview with Bloomberg Linea.
All three of the company’s main markets increased their revenues in dollar terms compared to the previous year, with Mexico up 62%, Argentina 39% and Brazil 26%.
The online marketplace had an outstanding performance in the first three months of the year, with Brazil leading acceleration. The country accounted for more than half (52%) of MercadoLibre’s net revenue.
“We were increasingly gaining market share in Brazil last year and we went on to gain even more as volume sales in the Brazilian marketplace grew 28% year-on-year in constant currency,” Cathcart said. While the restructuring of retailer Americanas made room for the Argentine platform to gain market share, MercadoLibre also took over the sponsorship shares of Big Brother Brazil that belonged to Americanas. According to Cathcart, the sponsorship results were positive in terms of brand preference.
In constant currency, Mexico was up 28% year-on-year, driven by growth in items sold on the platform, according to the executive. “We have more people shopping in the marketplace and buying more items,” he said, noting that Mexico’s market is not yet as advanced in e-commerce penetration as Brazil.
Cathcart also emphasized revenues from the firm’s advertising business, which increased 62% in dollar terms compared to last year’s period.
Difficulties in the Motherland
MercadoLibre launched its cryptocurrency service in Mexico, Brazil and Chile. However, there is still no launch date in Argentina.
In Argentina, the consumer environment is challenging, with inflation reaching a cumulative 100% in the quarter. Still, the company enjoyed a return to 3% growth in the first quarter on a year-over-year basis for items sold in the country, which Cathcart says is a better metric to measure the operation, as inflation affects GMV (gross merchandise volume).
In Q4 2022, the total number of items sold was down 1% year-over-year. “We reversed a downward trend,” he said. “I think this reflects the fact that our brand is very strong, our value proposition is very strong in Argentina, but there is no denying that the environment is difficult.”
The company emphasized that it does not decide the selling price of products in its marketplace and that the rate charged did not increase in Argentina. Also, he mentioned that price increases in the marketplace are made by sellers who keep an eye on inflation data.
Credit portfolio growth
According to Cathcart, the 90-day default rate improved to 9.5% as a result of initiatives implemented since last year, such as the composition of the credit portfolio with lower-risk profiles. “We have many more consumers that we consider low-risk and many fewer consumers that we consider high-risk. Low risk has a much larger contribution to the portfolio today than it did six months ago,” he said.
The company remains cautious on credit origination, with the loan portfolio reaching $3 billion at the end of the first quarter, compared to $2.8 billion at the end of the fourth quarter of 2022, as a result of higher credit card issuance in Brazil and the launch of credit cards in Mexico.
“We are gradually starting to grow a little bit more with some specific products, but we keep a cautious stance,” the executive said.
MercadoLibre announced that it plans to hire 13,000 employees in Latin America this year. According to Cathcart, the company hired a lot of people during the pandemic, but never went overboard.
“This means we don’t have to spare. And the short-term results are very strong. We have momentum that justifies short-term hiring,” he said.
The company plans to hire engineers for technology development and innovation. MercadoLibre ended 2022 with almost 40,000 employees in the region.