Whenever e-commerce is mentioned, two big names are usually mentioned: Amazon and Alibaba. This is not surprising, as the two occupy by far the first two places in the global brand ranking in retail. In terms of growth rate, however, rather unknown platforms such as MercadoLibre are one step ahead of the Internet giants. For example, Latin America's leading web shop more than doubled its sales in the first quarter of 2021, while the market leaders "only" expanded at a double-digit percentage rate.
A look at the books shows the current momentum at MercadoLibre. From January to March, the company increased its revenues by 111.4% to just under USD 1.4 billion, compared to "only" 96.9% growth in the previous quarter. Although the e-commerce segment still accounts for the lion's share of group revenues, the emerging fintech business - similar to its heavyweight e-commerce rivals - is taking on an increasingly important role. In the segment, MercadoLibre posted revenues of USD 467.8m, representing one-third of total revenues. "Online consumption remained strong throughout and we experienced favorable consumer trends as the share of digital services continues to grow," CFO Pedro Arnt commented on the results.
Speaking of results: Even more than revenue performance, investors are looking at the earnings side. Here, the picture has recently been mixed. While there was an improvement on an operating basis, the company slipped deeper into the red below the line. On the positive side, operating profit reached USD 90.8 million in the period just ended, compared with a loss of USD 29.7 million a year earlier. On a net basis, however, MercadoLibre dipped further into the red. While a year ago the loss was USD 0.44 per share, this time it was USD 0.68. The operating cash flow was also clearly negative at minus USD 263 million.
According to CFO Arnt, the results were mainly driven by higher taxes and accelerated growth. Thus, investments in key areas such as warehouses and fintech services were noticeably increased. The Argentine plans to invest a total of USD 1.1 billion in expanding its warehouse space and services in Mexico, on the one hand to serve the pandemic-related online boom faster. On the other hand, MercadoLibre also wants to compete with its arch-rival Amazon.
The company also plans to strengthen its fintech services, such as consumer loans, with additional money. Currently, the total payment volume of the fintech sector Mercado Pago, which has around 16 million users across Latin America, is USD 14.7 billion. This corresponds to an increase of a whopping 81.8% at the start of the year. The fact that digital payments are increasingly becoming the company's hobbyhorse is also demonstrated by a new commitment to bitcoin. MercadoLibre invested USD 7.8 million in the cyber currency in the first quarter.
Operationally, the signs at MercadoLibre are therefore pointing to growth, even if the current high level of investment means that earnings will be in negative territory in the current year. However, the analyst consensus already expects clearly positive earnings per share in the coming year.
The stock market is currently adopting a wait-and-see stance following the share's harem ride between March 2020 and February 2021. After a somewhat sharper corrective movement from the all-time high of USD 2,020 to below USD 1,300, which corresponds to a decline of around 35%, the stock entered a sideways phase. The share price is essentially moving in a corridor between USD 1,400 and 1,600. On the downside, there is also further horizontal support in the area of USD 1,300. On the way up, the current price potential is limited by resistance at USD 1,600. On a positive note, however, MercadoLibre shares managed to break above the 200-day moving average line a few days ago.
From both a chart and fundamental perspective, the sideways course that has been taken could continue for a while. The new Softcallable Barrier Reverse Convertibles are ideally equipped for such a scenario. The products are available in two currency tranches: USD and CHF. Both securities have a comfortable risk buffer of 35%, which leaves room for the underlying to fall to just under USD 1,000. In terms of coupon, the USD version is ahead with 11.00 %p.a.. However, at 10.00% p.a., the CHF product also offers the prospect of a double-digit percentage return.
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