MercadoLibre Down 11.6% Since Q3 Results: What Should Investors Do?

Core Insights - MercadoLibre's stock declined 11.6% after its Q3 2024 earnings release despite reporting strong growth across its business segments [1] - The company reported earnings of $7.83 per share, missing the Zacks Consensus Estimate by 30.52$5.3 billion, surpassing the Zacks Consensus Estimate by 1.11% [1] Business Performance - Unique buyers reached almost 61 million, up 21% year-over-year, marking the second consecutive quarter of accelerated growth post-pandemic [4] - E-commerce segment showed strong performance with FX-neutral GMV growth of 34% in Brazil and 27% in Mexico, while Argentina saw a 16% year-over-year increase in items sold [4] - Mercado Pago, the fintech division, reported a 35% year-over-year increase in monthly active users to 56 million, with the credit card portfolio growing 172% year-over-year to $2.3 billion [5] Infrastructure and Investments - The company opened five new fulfillment centers in Brazil and one in Mexico during Q3, which, while creating short-term margin pressure, are essential for long-term growth [6] - Income from operations was$557 million with a margin of 10.5%, reflecting a significant decline of 9.5 percentage points year-over-year due to strategic investments [7] Future Outlook - MercadoLibre's position as the leading e-commerce platform in Latin America, combined with its growing fintech ecosystem, suggests strong long-term potential [8] - The Zacks Consensus Estimate for 2024 revenue is $20.57 billion, indicating year-over-year growth of 42.13$35.49 per share, suggesting an 82.37% rise [10] Competitive Landscape - MercadoLibre faces rising competitive pressure from Amazon and Walmart, which are expanding their presence in Latin America [11] - Market uncertainties, high inflation, and recessionary fears are headwinds for the company, impacting margins due to increased investments [12] Valuation Metrics - The stock's current price-to-sales (P/S) ratio is significantly higher than the industry average, indicating a stretched valuation [13] - The forward 12-month Price/Sales ratio is 3.86 compared to the Zacks Internet - Commerce industry's 1.8, suggesting vulnerability to negative developments [13]