Why MercadoLibre Stock Climbed 11% in November

What happened

Shares of MercadoLibre (NASDAQ: MELI) gained 11.3% last month, according to data provided by S&P Global Market Intelligence. The “eBay of Latin America” has turned into a Wall Street darling over the last year, reaching a high of over $600 per share before taking a breather in recent months.

When a company posts a surprise loss and the stock price is soaring like that, there are bound to be concerns about valuation for any growth stock, but the latest quarterly earnings report gave investors plenty more to be bullish about.

Image source: Getty Images.

So what

For the third quarter, EPS came in below analysts’ estimates at a loss of $2.96 per share. Analysts had been expecting a profit of $0.04. The shortfall can be blamed on the company’s increased spending on sales and marketing, which more than doubled year over year to $253 million.

However, investors are wise to what’s really going on: Management is spending more money on marketing to spur the momentum happening on the payments side of the business. MercadoLibre processed $7.6 billion in total payment volume last quarter, an increase of 94.5% year over year on a currency-neutral basis. The company saw notable strength in mobile wallet payments in Argentina, which management credited to a sharp rise in the number of QR payers and collectors for in-store payments.

What seems to have prompted investors to send the stock price higher last month was management’s comments on the call that MercadoLibre will begin making greater efforts to monetize digital payments in Argentina. The company plans to charge a fee of 0.6% per transaction, which should help narrow its bottom-line losses going forward.

Now what

The future is looking bright for MercadoLibre. The third quarter marked the first time that total payment volume for off-marketplace transactions exceeded the payment volume in the marketplace business. The company’s mobile-point-of-sale service now has grown to 2 million merchants. With user engagement also on the rise, MercadoLibre looks like a juggernaut-in-waiting in the mobile payments space.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends MercadoLibre. The Motley Fool recommends eBay and recommends the following options: long January 2021 $18 calls on eBay and short January 2020 $39 calls on eBay. The Motley Fool has a disclosure policy.

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