As Markets Shift, Mercado Libre’s Falling Share Price Shows No Company Is Safe

As Markets Shift, Mercado Libre’s Falling Share Price Shows No Company Is Safe

Lackluster guidance was one of the factors that contributed to the decreasing values of large technology businesses, including several recent IPOs. As we witnessed this morning with Upstart, when it comes to determining investor sentiment about a certain firm, guidance can take precedence over trailing performance. However, the situation for one firm that is now in the public market red zone is more difficult to understand. 

After last week’s earnings release, Mercado Libre ($MELI) has suffered a dramatic decline in value. The closing price for Mercado Libre on May 4 was $1,023.21. Shares of the business ended at $913.22 on May 5, the day it released results for the first quarter. The shares of the corporation decreased yesterday, closing at approximately $770.99.

And it comes after Mercado Libre reported stronger-than-anticipated sales growth in Q1 2022. If the company’s most recent results weren’t all that bad, why the value decline? According to Mercado Libre’s comments regarding its market, the company is dealing with challenging circumstances brought on by a variety of factors, such as consumer expenditure, rising interest rates, foreign exchange fluctuations, and inflationary pressures.

Latin American e-commerce and fintech firm Mercado Libre is an older public company; it went public in 2007. However, its findings offer a fascinating window into the financial technology and digital commerce sectors in a wide range of Latin American nations, making its findings and investor reaction extremely crucial.

How so? The Exchange has been monitoring venture capital and startup activity in Latin America for some time. The figures are stunning. Therefore, the performance of their underlying market is a crucial indicator; if the technological industry in the region is declining, it might impede the development of several startups and billions of dollars’ worth of invested money. What can be inferred from the results release and accompanying valuation fall for Mercado Libre, then? It’s not a straightforward query. Explore now.

Q1 2022 financials for Mercado Libre, Mercado Libre announced net revenues of $2.25 billion in the first quarter of 2022, a 63 percent increase over the same period last year ($1.38 billion). As the business’s total profit exceeded $1 billion, Mercado Libre was able to report operational profits of $139 million and net income of $65 million. Every number showed an increase over the previous year’s figures.

Rapid expansion and increasing profitability are scarcely undesirable benefits. How did Mercado Libre fare in terms of performance against predictions? Better in terms of revenue, with the street only forecasting a top line of $2.01 billion. However, the company’s $1.30 in per-share profit fell short of the projected $1.66 per share.

For now, let’s stick with the positive news: Mercado’s net fintech sales increased from $467 million in Q1 2021 and $773 million in Q4 2021 to $971 million in Q1 this year. The take rate for fintech products increased as well, and overall payment volume increased by 81 percent (FX neutral) over the previous quarter to $25.3 billion, with transactions increasing by 73 percent to 1.1 billion. It’s a good collection of findings, right? Let’s flip the coin and examine the potential causes of Mercado Libre’s declining share price as well as the potential repercussions for Latin American businesses.