2024-07-31 06:28:28 ET
MercadoLibre (NASDAQ: MELI) stock price has underperformed the market this year. It has risen by just 3.4% this year, lagging behind other companies like Amazon, Jumia, and eBay. Also, the stock has trailed top benchmark indices like the S&P 500 and Nasdaq 100 indices.
Strong growth and market share
MercadoLibre has become one of the biggest e-commerce companies in the world with a market cap of over $28 billion. It has a commanding market share in the Latin American region.
Over the years, it has grown its revenues fromover $7.4 billion in 2019 to over $10.1 billion in 2023. The company’s annual profits have risen from over $1.78 billion to over $2.6 billion and analysts expect that the trend will continue.
Like Amazon, MercadoLibre has expanded its solutions in a bid to diversify its revenues. In addition to its e-commerce division, the company has launched its fintech solutions that help people pay and send money.
It has also launched Pago credit business, where it provides loans to individuals and other firms. Over the years, the number of active buyers have jumped from over 46.1 million in Q1’23 to over 53.5 million in the last quarter. Most of these customers are in Brazil and Mexico.
Its fintech business is also thriving as the number of monthly active users has risen from 35.6 million in Q1’23 to over 49 million . Assets under management have risen from $2.9 billion to over $5.3 billion.
The most recent results showed that MercadoLibre’s business was doing well. Its gross merchandise volume (GMV) rose by 20% to over $11.4 billion as the number of items sold rose by 25% to over 385 million. Net revenue rose to $4.3 billion while the net income rose by 7.9% to $344 million.
This growth is happening even as MercadoLibre faces more competition in the industry. Most of this competition is coming from Shopee, a leading Southeast Asian company that is gaining market share. Website traffic data shows that Shopee had over 200 million website visitors in Brazil in May.
MercadoLibre is also facing more competition from companies like Amazon, Temu, and AliEpress. Sill, its well-known brand and its strong ecosystem will help it maintain a market share.
MercadoLibre earnings ahead
The next important catalyst for the MELI stock price will be the company’s earnings scheduled for Friday.
Analysts have high hopes for the company. They expect that its revenue will come in at $4.6 billion, a 37% increase from the same quarter in 2023. For the year, analysts expect that its revenue will be $19 billion, a 31% increase from 2023. Its 2025 revenue will be over $23.4 billion.
At the same time, the average earnings estimate is that its EPS will be $8.53, a big increase from the $5.16 it made a year earlier. For the year, the company is expected to have $33.83, higher than $19.46 in 2023.
In addition to the top-line numbers, the MELI stock price will react to the segment numbers and its forward guidance.
Analysts have a bullish outlook of the company. The average estimate is that the stock will rise from the current $1,625 to $2,000, implying a 21% upside from the current level.
Potential risks ahead
Still, MercadoLibre faces several risks that could impact its revenue growth. The first big risk is Argentina, a core market. While inflation has dropped this year, the Argentine peso has crashed to a record low. It was trading at 945 against the US dollar, higher than last year’s low of 160.
A depreciating currency has an impact on a company like MercadoLibre that deals with imports from countries like China. In this, sellers are having to spend more money to import, which leads to higher prices.
The same situation is happening in other countries in the region. For example, the Brazilian real has slumped to 5.60, from last year’s low of 4.59. The Mexican peso has also slumped from 16.27 to 18.0
MercadoLibre stock price analysis
MELI chart by TradingView
The other big risk that the MELI share price faces is on technicals. On the daily chart, we see that the stock has formed a triple-top chart pattern around the $1,787 level. In most cases, this is one of the most bearish chart patterns. Its neckline is at $1,325.
It has also formed a smaller double-top pattern whose neckline is at $1,550. The stock has also remained above the 50-day and 100-day Exponential Moving Averages (EMA).
Therefore, while pre-earnings stock forecasts are always risky, I suspect that MELI shares will have a bearish breakout when they come out. If this happens, it could drop to the next key support level at $1,550.
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