Mercado Livre (MELI34) sees profit rise 71% in the 1st quarter, driven by Brazil and Mexico

SÃO PAULO (Reuters) – Mercado Livre (MELI34) reported this Thursday a 71% increase in net profit for the first quarter compared to the same period last year, exceeding analysts’ expectations, with the performance of its operations in Brazil and Mexico, offsetting some negative effects in Argentina.

The e-commerce giant, which operates a marketplace in 18 countries and also owns the fintech Mercado Pago, recorded a net profit of US$344 million in the first three months of the year, against the average estimate of analysts consulted by LSEG of US$314 million .

The company disclosed some changes in its earnings report, including the reclassification of Mercado Pago’s interest income and expense lines, with a positive impact of 99 million dollars on net revenue, but with no effect on net profit. The changes also include a change to Mercado Envios terms and conditions, which had a negative impact of 10 million dollars on net profit.

Mercado Livre reported net revenue of US$4.3 billion, an increase of 36% compared to the previous year and above the US$3.9 billion estimated by analysts.

Marketplace sales, its main business, increased by 36% in its largest market, Brazil, and 42% in Mexico, as measured by Gross Merchandise Volume (GMV).

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Operating margins, which analysts had highlighted negatively last quarter following higher logistics costs during the year-end peak, came in at 12.4%, up from 11.2% a year earlier, not including reporting changes .

The company’s chief financial officer, Martin de los Santos, told Reuters that Argentina’s macroeconomic situation had hurt margins, as a strong currency devaluation at the end of last year weighed on logistics costs and shrank its business in the region. Even so, the performance in Brazil and Mexico enabled year-on-year expansion.

“We obviously continue to operate a profitable business in Argentina. It’s just not as profitable as it used to be,” Santos said.

Argentina, where Mercado Livre was founded, accounted for 15% of its earnings before interest and taxes (Ebit) in the first quarter, up from more than 50% the previous year.

Mercado Livre recorded a total Ebit of US$528 million in the quarter, an increase of 29% compared to the previous year, exceeding analysts’ forecasts of US$488 million.

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For its fintech unit, Mercado Livre expanded its credit portfolio by more than 600 million dollars compared to the previous quarter, the biggest increase since the beginning of 2022, to 4.4 billion dollars. The short-term delinquency rate rose to 9.3% from 8.2% in December, but the rate over 90 days fell to 17.9% from 18.7%.

“The fact that we have better default rates and greater profitability allows us to have more confidence in increasing our origination at consumer and merchant levels,” said Santos.