MercadoLibre Q3: Credit Growth and Fulfillment Fuel Top Line, but Margin Pressure Hits Shares

MercadoLibre’s most recent results show double-digit growth in key metrics such as gross merchandise volume (GMV), items sold and in its credit portfolio. And users of its digital bank, Mercado Pago, soared by 35% year over year, indicating greater reach into financial services.

But continued investments in those credit operations and in commerce fulfillment centers (five new additions in Brazil and another in Mexico) pressured margins a bit, and investors sold off shares by 7% after hours on Wednesday (Nov. 6), retracing a bit of the the roughly 38% gains seen year to date.

The company said in its earnings materials and during a webcast with investors eCommerce operations showed momentum, as GMV across its online marketplace gained 14% year over year (YoY) to $12.9 billion. Items sold reached nearly 456 million in the third quarter, up 28% YoY. 

As for the credit operations contained within Mercado Pago, the overall business grew 77% YoY to $6 billion, and the credit card operations leaped 172% and that portfolio reached $2.3 billion.

The metrics show that the monthly active users for Mercado Pago came in at 56.2 million; unique buyers on its eCommerce platform were 61 million. Total payment volume was $50.6 billion.

CFO Martin de los Santos said on the earnings call that the company saw 34% growth in Brazil and 27% in Mexico. In Argentina, items sold grew at 16% and overall the company added 7 million new users onto its platform that he said “is a number higher than the number that we saw during the peak of the pandemic.”

He added that “the penetration of eCommerce in Latin America continues to be relatively low when we compare it to other more developed regions. Only 15% of commerce is done online, so there’s plenty of room to continue growing.”

Within FinTech, the CFO said that the growth metrics show that “more people and consumers are choosing Mercado Pago as their main financial service provider. We continue to invest behind our credit card as it’s a critical product to achieve principality within our users.”  The company added 1.5 million new credit cards in the most recent quarter.

Elsewhere in the company’s materials, MercadoLibre noted that cross-selling additional services to its merchants — and cross-selling of credit rose as a percentage of the merchant base in the third quarter to 21.8% from 9.9% a year ago, driven primarily by in-store merchants across all geographies.

During the question-and-answer session with analysts, management said that, with respect to net interest margins in the card portfolio, the company has been offering larger credit lines to lower risk customers — profitable business, but with lower “spreads” than might be seen with smaller credit lines offered to lower income customers. 

Non-performing loans have been stable, according to commentary on the call.  Management also indicated that the investments in the aforementioned fulfilment centers has come as the company expects future demand in those markets to increase, which necessitates capacity buildouts.

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