Tech + revenue = MELI

MercadoLibre reported a quarter that one manager described as “a lesson” – with rising profitability dampening investor concerns about deteriorating credit quality.

“The market was afraid of an NPL increase, focused too much on it and forgot that the business charges a very high fee and is very profitable,” said a buyside analyst.

In premarket in New York, the stock was up 12% around 9:30 am.

MELI’s EBIT was US$ 250 million, up 50.5% year-on-year; and the EBIT margin was stable at 9.6%. As expected, the NPL deteriorated: it went from 27.6% in the first quarter to 31.4% in the second quarter, affected by the slowdown in lending.

But the numbers also showed MELI’s differential in credit pricing. IMAL – credit income minus PDD – was US$ 225 million in the second quarter, against US$ 81 million in the second quarter of 2021.

Itaú BBA highlighted that the company started to disclose the interest margin after losses – and this “IMAL ratio” stood at 33.6% in the second quarter, compared to 24.4% in the first quarter of this year.

“The increase was driven by APR – annual percentage rate – higher and slightly lower provisions as a percentage of revenues in the second quarter, highlighting the track record of the company in credit pricing as a solid driver of profitability”, wrote analysts Thiago Macruz, Maria Clara Infantozzi and Gabriela Moraes.

For Bradesco BBI, the result shows the resilience of the business model and the strength of execution.

“Management makes it clear once again that it is operating the credit business with a focus on profitability, not just growth,” wrote analysts Richard Cathcart, João Andrade and Renan Sartorio.

MELI’s net revenue was US$ 2.6 billion in the second quarter, an increase of 52.5% in US dollars and 56.5% in constant currency, compared to the same period in 2021. Brazil represented around 56% of revenue, reaching US$ 1.4 billion and growth of 52.5%.

Marketplace sales volume (GMV) reached $8.6 billion in the second quarter, up 21.8% in US dollars and 26.2% in constant currency.

Profit rose 80% to $123 million from Q2 2021.

Source: Brazil Journal