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How Covid-19 Became An Accelerator For MercadoLibre's Digital Businesses | EMQQ

We are starting to see companies report Q1 earnings and the digital businesses are coming out of the various country quarantines with bright prospects. For Example, Shares of MercadoLibre (NASDAQ:MELI)  were surging to all-time highs after earnings were released for Q1 2020 as the Latin American e-commerce company reported a strong first-quarter earnings report and said that it had held up well in the face of the coronavirus pandemic [1].

Dive Deeper

For MELI total revenue in the quarter jumped 70.5% to $652.1 million, which beat estimates at $633.7 million. On a reported basis, revenue increased by 37.6%. Once again, growth in both the marketplace business and payments was strong: Gross merchandise volume (GMV) was up 34.2% to $3.4 billion, and total payments volume surged 82.2% to $8.1 billion.  On the bottom line, the company posted an operating loss of $29.7 million as marketing expenses surged, compared to a $10.1 million operating profit in the prior-year quarter. On a per-share basis, it finished with a loss of $0.44, down from a profit of $0.13 a year ago, but that was better than expectations at a $0.48-per-share loss [2].

CFO Pedro Arnt commented on COVID-19's impact, saying, "Although less affected than others, our business did register this impact, primarily during the first weeks of the imposed lockdowns, with a rebound throughout April," and added, "We feel MercadoLibre has the opportunity to emerge from this situation stronger and with an even greater sense of purpose." [3]

According to Reuters.com, the lockdown increased the number of smaller vendors searching for digital platforms such as MercadoLibre to continue selling their products and preserve cash flow. Therefore, the company has hired 200 direct employees and 2,500 third-party contractors since the second half of March 2020 to strengthen its logistics team and cope with a higher volume of deliveries. As a result, the company announced an increasing number of consumers shopping online in April 2020 [4]. 

See the chart below on MELI which is from IBD as of 5/06/2020. The blue line is the relative strength line. A stock's Relative Strength (RS) line compares a stock's price performance versus the S&P 500 index. Many charting services plot an RS Line along with the stock's price, moving averages, etc. The line is derived by dividing the stock price by the S&P 500 Index value. An upward sloping line means that the stock's price is outperforming the S&P 500 Index. The red line is the 50-day moving average. it represents the average price over the previous fifty trading sessions. It is calculated by summing the closing price over the last 50 trading sessions and dividing by 50. This is a daily chart, the stock price for the day's range shows up as a red or blue line, red means a lower price, and blue means a higher price than the previous day. Any gaps mean movement in the price when the market was closed. The lines on the bottom of the chart represent the day's trading volume along with the 50-day average for volume. 

Sum it Up

Management  provided some details of the business's rebound in April. Key performance indicators in its marketplace business bottomed out the week of March 18-24, with currency-neutral GMV declining by 1.4%. However, growth accelerated in April, and GMV was up 72.6% on a currency-neutral basis, ahead of pre-COVID levels; e-commerce businesses in the U.S saw a similar uptick as consumers under stay-at-home orders embraced online retail.

Payment volume was also strong in April, showing that MercadoLibre could be able to continue its rapid growth as e-commerce gains a larger percentage of overall retail market share during the crisis. As a sign of its confidence, the company doesn't plan to significantly adjust any of its strategic or investment initiatives, which include a $700 million investment in Brazil [5]. 

MercadoLibre stock has been a big winner over the years, and its competitive advantages only seem to be getting stronger with the impact of coronavirus.

About EMQQ

The Emerging Markets Internet and Ecommerce ETF (EMQQ) seeks to track, before fees and expenses, the Emerging Markets Internet and Ecommcer Index. The index invests in companies with exposure to the Ecommerce and Internet sectors in emerging markets. Purchasing EMQQ provides exposure to companies that are positioned to benefit as emerging economies mature, the consumer class expands, and their populations increase their utilization of the Internet and ECommerce.

Article Date: 26th May 2020

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