Earnings Cheat Sheet: Is MercadoLibre (MELI) Still The Next eBay?

MercadoLibre Inc. (NASDAQ: MELI) hosts an e-commerce platform in Latin America at www.mercadolibre.com.  The company has operations in Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay, Venezuela, Costa Rica, the Dominican Republic and Panama.  Essentially, it’s the Latin American eBay (NASDAQ: EBAY).  As such, it also operates its version of PayPal, MercadoPago.

With a $2.7 billion market cap vs. Ebay’s $40.2 billion, the company’s growth potential is quite clear.  Still, in the end, it’s all in the execution.

Earnings: 3Q profits of $44.5 million ($0.43/share) vs. 3Q09 profits of $40.2 million.

Revenue: Up 10.6% YoY to $56 million.

Actual vs. Wall St. Expectations: MELI beat EPS estimates of $0.31/share but fell short of revenue expectations of $62.4 million.

Notable Stats: Revenue from items sold grew 30.1% YoY to $10.4 million while revenue from the PayPal-esque MercadoPago grew 120.3% YoY to $1.9 million.  In local currencies, these growth rates were 26.5% and 63%, respectively.

Net income grew 90.7% in USD (109.4% in local currencies) to $18.8 million.  Net income margins were 33.6% vs. 19.5% in 3Q09.

Did You Hear That: CEO Marcos Galperin noted that, “we are pleased with our strong third quarter results, which once again benefitted from sustained secular trends that continue to drive e-commerce growth in the region.  Accordingly, we are confident that our platform of complementary offerings is the right approach.  MercadoPago, our payments solution, continues to quickly gain ground as buyers are attracted to our seamless, easy-to-use marketplace, MercadoLibre.  Looking ahead, this will be even more relevant as the holidays approach.”

Technicals: Shares broke down through their trend-line dating back to July during early-October, taking their 50- and 20-day moving averages with them.  After selling off again following their earnings report, shares are trading at 3-month lows.  On the positive side, MELI has yet to breach, or even test, its 200-day moving average or its primary trend-line, which dates back to February.  A downward break through either of those markers would be a big negative signal for the intermediate term, while a successful test would indicate the opposite.

Commentary: MELI has always been a high-flyer and has never been a stranger to big swings, but the direction of those recent swings (down) are definitely causes for concern.  Shares are currently trading at 39X 2011 earnings vs. 23% projected earnings growth, which is not what one would call cheap.  Nonetheless, the longer-term growth prospects for what is, for all intents and purposes, the Latin American eBay, cannot be overlooked.  If you’re interested in going long, waiting for a successful test of the 200-day moving average is probably your best move, as there is never a good reason to try to catch a falling knife.

Disclosure: No holdings in MELI.