Shares of Buenos Aires-based MercadoLibre, Inc. (MELI) sold off hard during after-hours trading following a narrow earnings miss. The “Latin American eBay,” as some refer to it, reported EPS of $0.26 on revenue of $49 million, coming in shy of estimates on both accounts. Street consensus called for EPS of $0.27 on revenue of $59 million. Shares, which finished regular trading down 2%, are down an additional 10% after-hours.
Perhaps the greatest motivator behind the earning shortfall was a negative currency impact due to Hugo Chavez’s decision to devalue the Bolivar on Jan. 9th. MELI, which does significant business in Venezuela, decided to translate financial results from its Venezuelan operations at the “parallel” exchange rate of 5.67 bolivars instead of the official rate which was 2.15, and is now 4.3. Excluding the impact of these changes, revenue for the Q would have come in at $56.0 million. This would have been much closer to consensus estimates, not to mention a 67.5% year-over-year gain.
Including the currency impact, revenue increased 46.5% year-over-year, profits 44%. Specifically, MELI’s Marketplace segment (it’s actual e-commerce operation) grew 31.1% and it’s Payments segment (MercadoPago – the equivalent of PayPal) grew 100.9%.
On the chart below, the circle denotes the announcement of the Bolivar devaluation. As you can see, shares sold off for about a month before finally stabilizing and then staging a bit of a rally. At the close of after-hours trading, shares were changing hands at $36.83, right around the line on the chart. This is also where shares bottomed out earlier this month, as well as the locale of the 200-day moving average.
Long-term, the thesis behind MELI remains intact. The company is still showing significant growth and is less than 1/15 the size of eBay, it’s American counterpart and largest shareholder. But, while MELI’s potential is undeniable, the stock is likely to continue to experience these kinds of volatile moves. I would recommend waiting to see if shares can hold their 200-day MA over the next few days. If they can, I would consider this a good opportunity to start a position for the long-term, as well as potentially for a trade back into the $40 – $44 range.
Disclosure: No holdings in MELI.