Revenue Up 50%, but the Stock Is Falling: Is the Post-Earnings Drop a Buying Opportunity?
Ten billion dollars in revenue in a single quarter, the fastest growth in four years, a loan book three-quarters larger than last year. And operating profit lower than a year ago. Management says it's an investment that will pay off. Whether they're right won't be found in the shareholder presentation, but in a single table with four rows.
Key points
Revenue surpassed $10 billion per quarter for the first time, yet net profit fell for the third straight quarter.
The loan book grew by 75% to $16.4 billion, and provisions consumed 12.5% of all revenue.
Brazil boosted revenue by 59%, but its profit contribution rose just 1.7%.
Argentina contributes 18% of revenue and 40% of operating contribution—and is the only country declining.
The new CEO started on January 1. Both of his quarters so far have pushed margins down.
On August 5, after market close, Latin America's e-commerce leader reported numbers that would normally send the stock soaring. Revenue and financial income of $10.17 billion, up 50% year over year, the fastest pace in four years. The average analyst estimate was around $9.76 billion, so revenue beat it by more than four percent. Earnings per share of $9.19 also beat expectations, which ranged from $8.70 to $9.10, depending on the data service. Marketplace merchandise volume rose 44%, and payment volume through Mercado Pago increased by 56%.
The next day, the stock fell 4.8%.
The reason lies two lines below in the statement. Operating profit was $683 million, down 17% from a year ago. Operating margin fell from 12.2% to 6.7%—a drop of 550 basis points, or five and a half percentage points. Net profit of $466 million was 11% lower than a year ago, marking the third consecutive quarterly decline.
This is a company growing faster than ever in the last four years while at the same time earning less money than last year. Not by a little. By a sixth of operating profit, even though revenue increased by more than three billion dollars.
Management has a simple answer: we are spending today to earn tomorrow. We lowered the free shipping threshold in Brazil, offer discounts to buyers who pay through Brazil's Pix instant payment system, reduce seller commissions, hand out credit cards, and subsidize point-of-sale terminals in Mexico. Users stay longer, buy more frequently, and across more categories. Profit will come once these habits mature. It's a defensible argument, and the company has won it twice in the past.
But the question every shareholder must ask is different: is there a way to verify that the money is actually coming back—or is management's word the only proof?