MercardoLibre Stock Slides After-Hours On Q2 Profit Miss — But Retail Wants To Buy The Dip

The Latin American e-commerce giant expanded its free shipping program and made other recent investments.

MercadoLibre (MELI) shares fell nearly 6% in after-hours trading Monday, after the Latin American e-commerce giant missed quarterly profit estimates due to the expansion of its free shipping program and other recent investments.

On Stocktwits, however, the retail sentiment shifted to 'extremely bullish' (86/100) from 'neutral' a day ago. The 24-hour message volume increased by over 3,700%, with several users advising the purchase of the company's shares at these prices.

"$MELI buy the dip," a user said, while another backed the company for its 30% sales growth and a price-to-sales (P/S) ratio of less than 5.

MercadoLibre reported a 1.5% decline in net income to $523 million in the second quarter, missing analysts' average estimate of $596 million compiled by LSEG/Reuters. Earnings before interest and taxes (EBIT) were $825 million, also below expectations of $869 million, while the EBIT margin shrank to 12.2% from 14.3% in the year-ago quarter.

Net revenue rose 34% to $6.8 billion, beating the estimate of $6.7 billion.

MercadoLibre attributed the profit slide to the expansion of its free shipping program in Brazil, the company's biggest market.  

In recent months, the company lowered the threshold for purchases eligible for free shipping in the country and also reduced shipping costs for certain sellers, amid fierce competition in the country's e-commerce segment.

CFO Martin de los Santos told Reuters in an interview that the main impacts on margins were investments in free shipping and related marketing, as well as growth in its so-called 1P business, which sells directly to customers.

The company has grown by deepening the penetration of e-commerce services in the still under-penetrated Latin American markets, and more recently, by the success of its fintech unit, Mercado Pago.

MercadoLibre, which also operates in Argentina, Mexico, and other markets, is Latin America's most valuable publicly traded company.

It has grown in recent years by deepening e-commerce penetration in the still under-penetrated Latin American regions, and more recently, by the success of its fintech unit, Mercado Pago.

In June, co-founder Marcos Galperin announced that he will step down as CEO at the end of this year. MELI stock is up 41% year-to-date.

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