MercadoLibre, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; comparisons are with Q3 2021 unless otherwise noted. Amounts are in U.S. dollars. MercadoLibre operates an integrated Latin American commerce, payments, logistics, advertising, and consumer and merchant lending platform.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenues | $2.690bn | $1.858bn | $7.535bn | $4.939bn |
| Gross profit | $1.348bn | $807m | $3.705bn | $2.152bn |
| Income from operations | $296m | $160m | $685m | $417m |
| Net income | $129m | $95m | $317m | $129m |
| Diluted EPS | $2.56 | $1.92 | $6.29 | $2.60 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $1.398bn | $264m |
- Q3 revenue grew 44.8% reported and 60.6% on the company’s foreign-exchange-neutral basis. Nine-month growth was 52.6% reported and 61.1% FX neutral.
- Q3 commerce revenue was $1.465bn, up 19.6%; fintech revenue was $1.225bn, up 93.5%. Fintech growth reflected higher credit revenue and off-platform payment services.
- Q3 gross margin increased to 50.1% from 43.4%; operating margin rose to 11.0% from 8.6%. For nine months, gross margin was 49.2% versus 43.6%, and operating margin was 9.1% versus 8.5%.
- Q3 operating income increased 85% and net income increased about 36%. Nine-month net income rose to $317m from $129m.
Balance sheet, cash flow and liquidity
- At September 30, cash and cash equivalents were $1.455bn; restricted cash was $1.073bn; short- and long-term investments totaled $2.318bn. The company describes $2.385bn of cash and cash equivalents plus short-term investments as its main liquidity source, excluding $1.013bn of Brazilian government securities held as a mandatory guarantee.
- For the first nine months, operating cash flow was $1.398bn, versus $264m in 2021. Investing cash use was $3.225bn, including $1.470bn of net loan-receivable funding and $342m of property and equipment investment. Financing provided $928m; cash, cash equivalents and restricted cash declined $1.120bn, including a $221m adverse exchange-rate effect.
- Loans payable and other financial liabilities totaled $4.689bn, compared with $3.518bn at year-end 2021. This includes $1.187bn of collateralized securitization debt; the company states securitization investors generally have recourse to collateral, not the company. A $400m revolving facility was undrawn at quarter-end.
- Total assets were $11.962bn, total liabilities $10.331bn and equity $1.631bn. Customer funds payable were $2.558bn and should be distinguished from borrowings.
- Loans receivable, net, were $1.766bn versus $1.260bn at year-end. The loan allowance rose to $1.008bn from $435m; gross loans past due totaled $1.026bn versus $411m at year-end.
Material changes, outlook and risks
- Credit costs were a significant change: nine-month provision for doubtful accounts increased to $845m from $271m; Q3 provision was $288m versus $105m. Management attributed the increase to loan growth, higher non-performing balances—particularly loans over 90 days past due—and said it slowed originations in Q3 as lending risks rose, especially in Brazil.
- Management reported continued growth in commerce and fintech, improved gross and operating margins, and strong cash generation. It moderated investment intensity in groceries and first-party retail while maintaining its long-term strategy. The company does not provide traditional earnings guidance and cautions that interim results are not necessarily indicative of full-year results.
- Foreign currency losses were $134m for nine months and $71m in Q3. Management cited currency effects in Argentina and Brazil and costs associated with buying back shares in Argentina amid foreign-exchange restrictions. Argentina uses the official exchange rate for financial reporting despite a materially different informal market rate.
- Legal contingencies included $45m accrued for matters assessed as probable and up to $249m of reasonably possible claims for which no liability was recorded. The buyer protection program’s estimated maximum potential exposure was $3.345bn; the recorded provision was $4m. Maximum exposure is not management’s estimate of expected losses.
- Commitments include cloud-service purchases and a 10-year Brazilian air-logistics agreement with a minimum annual cost of $43m. Operating and finance lease payments totaled $850m undiscounted at quarter-end.
- A source-code security incident investigation concluded that affected users were not a significant share of registered users and that passwords, account balances, investments, payment-card data and accounts were not accessed or compromised. The company notified relevant authorities and affected users and implemented additional measures.
- Regulatory and operating risks include Latin American currency volatility, inflation and exchange controls, changing fintech rules, competition, cybersecurity, credit losses, interest-rate exposure and reliance on third-party service providers. Brazil’s payment-institution capital rules are scheduled to phase in from 2023 through 2025.
- The company’s 2021 active-user figure was revised downward from 224.5m to 120m to correct a calculation error; the filing says the correction did not affect income or EPS.
Important facts for investors to verify
- Whether rising delinquencies, the larger loan-loss allowance and Q3 lending slowdown affect future credit revenue, losses and loan growth.
- How much reported growth reflects underlying activity versus currency translation and inflation, particularly in Argentina; review both reported and FX-neutral measures.
- Debt maturity, funding costs and availability, including variable-rate borrowings, securitizations and use of restricted or regulatory-guarantee balances.
- Whether operating cash generation remains sufficient to fund loan growth, logistics and technology investment, and the disclosed cloud, lease and air-logistics commitments.
- Developments in the $249m reasonably possible legal matters, Brazilian and other fintech regulations, and any consequences of the cybersecurity incident.
- The definition and correction history of key operating metrics, especially unique active users, and the distinction between customer funds, restricted cash and freely available liquidity.