MercadoLibre, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are U.S. dollars; financial statement figures are in millions unless otherwise stated. MercadoLibre operates a Latin American commerce and fintech ecosystem, including its marketplace, payments, shipping, advertising, storefront, and consumer and merchant credit businesses.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $1,857.5 (+66.5%) | $1,115.7 | $4,938.6 (+86.6%) | $2,646.2 |
| Gross profit | $806.6 | $480.2 | $2,151.9 | $1,220.2 |
| Income from operations | $160.4 | $83.1 | $417.4 | $152.8 |
| Net income | $95.2 | $15.0 | $129.4 | $49.9 |
| Basic and diluted EPS | $1.92 | $0.28 | $2.60 | $0.94 |
- Gross margin was 43.4% in Q3 versus 43.0% a year earlier; nine-month margin declined to 43.6% from 46.1%. Management attributed the year-to-date decline mainly to product costs and shipping operations.
- Operating margin increased to 8.6% in Q3 from 7.4%, and to 8.5% for the first nine months from 5.8%. Higher revenue, marketing efficiencies and lower buyer-protection and chargeback expense helped; higher bad-debt expense partly offset those gains.
- Commerce revenue was $1,224.7 million in Q3 and $3,277.6 million year to date; fintech revenue was $632.8 million and $1,661.0 million, respectively. Q3 revenue grew across regions; Mexico posted the fastest reported growth, while Brazil remained the largest segment.
- Operating cash flow was $264.3 million for the nine months, down from $926.0 million. Investing cash outflow was $887.4 million and financing cash outflow was $334.0 million. Cash, cash equivalents and restricted cash declined to $1,422.6 million from $2,508.2 million at year-end 2020.
Balance sheet, debt and liquidity
- At September 30, total assets were $6,800.0 million, total liabilities $6,677.0 million and equity $123.0 million, compared with year-end 2020 equity of $1,651.6 million.
- Loans payable and other financial liabilities totaled $2,735.5 million, versus $1,409.3 million at year-end 2020. The balance includes current and non-current borrowings and notes. Customer funds payable and amounts due to merchants were $1,987.1 million.
- Management reported $1,289.9 million of cash, cash equivalents and short-term investments available for liquidity purposes, excluding $739.2 million mainly held as a Central Bank of Brazil mandatory guarantee. Restricted cash and certain investments are not freely available for general use.
- Net credit exposure expanded: loans receivable, net, were $803.9 million versus $401.7 million at year-end, and credit-card receivables and other payment receivables, net, were $1,428.5 million versus $863.1 million.
Material changes and unusual items
- Q3 and nine-month revenue growth reflected increased marketplace activity, goods sales and shipping, alongside expansion in off-platform payments and credit. Nine-month gross merchandise volume was $20.4 billion, total payment volume $53.1 billion, and unique active users 224.5 million.
- In January 2021, the company issued $400 million of 2.375% sustainability notes due 2026 and $700 million of 3.125% notes due 2031. It also repurchased $440 million principal amount of 2028 convertible notes for total consideration of $1,865.1 million. The repurchase generated $49.2 million of debt-extinguishment loss and premium expense and a $1,484.3 million reduction to equity for reacquisition of the notes’ equity component.
- Common-stock repurchases used $440.0 million of cash during the first nine months. Equity also reflects capped-call terminations and related share repurchases.
- Bad-debt charges in the cash-flow reconciliation were $271.3 million versus $79.5 million in the prior-year period. The allowance for uncollectible loans increased to $322.7 million from $77.8 million; monitor credit quality as the lending book grows.
- Argentina’s knowledge-based economy regime eligibility generated disclosed tax, social-security and export-duty benefits. The company also recorded $7.7 million of digital-asset impairment; it had purchased $20 million of cryptocurrency.
Outlook, risks and contingencies
- The company does not provide traditional earnings guidance, citing uncertainty in forecasting near-term results and its long-term investment focus. Management expects continued investment in technology and logistics capacity.
- Management said it believed existing cash, investments, receivables-sale capacity and operating cash generation would be sufficient for operations, capital expenditures and obligations, while cautioning that COVID-19 and macroeconomic uncertainty make future cash generation difficult to predict.
- Key risks include foreign-exchange movements, inflation and economic or political instability in Latin America; Argentina’s currency controls; interest-rate exposure; credit losses; regulation; competition; cybersecurity and service interruptions; and the uncertain effects of COVID-19. Nine-month foreign-currency losses were $52.4 million.
- At quarter-end, the company had accrued $10.3 million for probable legal and other proceedings and disclosed up to $61.1 million of reasonably possible legal exposures without accrual. A Brazilian tax dispute included $99.1 million deposited with the court; management assessed loss as reasonably possible, not probable. The buyer-protection program’s estimated maximum potential exposure was $2,649.9 million, against a recorded allowance of $4.6 million; management cautioned that the maximum is not representative of expected losses.
- Cloud-services purchase commitments were amended to $824 million through September 2026 and $108 million through September 2024. Subsequent events included the November 3 acquisition of logistics platform Kangu, an October $25 million investment in Aleph Group, and the October 1 IPO of the company-sponsored MEKA SPAC.
Important facts for investors to verify
- Whether revenue growth and operating-margin improvement can persist as pandemic-related changes in demand evolve and the company continues to scale shipping and goods sales.
- Credit performance, delinquency trends, loss provisioning and funding needs as loans and payment receivables expand.
- Usable liquidity after excluding restricted cash and guarantee-related investments, and the maturity, cost and terms of the enlarged debt balances.
- The durability and accounting effects of Argentine tax and social-security benefits, alongside currency controls, exchange-rate exposure and related litigation.
- The cash and operating commitments associated with cloud contracts, share repurchases, Kangu and other strategic investments.