Latin American e-commerce giant MercadoLibre reported a $165 million net profit in the fourth quarter, driven by increased sales. However, this was offset by a tax impact, resulting in flat results compared to the same period last year.
The net profit was affected by two one-off tax provisions in Brazil, amounting to $351 million. This figure fell short of analysts’ expectations, who had forecasted a net profit of $356 million, according to a poll by LSEG.
MercadoLibre stated that the provisions would not have a significant cash impact moving forward. Andre Chaves, the senior vice president of strategy and corporate development, explained to Reuters that the market had anticipated the tax provisions due to recent local court rulings related to differential Brazilian rates and payments to Argentina. Excluding these one-offs, MercadoLibre’s net profit would have reached $383 million.
The company reported a notable 42% year-on-year increase in quarterly net revenues, reaching $4.26 billion. Income from operations, excluding one-offs, rose to $572 million from $322 million a year earlier. Sales in Brazil, its largest market, increased by 35% as measured by gross merchandise volume, surpassing analysts’ expectations for net revenues of $4.12 billion.
MercadoLibre, often referred to as the Amazon of Latin America, has demonstrated strong growth in recent quarters. However, analysts have raised concerns about its ability to sustain this growth trajectory while ensuring profitability.
The firm noted that its quarterly operating margin without one-offs was 13.4%, down from 18.2% in the third quarter. However, due to adjustments, the comparability of these numbers was unclear.
“Seasonally, we always have margin compression in the fourth quarter,” Chaves explained. He cited factors such as increased promotional spending, particularly for events like Black Friday in Brazil and Buen Fin in Mexico.
Brazil accounts for more than half of the company’s net revenues, while Argentina and Mexico each contribute around a fifth.
At MercadoLibre’s fintech arm, Mercado Pago, net revenues grew by 34%.
During an earnings call, executives assured analysts that margins should recover sequentially in the first three months of 2024. They attributed the decline to investments in free delivery options and increased spending on truck drivers and labor hours.
They also noted slower growth in Argentina, stating that they did not fully pass on inflation costs in the country. Analysts believe Argentina has likely entered a technical recession, with annual inflation surpassing 200%.