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MercadoLibre misses profit estimates as Brazil free-shipping boost hurts margins

MercadoLibre, the Latin American ecommerce giant, reported a 1.5% drop in its net profit for the second quarter of 2014, falling short of analysts' expectations. Free shipping in Brazil boosted sales, but it also hurt margins.

MercadoLibre reported a net profit of $523 millions for the three months ending June 30, below the $596 that analysts had predicted in a LSEG poll.

MercadoLibre is a Uruguay-based e-commerce company that operates Mercado Pago and an ecommerce platform. It sells in more than 20 countries in Latin America.

Sales measured by gross merchandise values increased 37%, compared to the $6.7 billion estimate, on a currency-neutral basis.

MercadoLibre launched its early June sale

Cut the threshold

After reducing shipping costs in May for users and companies selling on the platform, Amazon has now made purchases in Brazil eligible for free delivery. This comes amid fierce competition within Brazil's ecommerce sector.

Brazil, the main market of the company, and Mexico helped MercadoLibre increase the total number of items sold in the third quarter by 31%, the highest rate year-on-year seen since mid-2021.

Martin de los Santos, Chief Financial Officer, stated that this also affected margins.

In an interview, he stated that "we don't want the growth opportunities to pass us by." "This might create some structural margin pressure but we are very confident about the long-term trend of our profitability."

EBIT (earnings before taxes and interest) hit a record of $825m, but fell short of the forecasted $869m. EBIT margin was 12.2%, down on 14.3% from a year ago.

The CFO stated that investments in free shipping, marketing and growth of its 1P business (which sells directly to the customer) were amongst the biggest impacts on margins.

The CFO of MercadoLibre said that the fintech division grew its portfolio by 91%, to $9.3billion, and the 15-90 day default rate fell 1.5 percentage points, to 6.7%. This is the lowest figure since the company began releasing the figures seven years ago. Reporting by Andre Romani, Editing by Richard Chang

(source: Reuters)