Why MercadoLibre Stock Was Punished by 5.3% Today

What happened

Shares of Latin America’s e-commerce and digital economy leader MercadoLibre (MELI -5.30%) were down 5.3% on Wednesday. There was no specific news from the company to cause the sell-off. However, the stock has rallied some 50% from its recent lows in mid June, so it’s due for a breather.

It seems the catalyst for the pullback was the earnings report from an emerging-market e-commerce peer.  

So what

If you’re looking for a scapegoat for today’s downbeat action, blame Sea Limited (SE -6.38%). The company, which is expanding quickly in Southeast Asia and other emerging markets, actually missed analyst expectations for overall revenue growth in the second quarter. Foreign-exchange headwinds and tough comparisons to 2021’s booming e-commerce activity were to blame. The stock is down well over 20% since the earnings update.

Interestingly, though, the catalyst for MercadoLibre today might have been Sea’s update indicating it is making fast progress with its Shopee app in Brazil, Latin America’s largest economy and a huge market for MercadoLibre. Sea said Shopee revenue grew 270% year over year in the second quarter and claimed it was ranking highest among apps for total monthly active users in the shopping category in Brazil.  

Image source: Getty Images.

Now what

MercadoLibre isn’t doing so bad itself. Its total number of users (both in commerce and in digital payments) are also climbing at a fast clip. Total revenue grew 52% year over year in the second quarter as a result, including a 53% increase in total revenue in Brazil.

E-commerce growth is slowing down this year as effects of the pandemic wear off, but Latin America is still early on in developing its digital economy. There’s plenty of room for multiple players to win big on this front.

Nevertheless, Sea’s Shopee app is worth keeping an eye on as competition heats up between the two emerging-market e-commerce giants. MercadoLibre stock currently trades for 50 times enterprise value to free cash flow. It’s a premium price tag, but could be worth the money if the company can sustain its rapid expansion in South and Central America.

Nicholas Rossolillo and his clients have positions in MercadoLibre and Sea Limited. The Motley Fool has positions in and recommends MercadoLibre and Sea Limited. The Motley Fool has a disclosure policy.

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