MercadoLibre Quarterly Revenue Just Topped $10 Billion for the First Time. Is the Post-Earnings Sell-Off a Gift for Long-Term Investors?

MercadoLibre (NASDAQ: MELI) nailed it on the top line this week. Latin America's leading e-commerce and fintech provider saw its net revenue surge 50% to $10.2 billion for the second quarter, its first time delivering 11-figure top-line results.

Here are just some of the neat things about its blowout performance:

• This is MercadoLibre's headiest top-line jump for any quarter in four years.
• It has delivered 30 consecutive quarters of at least 30% year-over-year gains.
• With revenue growth accelerating for the second consecutive year, this is practically a lock to become the eighth straight year of at least 37% annual top-line growth.

Unfortunately for MercadoLibre and its investors, the market always dives beneath the surface before declaring that the water is fine. Bottom-line results, while better than expected, were rough. The stock responded by sliding as much as 8% on Thursday before settling for a 5% decline by the close.

Image source: Getty Images.

Lost in translation

Zoom out a little bit, and the market's response to the mixed financial results doesn't seem so bad. MercadoLibre stock was a little lower a month ago and a lot lower two months ago. However, zoom out some more, and MercadoLibre is a market laggard that has declined by more than 20% over the past year.

This is where investors can see the stock's weakness as a buying opportunity, as long as they fully understand why the Latin American bellwether has failed to keep pace with the broader market's ascent. MercadoLibre's growth is impressive, but it's literally paying for that speed on the bottom line.

MercadoLibre's namesake e-commerce business continues to post healthy top-line growth. Its Mercado Pago payment platform is also showing no signs of slowing. However, the push to expand its credit card and loan offerings has increased its credit portfolio by 75% over the past year. This may prove to be a smart move in the long run, but in the short run, it increases the company's credit risk and results in a near-term spike in loss provisions.

This isn't the only thing weighing on the bottom line. Brazil remains competitive on the e-commerce front, with foreign players offering cutthroat promotions and low minimums to qualify for free shipping. MercadoLibre has decided to play along so it doesn't cede its dominant market position. This is another case of short-term pain for long-term gain.

Its operating margin of 6.7% for the quarter is the lowest that it's been in four years. Its net income margin of 4.7% is its worst performance since late 2023. Because profitability is going the wrong way, the valuation argument gets muddy. The mud is your opportunity.

MELI data: YCharts.

The purple line is MercadoLibre's stock over the past three years. It was riding higher before its slide over the past year. The orange line -- aligned with the second column on the right -- shows the company's forward earnings multiple. It's near a multiyear low, with analysts projecting a return to earnings growth next year.

It's easy to see why MercadoLibre has rattled the faith of investors bent on emphasizing near-term profitability. I'm still bullish on the classic growth stock, and see the historically low valuation as a great time to make a long-term investment in MercadoLibre.

Rick Munarriz has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.