The Wild Swings of Earnings Season Continue

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Travis Hoium, and Jon Quast discuss:

• MercadoLibre's rapid revenue growth and contracting margins.
• Has Unity Software finally turned the corner?
• The changing strategy for Celsius Holdings.
• Applovin's revenue continues to decelerate.

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A full transcript is below.

This podcast was recorded on Aug. 6, 2026.

Tyler Crowe: Big earnings moves today on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe. Today, I'm joined by longtime Fool contributors, Travis Hoium and Jon Quast. Travis is doing the full gamut this week with hosting and analyst duties.

Travis Hoium: A lot of Travis time.

Tyler Crowe: Burning the candle on both ends this week. I think today might be the busiest day when it comes to earnings out there. I think it's something like 530 companies. Obviously, we can't get to all of them. What we did before the show was look at No. 1, companies that are moving or their stocks are moving big time after earnings releases, and also, we want to pick companies that are either Motley Fool favorites of our members, or some of our analysts, and some of our personal favorites as well. We're going to start today with MercadoLibre. Shares are down about 7% after the company reported earnings. Across the board, they beat expectations, but one of the things that was noticeable was that earnings have declined for a couple of quarters.

Jon Quast: Well, let's start with the top line there, Tyler. This is its fastest growth in the last four years. That's really saying something because this is a company that has averaged 50% quarterly growth over the last 10 years. Growth is so important when it comes to the stocks that we're investing in. It's not the only factor, but it is a very crucial factor when it comes to market-beating investments. Mercado Libre, as you look at what it has done over the long-term, this has to be near the top of investors' minds when it comes to creating a list of long-term compounders.

Travis Hoium: That growth rate was 50% for this quarter, just to be clear. I think this is just the place that the market is in today. This was a phenomenal quarter from a growth perspective, but the downside is margins are down, and this is an explicit trade-off that management is making, saying, you know what? We're going to give people more perks. We're going to give sellers more perks to try to drive more revenue to the business. In theory, you're playing something like an Amazon game where once people get used to both shopping on your platform and also building a business on your platform from a seller side, that should be a phenomenal place to be.

But they're giving up that profitability short-term. That's what investors are saying, there's a yin and a yang here going, revenue growth is great, but I'm not seeing the profitability. How much do I really want to pay for this stock? I think that's the reaction today, and it's not just MercadoLibre. This is happening across the market. You look at a company like Duolingo, also down big today, same trade-off that they're making, we're going for user growth. We're not going for profitability today, and shares are selling off. This is the challenge when you get to a relatively highly valued market is when you're starting to make those tradeoffs, you never know which one the market wants to see.

Jon Quast: Well, Travis, if I could jump in there on that trade-off, you look at the lower threshold for free shipping that it chose to do in Brazil a while back. That is actually working when it comes to the Amazon game that you referenced. User growth is up over 20% when you look at that. Then also, I think really key, the ratio of daily users to monthly users is at its highest level ever. This is becoming more of a daily habit for MercadoLibre users in its key markets, and then also items per buyer in Brazil are up 19%. I think that is a really crucial data point because this is basically saying that MercadoLibre is becoming more of a go-to platform on a daily basis for more things. I think that's a habit-forming trend, and I think that it's directly a result of that free shipping decision.

Travis Hoium: This is where you want to know what investor you are. If you are a Foolish investor with a capital F, you're looking at this, going, we want this company to be bigger long-term. This is a great discount if I have been looking at this stock, because you know what? That profitability, that's not the short-term answer that I want as an investor. I want that long-term growth. But if you're trying to guess what's going to happen quarter to quarter, you maybe got this wrong. That's where I think, stepping back and going, what do I really want from this company, and knowing that going into earnings is really important.

Tyler Crowe: We brought up the Amazon conversation because comparisons are pretty easy. You look at this. It's a digital fintech, e-commerce platform as well. But one of the things I do think about because we're talking about profitability margins and things like that, and the comparison is always Amazon, I think it's fair to say that Amazon had a very long leash with the market in its growth phase, willing to overlook profitability for a very long time because it was like, it's growing. It's doing all these new things. It seems to be worth it. It was generating enough cash that could make those investments in other things. Then it found AWS, and that's when profitability really took off here.

With MercadoLibre, we're at a point where it's making similar moves, where it's like, we're going to forgo profitability now, credit card perks, lowering the threshold for order value for free shipping, and things like that. It is running the playbook. One thing I'm curious, though, is, to have that much growth and then still see earnings declining, that's a pretty aggressive choice in that cost versus revenue growth paradigm. I do wonder is revenue growth almost too prioritize here? 50% growth is amazing. It's incredibly hard to sustain, and you're doing it in a declining earnings environment. I can't help but think that management is too focused on revenue growth here and maybe not growth with economic scale.

Jon Quast: Well, Tyler, I push back on the wording here that you chose with foregoing profitability because I'd be inclined to agree with you here, but MercadoLibre is not in the red. In fact, it invested 2 billion in its credit portfolio. This is one area the business that the market is a little bit concerned about the riskiness of the portfolio, investing $2 billion into that credit portfolio and still free cash flow positive. I think that's a huge thing. It had nearly a 7% margin for income from operations. These are the free cash flow and the income from operations. These are two really important profitability metrics and still solidly in the black. Think about this.

This is 50% growth, and this isn't tech, for the most part, this is actually people buying things on the platform. It is tech, but not in the same way that we're accustomed to with the strong growth rates in the market right now. This is a retail play, and that is so interesting to think about in the reverse. You pull back on some of this growth investment right now. What's the alternative? Better profitability to what end? Are we going to pay a dividend? Are we going to buy back stock? I'm not really sure where the money is used for the benefit of shareholders if we pull back on the growth. I think that it needs to keep the pedal to the metal.

Tyler Crowe: Always a fascinating conversation, I'm sure that we're going to be having this next quarter when MercadoLibre reports earnings because this is always that push and pull that always happens. Coming up after the break, we're going to hit a stock that is doing much better, at least in the market reaction today, and it's Unity Software.

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Tyler Crowe: Unity Technologies, the official changes. They want to make sure that they're more than just software now. They certainly surprised and delighted investors after this. In the most recent earnings report, shares are up about 14.5% as we're recording right now. It beat revenue and beat earnings expectations. Now, after a pretty lousy 2024 in the first half of 2025, this is like four straight quarters where revenue growth has accelerated. It seems like they're starting to find traction again after wandering the woods a little bit.

Travis Hoium: This is such an interesting company right now. Remember, shares are down about 80% from their peak. If you're a long-term shareholder, this still has not worked out particularly well. It almost seems to me like they're just figuring out this business and, in particular, figuring out how to monetize the software that they've been making and the ad platform that they've been trying to build. Just as a point, where the mobile business in general is getting old and dodgy, it reminds me a little bit of the console business a decade ago. Consoles have just been in a steady decline over that period of time. I don't know. Are we still going to be excited about apps on an iPhone app store in 10 years from now, and that's really where Unity really dominates things. It's just so interesting to see that they have started to increase their revenue. The market is starting to react a little bit positively because they've gotten their stuff together. But it still trades for almost 10 times sales, and I just can't get my head around why I should be excited about this company long term.

Jon Quast: Tyler, you pointed out four straight quarters of accelerating revenue growth. I just have to ask, is that good? Because MercadoLibre has four straight quarters of revenue growth, too. Really [inaudible] here today. Sorry, I just had to get that point in. But it is interesting to Travis' point, this is actually growing now with ads. There are two parts of the business, we have the create side of things, and I feel like what Unity is more known for. That game creation, that video creation software, and that's really plateaued here, only 5% growth in this quarter, all of this revenue growth coming from the Ads network, 63% growth in the revenue segment, and expecting an accelerating growth rate yet again in the upcoming quarter of roughly 70% growth. This is very interesting, a business shift is taking place. If you recall a few years ago when Unity really had problems, it was because the ads were suffering, and now it does seem like it's getting its act together there in that segment, but the create segment, is not really showing anything.

Tyler Crowe: Management did put out a plan last quarter. They're going to shed some of those mobile publishing divisions, things like that. Some of its ad networks. They're like, This isn't working for us, there have been some deliberate changes. It does appear to be working. Guidance for the next quarter is actually even faster revenue growth than we saw this most recent quarter. Things are working, but to your point, Travis, this is a company that's been wandering the woods. They're starting to figure some stuff out, but there are also some macro challenges related to what the environment is for its users, the mobile game space. How can this company grapple with these challenges going forward and perhaps get back to not being down 80% for its long-term shareholders?

Travis Hoium: I don't know that I have a great answer for this. I think this has been the frustrating thing watching Unity as a business. This is a piece of software that I started to learn a little bit, a handful of years ago when I was in the world of VR. This was the go-to thing. You had to use Unity. It was the best thing to use. That paradigm obviously didn't work out the way I think they hoped. But a lot of the changes that they made to the business and that are showing up now in the income statement are not really businesses that I want to be in as an investor. It's those slimy ads that you see when you're playing a game, or you maybe see your kids see. I know my son will come in and go, "Dad, can I download this game?" I'm like, This looks like a terrible game. It's just built to be able to serve you even more ads to try to get you to download more things. Guess what? Most of those things are coming from Unity. They're touting these developments, they're not the things that I want to invest in.

The problem is the core problem for them is that they had a phenomenal platform game engine to be able to create these games, but they had no great way to monetize it. When you don't know how to make money on the thing that you do really well, that's just a really challenging place to be in as a business.

Jon Quast: I wonder if that great platform that it did have is really the edge that it is being whittled away at by all the AI tooling that's out there. I know that it's implementing its own AI into its product, but at the same time, you just wonder, and then it does become an ads business, and to your point, is that where you want to be as an investor? You have to make that decision.

Tyler, I think one of the challenging things here going forward is stock-based compensation, one thing that's near and dear to your heart, I know, but management here, clinking their champagne glasses, saying it was down at its lowest level at 14% of revenue for the quarter. That's still really high. If you look over the last five years, revenue trailing 12 months is up 89%, but revenue per share is only up 24%. A big part of that is the ongoing dilution. It's going to have to continue to deliver some incredible growth if it's going to continue to provide stock-based compensation at these levels. Right now, it is growing really well with the ads, but is that sustainable? We'll find out.

Tyler Crowe: While we're on the topic of mobile gaming, coming up in the next segment, we're going to talk about AppLovin and Celsius Holdings, who are maybe not having the best day today.

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Tyler Crowe: Two groups of shareholders that probably aren't having as good a time today as Unity Technologies or Celsius Holdings, and AppLovin. Two stocks are both down double digits today, and, while both of them posted relatively decent revenue growth, some of them didn't exactly meet expectations. I gave you assignments for each of them. Travis, you did Celsius, Jon, you did AppLovin. Travis, what did you see in the Celsius report?

Travis Hoium: Celsius isn't in such an interesting spot right now because the results were fine, but that's not really what the market was looking for. Revenue was up 11% in the quarter, but you dig underneath that, 21% growth at Alani Nu. That's the company that they bought. I completed that acquisition about a year ago. Now, you're lapping those easier comps. Might remember a couple of quarters ago, you'd see, oh my gosh, 100% growth. That was actually because of that Alani Nu acquisition, and then the Celsius brand is actually down 12% in this quarter. This is showing sure, that the portfolio is doing OK.

But the entire space, this energy space, maybe it's like alternatives to traditional soda drinks, is just getting really, really competitive. I know that a handful of years ago, Jon talked about Celsius before we even had it here in Minnesota. Once we started getting it, now suddenly Celsius is everywhere. Well, now I go down those same aisles, and there are a dozen other brands. It's not just Celsius. This isn't a world where Monster and Red Bull dominated everything for what? Two decades. Now, you're getting it's easier and easier to bring up these brands, these co-packers that Celsius was actually grown up on. Remember, they did not own their own manufacturing facilities. They had other companies manufacture their products, and they were just a brand in a sales business. Well, everybody else can just copy that.

That's something that we've seen more and more in this space. That's a real challenge. Now, you're going from, is it a growth stock, or is it a value stock, 16 times forward earnings? It's maybe getting close to that value territory, but I don't know, investors just don't seem to know what to think about the company's future.

Tyler Crowe: Anecdotally speaking. I live overseas. I've mentioned a couple of times on the show, and when I go to the aisle, I see Red Bull, but other than that, there is no other American comparable. At the same time, there are still 20 different brands. Again, this is an intensely competitive industry where the barriers to entry aren't exactly the hardest in the world. As I mentioned too, Jon, I assigned you to AppLovin. I would say the growth numbers were similar to Unity, but the market did not react nearly as well.

Jon Quast: Yes, and it's interesting that you bring up Unity, because at this point, they are more directly competitive than maybe they've been in the past because Unity is growing with the ad network. Really, that's what AppLovin is, same business here. Mobile gaming is the main focus, and that's where they display their ads. That's where they generate their revenue. Up 53% this quarter. That's really good growth, but it is behind what Unity posted. That is worth noting. Also, revenue growth is accelerating, to be fair. It had over 70% growth this time last year. It's also guiding for 47% growth in the upcoming third quarter, so 53% to 47%. It's still really great growth.

One of the things I want to point out here is that existing customers' their spend has gone up 28% since the end of last year. That's actually a really meaningful data point, I think, is that the customers who are using them are now spending more than they were to me, that signals that they're getting a return here and are willing to increase that spend. I think that is good. But to be fair, the growth rate is slowing down, so I get it. Trading at 20 times forward earnings, growing at over 40%, profits are growing faster than revenue. You're looking at a 66% net profit margin. I think this is getting a little bit interesting here.

Travis Hoium: I also thought it was hilarious that it came up on the conference call that they should change their name. This is one of the most strangely named companies in the market. It does sound like from the movie McLovin I can't get that out of my head every time I hear the company. Sometimes name changes are positive, and interestingly, it's actually being brought up by investors.

Jon Quast: The analysts there are mentioning maybe we should change it to MAX, and that is the name of its ad product. To point out, I think another thing investors are responding to negatively today is that it updates its MAX models, its AI models, from time to time. Each time it has done that in the past, it has seen a jump in its revenue growth rate, and this time, releasing the new model still means great growth, but not seeing that uplift right away. I think that's a little bit concerning for investors, especially in light of Unity's results, it's like man, did they not make the right changes that they need to make? I think it just puts a question mark on it. CEO is saying, "We're not changing from AppLovin. We are AppLovin."

Tyler Crowe: Stick to your guns. But hey, look, I think the biggest takeaway that we have from this quarter, it wasn't just today's earnings. We've seen this across pretty much the entire earnings season so far. The market seems very demanding right now. We have companies that are posting incredible growth and still getting double-digit declines. Whether that continues, who knows? We seem to be in a very volatile individual stock time. But you know what? That's just how it is with long-term investing. Try to stay the course and plow through when we have all these volatile earnings times, even when the business is doing pretty good.

Always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provide for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to producer Dan Boyd and the rest of The Motley team, were Jon, Travis, and myself. Thanks for listening, and we'll chat again soon.

Jon Quast has positions in Celsius Holdings, Duolingo, and MercadoLibre. Travis Hoium has positions in Duolingo, MercadoLibre, and Unity Software. Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Duolingo, MercadoLibre, Monster Beverage, Salesforce, and Unity Software. The Motley Fool recommends Celsius Holdings. The Motley Fool has a disclosure policy.