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Why Is MercadoLibre Down 20% From Its Highs?

MercadoLibre (NASDAQ: MELI) has produced incredibly strong growth on both sides of its business, but the stock has shed about one-fourth of its value recently. In this Fool Live video clip, recorded on April 1, 2021, Fool.com contributors Matt Frankel, CFP, Brian Feroldi, and Brian Withers discuss why the stock has pulled back and what investors should keep in mind.

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Matt Frankel: Why is MercadoLibre down? The easy answer would be because most high-momentum tech-focus stocks have really taken a beating lately. That's the cheating answer here that all three of us could probably use for our picks if we wanted to. But MercadoLibre actually took a dive after its earnings report on the day of its earnings. That I know because I wrote a little earnings reaction to it. It was down by about 5% right after earnings. That really got, again, a double-dip, fell because all of these tech stocks are falling, and the market reacted negatively to its earnings. So, marketplace volume up 110% year over year, payment volume up by more than 130% year over year.

Why would a stock fall after numbers like those? The reason is because in the second and third quarter, it was even better. This was a deceleration. Off-platform payment volume almost tripled in the third quarter year over year, 197% growth compared to 150%. It slowed down. It would be really hard to impress the market after numbers like MercadoLibre was putting up toward the middle of 2020. It posted a great quarter. It didn't take anyone's breath away. MercadoLibre's second and third quarter numbers really made investors stand back and stare at it. The fourth quarter, it started to normalize a little bit. When you see the numbers decelerate like that in an e-commerce and a payments platform, it makes investors a little concerned at what happens in the post-pandemic world. I'm not that concerned. I think that the pandemic caused some permanent shift in e-commerce and cashless payments, and we'll just see that continue, huge growth opportunity. I'll let one of the other guys go now, but do either of you own MercadoLibre? I became a shareholder during the pandemic.

Brian Withers: It's our number one position.

Brian Feroldi: It's my number one position.

Matt Frankel: Wow. [laughs]

Brian Feroldi: You planned it first.

Matt Frankel: I didn't even know that when I picked it. I actually added a few shares during the start of the pandemic, and added to it a little more recently when it took a nosedive. It's not close to my number one position, but I could definitely see it getting there if things go well.

Brian Withers: Yeah, Matt. You mentioned like Amazon (NASDAQ: AMZN) and PayPal (NASDAQ: PYPL) and some of these other companies. One of the other things that I really like about MercadoLibre that's a dark horse for me is they're developing a fintech platform, not just the payments, but allowing people to do peer-to-peer payments, pay with their phones, like the point of sale devices and whatnot, and they have a mobile wallet which can actually invest in money market funds and get some interest. It's also got a Square (NYSE: SQ) Cash App feel to it that they really haven't reported results out of that yet, but I think that could be a nice part of its payments ecosystem and I'm really excited to watch that as it rolls out the next couple of years.

Brian Feroldi: One thing to just keep in mind is that Sea Limited (NYSE: SE), the super successful company from Southeast Asia that's very much like MercadoLibre, they have entered Latin America. So it's possible that MercadoLibre might finally have some real competition. I think that MercadoLibre is so far ahead in terms of size and scale that it's probably insulated, but Sea Limited did take over a whole bunch of Alibaba's (NYSE: BABA) lunch, and that ain't easy to do, so something to keep in mind.

Brian Withers: Yeah. They're taking an interesting approach. They're coming in from the gaining platform and starting there and then expanding into payments and e-commerce. But Amazon has been there for, I think 15 years or so, and still the MercadoLibre has just been able to rock the growth down there. I really love them.

Brian Feroldi: This is not a winner take all, it's such a mega trend too.

Brian Withers: Yeah.

Brian Feroldi: Let's keep that in mind.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of Amazon, MercadoLibre, PayPal Holdings, and Square. Brian Withers owns shares of Amazon, MercadoLibre, PayPal Holdings, Sea Limited, and Square. Matthew Frankel, CFP owns shares of MercadoLibre and Square. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Amazon, MercadoLibre, PayPal Holdings, Sea Limited, and Square. The Motley Fool recommends the following options: long January 2022 $1920.0 calls on Amazon, long January 2022 $75.0 calls on PayPal Holdings, and short January 2022 $1940.0 calls on Amazon. The Motley Fool has a disclosure policy.


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