E-commerce giant MercadoLibre's profits stabilized in the fourth quarter after taxes

Written by Andre Romani

SAO PAULO (Reuters) – Latin American e-commerce giant MercadoLibre on Thursday reported a net profit of $165 million in the fourth quarter, as higher sales were offset by a tax hit, with results flat compared to the same period last year.

Net profit was affected by two one-time tax provisions in Brazil totaling $351 million, and was lower than the net profit of $356 million expected by analysts surveyed by LSEG.

MercadoLibre said the rulings should not have a material monetary impact in the future.

Andre Chavez, senior vice president of strategy and corporate development, told Reuters that the market was prepared for the tax provisions, following local court rulings linked to Brazil's differential interest rates and payments to Argentina.

Excluding one-offs, MercadoLibre's net earnings would have been $383 million.

MercadoLibre reported a 42% year-over-year increase in quarterly net revenue to $4.26 billion, bringing income from operations – excluding non-recurring operations – to $572 million from $322 million a year earlier. Sales in Brazil, its largest market, increased by 35% compared to the total volume of goods.

Analysts had expected net revenues of $4.12 billion.

MercadoLibre, nicknamed the Amazon of Latin America, has posted strong growth in recent quarters, but analysts have questioned its ability to maintain the pace of growth with profitability.

The company said that the quarterly operating margin without the cuts was 13.4%, compared to 18.2% in the third quarter, but because of the adjustments it was not clear how the numbers compare.

“Seasonally, we always have margin pressure in the fourth quarter,” Chavez said, adding that MercadoLibre was affected by factors such as more promotional spending, particularly Black Friday in Brazil and Buen Vin in Mexico.

Brazil brings in more than half of the company's net revenue, while Argentina and Mexico each contribute about a fifth.

At the company's fintech arm, Mercado Bajo, net revenue rose 34%.

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On an earnings call, executives told analysts that margins should recover sequentially in the first three months of 2024, after investments in free delivery options and increased spending on truck drivers and work hours dented margins.

Argentina has also seen a slowdown in growth, they said, noting that it has not fully overcome the costs of inflation in the country, which analysts believe has likely entered a technical recession and where annual inflation has exceeded 200%.

(Reporting by Andre Romani; Additional reporting by Sarah Moreland; Editing by Leslie Adler and David Gregorio)