MercadoLibre CEO Discusses Q3 2010 Results – Earnings Call Transcript
MercadoLibre, Inc. (
)
Q3 2010 Earnings Conference Call
November 3, 2010 10:00 AM ET
Executives
Diego Escobar – IR
Marcos Galperín – President and CEO
Hernán Kazah – EVP and CFO
Analysts
Imran Khan – JPMorgan
Gene Munster – Piper Jaffray
Robert Ford – Bank of America
Stephen Ju – RBC Capital Markets
Jordan Rohan – Stifel Nicolaus
Steve Weinstein – Pacific Crest
Aaron Kessler – Bank Equity
Presentation
Operator
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Good day, ladies and gentlemen, and welcome to your MercadoLibre Q3 earnings conference call. (Operator instructions). And as a reminder, this is being recorded. I would now like to introduce Mr. Diego Escobar. Please begin.
Diego Escobar
Welcome, everyone, to MercadoLibre’s earnings conference call for the quarter ended September 30, 2010. The company management presenting today are Marco Galperin, Chief Executive Officer, and Hernán Kazah, Chief Financial Officer. Additionally (inaudible) Hemenes, Senior Vice President of MercadoPago, will be present during today’s Q&A session. This conference call is also being broadcast over the internet and is available through the investor relations section of our website.
I remind you that during the course of this conference call we will discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our Q3 2010 earnings press release available on our investor relations website. In addition management may make forward-looking statements related to such matters as continued growth prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and trajections are reasonable in view of currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Our actual results may differ materially from those discussed in the call for a variety of reasons including those described in the forward-looking statements and risk factors sections of our 10Q, 10K, and other filings with the Securities and Exchange Commission, which are available on our investor relations website.
Now let me hand the floor over to Marcos.
Marcos Galperin
Thank you, and welcome everyone to today’s conference call. Let me begin by summing up Q3 as a good quarter for us with sustained trading momentum on our platform even as we continue to dedicate resources to longer-term initiatives that have limited immediate impact. Throughout Q3 we continued to observe the positive dynamics which I have described over the last few quarters characterized by increasing levels of engagement by our users with our different service offerings. This increased complementary usage of marketplaces – classifieds, payment, and other (inaudible) – guarantee both improving user appearance for our customers as well as (inaudible) financial models for our company as we move forward.
In the meantime secular trends in technology remain steady and under line of strong future (inaudible) commerce in the region where we operate as growth in internet and broadband penetration continues to be fortified by improving infrastructure, access to computers, and quality of connection available. New consumers are spilling onto the web at a rapid pace, and in Q3 alone we added 2.8 million new users to our community of buyers and sellers, surpassing the milestone of 50 million users and ending the quarter with 50.2 million total confirmed registered users. This figure represents a 25% increase over last year. The convergence of these internal and external factors allowed for a record gross merchandise volume of $888.1 million in the quarter, a 12% increase year over year and 26% higher than last year when measured in local currencies. Items sold, possibly a better reflection of the stable rate of growth for our business as it eliminates distortions brought about by currency fluctuations, grew even more robustly at 30% versus 2009.
Growth in volume is transferring over to growth in revenues at an ever faster pace as we are monetizing our gross merchandise volume more effectively than last year, mainly on the basis of our expanding payments service which has added value to more transactions than a year ago. Due to payment volume, penetration has returned to 21% in Q3 versus 14% at this time last year. That’s a strong jump in the number of transactions that are opting for frictionless payments, credit card purchasing, and the possibility to buy in installments. I will share more on that with you in just a moment, but first, let me highlight the growth of some of our key metrics. In the Q3 our company generated the following year on year growth in operational metrics: 30% growth in items sold, 120% growth in number of payments made through MercadoPago, 26% growth in gross merchandise volume in local currencies, and 63% growth in total payments volume in local currencies; and the following key financial results:
revenues of $56 million, an 11% growth versus last year; (inaudible) from operations of $19.3 million, 2% over last year; net income of $18.8 million, or 91% growth over last year resulting in an earnings per share of $0.43.
I would like to pause for a moment here and clarify that revenues for the quarter were negatively impacted by a change in MercadoPago financing operations as revenues generated from installment-related financing charges are now reported net of the cost of discounting credit card receivables. Had financing receivables also been presold in Q3 2009, the effective year on year growth in net revenues would have been 19.9% in US dollars and 33.6% in local currencies. This has no impact whatsoever on net income. On the other hand, net income was positively impacted by a lower tax rate as we had some onetime tax benefits. Manuel will explain these issues in detail in just a minute. We believe our quarterly financial performance is further proof of MercadoLibre’s consistent execution while capturing the opportunity of this rapidly growing ecommerce region. I firmly believe that our focus on technology and innovation is what allows us to capture this growing potential quarter after quarter.
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