(Bloomberg) -- MercadoLibre Inc.’s aggressive push into credit across Latin America eroded profit in the third quarter, prompting shares to tumble in late trading.
The e-commerce and financial technology giant grew its overall credit book by 77% from a year earlier to $6 billion, with the portion tied to credit cards surging 172% over the same period, according to a release. Provisions set aside for all the lending cut into net income, which at $397 million fell short of the $513 million average estimate of analysts polled by Bloomberg.
The company also increased investments in logistics in the quarter while inaugurating five new fulfillment centers in Brazil and another one in Mexico, Chief Financial Officer Martin de los Santos said Wednesday in an interview before the earnings release. Overall revenue met expectations at $5.3 billion.
“This was a quarter of very large growth, but also investments in some of our strategic initiatives — one of which is credit,” de los Santos said. “The credit card is an important part of our fintech strategy.” While it probably adds “a little margin pressure year on year,” the company believes it’s “the right investment for the long-term growth opportunity,” he added.
Shares fell as much as 12% before paring losses. They were down 5.5% to $1,999.99 as of 4:43 p.m. New York time.
MercadoLibre had gained 35% this year, propelling the Montevideo, Uruguay-based firm to become Latin America’s most valuable company with a market capitalization of $107 billion. While its commerce business represents about 60% of revenues, the company is pushing heavily into financial services through its Mercado Pago division, which does everything from processing payments to lending and offering deposit accounts that pay above-market interest rates.
Total users for its commerce arm rose to 61 million people while monthly active users for Mercado Pago was 56 million. Gross merchandise value was $12.9 billion in the quarter with Brazil and Mexico growing 34% and 27% respectively in local currency terms. Total payment volume was $50.7 billion.
In Argentina, MercadoLibre continues to see a consumer recovery as the administration of Javier Milei attempts to stabilize the economy and the firm is boosting its lending on the back of it, according to de los Santos.
While MercadoLibre doesn’t disclose certain information by country, Mexican financial services is a bright spot at the moment he said.
“We’re seeing tremendous growth in the country in terms of number of users, in terms of assets under management, the credit portfolio — we had the largest credit portfolio of any fintech in Mexico,” de los Santos said. “So all the things that we’re doing in Mexico are working very nicely. The opportunities are enormous.”
(Updates with trading in first paragraph.)
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