Will WhatsApp Partnership Boost MercadoLibre's Earnings?

Latin American e-commerce specialist MercadoLibre Inc. NASDAQ: MELI has only trended lower in 2022, and a new partnership could boost the stock.

Earlier this month, the chief financial officer of the Argentina-based company told Reuters that MercadoLibre would begin processing business payments for WhatsApp users. 

WhatsApp, owned by Meta Platforms Inc. NASDAQ: META, offers free multiplatform messaging capabilities. Not well known in the U.S., but it’s popular worldwide among family members, friends, and business associates who live in different countries.  

While users have long had access to functionality, including making text messaging and voice and video calls, payment processing would be a new feature. 

MercadoLibre CFO Pedro Arnt told Reuters that the two companies are testing payment processing in Brazil. “This could be an opportunity for us to leverage WhatsApp efficiently to generate more sales and better customer contacts,” Arnt said.

“Seamless Checkout Experience” 

In a company blog post, WhatsApp addressed the Brazil initiative, saying, “Ultimately, we want people to be able to make a secure payment right from a chat with their credit or debit card. We recently launched this experience in India, and we’re excited to test this in Brazil with multiple payment partners. This seamless checkout experience will be a game-changer for people and businesses looking to buy and sell on WhatsApp without having to go to a website, open another app or pay in person.”

WhatsApp has been offering in-app payments in India since 2020. The Brazil test began in November. 

MercadoLibre went public in 2007. In its early years was viewed as the equivalent of eBay Inc. NASDAQ: EBAY or Amazon.com Inc. NASDAQ: AMZN.

The company has expanded its operational capabilities in the years since and now includes a lending unit and in-house shipping operations. It also runs an advertising platform that provides classifieds, which allows users to list users to vehicles, vessels, aircraft, real estate, and services outside the Marketplace platform.

MercadoLibre reported having more than 88 million unique users in the most recent quarter, with operations in 18 countries. 

Strong Earnings And Revenue Growth

Despite this year’s poor stock price performance, sales and earnings growth have been vital in recent quarters. MarketBeat analyst data for MercadoLibre show a “moderate-buy” rating on the stock, with a price target of $1,317, representing a potential upside of 51.27%. A trend line connecting a series of recent price lows illustrates how that price may be reachable by mid-2023. 

Since the company’s most recent earnings report on November 3, Citigroup lowered its price target from $1,150 to $1,050. Nonetheless, that still reflects optimism about a potential upside of 23.34%. 

MercadoLibre’s three-year revenue growth rate is 74%. Sales increased between 45% and 111% in the past eight quarters. 

The bottom line has been more erratic, with losses in 2018, 2019, and 2020. Last year, the company returned to profitability, earning $1.67 per share. This year, analysts expect the company to earn $8.47 per share, an increase of 407%, and projected to rise another 63% next year to $13.78 per share. 

That figure has been revised higher recently, but not necessarily because analysts have weighed in on the potential of the WhatsApp partnership. 

Missed Earnings Views

Earnings data compiled by MarketBeat show MercadoLibre missing bottom-line views in the past three quarters. In addition, it missed top-line views in one of those quarters.

MercadoLibre’s chart shows a first-stage base that began in mid-August. It’s corrected 31% thus far, although it’s working on its fifth week in a row of declines. The stock is down 10.69% in the past month and 7.76% in the past three months. 

So far, the stock is holding above its previous low of $600.68 in mid-June. However, as of mid-session Wednesday, shares were trading below short- and longer-term moving averages. That means the stock still needs to stage a rally that could make it a less risky investment candidate. 

Generally, it’s better to focus on stocks beginning a rally rather than being mired in a correction.