The Wild Swings of Earnings Season Continue

**Tyler Crowe** (0:02)
Big earnings moves today on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime full contributors, Travis Hoium and Jon Quast. Travis doing the full gamut this week with hosting and analyst duties.

**Jon Quast** (0:20)
A lot of Travis time.

**Tyler Crowe** (0:22)
Burning the candle on both sides this week. So I think today might be the busiest day when it comes to earnings out there. I think it's something like 530 companies. Obviously, we can't get to all of them. So what we did before the show is we wanted to look at, number one, companies that are moving or their stocks are moving big time after earnings releases. And also, we wanted to kind of pick companies that are either Motley Fool favorites of our members or some of our analysts and some of our personal favorites as well. And we're going to start today with MercadoLibre. Shares are down about 7% after the company reported earnings. And across the board, they beat expectations. But one of the things that was noticeable was that earnings have declined for a couple quarters now.

**Jon Quast** (1:02)
Well, let's start with the top line there, Tyler. This is its fastest growth in the last four years. And that's really saying something because this is a company that has averaged 50% quarterly growth over the last 10 years. Growth is so important when it comes to the stocks that we're investing in. It's not the only factor, but it is a very crucial factor when it comes to market-beating investments. MercadoLibre, as you look at what it has done over the long term, this has to be near the top of investors' minds when it comes to creating a list of long-term compounders.

**Travis Hoium** (1:40)
Yeah, and that growth rate was 50% for this quarter, just to be clear.
I think this is just the place that the market is in today is this was a phenomenal quarter from a growth perspective, but the downside is margins are down. And this is an explicit trade-off that management is making, saying, you know what, we're going to give people more perks, we're going to give sellers more perks to try to drive more revenue to the business. In theory, you're playing something like an Amazon game where once people get used to both shopping on your platform and also building a business on your platform from a seller side, that should be a phenomenal place to be. But they're giving up that profitability short term. So that's what investors are sort of, there's a yin and a yang here going, okay, revenue growth is great, but I'm not seeing the profitability. How much do I really want to pay for this stock? So I think that's the reaction today, and it's not just MercadoLibre. This is happening across the market. You look at a company like Duolingo, also down big today, same exact trade-off that they're making. Hey, we're going for user growth. We're not going for profitability today and shares are selling off. So this is the challenge when you get to a relatively highly valued market is, when you're starting to make those trade-offs, you never know which one the market wants to see.

**Jon Quast** (2:52)
Well, and Travis, if I could jump in there on that trade-off, you look at the lower shipping that it chose to do or the lower threshold for free shipping that it chose to do in Brazil a while back. That is actually working when it comes to the Amazon game that you reference.
User growth is up over 20 percent when you look at that. Then also, I think really key, the ratio of daily users to monthly users is at its highest level ever. So this is becoming more of a daily habit for MercadoLibre users in its key markets. Then also, items per buyer in Brazil up 19 percent. I think that is a really crucial data point because this is basically saying that MercadoLibre is becoming more of a go-to platform on a daily basis for more things. I think that's a habit-forming trend and I think that it's directly a result of that free shipping decision.

**Travis Hoium** (3:49)
Yeah.
This is where you want to know what kind of investor you are. If you are a foolish investor with a capital F, you're looking at this going, hey, we want this company to be bigger long-term. This is a great discount if I have been looking at this stock because, you know what, that profitability, that's not the short-term answer that I want as an investor. I want that long-term growth. But if you're trying to guess what's going to happen quarter to quarter, you maybe got this wrong. So that's where I think stepping back and going, hey, what do I really want from this company? And knowing that going into earnings is really important.