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Earnings Recap – Week of 5/3/2020: Part 1

Earnings Recap – Week of 5/3/2020: Part 1

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This is a crazy week for earnings, with 5 of the top 10 positions in the Freedom Portfolio reporting earnings on the 5th or 6th and another 3 major positions reporting on the 7th. Here are some quick numbers and some thoughts from me about the first batch.

Disney (DIS)

  • Disney+ has reached 54.5M subscribers
  • Shanghai Disneyland will re-open within the week
  • Prior to the closure of domestic parks and resorts, volumes and guest spending were higher compared to the prior-year quarter
  • The summer dividend is being skipped, which will save the company about $1.6 billion
  • View Earnings Report Here
  • My thoughts: I was actually a little disappointed in the Disney+ subscriber numbers considering they had announced over 50 million a month ago. Still, Disney+ has been an unqualified success considering they are hitting their subscriber numbers 4 years early. Every other segment of their business is getting hammered, but Disney has plenty of cash available and should be able to weather this storm assuming theme parks / movie theaters / professional sports starts gearing back up in the not-too-distant future.

MercadoLibre (MELI)

  • Net revenue was up 70.5% year-over-year on an FX neutral basis
  • Total payment volume (TPV) through Mercado Pago was up 82.2% year-over-year on an FX neutral basis
  • Off platform TPV grew 139.5% year-over-year on a FX neutral basis
  • Mobile wallet saw 299.2% year-over-year growth on a FX neutral basis for the full first quarter 2020
  • Their new asset management product, Mercado Fondo, is now available in Argentina, Brazil and Mexico
  • View Earnings Report Here
  • My thoughts: What an amazing earnings report. Look at all of those massive growth numbers. It’s no surprise why the stock jumped around 20% after these earnings. Despite the big run-up, I think MercadoLibre’s growth is just beginning. Latin America as a region should have a long runway of growth ahead of it, and if Venezuela ever gets its act together or foreign currency headwinds turn into tailwinds, that could really help the company soar as well. Many people think of MercadoLibre as the eBay (EBAY) or Amazon (AMZN) of Latin America, but I think that comparison is increasingly inaccurate and selling them short. With their booming digital payments business, they are looking more and more like the Square (SQ) or PayPal (PYPL) of Latin America as well.

Shopify (SHOP)

  • Revenue of $470M beat estimates by $27.08M and was up 46.7% year over year
  • Gross merchandise volume (GMV) of $17.4B beat estimates of $16.83B and was up 46% year over year
  • Non-GAAP EPS of $0.19 beat by $0.36
  • GAAP EPS of -$0.27 beat by $0.50
  • Subscription Solutions revenue grew 34% to $187.6M
  • Merchant Solutions revenue expanded 57% to $282.4M, driven primarily by the growth of GMV.
  • View Earnings Report Here
  • My thoughts: Shopify’s numbers were fairly impressive (especially in how they beat some pretty high expectations), but the numbers don’t seem to tell the whole story here. Shopify seems to be the company for the current Coronavirus / social distancing moment in that they are ideally positioned to help companies adjust to selling things online. This is on top of already being the “rebels” to Amazon’s “empire”. The stock has been on a ridiculous run, and the valuation is getting very pricey, so it’s almost impossible for it to keep growing at this pace for much longer. Still, I considered selling Shopify back in June of last year when it was around $300 a share and can’t imagine how much I would’ve regretted it had I done it then. I don’t like to sell based on valuation concerns alone, so I’m sticking with Shopify to see where this story goes.
MercadoLibre is En Fuego

MercadoLibre is En Fuego

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MercadoLibre (MELI) was a Serenity level holding in the Freedom Portfolio, but after last week’s huge jump it has now been promoted to an Enterprise level position. Despite its (originally) relatively modest size, it’s one of my favorite positions and it’s well past time that I give the company its due and provided a proper write-up.

I first bought shares of MercadoLibre in 2016. As of this writing, it is the fourth best performing position in the Freedom Portfolio, and as you can see from the chart below, it’s been a particularly exciting past few weeks. While there’s always a great deal of regret about not owning more of a big winner, I’m especially kicking myself over not having bought more of MercadoLibre over the past few years. In every “stock market challenge” that I have done with friends (a pre-cursor to fantasy investing), I have chosen MercadoLibre as one of my top conviction holdings when able. So it’s a little baffling to me why it remained a Serenity level holding for so long and why I didn’t consider adding to it.

MercadoLibre in Green vs the S&P 500 in Blue

MercadoLibre is also a pick for my 2019 Fantasy Investing Portfolio, and
I wrote a little bit about the company then. The overly simple comparison is that they are the Amazon (AMZN) of South America (they do most of their business in Brazil, Mexico, Argentina, and formerly Venezuela), but that doesn’t tell the whole story.

MercadoLibre has four main businesses, which you can read more about in the summary document here:

  • MercadoLibre – The main eCommerce business
  • MercadoEnvios – A fulfillment and shipping service
  • MercadoPago – A payments service
  • MercadoCredito – A financing service

All of these businesses combine to give MercadoLibre not only an incredibly “sticky” business which is hard to disrupt, but also a lot of exciting avenues for growth. The below tweet provides an interesting way to think about MercadoLibre.


Sure, it’s not exactly fair to compare MercadoLibre to a company like Amazon, but it’s also not crazy to think that they could get part of the way there in the near future. Brazil, Mexico, and Argentina combined have a population greater than the US and all three countries have a population growth rate higher than the US. All of this is without even counting any contributions from Venezuela, which was South America’s wealthiest country two decades ago. If that country can get back on its feet, that is another potential up and coming developing economy that MercadoLibre can benefit from. Even if MercadoLibre can only ever get to 1/10th the size of Amazon, that still gives them a market cap four times the size that they are now. That doesn’t seem like a completely unreasonable expectation given their current position and the different business lines they offer.

MercadoLibre released their fourth quarter results recently and business was pretty much booming across the board. The only notable weakness was in volume of goods sold in Brazil due to a conscious effort to move away from low cost items thanks to an increase in shipping costs. Here are my key takeaways:

  • Net revenue was up 62% year over year in local currency
  • Total payment transactions were up 72% year over year
  • Mobile point of sale total payment volume is growing triple digits in both US and local currency

Interested in reading more? The Fool has a good article recapping MercadoLibre’s earnings. As I mentioned before, while the company is growing fast almost everywhere, I especially wanted to highlight the ridiculous growth that they are seeing in payments. This is a huge growth opportunity for the company. As mentioned before, Paypal has a $100+ billion market cap, so there’s a lot of room for growth for MercadoPago alone, not even counting the rest of the eCommerce and fulfillment business.

P.A.U.L. Score

Protected: 4

This is the billion dollar question: Can MercadoLibre continue to be the dominant player in the markets they serve even while huge competitors like Amazon are investing heavily in the area as well? Considering the dominance that Amazon has in US eCommerce, that’s a pretty legitimate fear, but I think MercadoLibre has what it takes to hold its ground.

MercadoLibre has first mover advantage and seems to be beating Amazon in all the markets they compete in so far. MercadoLibre management has done an excellent job of copying the things that make Amazon such a great (and sticky) eCommerce company and have the additional benefit of being more of a local (and focused) company as well. Even if Amazon is able to eventually make inroads, non-US markets have shown that there can be multiple winners in eCommerce. Just look at Alibaba (BABA) and fellow freedom portfolier JD.com (JD) in China or Amazon and Flipkart (now owned by Walmart (WMT)) in India. The worst case scenario that I see for MercadoLibre is that it becomes the Pepsi (PEP) to Amazon’s Coke (KO).

Alternatives: 5

I feel like I’ve made this case pretty strongly above already. Mercado Libre has shown an incredible willingness to expand outside of the basic eCommerce marketplace that they started with and provide payments and fulfillment as well. Yes, it’s a path trail-blazed by Amazon, but it’s still impressive to see them execute that same plan so well over so many different countries.

Understandable: 3

Researching MercadoLibre can be a little overwhelming at the start. The biggest learning curve might be the sheer number of different business segments they have, but the different markets (and the resulting currency effects) are a close second. South America isn’t one homogeneous unit, and it can sometimes be hard to keep track of just what is going on in all the markets they serve. You probably know that Venezuela is falling apart, but did you know that recently Argentina had been dealing with a debt crisis and Brazil was going through a corruption scandal? For those reasons, it’s hard to give MercadoLibre any score higher than a 3 here.

Long Runway: 5

I absolutely love the opportunity in front of MercadoLibre. For starters, they seem to be in the early stages of a lot of huge trends like eCommerce and digital payments that I like investing in.

South America has always seemed strangely under the radar among American investors and overshadowed by China and India. There are a lot of pretty interesting developing markets in the area. I love almost everything about the long runway for MercadoLibre: A dominant player in the exciting eCommerce and payments space operating in developing countries who seem to be in the early innings of growth still.

Total Score: 17

A really good score. By my count, it’s the second highest company that I have rated so far. In fact, as I was writing this, I realized that how much I liked the company wasn’t accurately reflected in the size of the position in the Freedom Portfolio, so I purchased some more shares during a slight re-balancing that I’m hoping to talk about in the coming weeks. Really excited to see where this company is in 10 years.

Fantasy Investing – My 2019 Portfolio

Fantasy Investing – My 2019 Portfolio

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The 2019 Fantasy Investing season is underway and we’ve already had a fast start out of the gate with a few portfolios already seeing double digit gains. If only I had decided to start the Freedom Portfolio now instead of 3 months ago…

The hope is to have monthly check-ins where I report on the current standings and a few thoughts on how the race is shaping up. In the meantime, I thought I should reveal my own 2019 Fantasy Investing portfolio and provide some thoughts on why I chose the companies that I did.

Go team TAMIS!

With the letters M, A, T, I, and S as the first letters of the stocks in my portfolio, it really seems like I should be able to come up with some clever name, but there doesn’t seem to be one. TAMIS at least seems like it should be a thing (and apparently it is a kitchen utensil), so that’s what I’ll go with for now, but I am very open to better ideas. So if you have any better suggestions, please hit me up in the comments. In the meantime, here’s some thoughts on my picks, in alphabetical order:

Amazon (AMZN)

I’ve already written a lot about why Amazon is the largest holding (and only Babylon 5 level position) in the Freedom Portfolio, so this might be a short recap as I’ll try not to belabor those points any more. Instead, I’ll just point out that I liked the company at over $2,000 a share around 3 months ago and I absolutely love it now at around $1,600 a share after it has lost around a quarter of its value. I didn’t think their third quarter earnings report was bad at all and they reportedly had a record breaking holiday season. I fully expect Amazon to revisit the $1 trillion market cap club in 2019, but even if it doesn’t and there continue to be some speed bumps, I love this company for the long term and not even a Bezos divorce can shake that.

iQiyi (IQ)

I also previously wrote about iQiyi and mentioned some of the moves that I made in the recent Freedom Portfolio check-in. In the less than one year since it IPO’d, iQiyi has been as high as $46 a share and as low as $14 a share. On some level, I understand how investor sentiment around the stock could swing so wildly (especially with concerns over a slowing Chinese economy and continuing trade war with the US), but changing investor sentiment doesn’t mean the business fundamentals have changed and I think this is a great opportunity to buy a company with a lot of potential at a discount. While there is a lot of competition, there is also a huge opportunity in the Chinese video streaming market, and if iQiyi can continue to be the leader, I really like their chance to outperform the market over the next 5 years.

MercadoLibre (MELI)

I can’t believe I haven’t written anything about MercadoLibre yet considering it is one of my favorite companies right now. For those unfamiliar with the company, the easiest description of what the Brazil-based (but founded in Argentina) company does is “Amazon for Latin America” (although Ebay might be a more accurate comparison). They are an up and coming eCommerce company that does a lot of business in Brazil, Argentina, and Mexico. While India and China seem to get all the publicity in our Northern Hemisphere-centric world, there’s an interesting emerging market opportunity in South America as well that MercadoLibre is well positioned to benefit from.

South America has seen a lot of volatility in recent years. Argentina has been grappling with debt and economic problems. Brazil has been hit by corruption scandals. Worst and most tragic of all, Venezuela’s economy has been basically disintegrating. It’s nothing short of miraculous, then, that MercadoLibre has been able to do as well as it has during this time (doubling in the past 2 years) considering how much business that it does in those markets. If there’s just a slight turnaround in some of those countries in 2019, it could be a major catalyst for MercadoLibre to really soar. Even if there isn’t a turnaround, though, management has proven that they are able to grow even in challenging environments, and I have faith that they will continue to do so.

It’s not just the eCommerce potential that has me excited, though. MercadoLibre also has a payments platform somewhat similar to Paypal called MercadoPago which has a lot of potential for growth as well. While this is getting incredibly ahead of things, it’s interesting to note that Paypal alone currently has a market cap roughly 7 times the size of MercadoLibre. So if MercadoPago can see even a fraction of the success that Paypal has, there is a lot of upside there.

Which leads to an unexpectedly good transition to…

Square (SQ)

There’s a good chance you’ve seen a Square device, even if you have no idea what the company does. Have you ever been to a farmer’s market or a small, independent coffee shop where they scanned your credit card using a small device plugged into the headphone jack of a phone or tablet? That could’ve been a Square reader. The technology has advanced since then, and so have the services offered by Square.

Square essentially creates tools and services to help small and mid-sized businesses accept payments. It started off with those cheap and easy to use readers, but has grown into a myriad of different services now. They’ve begun making loans and cash advances to clients who use their point-of-sale (POS… yes, that’s the real acronym… stop laughing) system as part of their Square Capital service. They’ve filed for a banking license to increase the number of financing services that they can offer. They’ve even begun encroaching on PayPal’s (PYPL) space by offering their own peer-to-peer payment service called Square Cash.

That’s a lot of irons in the fire, and as the country moves more and more away from cash, I think Square is well-positioned to benefit. The stock got whacked pretty hard in the last quarter of 2018 and lost around 40% of its value. Part of that seemed to be due to the general market downturn, but part of it also was because Square lost CFO Sarah Friar as she left to become CEO at Nextdoor. Friar was very well regarded, and so it was a big loss for the company, but a 40% drop seems overstated. It’s worth noting that even with the big drop, Square was still up around 50% for 2018.

I don’t see any reason why Square can’t regain their 2018 highs in 2019, which would be a near double from where it is now. I’m very interested in seeing what Square can do in the coming year.

Teladoc (TDOC)

Count this as a bet on the trend of the health care industry moving more and more to telemedicine with Teladoc being the leader in the space. It’s no secret that health care costs have been spiraling out of control and everybody is looking for ways to cut costs and increase efficiencies. I think telemedicine is a powerful tool in that fight. Not every health concern requires a visit to the doctor’s office and being able to consult with a doctor from the comfort of your home can not only be more convenient, but cheaper too. I think Teladoc has what it takes to capitalize on that trend.

If you’re interested in reading more about Teladoc and the opportunity in front of them, here is a good Seeking Alpha article about them.

What are your top stocks for 2019?

So those are the five companies in my portfolio for the Fantasy Investing 2019 season that also turn out to be my top 5 stocks for 2019. What are your best ideas for 2019? Let me know in the comments. Looking forward to checking in on the early results of the Fantasy Investing 2019 season in a few weeks. And don’t forget:

They may take our alpha, but they’ll never take our Tamis!

Okay… I definitely need a better name.