Ignore the EPS Miss — MercadoLibre's Long-Term Thesis Has Never Looked Better
Revenue is surging, user growth is accelerating, and its moat is only getting deeper!
On Monday, MercadoLibre released its second-quarter results, which seemed a bit mixed at first glance, as MELI beat the revenue consensus but missed the bottom-line estimate. Initially, this led to a 5%+ sell-off in after-hours trading, but soon enough, investors realized that the headline numbers don’t tell the entire story. Crucially, MELI’s top-line growth held up exceptionally well, its underlying metrics (user growth and engagement) continued to grow strongly, it continued to gain market share, and while cash flows missed estimates, this was driven mainly by FX fluctuations and not actual business performance.
In other words, MELI delivered an excellent quarter, which is precisely why shares gained 0.5% in the open market trading session the next day, and rightfully so.
I have covered MercadoLibre’s quarterly results in 4 out of the last 5 quarters, simply because it’s a fantastic business and one of my largest portfolio holdings, and for good reasons.
Without a doubt, MELI is the best way to get exposure to fast-growing economies in LatAm. But more importantly, the company gives you prime exposure to two of the most powerful secular trends driven by gradual digitization on the continent: a rapidly growing e-commerce market and an even faster-growing FinTech market.
Notably, MELI not only participates but also dominates both markets, continuing to grow its market share. It operates the #1 e-commerce platform in LatAm, with over 100 million unique buyers, and by volume, its market share hovers around 22%, having grown in recent years. Meanwhile, in Fintech, MELI holds the #1 position in Mexico, Chile, and Argentina, and the #2 position in Brazil through its Mercado Pago platform.
As a result of this dominant position and consistent market share gains, this company continues to compound revenue and EPS at a 30-40% clip, and driven by these secular drivers, it has enough runway to sustain such growth well into the next decade. And as if that isn’t enough, the company is rapidly becoming more profitable and consistently delivers excellent reinvestment metrics, with a ROE of 34% and a ROIC of 24%.
This is what makes MELI one of the best growth investments, and it’s why MELI is my fifth-largest position. It’s a gem and a possible multi-bagger over the next decade.
However, today, I am not here to break down this business, as I have done so on multiple occasions over the last year. Check out those analyses if you want to learn more about this business in great detail.
Instead, Today, I want to take a real close look at MELI’s second quarter results to see how this business is doing beyond the headline numbers. Ultimately, this is the question to answer today: are MELI shares a good buy at these levels?
In order to find out, let's review the Q2 results before updating my financial estimates and considering valuation.
Let’s delve right in!
Still not a paid subscriber? Here’s what you have missed out on these last 2 weeks alone:
American Express – Great Business, Good Quarter, Less Attractive Price
PayPal is a Bargain – A Rare Chance for 19% Annualized Returns
Join the InvestInsights paid community now and get many more high-quality stock analyses (at least 6 high-quality analyses per month) + all the other paid benefits!
Another excellent quarter from MELI!
MercadoLibre released its second-quarter earnings report last Monday, August 4, and delivered a strong report, showing healthy metrics across the board that indicate MELI isn’t seeing any weakness. Sure, not all the numbers lived up to expectations, but it’s the numbers that should matter to long-term oriented shareholders that remained excellent, highlighting that MELI maintains amazing momentum, still strengthening its position and gaining market share in LatAm e-commerce and Fintech.
Honestly, I am just really pleased with this report, as MELI is hitting all my marks.
Starting at the top, MELI reported a total Q2 revenue of $6.8 billion, up 34% YoY and beating consensus estimates by a healthy $130 million. YoY revenue growth remained robust and relatively stable from recent quarters, with growth remaining in the mid-thirties on an FX-adjusted basis (which is the best indicator). This was especially strong considering MELI lapped a very tough comparable and reduced shipping charges for sellers, which had an immediate near-term effect on growth in June, pressuring it a bit.
Positively, MELI was able to offset this with strength elsewhere and maintained incredible YoY growth, not showing any weakness. The company continues to fully benefit from secular drivers in LatAm, and the numbers are showing it as MELI is seeing barely any slowdown in growth.
On an FX-neutral basis, growth moderated compared to the last 2 years to 53% YoY, as inflation in Argentina finally slows, leading to lesser FX extremes. Ultimately, this is beneficial for MELI as it leads to improving economic conditions in Argentina, which is one of its largest markets.
By region, FX-adjusted growth in Brazil improved from Q1, hitting 25% in Q2, which is really healthy. Meanwhile, in Mexico, MELI also reported 25% YoY growth, while Argentina is seeing a rapid recovery due to the earlier-mentioned improved economic conditions. For MELI, this translated into 77% higher FX-adjusted revenue.
Breaking down its revenue performance further, let’s take a look at both its reporting segments: E-commerce and Fintech.
E-commerce
Starting with e-commerce, MELI reported a revenue growth of 29% YoY to $3.8 billion, which remains strong, although growth is gradually slowing as MELI reaches scale. That is as expected. Meanwhile, all the underlying metrics remain excellent.
Unique active buyers grew to 90 million, up 25% YoY.
Items sold grew 31% YoY, which is up from the prior two quarters.
The discrepancy in growth between buyers and items is explained by a climbing number of items sold per unique buyer, indicating growing engagement.
The 3P (third-party) take rate grew 60 bps YoY to 21.3%, with a flat fee and growing advertising income offsetting lower shipping revenue as a percentage of GMV
Each and every single one of these numbers is excellent and indicates sustained platform health, which will benefit MELI in the long run – a rapidly growing user base and increasing engagement create a powerful double growth driver.
In Q2, this drove a 21% growth in GMV (Gross Merchandise Volume), which is a continued acceleration from previous quarters and the best reported FX-adjusted growth in over a year, highlighting that MELI’s e-commerce business isn’t losing any traction.
I mean, we got rapid user growth (at the highest level in over a year as well), growing engagement, and the best GMV growth in over a year – that is nothing short of excellent, especially for a business with this kind of scale.
Particularly in Argentina, MELI is firing on all cylinders again. Unique buyers grew 30% YoY, items sold grew 46% YoY, and FX-neutral GMV growth was 75% YoY, showing excellent momentum across the board. Mexico was similarly strong, seeing 36% growth in items solid – the best pace in nearly two years(!) – driving FX-neutral GMV growth of 32% YoY, which is an acceleration from prior quarters, driven by ongoing investments in logistics, as highlighted by a 75% fulfillment penetration, which is allowed for faster delivery for buyers and better capacity for sellers.
These investments are paying off nicely and allow MELI to accelerate growth.
And on the note of logistics, MELI made a significant move late last quarter by expanding free shipping in Brazil, removing shipping costs for buyers on any product above R$19 for all buyers (previously R$79). Additionally, management has also reduced shipping charges for sellers in the R$79-200 range, making the platform even more compelling for both parties, which should drive conversion, retention, and customer satisfaction.
In June, MELI already reaped the results, seeing a substantial uptick in GMV growth and new users after lowering these costs. For reference, in June, items sold in Brazil accelerated to 34%, up from an overall level of 26% in Q2. Furthermore, while Brazil’s GMV growth in Q2 was 29% it accelerated to over 30% in June, showing a great reaction to the reduced costs.
And while the actual impact on the overall Q2 results was zero – it was even a slight headwind to revenue in Q1 – in due time, this significant uptick in users and purchase volume will drive meaningful results, so I am really liking this move by management – it has the scale to pull these levers to further strengthen its moat.
Today, MELI already operates the most extensive and fastest shipping network in LatAm, with none other even coming close to it. The company now operates 30 fulfillment centers across multiple countries, handling 57% of shipments as of Q2, and this is growing. Most importantly, this extensive network gives MELI critical advantages in speed, convenience, capacity, and costs, all of which strengthen its moat.
Meanwhile, MELI’s advertising business is also scaling nicely, with 38% revenue growth in Q2, driven by a new integration with Google Manager for better ad placement and more advertiser convenience.
And finally, the company also continues to scale its 1P (first-party) business nicely, growing 1P GMV to over $1 billion in Q2, up 103% YoY. With its 1P inventory, MELI fills gaps in its assortment and competes on price, making its platform even more compelling to buyers.
Ultimately, management is showing a brilliant understanding of its e-commerce business, executing strongly on all the most important factors, which further strengthens MELI’s commerce moat. Take its low pricing, broad 1P inventory to fill gaps, and robust fulfillment network, which are making MercadoLibre undisruptable, especially when combined with its already largest base of buyers and sellers. Similar to Amazon, it is impossible for peers to disrupt it and compete.
There is nothing like MELI in LatAm – this is the long-term winner in the e-commerce market, and it isn’t even close. Q2 numbers just proved that.
FinTech
Moving our focus to the company’s Fintech operations, here the company reported total revenue growth of 40% YoY to $3 billion, which remains really strong and well ahead of the growth rates we have seen in recent years. MELI has really stepped up on the Fintech front, delivering exceptional growth driven by strategic investments and excellent execution.
Once again, the Q2 numbers look brilliant:
Fintech monthly active users grew 30% to 68 million.
TPV grew 39% to $64 billion.
Total transactions were up 45% YoY.
AUM doubled to $13.8 billion, driven by attractive returns on money held in Mercado Pago, pulling in customer funds in Brazil and Mexico.
Credit portfolio grew 91% YoY to $9.3 billion.
Flat take rate with gains from higher penetration of credits offset by lower financing fees as a percentage of TPV
MELI’s Fintech user base has now doubled over the last 2.5 years to over 68 million, with growth remaining strong in recent quarters, growing 30% in Q2, showing brilliant momentum.
Not only this, but the average number of Fintech products per user in each of its three largest countries is up 50% over this same 2.5 years, as is engagement or payment frequency. So, the company is not just rapidly growing its user base, but through the expansion of its Fintech platform, engagement is also growing strongly, even strengthening.
This is a brilliant long-term indicator of MELI’s success in this market.
Moving to credit, MercadoLibre reported a Net Income Margin After Losses (NIMAL) of 23% in the quarter, down from 31.1% in the same period last year, but broadly stable on a sequential basis. NIMAL is a key profitability metric for the company’s credit business, representing net income generated after accounting for credit losses. The flat quarter-over-quarter performance came despite a growing share of credit cards in the loan book—typically a higher-risk category—which indicates improved underwriting and risk-adjusted profitability. For reference, MELI’s credit card portfolio grew 118% in Q2 to $4 billion, and the company issued 1.5 million cards.
Loan performance also showed encouraging signs, with the 50- to 90-day non-performing loan (NPL) ratio falling below 7% for the first time since MercadoLibre began disclosing that metric. Over half of the Brazilian credit card portfolio is now NIMAL positive, meaning these accounts are generating net income even after accounting for expected credit losses.
Management noted that the stable NIMAL reflects a combination of factors: the reversal of typical first-quarter seasonality, offset by a richer credit card mix and a shift toward higher-quality borrowers. The 15- to 90-day NPL ratio improved to 6.7%, with consistent progress across all major geographies and lending products. These trends reinforce the company’s strategy of scaling its credit business with disciplined risk management and strong underlying asset quality.
As of the end of the quarter, MELI’s total credit portfolio was $9.3 billion, up 37% YoY. Credit cards account for 43% of this.
This all still looks excellent, with MELI combining rapid Fintech growth with a healthy credit portfolio.
Finally, acquiring TPV also grew strongly. For reference, this is the service it provides to merchants to accept payments from buyers, both online and in-person. This business grew TPV 53% YoY in Q2.
This strong growth indicates that MercadoPago, the company’s fintech arm, is steadily gaining market share across all major geographies. Management attributed this momentum to its integrated approach: by offering a suite of financial products through a single point of contact, MercadoPago is becoming an increasingly attractive partner for large merchants, particularly in Argentina.
In Brazil, the company’s Instore segment, which covers physical point-of-sale transactions, recorded its fastest FX-neutral TPV growth since the first quarter of 2023. This performance reflects a deliberate focus on attracting higher-quality TPV—transactions that are more stable, recurring, and less sensitive to fraud or churn.
In Mexico, product innovation is playing a key role in expanding the payments ecosystem. New features now allow merchants to accept bill payments—such as utilities and cable TV—at their physical locations. This not only drives foot traffic to merchants’ stores but also strengthens MercadoPago’s growing cash-in network. Additionally, the rollout of a dynamic currency conversion feature enables merchants to display prices and accept payments in either U.S. dollars or Mexican pesos, offering flexibility to customers and unlocking new monetization channels for the platform.
Together, these initiatives highlight MercadoLibre’s broader strategy of embedding itself deeper into the Latin American retail landscape—both online and offline—by making its financial infrastructure indispensable to merchants of all sizes.
Once again, I have nothing to complain about – MELI’s entire business is firing on all cylinders, driven by secular trends, and it’s allowing it to keep delivering mid-thirties revenue growth, with no signs of slowing down.
Bottom line performance
While MELI delivered a sublime top-line performance, its margins and cash flows were less impressive in Q2. However, let me clarify right away that its quarterly cash flows and margins shouldn’t be viewed in isolation. You see, MELI is still heavily investing in all aspects of its business to maximize its TAM and market position, and these investments vary from quarter to quarter, as do MELI’s costs. Additionally, the company reports in dollars but actually generates revenue in a number of South American currencies. Hence, these cash flows are very prone to currency fluctuations, again leading to often big swings from quarter to quarter.
Then, moving our view to the Q2 results, MELI reported an operating income of $825 million, up 14% YoY, and reflecting an operating income of 12.2%, which is down 210 bps YoY. This margin contraction in Q2 was the result of higher investments, lower shipping costs charged to buyers, a higher mix of lower margin 1P revenue, and higher marketing spend to bring free shipping and new Mercado Pago features to the attention of consumers.
Of course, this operating margin contraction is far from ideal, but we have seen very steady margin expansion from MELI since pre-COVID levels, nonetheless. That we are now seeing margins stay away from 2023 all-time highs over the last two years, as MELI focuses on maximizing its market opportunities, is fine, even preferred.
Moving further down the line, MELI reported a net income of $523 million or an EPS of $10.31, which missed consensus estimates by $1.58. This was down slightly YoY, mainly due to a lower operating margin, higher FX losses, and a normalization of the tax rate compared to last year. For reference, FX losses doubled YoY to $117 million, mainly due to the devaluation of the Argentine Peso in April.
Ultimately, this led to a 280 bps contraction in the net income margin to 7.7%. However, this was mainly driven by a tough YoY comparison and external factors.
Finally, MELI reported a healthy FCF of $454 million, including a 56% higher YoY capex of $287 million and $816 million of net investment in Fintech funding to fuel growth in its credit portfolio. This remains relatively healthy.
Ultimately, MELI ended the quarter in excellent financial health, holding $8 billion in cash and equivalents and a manageable $7.8 billion in total debt, leaving the company in a healthy net cash position with plenty of liquidity.
Yes, the bottom line performance might have fallen short of expectation, but it remains healthy overall and I don’t mind MELI investing in growth initiatives, which clearly continue to pay off.
For reference, since 2023, MELI has consistently delivered an ROIC of above 20%, with a TTM ROIC of 27%. Additionally, its TTM ROE is 44%. Both of these numbers are excellent and show MELI is capable of generating significant returns from its invested capital.
Crucially, both of these numbers are trending up as well, which is precisely what we want to see!
Want more out of your subscription? Even more content like this weekly?
Consider InvestInsights PRO - $7.50/month ($70/annually)
This gets you:
A guaranteed 6+ stock analyses every month (roughly 2-4 paid-exclusive).
Full insight into my own portfolio (14% return CAGR since 2022).
Instant transaction alerts anytime I make a move (Fully transparent).
A complete overview of all my target prices and ratings (online available).
Exclusive access to the PRO subscribers Discord channel.
Outlook & Valuation
Moving the guidance, there isn’t much to discuss, as MELI management doesn’t issue any guidance. So, let’s jump straight into my own projections.
Following the strong Q2 performance, the slightly lower EPS result, underlying trends, and the impact of the expanded free delivery offering in Brazil, I can safely conclude that my revenue estimate for 2025 was likely far too conservative. With growth showing no signs of slowing down, I believe MELI could very well be able to maintain a mid-thirties growth rate in 2025. However, I am going to be slightly more conservative as the global economy is far from being in good shape. Therefore, I am now assuming a FY25 revenue growth of 33.4%, which is still well up from my prior 29% estimate from earlier this year. This includes a neutral impact from the free delivery expansion, as a loss of delivery revenue might offset initial benefits.
Meanwhile, for EPS, I have become somewhat more cautious than before Q2. Not only due to the Q2 miss, but also because the loss of delivery revenue in Brazil will impact the operating margin, and I expect management to maintain a slightly higher rate of investments, which will put pressure on margins. Therefore, I expect a mildly lower margin compared to 2024, leading to EPS growth of roughly 30% compared to a prior estimate of 32%.
Nevertheless, this is still robust growth for 2025!
Looking to next year and its medium-to-long-term outlook, management clearly remains very confident. Here is a quote from its quarterly shareholder letter:
“Above all, continuity in our belief that the best is yet to come.”
And I agree. MELI continues to sit in a prime position to maintain rapid growth for at least another decade, driven by the secular trends that drive its respective markets – LatAm Fintech and e-commerce. MELI continues to be a clear winner in both markets, taking market share, strengthening its competitive position, and leaving the limited competition in its dust, as is reaffirmed by the data, quarter after quarter – MELI’s underlying numbers continue to trend in all the right directions.
Furthermore, by this point, I believe MELI has a very considerable moat and will be extremely hard to disrupt in both e-commerce and fintech. Hence, the company remains by far the best Latin American investment opportunity, with room to grow for decades to come. I mean, I find it hard to find arguments against this bullish long-term thesis.
Looking at its growth prospects through 2028, I expect revenue growth to hold up very well. We’ll likely see growth drop below 30% in 2026 due to size headwinds, but I expect growth to hold up well in the mid-twenties at the very least through 2028, with significant room for upside. Meanwhile, I expect margins to bounce back strongly in 2026, after a small contraction in 2025, and I expect a mid-thirties EPS growth rate to persist through FY28, driven by consistent margin expansion driven by operating leverage. Currently, I am not assuming crazy levels of margin expansion but a gradual increase per year, as I expect the company to keep heavily investing in the business.
All these expectations and assumptions are reflected in the projections below.
As for some slight commentary beyond 2028, as I mentioned earlier, I see plenty of room for MELI to maintain 2028 growth rates well into the next decade, considering its runway of growth ahead. The LatAm digitalization and shift towards digital commerce and fintech still have considerable room to run, and MELI is well-positioned to benefit.
Moving to valuation, it is interesting to point out first that MELI shares are down 10% from when I last covered shares in May at a current price of $2,332. Meanwhile, both Wall Street and I have raised our medium-term estimates, making MELI shares slightly less expensive than before.
At current prices, MELI shares trade at just under 48x this year’s earnings, down from 52x in May. While that multiple is far from cheap, I would argue that paying anything below 50x earnings for a company like MELI remains compelling. We’re talking about a dominant platform with a wide and durable moat, operating in one of the most underpenetrated and fast-growing digital markets in the world, and it’s translating into a very compelling medium-term outlook, with mid-thirties EPS growth and a minimum of mid-twenties revenue growth, which is well worth a premium.
Adjusting for this forward growth, we get a 1.4x PEG, which I would say is attractive, sitting below the consumer discretionary median of 1.6x, even as MELI has a far brighter future.
In my view, these numbers suggest MELI is now trading at a slight discount, with Wall Street failing to recognize its quality, growth runway, and isolation from near-term macro concerns.
For reference, if we assume a FY27 40x exit multiple, which I deem more than fair, I calculate an end-of-2027 target price of $3,546. From a current share price of just over 2,300, this reflects potential annualized returns of 18%, which is excellent.
Ultimately, after last week’s performance, at these levels or any price below $2,500, I believe MELI is an excellent buy with a favorable risk-reward ratio. To me, shares seem slightly discounted right now!
Some wild bonus thoughts – could MELI triple in price by 2032?
To play around a bit, suppose MELI’s growth would drop to the mid-teens after 2028, MELI would deliver $100 billion in revenue by 2032, which I think is a very conservative estimate. Meanwhile, this means EPS should be able to grow at a low-twenties multiple at the very least through 2032, which would translate into an EPS of $250. If we were to then apply a 35x exit multiple, which is easily justified for a business growing at such a rate by then, and as dominant as MELI, we would end up with a 2032 market cap of $442 billion, which is up 3.6x from today’s level.
In other words, even by conservative estimates, MELI could easily become a multi-bagger over the next 6.5 years, and I believe that is by very conservative estimates.
For reference, this represents a 22% annualized return, which is sublime and perfectly highlights the power of long-term compounding growth.
Though let’s be clear, projecting this far in the future is no more than speculation, so don’t award any value to this (although it is mighty appealing and not that crazy to think;)
Cheers!
Great discussion. Thank you.
أنا عندي طلب صغير بس بكرة ةافكر في الموضوع اللي هو فيه وانزل أم الصور راح انزل صور جديدة عشان اشوف الردود ما يحتاج ولا أفكر فيها بس محتاجة مبلغ مالي مع ذهب يوم او يومين سهلة بدون تردد ولا شي واحد راح يطلع من عندي بسبب ظغط الموضوع عليه لأني بصراحة محتاجة جدا جدا ضروري جدا حرام عليكم لي جاي يصير لاو ماكو فلوس بس الله موجود وأقسم بالله إني محتاجة مبلغ وقدره اثنين مليون دولار زايد خمسه كيلو ذهب بس والله العظيم إني محتاجه دعواتكم والله يسهل عليكم جميعا والله يجزأكم الخير كله بسّ دبي اريد اسحب حلالي كله من راسي مالي وذهب ويجي عندي حنا وانا اصرف فيه عندهم اسبوع واحد يتحول على شهر واحد بس كافي صار سنتين عندهم. كافي