MercadoLibre – Delivers A brilliant Q3, But How Real is the Amazon Threat?
Exceptional execution, accelerating growth, and a widening moat — why MercadoLibre remains my highest-conviction long-term compounder despite rising competition.
Is MercadoLibre one of the most compelling long-term buy-and-hold investments out there?
I would argue so, which is why I have made it the #1 position in my portfolio.
This LatAm giant offers a unique combination of scale, growth, and profitability that’s almost impossible to replicate. MercadoLibre isn’t just the best way to gain exposure to Latin America’s fast-growing economies; it’s the purest play on the continent’s digital transformation. Through its two core engines – e-commerce and fintech – it’s riding two of the most powerful secular trends in emerging markets: the rapid adoption of online retail and the even faster rise of digital financial services.
Notably, MercadoLibre doesn’t merely participate in these trends; it dominates them. It runs Latin America’s leading e-commerce platform, serving over 100 million unique buyers and commanding roughly 22% of regional GMV. At the same time, its Mercado Pago ecosystem holds the #1 fintech position in Mexico, Chile, and Argentina, and the #2 spot in Brazil.
Meanwhile, with revenue and EPS compounding at 30–40% annually, returns on equity of 34%, and ROIC of 24%, MELI has proven it can grow at scale while maintaining outstanding reinvestment discipline. And supported by its durable secular drivers - most notably the ongoing digital revolution in LatAm - it still has an insanely long runway of growth ahead, making it, in my view, one of the most compelling compounders of the next decade or two.
Last week, MercadoLibre (MELI) released its third-quarter earnings report, once again impressing – this quarter was nothing short of exceptional. Shares gained 3% in the following trading session, as underlying operational numbers remained brilliant and MELI delivered exceptional, accelerating growth, easily making up for somewhat weaker margins.
Yet, even as shares gained last week and have rebounded 17% from a mid-October low, MELI shares are still far from expensive. This is primarily the result of some panic selling in early October, following the news that Amazon was ramping up its efforts in Brazil, one of MELI’s key markets, which raised concerns about increased competition.
So, that leaves me with two big questions to answer today:
How good were these Q3 results, and how do these alter my long-term thesis and financial projections?
How real is this Amazon threat?
In today’s analysis, I will take you through the Q3 results in detail, assessing performance and putting the numbers into a bit more perspective to update my financial projections and fair value estimate. Additionally, I will discuss the Amazon threat in detail.
Without further ado, let’s delve in!
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A Q3 Review
Last week, MercadoLibre released its third-quarter results, which garnered investor appreciation, with shares gaining 2-3% in the following trading session. However, interestingly, it wasn’t the headline numbers that impressed; you had to look a little deeper, as it was the underlying operational results that were nothing short of exceptional, only further strengthening my conviction in the company!
Let’s go over all the numbers, and let me show you why I was extremely pleased with these results, despite a sizeable EPS miss.
Starting at the top, MELI reported a total Q3 revenue of $7.4 billion, which beat consensus estimates by $200 million, as MELI delivered sublime, accelerating growth of 39% YoY. This is up five percentage points from the prior quarter, the best growth in over a year, and it marks the 27th consecutive quarter of 30%+ growth (almost seven straight years that is), despite its considerable size and lapping mid-thirties growth last year.
MELI simply continues to defy any size headwinds, making the most of the opportunity at hand, gaining market share across the board, and fully benefiting from the LatAm digital transition.
The primary driver of this acceleration was management’s investments paying off. The company saw brilliant momentum in both its e-commerce and FinTech operations, with heavy FinTech investments showing good results, and its recent changes to e-commerce shipping charges leading to a significant inflow of sellers, solid growth in buyers, and excellent growth in GMV and items sold.
In simple terms, the company lowered prices for both sellers and buyers to use its network. While this led to considerably lower shipping revenue in the quarter, it was easily offset by the accelerating momentum generated by these changes – more merchants, more items sold. But I’ll get into more detail on this later!
By region, this led to a brilliant growth in both Brazil and Mexico. In USD (the most representative growth metric), revenue from Brazil grew by 38% in Q3, accelerating meaningfully from the prior two quarters, despite lapping 41% growth in the same quarter last year. Meanwhile, revenue in Mexico grew by an even more impressive 44% YoY, also accelerating strongly, despite lapping 44% growth in the same quarter last year.
Again, this is extremely impressive at this scale.
Let’s now break down revenue by operation, starting with e-commerce, which I was most impressed by!
E-commerce
MELI reported GMV (Gross Merchandise Value) growth of 28% YoY to $16.5 billion, highlighting a further acceleration in momentum, as shown below. Growth accelerated by seven percentage points from Q2 in USD.
Additionally, MELI recorded 26% growth in unique buyers, which was the best growth in over a year, and this has remained in the low-twenties to mid-twenties range. Items sold grew by 39% YoY, accelerating from 28% in Q1 and 31% in Q2. And finally, unique items sold per buyer also continues to grow, hitting a new high in Q3, up 11% YoY.
In other words, MELI is experiencing excellent growth in both user acquisitions and user engagement, with both metrics accelerating from prior quarters.
The primary catalyst of this acceleration in Q3 was the earlier-mentioned change in logistics charges. In Brazil, its #1 e-commerce market, MELI lowered its free shipping threshold from R$79 to R$19, resulting in a considerable increase in all marketplace metrics.
For one, the number of merchants making sales in the R$19–79 range grew by double digits in Q3, and it led to a 3x YoY increase in new listings in this price range. So, simply put, as MELI made shipping for this price category free, it saw a massive increase in listings and a significant influx of new sellers, which bodes well for its entire platform.
Subsequently, this also led to 29% growth in unique buyers, its highest quarterly addition since Q1 2021 in Brazil, surpassing the pandemic peak, driven by a more dynamic marketplace and an expanding range of buyer choices. Additionally, the number of website visits “accelerated substantially,” conversion reached an all-time high, retention hit record levels, and items sold accelerated to 42% YoY.
In other words, MELI saw excellent momentum on its e-commerce platform in Brazil!
In the words of management, “put simply, the lower free shipping threshold is attracting more buyers and enabling sellers to turn that traffic into higher sales. This, in turn, creates a powerful flywheel of supply and demand.”
Unsurprisingly, MELI gained market share last quarter and hit its highest NPS level ever (NPS refers to customer satisfaction).
Ultimately, this led to a 36% growth in GMV in Brazil, which was the best growth in over a year by a mile, as visible below.
The same can be said for Mexico, where MELI reported a 36% growth in GMV and a 42% growth in items sold year-over-year, both of which accelerated strongly.
Finally, in Argentina, growth normalized due to easing inflation and a challenging macroeconomic environment. Still, MELI added over 1 million new buyers in the quarter for the third consecutive quarter, demonstrating healthy growth despite harsh macroeconomic conditions. For reference, items sold were still up 34% YoY in Argentina, which is healthy!
Another notable development is that MELI continues to see unit shipping costs trend downward as its platform and logistics expand. In Mexico, unit shipping costs hit a new low, down 12% YoY, and in Brazil, unit shipping costs fell 8% YoY, which should bode well for long-term profitability.
Everything taken together, MELI saw e-commerce revenue growth accelerate to 33% YoY, despite lapping 48% growth one year ago. Contributing to this was a 56% growth in advertising revenue, where MELI continues to deliver healthy progress, although it remains a relatively small percentage of revenue.
All in all, the e-commerce performance was sublime. Honestly, MELI delivered on every single metric, delivering accelerating growth across the board and continuing to take market share - we can’t wish for much more.
FinTech
MELI performed similarly well in FinTech, delivering rapid growth.
It reported TPV (Total Payment Volume) growth of 41% YoY to $71.2 billion, accelerating two percentage points from Q2. This was driven by 37% growth in total transactions and a slightly higher transaction value, but mainly driven by user growth of 29% YoY, as Mercado Pago continues to gain market share in LatAm, holding the #1 or #2 position in all its largest regions.
Ultimately, this growth in its FinTech operations led to 39% growth in FinTech revenue, marking the best growth in over a year.
MercadoLibre is gradually becoming a true financial powerhouse, as recent investments are yielding significant returns. MELI aims to become the largest digital bank in Latin America and is well on its way, outperforming its peers and consistently capturing market share.
MELI continues to see improving adoption of its branded credit cards, with off-platform transactions now accounting for over 50% of total payment volume (TPV). This shows that Mercado Pago’s cards are no longer just a tool for on-platform spending but are gaining traction across the broader financial ecosystem. It’s a key milestone, demonstrating that MELI is evolving from a commerce-linked payments processor into a genuine, standalone FinTech powerhouse in Latin America.
The company now serves 27 million credit users, with its credit portfolio expanding 83% year over year to reach $11 billion. Crucially, this rapid growth has not come at the expense of asset quality either.
Net interest margins after losses (NIMAL) compressed sequentially by two points to 21%, primarily due to higher funding costs in Argentina. However, excluding this effect, the compression would have been less than one point. Furthermore, the 15–90 day non-performing loan ratio remained stable at 6.8%, underlining healthy credit quality.
This balance between expansion and prudence reflects the increasing accuracy of MELI’s underwriting models and the advantages of leveraging its vast commerce ecosystem for credit assessment.
In Brazil, MELI issued a record number of credit cards during the quarter, while first-payment defaults hit another record low. Roughly half of the country’s credit card portfolio is already profitable. Additionally, Mexico is also seeing continued improvement in asset performance and cohort profitability.
Meanwhile, MELI’s Acquiring business, the backbone of its merchant payments network, keeps firing on all cylinders. FX-neutral acquiring TPV grew 28% in Brazil, accelerating sequentially across in-store and online channels, while Mexico surged 53% as the company passed 1 million active POS devices. Each new merchant using these terminals can also tap into MELI’s credit lines and digital banking tools, helping to deepen financial inclusion. Finally, Argentina remains a mixed story given weaker consumption, but even there, online payments are holding up well thanks to product innovation.
Altogether, MELI’s FinTech operations are scaling impressively, with accelerating growth in TPV, transactions, and users. Additionally, off-platform payments, credit, and acquiring are all compounding at strong double-digit rates. The business is maturing from a payments enabler into a full-fledged digital bank with a widening competitive moat.
As a shareholder, I am pleased with this performance. MELI continues to surpass expectations in both FinTech and e-commerce, taking market share across the board.
MELI is executing at a very high level!
Bottom-line performance review
Moving to the bottom-line results, the numbers turn into a bit of a mixed bag… in some ways, although those less impressive numbers do need to be put into perspective.
For Q3, MELI reported an operating income of $724 million, up 30% YoY, and growing more slowly than revenue due to some pressure on margins. The operating margin dropped to 9.8%, down 70 bps YoY.
Driving this margin contraction is a 46% increase in the cost of revenue and a 32% growth in operating expenses, reflecting higher strategic investments in areas such as free shipping, ramping up 1P, investing in social commerce, and expanding the credit business. Notably, some of these higher costs were offset by a decrease in G&A expenses, resulting from tight cost management, but the result was still a moderate decline in margins.
Crucially, these higher costs don’t come as a surprise. MELI management had clearly indicated before that it is heavily investing in its business to maximize the opportunity at hand – we shouldn’t forget that, even after decades, MELI is still in its early stages and remains a high-growth business. And honestly, as long as it continues to deliver 30%+ growth and market share gains across the board, I don’t think some margin pressure is anything to be concerned about.
Additionally, these investments are clearly paying off, and MELI maintains excellent reinvestment metrics, with a TTM ROIC of 27% and ROE of 44%.
As management put it:
“[Some margin pressure is] a reasonable trade-off for investments that expand our addressable markets, seed future growth, strengthen our competitive position, and drive long-term scale.”
If you know what you are buying into as a shareholder, this won’t concern you in the slightest. If anything, I am glad to see management continues to invest in the opportunities it sees to become an even more dominant platform in LatAm.
With e-commerce penetration in LatAm still in the mid-teens, and MELI capturing only a single-digit market share in most FinTech verticals, the opportunity ahead for MELI remains massive. Here is what management said during the earnings call:
“This conviction drives our approach to investments aimed at continuing to improve our value proposition for individuals and merchants in commerce and fintech. While these investments put short term pressure on our margins, other investments, such as the credit card in Brazil, begin to mature and their margin pressure eases. The balance between new and maturing investments will vary over time, but the common theme across all of them is their long-term nature, and our conviction that they will drive sustainable engagement, growth, and scale”
Really, some near-term pressure on margins is fine!
Moving further down the line, MELI reported a net income of $421 million, reflecting a 5.7% margin, down 180 basis points year-over-year, driven by a lower operating margin, higher foreign exchange losses, and a slightly higher tax rate.
This translated into an EPS of $8.32, which missed consensus estimates by $0.98. However, it’s worth noting that MELI doesn’t issue guidance, resulting in EPS often being significantly under or above the consensus. So, don’t award too much value to this – it’s the underlying numbers that matter.
Finally, MELI generated $206 million in FCF, reflecting a minimal FCF margin of 3%, which is the result of an intense pace of investment. For reference, CapEx was up 60% YoY to $357 million, and MELI invested $1.7 billion in the growth of its credit portfolio. This put pressure on cash flows, which at least remained positive.
Additionally, MELI maintains a fairly healthy balance sheet, with available cash of $5.3 billion against $9.9 billion in debt, resulting in a net debt of $4.6 billion, while also maintaining ample liquidity.
However, one negative worth noting is that debt has been accumulating in recent quarters, amid a high level of investment. Total debt has increased from $6.8 billion in the same quarter last year, representing a nearly 50% growth over the past 12 months. This has elevated leverage (net debt/adjusted EBITDA TTM) to 1.19x, up from 0.73x in the same quarter last year, primarily due to funding for Mercado Pago.
This is something to keep an eye on, especially as I expect this investment cycle to persist for at least a few more years, considering the opportunity MELI is trying to capture. At some point, MELI will need to demonstrate that it can generate sufficient cash and improve its balance sheet health, avoiding overleverage.
Apart from that, this was a sublime quarter, with MELI truly firing on all cylinders.
The Amazon Threat – How real is it?
When Amazon announced in early October that it would waive all logistics and take-rate fees for sellers in Brazil during the holiday season, the market’s reaction was swift and brutal. MercadoLibre’s stock dropped nearly 7% in a day, as investors worried this marked the beginning of a price and logistics war in MELI’s most important market.
The move was indeed one of Amazon’s most aggressive yet in Latin America. For a limited time, sellers could ship, store, and deliver goods using “Fulfillment by Amazon” (FBA) in Brazil completely free. Even take-rates on new FBA orders were waived. Given that Brazil accounts for more than half of MercadoLibre’s e-commerce revenue and is the crown jewel of its regional empire, it’s understandable that investors saw this as a direct assault on MELI’s moat.
Crucially, mazon’s strategy targets the heart of MercadoLibre’s competitive edge: its logistics advantage. Over the past decade, MELI has established the largest and most efficient fulfillment network in Latin America, enabling next-day and even same-day delivery in key urban centers. That network, named Mercado Envios, has been one of the hardest moats to replicate.
Yet, by temporarily removing logistics costs, Amazon is effectively neutralizing MELI’s cost advantage for sellers, at least for the time being. The move reduces switching costs, encourages sellers to experiment with Amazon’s platform, and could accelerate competitor entry in Brazil’s rapidly growing e-commerce market.
For MercadoLibre, this translates into a clear challenge: defend market share without sacrificing profitability. If it’s forced to match Amazon’s incentives through lower fees, bigger seller subsidies, or heavier logistics investment, margins will come under pressure.
Indeed, I wouldn’t say the biggest risk here is that Amazon will start capturing a lot more market share – MELI is too well-positioned and well-established to make that happen – but it might force MELI to fight fire with fire to protect its position, meaning a price/logistics war that could pressure margins, as we saw in Q3.
Yet, context matters. Brazil is the only Latin American country where Amazon has a truly competitive logistics footprint. Across the rest of the region, MercadoLibre’s network scale, brand recognition, and fintech ecosystem remain unmatched. And while Amazon’s move generated headlines, MercadoLibre responded in a way that underscored its resilience: by continuing to grow its user base and signing a major new partnership with Casas Bahia, one of Brazil’s largest electronics and appliance retailers. The deal expands MELI’s presence in high-ticket categories, precisely the kind of segments Amazon is targeting, and strengthens its grip on the Brazilian e-commerce market.
It’s also worth noting that MercadoLibre isn’t facing pressure from Amazon alone. Chinese entrants like Temu and Shein are flooding the region with ultra-cheap goods, forcing locals to compete on both price and speed.
So, how real is the Amazon threat?
It’s real, but contained. MercadoLibre’s competitive cushion in Brazil is being tested faster than before, but its integrated ecosystem, scale, and data-driven execution still give it a clear edge.
Has MELI faced an impact so far? Well, it has just delivered its largest influx of buyers and sellers in Brazil since early 2021, surpassing even the COVID-driven highs and subsequently accelerating the number of items sold and GMV growth.
So, please, don’t overestimate this threat. Amazon’s push is interesting, but it doesn’t alter the MELI investment thesis, apart from possibly some margin caution in my medium-term financial estimates, as I do anticipate MELI will continue to invest in its logistics network and gradually lower shipping charges to strengthen its grip on the market.
On that note, let’s get to the outlook, valuation, and fair value estimate!
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Outlook & Valuation
That then brings us to the outlook. And, as always, MELI didn’t provide any guidance, so let’s jump straight into projections.
