MercadoLibre – The Market Is Selling the Future at Yesterday's Price
The market is short-sighted, and that's our opportunity
MercadoLibre is an e-commerce and FinTech leader in LatAm, the largest company in the region by market cap, and it is one of the most promising and compelling long-term investments in public markets today.
The company absolutely dominates its core markets, holding either the #1 or #2 position in e-commerce and fintech across every country where it operates. Its ecosystem — spanning marketplace, payments, lending, and logistics — has been built over decades, creating powerful network effects and switching costs that make its moat exceptionally difficult to replicate, especially in LatAm.
That dominance and strong competitive positioning are compounding at a ferocious pace, with top-line growth running at 40–50% annually, driven by rapid growth in the underlying markets, consistent market share gains, and a rapidly growing advertising engine. This is backed by strong financials, a proven ability to translate scale into profitability and cash flow, and sublime reinvestment metrics, with reinvestment opportunities remaining abundant and the runway long.
You see, what makes it especially compelling in the long term is that these remain extremely underpenetrated markets, with digitalization in LatAm still in its early innings. Latin America’s middle class is expanding, smartphone penetration is rising, and e-commerce penetration, digital payment adoption, and credit card ownership all remain deeply underdeveloped relative to more mature markets, meaning the structural tailwinds powering MELI’s growth are measured not in years but in decades and unlikely to lose momentum.
The company is probably best compared with Amazon in its early stages, and today, it has no equal capable of matching its scale, moat, and sheer growth runway.
Yet, despite these characteristics, its brilliant positioning toward durable secular trends, and the company firing on all cylinders, MELI shares have been among the most notable underperformers over the past 12 months and YTD. Shares are now down 32% over the past 12 months, putting them near their 12-month low and the lowest price since June 2024, despite the company growing at an absolutely mind-blowing pace and delivering strong results quarter after quarter. Subsequently, valuation multiples have contracted significantly, sitting at levels that are extremely hard to justify for such a powerhouse.
It’s that disconnect between price and performance that makes MELI especially compelling today for those able to look through the near-term factors that have put shares out of favor with investors.
Last week, MELI released its Q1 financial results, and as I do every quarter, I want to break down the numbers and go over developments today to get a good sense of how this business is doing under the hood before updating my thesis and financial framework.
Let’s break it down.
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Financial & Performance Review
MercadoLibre released its Q1 financial results last Thursday and delivered quite sensational numbers, as the largest company in LatAm managed to deliver top-line growth most start-ups would be jealous of, except it does it from a huge base. This giant simply continues to defy the rule of large numbers, accelerating growth as it grows larger, which should tell you all you need to know about the growth opportunity ahead.
However, that growth came with a trade-off: MELI is deliberately choosing to aggressively invest (more than expected) to drive growth and capture opportunities in the LatAm e-commerce and FinTech markets, but this comes at the cost of near-term profitability, resulting in a Q1 bottom-line miss and margin contraction. And that trade-off (especially with management indicating it is here to stay) wasn’t particularly well received by investors, with MELI shares selling off by 13% in the following trading session.
So, plenty to go over. Let’s break down the numbers!
Starting at the top, MELI reported total Q1 revenue of $8.85 billion, beating the consensus by a sizeable $530 million and reflecting a blistering 49% YoY growth rate, the strongest growth rate in nearly 4 years and accelerating strongly from prior quarters. That is a mega performance by MELI –- this business has been around for over two decades and is approaching a $40 billion revenue run-rate, yet it just delivered nearly 50% YoY growth, and that isn’t a standout with Q1 marking the 29th consecutive quarter of 30%+ growth.
That is fairly incredible, and Q1 growth once again well surpassed my expectations, driven by a strong performance in both commerce and fintech.
Looking at the performance by region, it continues to see broad-based strength. Brazil – its largest region by revenue – grew by a strong 55% in Q1, accelerating for a fifth quarter in a row. Mexico was up 62% YoY, accelerating for the fourth quarter in a row, and Argentina was up 23% YoY, with growth now stabilizing after a period of extreme inflation.
Let’s then break down revenue by segment, starting with Commerce, where MELI delivered another sensational quarter. Commerce revenue was up 47% YoY, accelerating from prior quarters as platform investments pay off.
Most importantly, Q1 GMV (Gross Merchandise Volume), or the total value of items sold in the quarter, grew 42% YoY to $19 billion, the strongest growth in over 3 years, and also accelerated strongly from recent quarters.
Driving this growth was a healthy inflow of new active buyers, hitting 84 million, up 25% YoY, and growth in buying frequency, as items sold per buyer were up 16% YoY, although upside here remains huge. For reference, the average American makes 41 online purchases per year, whereas the average Latin American makes just 7, and the average MELI buyer just 11.
E-commerce is growing in LatAm, but adoption remains well below Western standards, leaving incredible upside for MELI over the next decade through simple adoption of online shopping, which is practically inevitable.
Ultimately, this growth in users and frequency led to a 47% YoY increase in total items sold on the platform, accelerating from 43% in Q4 and 28% in Q3. This was also supported by strong growth in listings, up 62% YoY.
The commerce performance in Brazil was especially impressive, helped by MELI’s decision to lower the free shipping threshold earlier in 2025, which is driving clear market share gains and rapid growth. GMV in Brazil was up 54% YoY, accelerating for a fifth quarter in a row. This was supported by 56% growth in items sold, up from 45% in Q4’25, 42% in Q3’25, and 26% in Q2’25. Furthermore, unique buyers were up 32% YoY, the fastest pace in five years, and engagement is improving, with daily active users outgrowing monthly active users.
Meanwhile, growth in Mexico also remained strong, with 34% growth in items sold driving 48% GMV growth, despite a tax reform headwind that made it more challenging for small and medium-sized sellers, prompting them to raise prices at a time when consumers are already exercising greater caution. Furthermore, growth in Argentina was solid, with GMV up 5% YoY (41% CC), driven by 35% YoY growth in items sold.
Ultimately, MELI continues to outpace and deliver market share gains in each of its largest regions, which is brilliant.
Then there are two more factors worth highlighting in commerce.
First is MELI’s 1P business. While MELI is a 3P-first marketplace, it also has a rapidly growing 1P business, now generating $5 billion in annual GMV and growing 69% YoY. The most important role of this 1P business is to fill assortment gaps and improve price competitiveness, thereby making the marketplace more attractive overall, contributing to higher traffic, conversion, and retention. Electronics are the best highlight of this strategy’s effectiveness. This was historically a very underrepresented market, but through its 1P business, MELI’s smartphone market share in Brazil has grown from 12% three years ago to nearly 40% today, making it the market leader.
This is the Amazon playbook, and MELI is executing it well.
Second up, there is advertising, which falls under the commerce umbrella. This continues to be a high-growth opportunity, with traditional advertising channels still accounting for over half of the market in LatAm, compared to 25% in the U.S. Those budgets will inevitably migrate to digital, and MELI is one of the best platforms to benefit from this shift. MELI has one of the largest platforms for advertisers by audience, rich first-party data, and strong performance attribution. And this is already translating into rapid growth today, with MELI growing at 4x the market in 2025 and 73% YoY in Q1. This was driven by technology investments improving targeting and measurement.
In the long term, I expect advertising to become an increasingly large, high-margin part of MELI and a strong driver of growth. Retail media currently represents just 8% of LatAm ad spend and is poised to grow at a 28% CAGR through 2028, roughly 2.4x faster than the broader digital advertising market. By 2028, retail media in Latin America could reach $5.45 billion, with estimates pointing toward $10 billion by 2032. Brazil and Mexico — MELI’s two largest markets — are projected to lead global retail media growth, with spending growth of 42% and 40%, respectively.
And given MELI’s position as by far the most attractive platform in the region for advertisers, with the broadest reach and first-party data that no external platform can replicate, I expect it to benefit massively.
The Amazon analogy is worth dwelling on. Amazon’s advertising business went from a rounding error to one of the most profitable divisions in corporate America, now generating nearly $60 billion annually at sky-high margins. MELI is earlier on that same curve, in a faster-growing market, with a stronger competitive position and less competition. The promise is undeniable.
Overall, the commerce performance in Q1 was exceptional, and execution was strong. Buyer inflow was strong and accelerating, items sold was strong and accelerating, and GMV growth was strong and accelerating, with investments in recent years showing clear payoff and MELI positioning itself as the e-commerce winner in LatAm, continuously taking market share in all regions.
And the promise remains huge, given low commerce penetration in the region and a huge advertising opportunity. Honestly, I see little reason for growth in commerce to fall below 30% anytime soon. How can you not be bullish?
On that note, let’s move to Fintech.
Q1 TPV (Total Payment Volume) grew 50% YoY to $87.2 billion, accelerating for a fourth quarter in a row and 5 percentage points from Q4 to the strongest growth in three years amid brilliant business momentum, with MELI continuing to take market share in all regions.
Monthly active users hit 83 million, up 29% YoY, stepping up from 27% in Q4 – MELI has added nearly 20 million users in the last year alone, growing rapidly. Meanwhile, AUM actually hit $20 billion, up 77% YoY, growing at more than twice the pace of MAUs, reflecting deeper engagement with users holding more money in their Mercado Pago accounts.
Furthermore, MELI delivered a very strong credit performance in Q1, and credit remains one of its largest fintech opportunities, given that credit penetration across Latin America remains underdeveloped.
Today, fewer than 20% of Mexicans hold a credit card, more than half of the population relies on informal sources of credit, and 85% uses cash most frequently for purchases under $30. In Argentina, more than 80% of adults have a bank account, but credit to individuals as a percentage of GDP is just a fifth of Brazil’s level. And even in Brazil, where penetration is higher, traditional banks fail to properly serve consumers, resulting in huge NPS deficits – MELI sees an NPS 30 percentage points higher on average than traditional banks in Brazil, reflecting a much better service than the traditional financial system.
Meanwhile, credit is incredibly important to MELI, which is exactly why it has been an investment priority. You see, credit is what generates the lion’s share of revenue in financial services and what moves MELI from a fintech app to a fully-fledged digital bank, deepening customer relationships and significantly increasing potential revenue per user. Besides, given how scarce, expensive, and gatekept credit remains in LatAm, this presents MELI with a huge opportunity to solidify itself as a top banking option in the region.
In Q1, MELI issued 2.7 million cards and grew the credit card portfolio by 104% to $6.6 billion. The total credit portfolio, including merchant and consumer loans, hit $14.6 billion, up 87% YoY, with MELI registering the largest-ever quarterly inflow, driving rapid growth.
Meanwhile, asset quality remained solid. You see, MELI’s key advantage in credit lies in its underwriting edge. Rather than acquiring cold customers, MELI lends to people it already knows from its commerce platform. Their transaction history, repayment behavior, purchase frequency, and wallet activity all feed into its proprietary credit models, making the underwriting decisions increasingly accurate and improving asset quality. The result is that MELI can extend credit to underbanked populations that traditional lenders would reject, without taking on the blind risk that would normally accompany that.
In Q1, the 15–90-day NPL ratio of 8.0% was broadly stable YoY, reflecting MELI’s strong underwriting despite rising delinquency in Argentina.
The one number that was slightly light, though expected, was NIMAL (Net Interest Margin After Losses) or the net interest income MELI earns on its loan portfolio after deducting credit losses — essentially, what’s left over after the cost of defaults is stripped out. NIMAL was 17.8% in Q1, down from 22.7% a year earlier and a notable drop from recent quarters.
However, this does not come as a surprise. This simply reflects a shift in mix as MELI rapidly scales its lower-spread credit card book, which mechanically compresses the blended NIMAL. So, it does not reflect deteriorating credit quality. It also includes some higher provisions in Brazil, but nothing alarming.
Nonetheless, 17.8% remains a healthy number – traditional banks typically operate on NIMs of 3–5%, though that’s not a perfectly apples-to-apples comparison.
Finally, MELI reported acquiring TPV growth of 41% in Q1, with a strong and broadly stable performance in Brazil (26%), Mexico (46%), Argentina (55%), and Chile (69%).
Across the fintech portfolio, the take rate was stable YoY, with credit revenue growth continuing to offset lower take rates in acquiring. This allowed MELI to deliver 51% fintech revenue growth in Q1, making it one of the fastest-growing fintech businesses in the region at considerable scale.
And given the current momentum and the underlying secular drivers, I do not anticipate a significant slowdown in growth here either, especially as MELI ramps up its credit investment. This will likely continue to outpace commerce.
Overall, MELI simply delivered astonishing top-line growth in Q1, driven by strong execution and accelerating growth in both segments.
However, that brings me to the P&L, which, as alluded to earlier, was less impressive due to increased investments.
MELI reported a gross margin of 43.7%, down 300 bps YoY, reflecting a lower free shipping threshold in Brazil and rapid growth in 1P sales, both of which led to a strong 58% YoY increase in cost of sales, outpacing revenue growth.
On a positive note, gross margin dilution was partially offset by a reduction in unit shipping costs, down 17% YoY in Brazil, accelerating from an 11% decline in Q4, which is excellent given the lower threshold. The decline is driven by improvements in fulfillment technology and operations, enabling MELI to absorb increased volume while maximizing efficiency. Management is confident that unit shipping costs will continue to fall over time as volume grows, which should be a strong lever for gross margin expansion over time
Further down the line, MELI reported an operating income of $611 million, down 20% YoY, with the operating margin contracting by 600 bps YoY to 6.9%, the lowest operating margin since 2022 and down significantly from what MELI was able to deliver in recent years, which is a tough pill to swallow.
However, this contraction is not a surprise, as management has clearly communicated that it is prioritizing long-term investments over short-term profitability. In other words, management is ramping up its rate of investment to capture long-term opportunities and strengthen its competitive position, but this comes at the cost of near-term profits. This includes investments in credit, 1P, and CBT (Cross-Border Trade), as well as free shipping and fulfillment.
Honestly, I am all for this deliberate choice to sacrifice near-term margins. Ultimately, MELI operates in a vast, underbanked region where online shopping is in its very early stages, leaving ample opportunity to position itself as the winner in both markets and to enter new markets that remain in the very early stages of adoption. In other words, the room for investment is huge.
And when the room for investment is this large, the worst thing a company can do is optimize prematurely for near-term profitability. The window to build dominance in e-commerce, fintech, and credit across Latin America will not stay open forever, with competitors watching and capital moving into the region – market share won by moving boldly today is structurally harder to dislodge tomorrow. MELI knows this better than anyone. It built its e-commerce moat through years of heavy investment in logistics and fulfillment that looked expensive at the time and looks obvious in hindsight. It is now running the exact same playbook in credit, and the early cohort data suggests it is working.
The margin compression is real, but it is the right trade. A company that generates 49% top-line growth, holds dominant positions across two of the most underpenetrated markets in the world, and has a proven track record of turning investment into a durable competitive advantage deserves the benefit of the doubt when it chooses growth over short-term earnings.
Patient investors who understood this about Amazon in 2012 were rewarded generously. The setup here is remarkably similar — earlier market, stronger competitive position, and a management team that has consistently done exactly what it said it would do.
This trade-off only makes sense, and I am here for it. If anything, it grows my confidence in MELI’s long-term growth trajectory.
And let’s not forget that MELI has proven in recent years that it can deliver profitable growth and can rapidly expand margins once it chooses to. This can be a highly profitable business, but profits aren’t the priority today; maximizing the long-term opportunity is. That is critical to understand.
Looking at costs, MELI reported sales & marketing expenses up 1 percentage point of revenue, driven by the scaling of its affiliate channel across the region. Positively, this was partially offset by a 60 bps drop in G&A as a percentage of revenue, with rapid growth creating some operating leverage. Product development costs were also down YoY, falling from 9.3% last year to 7.9% in Q1 2026, reflecting a deceleration in headcount growth, aided by tangible AI results in engineering.
Management expects such AI-driven gains to create operating leverage throughout 2026, but it deliberately reinvests these productivity gains immediately into the ramp of its third-party AI models, prioritizing company-wide adoption over cost optimization at this stage. This should further benefit margins at a later stage.
So far, costs look fairly good, yet the biggest drag remains to be addressed: the provision for doubtful accounts, which creates a 390 bps margin headwind and, combined with the 300 bps drop in gross margin, drove the entire 600 bps YoY decline in operating margin. Two-thirds of this compression was due to rapid growth in its credit portfolio, which far outpaced revenue – MELI’s investments in credit are currently dragging down margins.
Ultimately, MELI reported net income of $417 million, down 16% YoY, driven by lower operating income and partially offset by a small $6 million FX gain, resulting in a net income margin of 4.7%. This translates into a GAAP EPS of $8.23, which did beat the consensus by $0.03.
Finally, Q1 FCF turned negative at -$56 million, reflecting seasonality and higher credit investments, which were a $2 billion drag on FCF. CapEx was roughly flat YoY at $271 million.
Despite negative FCF, MELI did maintain a solid balance sheet, ending the quarter with cash and short-term investments of $5.7 billion, down slightly from the end of 2025, and total debt of $12.3 billion, up $1 billion from the end of 2025. This leaves it with net debt of $5.75 billion, which is absolutely manageable.
On that note, let’s get to the outlook.
Outlook & Valuation
