Latin America's E-Commerce Beast MercadoLibre (MELI) Roars Again

Business Insider

3 days ago

MercadoLibre (MELI) just delivered another blockbuster quarter, with Q2 revenue surging 34% year-over-year to $6.8 billion, powered by Latin America's red-hot e-commerce and fintech boom. Rising internet penetration, a growing middle class, and favorable macro tailwinds in Brazil and Argentina are fueling the momentum.
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It would seem that this particular Latin American e-commerce giant is not just a candle in the wind. Instead, the stock continues to deliver where so many have failed. Yet despite the good operational cheer, MELI stock has been hammered over the past five trading sessions.
Even with heavier marketing and logistics spend pressuring margins, operating income hit a record $825 million. Given the growth trajectory and a valuation that still looks compelling, I remain stoutly Bullish with a view of adding to my position, even as some skittish investors seem to be going the other way.
Relentless Revenue Growth Fueled by E-Commerce and Fintech
MercadoLibre's report last week was a masterclass in growth, with net revenues climbing 34% to $6.8 billion and maintaining a pace of over 30% that the company hasn't fallen below since 2019. The e-commerce segment led the charge, generating $3.8 billion (up 16.3% year-over-year), driven by a 21% jump in gross merchandise volume (GMV) to $15.3 billion and 550.1 million items sold, with Brazil, Argentina, and Mexico posting 26%, 46%, and 36% increases in items sold, respectively. Smart moves like lowering Brazil's free shipping threshold boosted user engagement and GMV.
However, MELI missed all-important EPS expectations of $11.93 and reported $10.31, lower even than last year's EPS of $10.48.
On the positive side, fintech arm Mercado Pago shone brighter, with net revenues up 12% to $3 billion and total payment volume surging 39.4% to $64.6 billion. The credit portfolio exploded 91% to $9.3 billion, which includes a 118% rise in credit card balances to $4 billion, as 68 million monthly active users flocked to the platform. Advertising also chipped in, growing 38% year-over-year, primarily thanks to AI-driven ad tech and integration with Google Ad Manager.
This whole growth is a story of MercadoLibre cementing itself as Latin America's go-to platform. From small merchants in Argentina listing more low-cost items to Brazilian shoppers snapping up everything from electronics to daily essentials, MELI's ecosystem is thriving. The company's ability to scale across 18 countries while navigating tricky regional economics is nothing short of remarkable.
Margin Pressures Exist, but Profitability Still Soars
Now, not everything was smooth sailing. MercadoLibre faced margin headwinds between April and June, with sales and marketing costs (excluding provisions) spiking nearly 50% in U.S. dollar terms, shaving 1 percentage point off margins. High-profile campaigns across Brazil, Argentina, and Mexico, plus increased paid advertising, drove the surge as MELI focused on user growth.
The shift to lower average selling price (ASP) items in Brazil, while boosting volume, also compressed margins, as these products yield less profit per sale than big-ticket items. Then, the credit card business in Mexico isn't yet at breakeven on net interest margin after losses (NIMAL), adding another layer of pressure.
But despite these challenges, profitability was a standout. Operating income hit a record $825 million, and net income reached $523 million, reflecting prudent cost management elsewhere. The fintech segment's asset quality improved, with 50- to 90-day non-performing loans dropping below 7% for the first time, signaling tighter credit controls. I think MELI's ability to grow profits while investing heavily in logistics and marketing shows its talent for balancing short-term costs with long-term gains.
The market's reaction has been overblown and, in my view, headed the wrong way.
Valuation-wise, at 4.3x this year's expected sales, I believe that MELI is a steal considering its momentum. Its P/E of 50x might seem a bit more lofty, but with revenue growth clocking in at 30%+ and net income projected to outpace that due to economies of scale, MELI's efficiency is kicking into high gear. Lower logistics costs per unit and streamlined operations are set to boost margins over time. I'd bet EPS can grow at a 30-35% CAGR over the next five years, and Wall Street's estimates (some even topping 35% for certain years) back this up.
For this reason, MELI is likely still relatively cheap, especially when you consider its unmatched foothold in Latin America, where competitors like TikTok Shop and Temu are just nibbling at the edges. This is a company built for the long haul, with a moat that's only getting wider.
What is the Price Target for MELI in 2025?
There are 17 analysts offering price targets on MELI stock via TipRanks, with an overwhelmingly bullish consensus. Today, the stock carries a Strong Buy consensus rating based on 15 Buy and two Hold ratings over the past three months. No analyst rates the stock a sell. MELI's average stock price target of $2,895.88 implies more than 26% upside over the next twelve months.
MELI Turns EPS Miss Into a Buying Opportunity
MercadoLibre's latest results reaffirm its position as Latin America's e-commerce and fintech powerhouse, delivering breakneck growth while still posting record profits — regardless of the market's overreaction to headlined EPS miss.
Even with margin pressures from aggressive investment in logistics, marketing, and fintech expansion, the company is proving it can scale efficiently and profitably. With a dominant market share, strong user engagement, and a long runway for growth across 18 countries, I think that MELI's current valuation looks like a rare opportunity. I see this as a compounding growth machine, and I'm confident the best chapters of its story are still ahead.