MercadoLibre Faces Ongoing Margin Strain: Is Profit Growth Slowing?

MercadoLibre MELI operates the largest e-commerce and fintech ecosystem in Latin America, integrating marketplace services, logistics, digital payments and credit solutions across Brazil, Mexico, Argentina and other key markets. MELI faces sustained margin pressure as it prioritizes market expansion over near-term profitability. Operating margin contracted 210 basis points year over year to 12.2% in the second quarter of 2025, reflecting the impact of initiatives that are set to remain in focus in the near term,  raising concerns about the pace of profitability improvement going forward.

Spending is expected to stay elevated to drive user acquisition and engagement, particularly in fintech, where Mercado Pago’s monthly active user base has reached 68 million. Efforts to raise fulfillment penetration, broaden free shipping offers and expand the credit portfolio are expected to weigh on margins until operational efficiencies begin to offset costs.

Credit operations offer both opportunity and risk. The $9.3 billion portfolio grew 91% year over year, requiring higher provisioning and funding costs. Brazil’s credit card business has reached NIMAL breakeven, but new launches in Argentina and further expansion in Mexico are projected to initially dilute returns as cohorts mature.

Logistics investments, particularly for lower average selling price items under Brazil’s expanded free shipping threshold, will continue adding cost pressure. Although technology deployment and higher volumes should reduce unit costs over time, the pace of improvement remains uncertain.

E-commerce penetration in core markets remains low, leaving a long runway for expansion. Yet the heavy outlay needed to secure that growth is likely to restrain profitability in the short term, and any meaningful margin recovery hinges on realizing scale benefits from these ongoing investments, leaving profitability vulnerable if cost efficiencies take longer to materialize.

MELI’s Competition in the Fintech Space

Mercado Pago competes with NU NU and StoneCo STNE in Latin America’s fast-growing digital finance sector. 

NU focuses on low-cost digital banking and credit products, leveraging its large customer base in Brazil and Mexico to expand deposits and lending. StoneCo provides payment processing, credit and banking solutions, with a strong presence among small and medium-sized merchants in Brazil. 

Both NU and StoneCo are broadening product portfolios and increasing customer engagement, intensifying the battle for market share. As these players invest in technology and expand regionally, Mercado Pago must sustain product innovation and deepen relationships to maintain its position in the fintech landscape.

MELI’s Share Price Performance, Valuation and Estimates

MELI shares have jumped 38.3% in the year-to-date (YTD) period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s increase of 7.5% and 6.2%, respectively.

MELI’s YTD Price Performance

From a valuation standpoint, MELI stock is currently trading at a forward 12-month Price/Sales ratio of 3.68X compared with the industry’s 2.27X. MELI has a Value Score of D.

MELI Valuation

The Zacks Consensus Estimate for third-quarter 2025 earnings is pegged at $9.88 per share, which has been revised downward by 16.6% over the past 30 days, indicating 26.18% year-over-year growth.

MercadoLibre, Inc. Price and Consensus

MercadoLibre, Inc. price-consensus-chart | MercadoLibre, Inc. Quote

The consensus mark for 2025 earnings is pegged at $44.63 per share, which has been revised downward by 6.5% over the past 30 days. The estimate indicates 18.41% year-over-year growth.

MercadoLibre currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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