MercadoLibre Expands Lending: Will Rising Risk Weigh on Profits?

MercadoLibre’s MELI aggressive credit portfolio expansion is emerging as a pressure point, with lending volumes rising faster than asset quality can support. In the second quarter of 2025, the credit book jumped 91% year over year to $9.3 billion, while Net Interest Margin After Losses (NIMAL) slid to 23% from 31.1% a year earlier. This deterioration highlights mounting profitability risks as the company leans harder into higher-risk lending categories.

Credit cards now represent 43% of total lending versus 37% last year, yet the segment only achieved breakeven NIMAL despite years of investment. MercadoLibre issued 1.5 million new cards during the quarter, underscoring its aggressive expansion. Early-stage late payments (15-90 days) improved to 6.7% from 8.2% a year earlier. However, loans overdue more than 90 days stood at 18.5%, unchanged from the prior year, reflecting persistent stress in the portfolio.

These credit dynamics are beginning to weigh on the bottom line. Net income declined 1.6% year over year to $523 million, as higher credit provisioning and funding costs weighed on profitability despite robust revenue growth. Expansion in Argentina, where banks are already grappling with rising defaults, compounds the risks tied to MELI’s strategy. Even in Brazil, profitability in credit cards required years of losses before recent cohorts turned positive, underscoring how expensive the growth path can be.

With credit growth now far outstripping revenue gains, the disconnect between lending scale and consistent profit generation is widening. Unless asset quality improves and provisioning stabilizes, MELI’s lending push could pressure near-term earnings and limit upside for investors.

Regional Fintech Competition Intensifies

Sea Limited SE and Nu Holdings NU faced similar margin pressure challenges as Latin American fintech expansion accelerated. Sea Limited's digital banking arm reported NIMAL compression in Southeast Asian markets, while Nu Holdings maintained stronger credit metrics with 15.1% NIMAL in Brazil operations. 

Nu Holdings' more conservative lending approach contrasted sharply with MercadoLibre's aggressive expansion strategy. Sea Limited's recent pivot toward profitability over growth mirrored broader fintech sector trends, while Nu Holdings continued expanding its credit card portfolio at a measured pace. Both competitors demonstrated that sustainable lending growth required balanced risk management approaches, highlighting potential vulnerabilities in MELI's current expansion strategy.

MELI’s Share Price Performance, Valuation and Estimates

MELI shares have jumped 41.5% in the year-to-date (YTD) period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s increase of 12.5% and 8.2%, respectively.

MELI’s YTD Price Performance

From a valuation standpoint, MELI stock is currently trading at a forward 12-month Price/Sales ratio of 3.74X compared with the industry’s 2.3X. 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.

The consensus mark for 2025 earnings is pegged at $44.43 per share, which has been revised downward by 6.9% over the past 30 days. The estimate indicates 17.88% year-over-year growth.

MercadoLibre, Inc. Price and Consensus

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

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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