Is MELI's Heavy Latin America Exposure Limiting Growth Potential?

MercadoLibre’s MELI concentrated exposure to Latin American markets is expected to continue dragging on profitability as the company faces a constrained growth runway in volatile economies. The second quarter 2025 results highlight structural headwinds that are likely to intensify over time.

Foreign exchange volatility pressured reported results, with net revenues increasing 34% in USD terms, compared to 53% on an FX-neutral basis. This 1,900-basis-point differential illustrates how currency devaluations are expected to continue eroding shareholder value in future downturns. Argentina’s FX losses compressed net income margin to 7.7% from 10.5% a year ago, foreshadowing persistent earnings volatility ahead.

Operating margin compression of 210 basis points to 12.2% is expected to remain a concern as MercadoLibre defends its share in Brazil and Mexico, which together are projected to contribute most of MELI’s consolidated revenues. The company’s defensive investments in free shipping threshold reductions and promotional campaigns reflect a strategic shift toward margin-sacrificing tactics to maintain market share.

Revenue concentration remains stark, with the Zacks Consensus Estimate for third-quarter 2025 Brazil revenues pegged at $3.47 billion (51% of consolidated revenues), Argentina at $1.53 billion (22%) and Mexico at $1.51 billion (22%). Such heavy reliance on three volatile markets is expected to restrict diversification benefits and enhance exposure to regional volatility.

Credit portfolio growth of 91% year over year to $9.3 billion heightens exposure to regional credit cycles in historically volatile markets prone to boom-bust cycles and currency crises. While the Net Interest Margin After Losses stood at 23% in the second quarter, it is likely to remain vulnerable to regulatory shifts and macro stress. As Latin American economies face inevitable cyclical downturns, MELI's concentrated regional exposure will likely continue pressuring margins and earnings stability.

Rivals Highlight the Limits of Meli’s Concentration

Unlike MELI's concentrated Latin American exposure, rivals like Amazon AMZN operate across North America, Europe and Asia-Pacific, reducing single-region dependency risks. Amazon's developed market presence provides earnings stability that contrasts sharply with MELI's volatile emerging market concentration. Sea Limited SE spans Southeast Asia and Latin America, though Sea Limited faces similar emerging market risks as MELI. However, Sea Limited's broader geographic footprint across multiple regions offers superior risk distribution compared to MELI's three-country focus. Both Amazon and Sea Limited maintain more diversified operational bases than MercadoLibre's heavy reliance on Latin America.

MELI’s Share Price Performance, Valuation and Estimates

MELI shares have increased 38% in the year-to-date (YTD) period, while the Zacks Internet–Commerce industry and the Zacks Retail-Wholesale sector have increased 12.4% and 9.4%, respectively.

MELI’s YTD Price Performance

From a valuation standpoint, MELI stock is currently trading at a forward 12-month Price/Sales ratio of 3.62X compared with the industry’s 2.26X. MELI has a Value Score of D.

MELI Valuation

The Zacks Consensus Estimate for 2025 earnings is pegged at $44.43 per share, which has been revised downward by 2.4% over the past 30 days. The estimate indicates 17.88% 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research