Will Weak Market Conditions Keep MercadoLibre's Costs Elevated?

MercadoLibre MELI has established itself as Latin America’s dominant e-commerce and fintech platform through its Mercado Libre Marketplace and Mercado Pago services. However, persistent macro pressures in its core markets raise concerns about whether the company can protect margins while sustaining growth.

Inflation across MELI’s core markets stayed elevated in August 2025 and is expected to keep costs stubbornly high. In Brazil, the reading of 5.13% signals ongoing pressure on transport and labor expenses. Mexico’s inflation of 3.57% points to limited scope for logistics relief, while Argentina’s 33.6% highlights the funding challenges in its credit operations. Such conditions make MELI’s expansion strategy more costly, as heavier shipping subsidies, rising wage bills and greater credit risk could prevent scale benefits from translating into operating leverage in the quarters ahead.

Weakening macroeconomic conditions have already started to weigh on MELI’s performance. In the second quarter of 2025, sales and marketing expenses surged nearly 50% in dollar terms as inflation-hit consumers required heavier discounts to sustain demand. Logistics expansion added recurring fixed costs, while credit growth of 91% year over year to $9.3 billion came with Net Interest Margin After Losses falling to 23% from 31.1%. Segmental growth in both commerce and fintech remained strong, but profitability gains failed to keep pace with revenue expansion. MELI is investing in automation and fulfillment efficiency to counter rising costs, but despite these efforts, margins are expected to remain strained in the near term. Operating margin contracted 210 basis points to 12.2%, reflecting profitability pressure, which is unlikely to ease quickly.

The Zacks Consensus Estimate for revenues for the third quarter of 2025 is pegged at $7.27 billion, with $3.82 billion expected from Brazil, $1.63 billion from Mexico and $1.66 billion from Argentina. While MELI is targeting rapid expansion, sustaining it will require heavy subsidies, rising logistics spend and expanding credit exposure. With inflation running high across its core markets, weak conditions are set to keep costs elevated, leaving profitability under pressure.

Rivals Highlight Meli’s Vulnerability to Inflation

Unlike MELI, which is heavily concentrated in Brazil, Mexico and Argentina, Amazon AMZN operates across North America, Europe and Asia-Pacific, reducing its exposure to single-region inflation risks. Amazon’s scale in developed markets provides a buffer against rising logistics costs in Latin America. Sea Limited SE also faces emerging market pressures through Shopee, but Sea Limited’s reach spans Southeast Asia and Latin America. While Sea Limited continues to contend with similar inflationary dynamics, its broader geographic footprint offers superior risk distribution compared to MELI’s three-country focus.

MELI’s Share Price Performance, Valuation and Estimates

MELI shares have increased 37.5% in the year-to-date (YTD) period, while the Zacks Internet–Commerce industry and the Zacks Retail-Wholesale sector have increased 12.5% and 9.5%, respectively.

MELI’s YTD Price Performance

From a valuation standpoint, MELI stock is currently trading at a forward 12-month Price/Sales ratio of 3.59X compared with the industry’s 2.26X. MELI has a Value Score of D.

MELI’s Valuation

The Zacks Consensus Estimate for 2025 earnings is pegged at $44.43 per share, which has been revised downward by 20 cents 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.

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

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