Is MercadoLibre's Rapid Loan Growth Becoming a Profitability Headwind?

MercadoLibre MELI is Latin America’s leading e-commerce and fintech platform provider, operating through its Mercado Libre Marketplace and Mercado Pago services. The company’s aggressive credit expansion strategy is becoming increasingly difficult to sustain, with signs that rapid lending growth could weigh more heavily on profitability in the coming quarters. In the second quarter of 2025, the total credit portfolio surged 91% year over year to $9.3 billion, while the Net Interest Margin After Losses narrowed to 23% from 31.1% a year ago, indicating that scale is eroding returns.

The shift toward credit cards is amplifying this pressure. The segment grew 118% year over year to $4 billion and now accounts for 43% of the portfolio versus 37% last year. While adoption continues to accelerate, credit cards carry structurally lower margins and only recently reached breakeven. With 1.5 million new cards issued in the quarter and provisions for doubtful accounts climbing 57% year over year to $690 million, underwriting discipline will be tested as MELI pursues further expansion in volatile markets. Asset quality trends remain uneven, with short-term late payments improving to 6.7% from 8.2%, but loans overdue more than 90 days stay at 18.5%, suggesting that portfolio stress could linger.

These dynamics have pressured second-quarter earnings, and the impact is unlikely to fade quickly. Net income slipped 1.6% year over year to $523 million, as credit costs offset commerce and payments growth. With uncertainty over Argentina’s economy following the corruption charges against President Javier Milei and Brazil’s history of delayed credit card payments, regional headwinds add to the challenges of making lending a consistent profit driver.

Momentum indicates that credit growth will continue to outpace revenue gains, leaving a concern over profitability expansion. Unless asset quality strengthens and provisioning stabilizes, MercadoLibre’s rapid loan growth is poised to remain a headwind to profitability rather than a lever of expansion.

Regional Fintech Competition Intensifies for MELI

Sea Limited SE and Nu Holdings NU are navigating margin pressures as fintech expansion picks up across Latin America. Sea Limited’s digital banking unit has reported NIMAL compression in Southeast Asia, while Nu Holdings maintained stronger credit discipline with a 15.1% NIMAL in its Brazilian business. Unlike MercadoLibre’s aggressive push, Nu Holdings has taken a more measured approach to credit card growth, and Sea Limited has shifted its focus from pure expansion toward profitability. Both peers suggest that sustainable lending growth depends on balanced risk management, highlighting potential vulnerabilities in MELI's current expansion strategy.

MELI’s Share Price Performance, Valuation and Estimates

MELI shares have jumped 46.5% in the year-to-date (YTD) period, while the Zacks Internet–Commerce industry and the Zacks Retail-Wholesale sector have increased 12.2% and 8.6%, respectively.

MELI’s YTD Price Performance

From a valuation standpoint, MELI stock is currently trading at a forward 12-month Price/Sales ratio of 3.8X 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, unchanged 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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