Will Rising Credit Exposure Put MercadoLibre's Margins Under Pressure?

MercadoLibre’s MELI lending growth has reached a pace that now threatens its margin stability. The company’s credit book continues to swell far faster than profitability can keep up, raising questions over the sustainability of its fintech expansion.

In the second quarter of 2025, total credit volume jumped 91% year over year to $9.3 billion, led by a 118% increase in credit cards, which account for 43% of the loan book. This rapid mix shift into longer-tenure credit products has compressed spreads, with Net Interest Margin After Losses falling to 23% from 31.1% a year ago. Fintech revenues grew 30% year over year to $2.95 billion, reflecting robust lending momentum but also highlighting how credit-driven expansion is beginning to weigh on efficiency metrics. The Zacks Consensus Estimate for third-quarter 2025 fintech revenue is pegged at $3.23 billion, implying a 27% year-over-year increase. While this suggests continued strength in digital lending and payments, it also suggests that rising credit exposure and higher provisioning could extend the pressure on operating margins if cost discipline does not improve in the near term.

As the portfolio grows, provisioning and funding costs are likely to climb faster than income, putting operating leverage at risk. New credit card cohorts generally take several quarters to reach breakeven, keeping returns under pressure during periods of rapid issuance. Loans more than 90 days past due remain high at 18.5%, suggesting that long-term delinquencies are still weighing on credit quality.

If lending continues to expand faster than revenue, the combination of higher reserves, slower cohort profitability and elevated funding needs could keep margins under pressure in the coming quarters. Unless asset quality improves and spreads stabilise, MercadoLibre’s rising credit exposure may continue to erode margin stability and limit scope for recovery ahead.

Regional Fintech Competition Intensifies

MercadoLibre faces rising competition from Sea Limited SE and Nu Holdings NU in digital lending and credit services across Latin America. Sea Limited continues to scale personal loans and payment products in Brazil and Mexico, directly overlapping with MercadoLibre’s expanding loan portfolio. At the same time, Nu Holdings is accelerating credit card and consumer lending growth, using its broad customer base and data-driven underwriting to gain share. As Sea Limited and Nu Holdings strengthen their fintech presence, pressure on MercadoLibre’s lending margins is likely to intensify.

MELI’s Share Price Performance, Valuation and Estimates

MELI shares have increased 26.7% in the year-to-date (YTD) period, outperforming the Zacks Internet-Commerce industry and the Zacks Retail-Wholesale sector’s increase of 9.6% and 6.9%, respectively.

MELI’s YTD Price Performance

From a valuation standpoint, MELI stock is currently trading at a forward 12-month Price/Sales ratio of 3.27X compared with the industry’s 2.23X. MELI has a Value Score of D.

MELI Valuation

The Zacks Consensus Estimate for MELI’s third-quarter 2025 earnings is pegged at $9.88 per share, unchanged 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

MercadoLibre currently carries a Zacks Rank #5 (Strong 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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