3 Reasons to Fold MercadoLibre Stock Post Third Quarter Earnings Miss

MercadoLibre’s MELI third-quarter 2025 earnings stumbled, despite delivering robust top-line expansion. While revenue surged 39.5% year over year to $7.41 billion and beat the Zacks Consensus Estimate by 2.15%. The earnings of $ 8.32 per share fell short of the consensus mark by 11.77%, revealing cracks beneath the surface of its impressive growth streak. This miss, combined with deteriorating margins and mounting competitive pressures, paints a concerning picture for shareholders looking ahead.

Margin Erosion Intensifies Amid Robust Growth

MELI’s strategy of scaling aggressively across commerce and fintech continues to deliver impressive growth, but profitability is under visible strain. Operating income climbed 30% year over year to $724 million, yet the operating margin narrowed to 9.8% from 10.5% in the prior-year quarter.

Brazil’s aggressive free-shipping threshold reduction from R$79 to R$19 generated record volume, with items sold accelerating 42% year over year and gross merchandise volume up 34%. Yet those gains came at a substantial cost. The strategy inflated fulfilment and logistics expenses, leading to a year-over-year decline in Brazil’s direct contribution margin. Gross margin contracted to 49% from 52% in the prior-year quarter, reflecting higher shipping subsidies, increased use of first-party inventory, and elevated infrastructure costs tied to warehouse expansion.

In Argentina, macro instability magnified these pressures. Revenue growth of 39.5% in U.S.-dollar terms masked the reality of 97% local-currency growth, driven largely by inflation rather than real consumption. Peso depreciation and surging funding costs eroded profitability across MELI’s acquiring and credit businesses, while foreign-exchange losses more than doubled from the prior year. These trends reveal that while MELI continues to grow rapidly, it’s losing efficiency just as fast.

The Zacks consensus estimate for MELI’s fourth quarter earnings is pegged at $12.28 per share, implying a year-over-year decline of 2.62%. The estimates have plunged 15.77% year over year.

MercadoLibre, Inc. Price and Consensus

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

Competitive Pressures Intensify

MELI’s dominance in Latin America is being tested by global and regional rivals. Amazon AMZN has expanded its reach in Brazil and Mexico through localised fulfilment and faster Prime deliveries, challenging MELI’s logistics edge. With deeper pockets and global scale, Amazon can sustain free-shipping incentives longer and at lower cost, narrowing MELI’s differentiation in service speed and reliability. The overlap between Amazon’s seller ecosystem and MELI’s marketplace now threatens pricing power and margin stability.

In fintech, Nubank NU has emerged as the most significant competitive threat to MELI’s Mercado Pago, steadily eroding its dominance across digital payments and consumer credit. With over 100 million users and strong profitability, Nubank’s low-cost digital model is steadily capturing payments, lending and deposits that once flowed through MELI’s platform. Its intuitive app and fee-free structure have drawn away high-frequency users, reducing Mercado Pago’s transaction volumes in key markets. Nubank’s disciplined risk management and funding efficiency highlight the widening contrast with MELI’s capital-heavy credit expansion, suggesting how quickly fintech leadership can shift in Latin America.

Meanwhile, Sea Limited SE has reignited Shopee’s momentum in Brazil and Mexico after cutting losses in Southeast Asia. Its aggressive discounts and seller subsidies are squeezing MELI’s marketplace take rates, while Sea Limited’s integration of ShopeePay mirrors Mercado Pago’s model, at a lower operating cost. By combining commerce and payments under one platform, Sea Limited is forcing MELI to defend both business lines simultaneously.

Share Price Performance and Valuation Limit Upside Potential

MELI’s sharp 35.6% year-to-date rally suggests that much of its top-line strength is already priced in. The stock has far outpaced the Zacks Internet–Commerce industry’s 18.6% increase and the Retail–Wholesale sector’s 9.4% rise, leaving limited room for further appreciation unless profitability improves meaningfully. After the third-quarter earnings miss, this optimism looks increasingly disconnected from the underlying fundamentals.

MELI’s YTD Performance

Trading at a price-to-earnings ratio of 38.44X, MELI stands at a notable premium to the industry average of 26.22X and the sector average of 25.21X. Such valuation levels appear difficult to defend given persistent margin compression and slowing earnings growth. Unlike Nubank, which is scaling profitably across fintech, or Amazon, which has already achieved operating leverage in its e-commerce model, MELI’s profitability trajectory remains uneven. Without a clear improvement in margins or cash flow conversion, sustaining this premium multiple looks increasingly unrealistic.

MELI Trades at a Premium

Conclusion

MercadoLibre remains a regional leader in scale, but its third-quarter results expose a widening gap between growth and profitability. Margins continue to compress, Argentina’s volatility persists and competition is eroding both pricing power and fintech leadership. Despite these headwinds, the stock trades at a premium valuation and has already rallied sharply year to date, pricing in far more optimism than current fundamentals justify. With earnings estimates trending lower and no clear margin recovery in sight, MELI’s Zacks Rank #4 (Sell) reflects the growing downside risk. Investors would be prudent to stay away from the stock for now until meaningful operating leverage and valuation support reappear.

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

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