MercadoLibre's Shipping Subsidies Boost GMV: Is Growth Sustainable?

MercadoLibre's MELI expanding reliance on shipping subsidies is delivering strong Gross Merchandise Volume (GMV) momentum, but it is also intensifying concerns around growth durability. In the third quarter of 2025, Brazil GMV surged 36% year over year after the free-shipping threshold was slashed from R$79 to R$19. Sold items climbed 42%, highlighting how closely demand is tied to promotional intensity. 

To boost order frequency, MercadoLibre continues to absorb a larger share of logistics expenses, weakening contribution margins even as revenues scale. Brazil’s Direct Contribution declined 5.94% year over year to $475 million, despite revenues rising to $4.01 billion. Argentina saw direct contribution contracting 4-5%, both sequentially and annually. These trends suggest that incremental GMV is arriving with diminishing economic value, thereby limiting the benefits of scale.

Shipping subsidies remain an effective competitive lever in Latin America’s price-sensitive e-commerce landscape; however, margin strain is becoming increasingly difficult to ignore. Despite 39% revenue growth and 28% GMV expansion in the quarter, operating margin remained restricted at 9.8%, weighed down by elevated logistics and marketing spending, which reached 11% of revenues. Thus, indicating that growth is being prioritized over margin normalization. 

The Zacks Consensus Estimate for 2026 revenues is pegged at $36.84 billion, indicating 28.68% year-over-year growth. This revenue trajectory implies continued GMV expansion, but that expansion remains dependent on elevated shipping subsidies. As long as volume growth depends on aggressive shipping incentives, scale is likely to translate into higher costs alongside revenues, reinforcing margin pressure rather than easing it.

MELI Faces Stiff Competition

MercadoLibre confronts intensifying competitive pressure in Latin American e-commerce, forcing sustained subsidy commitments to defend market position.

Amazon AMZN continues to intensify its Latin American operations with expanded logistics capabilities and Prime membership benefits. Amazon's presence in Brazil and Mexico has driven up promotional activity, forcing MELI to lower free shipping thresholds and boost marketing spend to 11% of revenues. Amazon's ability to fund retail losses through profitable AWS creates asymmetric competition that MELI cannot match.

Sea Limited's SE Shopee has entered Latin American markets, bringing the aggressive subsidy playbook that drove its Southeast Asian success. Sea Limited's willingness to burn cash for market share adds another well-funded competitor. The combined pressure from Sea Limited and Amazon suggests MELI's subsidy spending represents a permanent defensive requirement rather than a temporary growth investment.

MELI’s Share Price Performance, Valuation & Estimates

MELI shares have declined 12% in the past six months, underperforming the Zacks Internet-Commerce industry and the Zacks Retail-Wholesale sector’s increase of 7.4% and 5.1%, respectively.

MELI’s Price Performance

From a valuation standpoint, MELI stock is currently trading at a forward 12-month Price/Sales ratio of 2.96X compared with the industry’s 2.23X. MELI has a Value Score of C.

MELI Valuation

The Zacks Consensus Estimate for MELI’s 2026 earnings is pegged at $59.59 per share, down by 1.54% over the past 30 days, indicating a 49.73% year-over-year increase.

MercadoLibre, Inc. Price and Consensus

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

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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