MercadoLibre(MELI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides MercadoLibre's unaudited interim condensed consolidated financial statements and management's discussion for the periods ended June 30, 2025 and 2024 Item 1. Financial Statements This section presents MercadoLibre's unaudited interim condensed consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed accounting policy notes Consolidated Balance Sheet Highlights (in millions USD) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $26,062 | $20,142 | | Loans receivable, net | $6,884 | $4,895 | | Total Assets | $32,948 | $25,196 | | Total Current Liabilities | $21,750 | $16,603 | | Funds payable to customers | $9,379 | $6,954 | | Total Liabilities | $27,235 | $20,845 | | Total Equity | $5,713 | $4,351 | Consolidated Income Statement Highlights (in millions USD, except EPS) | Income Statement Item | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Revenues and Financial Income | $6,790 | $5,073 | $12,725 | $9,406 | | Gross Profit | $3,094 | $2,365 | $5,865 | $4,389 | | Income from Operations | $825 | $726 | $1,588 | $1,254 | | Net Income | $523 | $531 | $1,017 | $875 | | Diluted EPS | $10.31 | $10.48 | $20.06 | $17.26 | Consolidated Cash Flow Highlights (YTD, in millions USD) | Cash Flow Item | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $3,948 | $3,394 | | Net Cash used in Investing Activities | $(3,067) | $(3,551) | | Net Cash from Financing Activities | $1,078 | $476 | | Net Increase/(Decrease) in Cash | $2,189 | $(25) | Note 1. Nature of Business MercadoLibre operates as Latin America's largest online commerce and fintech ecosystem, offering diverse services across 18 e-commerce and 8 fintech countries - The company's ecosystem includes its marketplace platform, Mercado Pago (fintech), Mercado Envios (logistics), Mercado Ads (advertising), and Mercado Shops (online web-stores)[21][22] - As of June 30, 2025, the e-commerce platform operates in 18 countries, while the Mercado Pago fintech platform is active in key markets including Argentina, Brazil, Mexico, Colombia, Chile, Peru, Uruguay, and Ecuador[23] Note 2. Summary of Significant Accounting Policies This note details key accounting policies, including U.S. GAAP adherence, U.S. dollar functional currency for Argentine operations, and the increased effective tax rate in Q2 2025 - Argentina's operations are treated as highly inflationary, using the U.S. dollar as the functional currency since July 1, 2018, with the country's inflation rate at 15.1% for the first six months of 2025[38] - The consolidated estimated effective tax rate for Q2 2025 was 27.0%, up from 20.5% in Q2 2024, and for the six-month period, the rate was 28.5% in 2025, up from 23.8% in 2024[43] - On July 4, 2025, the "One Big Beautiful Bill Act" (OBBBA) was signed into law, which modifies certain international tax provisions, and the company is currently assessing its potential impact[47] Note 3. Fintech Regulations The company is actively seeking regulatory approvals to expand fintech services, including a banking license in Argentina, an investment funds management license in Mexico, and a stablecoin license in Bermuda - In Argentina, the company applied for a banking license in June 2025, which is currently under review by the Central Bank of Argentina (CBA)[58] - In Mexico, an authorization request was submitted in March 2025 to operate as an investment funds management company[56] - The Bermuda Monetary Authority granted a conditional Digital Asset Business (DAB) license in July 2025 for the issuance of the company's stablecoin, Meli Dólar[61] Note 5. Loans Receivable, Net The company's loans receivable portfolio significantly grew to $9.35 billion by June 30, 2025, driven by credit card and consumer loan expansion, leading to a $2.46 billion allowance for doubtful accounts Loans Receivable Composition (in millions USD) | Loan Type | Gross Receivable (June 30, 2025) | Gross Receivable (Dec 31, 2024) | | :--- | :--- | :--- | | Merchant | $1,595 | $1,205 | | Consumer | $3,525 | $2,591 | | Credit cards | $4,013 | $2,639 | | Asset-backed | $214 | $138 | | Total | $9,347 | $6,573 | Allowance for Doubtful Accounts Activity (YTD 2025, in millions USD) | Activity | Amount | | :--- | :--- | | Balance at beginning of year | $1,678 | | Net charged to Net Income | $1,287 | | Write-offs | $(716) | | Balance at end of period | $2,463 | - The company is exposed to off-balance sheet credit risk from unused credit card loan commitments, which amounted to $5.01 billion as of June 30, 2025, up from $2.87 billion at the end of 2024[70] Note 8. Segments The company evaluates performance geographically, with Argentina showing the highest direct contribution margin at 45.0% for the first six months of 2025, despite Brazil remaining the largest segment by net revenue Segment Performance (Six Months Ended June 30, 2025, in millions USD) | Segment | Net Revenues & Financial Income | Direct Contribution | Margin % | | :--- | :--- | :--- | :--- | | Brazil | $6,555 | $1,083 | 16.5% | | Mexico | $2,728 | $485 | 17.8% | | Argentina | $2,909 | $1,309 | 45.0% | | Other Countries | $533 | $73 | 13.7% | | Total | $12,725 | $2,950 | 23.2% | Revenue by Stream (Six Months Ended June 30, 2025, in millions USD) | Revenue Stream | Brazil | Mexico | Argentina | Total | | :--- | :--- | :--- | :--- | :--- | | Commerce | $3,996 | $1,770 | $994 | $7,142 | | Fintech | $2,559 | $958 | $1,915 | $5,583 | | Total | $6,555 | $2,728 | $2,909 | $12,725 | Note 10. Commitments and Contingencies The company has accrued $161 million for probable legal liabilities and faces $2.78 billion in cloud service commitments and $263 million for air logistics - As of June 30, 2025, the company accrued $161 million for probable legal contingencies and estimated a further $380 million for reasonably possible losses[102][103] - The company has a remaining purchase commitment of $2.78 billion for cloud platform and technology services[112] - A 10-year agreement with Gol Linhas Aereas S.A. for air logistics has a remaining commitment of $263 million[113] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, noting a 33.8% YoY net revenue increase in Q2 2025, driven by Commerce and Fintech growth, alongside an operating margin compression to 12.2% due to credit and marketing investments Results of Operations Q2 2025 net revenues grew 33.8% to $6.79 billion, while net income slightly decreased, and the operating margin compressed to 12.2% due to increased credit and marketing investments Q2 2025 vs Q2 2024 Performance (in millions USD) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Revenues & Financial Income | $6,790 | $5,073 | 33.8% | | Gross Profit | $3,094 | $2,365 | 30.8% | | Income from Operations | $825 | $726 | 13.6% | | Net Income | $523 | $531 | (1.5)% | - The operating income margin for Q2 2025 decreased to 12.2% from 14.3% in Q2 2024, primarily driven by the expansion of the credit card portfolio and marketing investments[215] - Provision for doubtful accounts increased by 56.9% for the six-month period and 53.3% for the three-month period, mainly due to credit origination growth of 58% and 57%, respectively[209] Net Revenues and Financial Income Analysis Q2 2025 net revenues and financial income reached $6.79 billion, a 33.8% YoY increase, driven by 29.3% Commerce and 40.3% Fintech growth, with Argentina showing the highest nominal growth Q2 2025 Revenue Growth by Stream (YoY) | Revenue Stream | Q2 2025 (in millions) | % Growth (USD) | % Growth (FX Neutral) | | :--- | :--- | :--- | :--- | | Commerce | $3,839 | 29.3% | N/A | | Fintech | $2,951 | 40.3% | N/A | | Total | $6,790 | 33.8% | 52.7% | - Fintech revenue growth was driven by an $827 million (YTD) increase in Credit revenues from higher originations and an $811 million (YTD) increase in Financial services and income, reflecting a 41% rise in total payment volume[182] Liquidity and Capital Resources As of June 30, 2025, the company's liquidity included $3.97 billion in cash and equivalents, with $3.95 billion net cash from operations for the first six months, supported by a $400 million undrawn revolving credit facility Cash Flow Summary (Six Months Ended June 30, in millions USD) | Cash Flow | 2025 | 2024 | | :--- | :--- | :--- | | From Operating Activities | $3,948 | $3,394 | | Used in Investing Activities | $(3,067) | $(3,551) | | From Financing Activities | $1,078 | $476 | - Capital expenditures for the first six months of 2025 were $543 million, up from $332 million in the same period of 2024, primarily for logistics network and IT assets[257] - The company has an undrawn $400 million amended and restated revolving credit agreement available until September 2028[236] Key Performance Indicators Key performance indicators for Q2 2025 show strong growth, with Gross Merchandise Volume reaching $15.3 billion, Total Payment Volume $64.6 billion, and items sold increasing to 550 million Key Performance Indicators (Q2 2025 vs Q2 2024) | Indicator | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Fintech monthly active users (millions) | 68 | 52 | | Unique active buyers (millions) | 71 | 57 | | Gross merchandise volume (billions) | $15.3 | $12.6 | | Number of items sold (millions) | 550 | 421 | | Total payment volume (billions) | $64.6 | $46.3 | | Total payment transactions (millions) | 3,607 | 2,675 | Non-GAAP Measures The company utilizes non-GAAP measures, reporting Q2 2025 Adjusted EBITDA at $1.02 billion and FX neutral net revenue growth of 52.7% YoY Reconciliation of Net Income to Adjusted EBITDA (in millions USD) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $523 | $531 | $1,017 | $875 | | Adjustments | $501 | $349 | $942 | $687 | | Adjusted EBITDA | $1,024 | $880 | $1,959 | $1,562 | - Net debt increased to $3.83 billion as of June 30, 2025, from $2.25 billion at the end of 2024[275] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces significant market risks from foreign currency fluctuations, primarily the Brazilian Real, Mexican Peso, and Argentine Peso, interest rate changes, and equity price risk from its Long Term Retention Program - The company is primarily exposed to foreign currency risk from the Brazilian Real, Mexican Peso, and Argentine Peso, with a sensitivity analysis showing a 10% strengthening of the USD against these currencies would decrease net income for the six-month period from $1.017 billion to $877 million[286][292][293] - A hypothetical 100 basis point increase in interest rates would have increased expenses by approximately $24 million for the six-month period ended June 30, 2025[302] - The company faces equity price risk from its LTRPs, with a total contractual obligation fair value of $973 million as of June 30, 2025, which fluctuates with the company's stock price[304] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[308] - No changes in internal control over financial reporting occurred during the three-month period ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[309] PART II. OTHER INFORMATION This section covers other required disclosures, including legal proceedings, risk factors, and equity security sales Other Information Items This section addresses other required disclosures, referring to Note 10 for legal proceedings, confirming no material changes to risk factors, and reporting no unregistered equity sales or new Rule 10b5-1 plans - For legal proceedings, the company refers to Note 10 in the financial statements[310] - There have been no material changes in risk factors from those disclosed in the company's 2024 10-K[310] - No issuer purchases of equity securities were made during the quarter ended June 30, 2025[311]