Will Weak Market Conditions Keep MercadoLibre's Costs Elevated?

Core Insights - MercadoLibre (MELI) is the leading e-commerce and fintech platform in Latin America, but faces challenges in maintaining margins amid macroeconomic pressures [1] Economic Conditions - Inflation in MELI's core markets remains high, with Brazil at 5.13%, Mexico at 3.57%, and Argentina at 33.6%, impacting transport, labor, and credit operations [2] - These inflationary pressures increase costs for MELI, making expansion strategies more expensive due to higher shipping subsidies and wage bills [2] Financial Performance - In Q2 2025, MELI's sales and marketing expenses rose nearly 50% due to inflation, while credit growth reached $9.3 billion, but net interest margin after losses fell to 23% from 31.1% [3] - Operating margin contracted by 210 basis points to 12.2%, indicating ongoing profitability challenges [3][8] Revenue Estimates - The Zacks Consensus Estimate for Q3 2025 revenues is $7.27 billion, with significant contributions expected from Brazil ($3.82 billion), Mexico ($1.63 billion), and Argentina ($1.66 billion) [4] Competitive Landscape - MELI's concentration in Brazil, Mexico, and Argentina exposes it to regional inflation risks, unlike competitors like Amazon and Sea Limited, which have broader geographic footprints [5] Stock Performance and Valuation - MELI shares have increased 37.5% year-to-date, outperforming the Zacks Internet–Commerce industry (12.5%) and the Retail-Wholesale sector (9.5%) [6] - The stock is trading at a forward Price/Sales ratio of 3.59X, compared to the industry's 2.26X, indicating a higher valuation [10] Earnings Estimates - The Zacks Consensus Estimate for 2025 earnings is $44.43 per share, reflecting a downward revision of 20 cents, with a projected year-over-year growth of 17.88% [13]