MELI Falls 13% in Three Months: Should You Hold or Fold the Stock?

Core Insights - MercadoLibre (MELI) shares have declined 13% over the past three months, underperforming the Zacks Retail-Wholesale sector and the Zacks Internet-Commerce industry's growth of 3.4% and 5.7% respectively [1][9] Financial Performance - MELI's fintech arm, Mercado Pago, saw revenues jump 40% year over year in Q2 2025 to $2.95 billion, while commerce revenue grew 22% [5] - Total payment volume increased 39% to $64.6 billion, and the credit portfolio surged 91% year over year to $9.3 billion, raising concerns about asset quality [5][6] - Non-performing loans over 90 days remained high at 18.5%, and net interest margin after losses fell to 23% from 31.1% year over year [6] Competitive Landscape - Rising competition from Amazon, Sea Limited, and eBay is testing MELI's leadership in Latin America [10][12] - Amazon is expanding its logistics and delivery network, while Sea Limited's Shopee platform is gaining traction through discounts and gamified engagement [10][11] - eBay's expansion of its cross-border marketplace is drawing merchants away from MELI, intensifying competition [12] Geographic Concentration - MELI earns over 90% of its revenues from Brazil, Argentina, and Mexico, making it vulnerable to regional volatility and currency shocks [9][13] - In Brazil, FX-neutral gross merchandise volume grew 29% year over year in Q2 2025, while revenues for Q3 2025 are estimated at $3.62 billion, up 17.4% year over year [14] - Argentina's economic struggles led to a $117 million foreign-exchange loss in Q2 2025, impacting profitability [15] Valuation and Outlook - MELI's forward P/E stands at 36.63X, significantly above the industry average of 24.74X and the broader Retail-Wholesale sector's 24.9X, indicating a premium valuation [9][16] - The Zacks Consensus Estimate for Q3 2025 earnings is pegged at $9.88 per share, reflecting a year-over-year growth of 26.18% [19] - Despite top-line growth, profitability pressures and an overstretched valuation make the stock unattractive at current levels, justifying a Zacks Rank 4 (Sell) [21]