MercadoLibre's Pre-Q3 Earnings Analysis: Hold or Fold the Stock?

Core Insights - MercadoLibre (MELI) is expected to report third-quarter 2025 results on October 29, with revenues estimated at $7.25 billion, reflecting a year-over-year growth of 36.55%, and earnings per share estimated at $9.43, indicating a growth of 20.43% year-over-year [1] Revenue Estimates - The Zacks Consensus Estimate for third-quarter 2025 revenues in Argentina is $1.56 billion, representing a 51.4% increase from the previous year [4] - Brazil's revenue estimate stands at $3.92 billion, indicating a 34.5% year-over-year increase [4] - Mexico's revenue is projected at $1.67 billion, reflecting a 45.7% increase from the year-ago quarter [4] - Revenues from other countries are estimated at $293.12 million, suggesting a 32.6% increase year-over-year [5] Earnings Performance - MELI has beaten the Zacks Consensus Estimate in two of the last four quarters, with an average surprise of 14% [2] - Currently, MELI has an Earnings ESP of -0.21% and a Zacks Rank of 4 (Sell), indicating a lower likelihood of an earnings beat [3] Competitive Landscape - Intense competition in Latin America is expected to impact MELI's performance, with Amazon enhancing delivery speed and product range, and Sea Limited's Shopee platform attracting customers through aggressive discounting [6][7] - Nubank's expanding financial services are also expected to increase competitive pressure on MELI [7] Margin Pressures - The company is facing margin pressures due to increased shipping subsidies and marketing expenses, which may affect third-quarter results [8] - Operating margin contraction of 210 basis points in the previous quarter indicates rising profitability strain [6] Macroeconomic Factors - Political and macroeconomic conditions in Argentina, including corruption allegations and currency depreciation, are likely to negatively impact MELI's growth efficiency [10] - High local interest rates and a persistent non-performing loan ratio of 18% are expected to sustain asset quality concerns [10] Stock Performance and Valuation - MELI's shares have increased by 27.1% year-to-date, outperforming the Retail-Wholesale sector and the S&P 500 [12] - The stock trades at a forward Price-to-Sales ratio of 3.2X, significantly higher than the industry average of 2.23X, suggesting that current valuations may overstate near-term growth potential [15] - The Value Score of D indicates stretched multiples and limited re-rating potential until earnings visibility improves [15] Conclusion - The upcoming third-quarter results are anticipated to show resilient revenue growth but continued margin pressures due to higher fulfillment costs and competitive intensity [18] - The elevated valuation and lack of operating leverage recovery suggest a cautious near-term outlook for MELI [18]