Core Insights - MercadoLibre (MELI) is facing challenges in sustaining its aggressive credit expansion strategy, with signs that rapid lending growth may negatively impact profitability in upcoming quarters [1][4] Group 1: Credit Portfolio and Profitability - The total credit portfolio increased by 91% year over year to $9.3 billion in Q2 2025, but the Net Interest Margin After Losses decreased to 23% from 31.1% a year ago, indicating potential erosion of returns [1][8] - The credit card segment grew 118% year over year to $4 billion, now representing 43% of the total portfolio, up from 37% last year; however, credit cards have lower margins and only recently reached breakeven [2][4] - Provisions for doubtful accounts rose by 57% year over year to $690 million, suggesting that underwriting discipline will be tested as the company expands in volatile markets [2][3] Group 2: Earnings and Economic Environment - Net income for Q2 slipped 1.6% year over year to $523 million, as credit costs offset growth in commerce and payments [3] - Economic uncertainty in Argentina, following corruption charges against President Javier Milei, and Brazil's history of delayed credit card payments add to the challenges for MELI [3][4] Group 3: Competitive Landscape - Regional fintech competition is intensifying, with Sea Limited and Nu Holdings navigating margin pressures; Nu Holdings has maintained stronger credit discipline compared to MELI's aggressive credit card growth strategy [5] - Sustainable lending growth is suggested to depend on balanced risk management, highlighting vulnerabilities in MELI's current approach [5] Group 4: Stock Performance and Valuation - MELI shares have increased by 46.5% year-to-date, outperforming the Zacks Internet–Commerce industry and the Zacks Retail-Wholesale sector, which rose by 12.2% and 8.6%, respectively [6] - The stock is currently trading at a forward 12-month Price/Sales ratio of 3.8X, compared to the industry's 2.26X, indicating a higher valuation [10] - The Zacks Consensus Estimate for 2025 earnings is $44.43 per share, reflecting a 17.88% year-over-year growth, with a Zacks Rank of 4 (Sell) [13]

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]