MercadoLibre (MELI Quick QuoteMELI - Free Report) shares have returned 47.4% in the year-to-date (YTD) period, outperforming the Zacks Retail-Wholesale sector and the Zacks Internet-Commerce industry’s growth of 0.5% and 0.4%, respectively. The stock has also outperformed the S&P 500 index’s decline of 1.9% YTD. 

MELI shares have been riding on its dominant presence in Latin America and a diversified business model across e-commerce and fintech. Its performance has also been fueled by two strong earnings reports in a row, which came out to be better than expected.

Total revenues in the first quarter of 2025 were driven by accelerating commerce and fintech revenues, which grew 32.3% and 43.3% year over year, respectively. The marketplace’s Unique Active Buyers grew 25% and fintech’s Monthly Active Users rose 31%. Despite reporting such a strong quarter, the company has been facing some headwinds that should caution investors. Let’s delve deeper to understand the factors helping and hurting MELI to determine how investors should play the stock.

MELI’s YTD Price Return Performance

Image Source: Zacks Investment Research

MELI Expands Its Advertising Inventory

MercadoLibre has expanded its advertising reach with the launch of the Mercado Play app on smart TVs across Latin America at the end of the first quarter of 2025. The app, now available for download on over 70 million smart TVs, offers users access to more than 15,000 hours of free content. With fewer than half of the region’s population subscribed to paid streaming services, MercadoLibre sees this as a significant opportunity to engage new audiences. 

The initiative is positioned as a triple-win. It is benefiting consumers through free content, content studios through broader distribution, and Mercado Ads through enhanced ad inventory and reach.

MELI’s Earnings Estimate Revisions Show Upward Trend

The Zacks Consensus Estimate for second-quarter 2025 earnings is pegged at $11.70 per share, which has been revised upward by 12.28% over the past 30 days, indicating 11.64% year-over-year growth. 

The consensus mark for second-quarter 2025 revenues is pegged at $6.37 billion, suggesting 25.52% year-over-year growth.

MercadoLibre’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and missed once, with the average surprise being 22.59%. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

MELI Stock is Overvalued

In terms of valuation, MELI is trading at a premium compared to the broader Zacks Internet – Commerce industry. As of the latest data, MELI’s forward 12-month Price/Sales ratio hovers around 4.32, above the industry’s 2, reflecting investors' high growth expectations.

The Value Score of D further reinforces an unattractive valuation for the stock at the moment.

MELI’s P/S F12M Ratio Depicts Premium Valuation

Image Source: Zacks Investment Research

MELI Faces Credit Business Risks

In the first quarter of 2025, MercadoLibre reported a sharp decline in its credit portfolio’s profitability, with Net Interest Margin After Losses (NIMAL) falling to 22.7% from 31.5% a year earlier. The company cited negative seasonality as the primary cause for the drop in terms of quarterly change, but the more troubling year-over-year compression reflects deeper structural issues in the business.

A growing reliance on credit cards, which now make up 42% of the portfolio, up from 35% in the year-ago quarter, has weighed heavily on margins. These products generate lower returns than consumer loans, and the shift is dragging overall performance. Additionally, the company’s move upmarket in both consumer and merchant lending, while reducing default risk, has further eroded yield. Argentina’s share of the portfolio doubled over the year, but even with its relatively higher margins, it was only enough to partially offset the broader NIMAL deterioration. The results point to mounting pressure on MELI’s credit business going forward.

MELI Faces Intense Competition in the E-Commerce Space

As global e-commerce continues to expand, MercadoLibre is encountering mounting pressure from well-capitalized international players aggressively targeting Latin America. Amazon (AMZN Quick QuoteAMZN - Free Report) is scaling its operations in the region, while Walmart (WMT Quick QuoteWMT - Free Report) , already the largest brick-and-mortar retailer in Latin America with more than 3,000 stores in Mexico alone, leverages its extensive footprint to gain market share. Alibaba’s (BABA Quick QuoteBABA - Free Report) AliExpress adds to the pressure by offering ultra-low-cost products, drawing in price-sensitive consumers across the continent.

Despite its leading position in Latin America’s digital commerce landscape, MercadoLibre faces a serious threat from these global giants. Armed with advanced logistics networks, cutting-edge technology, and deep financial resources, these competitors are well-positioned to reduce MELI’s market share. Without proper countermeasures, the company risks losing ground, particularly in user retention and pricing power, placing additional strain on its long-term growth and profitability.

Here’s Why You Should Hold MELI Stock for Now

MercadoLibre remains a dominant player in the Latin American e-commerce and fintech space, but growing headwinds warrant a cautious outlook. Intensifying competition from global players, coupled with structural pressure on its credit margins, poses real challenges to its growth trajectory.

The recent decline in NIMAL and the stock’s premium valuation further complicates the near-term investment case. While MELI’s expanding user base and diversified ecosystem are long-term strengths, current risks around profitability and competitive positioning suggest that investors may be better off holding the stock until more clarity emerges. MELI currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.