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Should You Hold or Fold MercadoLibre Stock at P/E Multiple of 42.7X?
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Key Takeaways
MELI's Q2 growth came with shrinking margins and reliance on fintech-driven cash flow support.
Downward EPS revisions for Q3 signal fading confidence in MELIs earnings momentum.
Heavy reliance on Brazil, Argentina, and Mexico leaves MELI exposed to concentrated regional risks.
MercadoLibre's (MELI - Free Report) current price-to-earnings (P/E) multiple of 42.7X represents a significant premium compared with the Zacks Internet - Commerce industry average of 25.5X and the broader Zacks Retail and Wholesale sector’s 25.7X, reflecting unrealistic expectations that threaten long-term sustainability. This premium would be easier to defend if growth were accelerating and margins widening, but the second quarter results point to the opposite, as slower earnings momentum, heavier spending and rising competition are pressuring profitability.
MELI’s P/E F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Market Performance and Financial Results
MELI’s second-quarter 2025 results revealed a troubling disconnect between headline growth and underlying health. On a year-over-year basis, revenues climbed 34% to $6.8 billion, with gross merchandise volume up 21% and total payment volume rising 39%. Yet operating margin contracted 210 basis points to 12.2% and net income margin slipped to 7.7%, reflecting heavy subsidies and promotional spending.
Adjusted free cash flow of $454 million was reported for the quarter, but this figure was achieved only after $816 million in net fintech funding. Without that lending push, core operations would have delivered negative free cash flow, underscoring the fragile nature of MELI’s growth model.
Intensifying Competitive Threats from Superior Alternatives
MELI’s weakening fundamentals are amplified by rising competition. Amazon (AMZN - Free Report) is scaling its logistics network in Latin America, enabling faster shipping that narrows MELI’s fulfillment edge. Beyond delivery, Amazon can cross-subsidize e-commerce with strong cash flows from cloud and advertising, a flexibility MELI lacks.
Sea Limited (SE - Free Report) has strengthened its Shopee platform in Brazil, winning price-sensitive buyers with ultra-low-ticket strategies. Unlike MELI, Sea Limited offsets e-commerce losses through its gaming and fintech arms, giving it room to expand aggressively.
Meanwhile, eBay (EBAY - Free Report) is building momentum in Latin America’s cross-border trade. Its established marketplace reputation helps attract merchants seeking international exposure. By offering lower-cost access to global buyers, eBay has positioned itself as a credible alternative. The combined presence of eBay, Amazon and Sea Limited intensifies pressure on MELI, exposing its dependence on subsidies to maintain relevance.
MELI’s reliance on Brazil, Argentina and Mexico magnifies regional risks while offering little geographic diversification. In the second quarter of 2025, FX-neutral GMV in Brazil grew 29% year over year, but only after slashing free shipping thresholds, emphasizing volumes over sustainable margins. In the same quarter, Argentina’s currency volatility resulted in $117 million in foreign exchange losses, doubling year over year and directly weighing on net income.
Mexico posted higher fulfillment penetration in the second quarter of 2025; however, gains required aggressive financing concessions and deeper price cuts compared with the prior quarter. Unlike Amazon or eBay, which benefit from global diversification, MELI’s dependence on three fragile markets leaves it exposed to policy shifts, devaluations or inflation spikes that could quickly erode progress.
A key concern is MELI’s aggressive credit expansion. In the second quarter of 2025, the credit portfolio surged 91% year over year to $9.3 billion, despite weakening risk indicators. Credit cards accounted for 43% of total lending, up from 37% a year earlier, suggesting a rising shift toward higher-risk categories. Non-performing loans over 90 days stayed elevated at 18.5%, up 50 basis points sequentially, highlighting persistent stress in the book.
Net interest margin after losses contracted to 23% from 31.1% a year ago, reflecting deteriorating returns despite higher exposure. This credit-fueled growth model looks increasingly unsustainable in Latin America, where fragile consumer balance sheets and volatile conditions magnify default risk. Instead of strengthening MELI’s ecosystem, fintech now threatens overall stability by concentrating risk just as regional headwinds intensify.
Investment Thesis and Recommendation
Given these challenges, valuation looks increasingly stretched. The Zacks Consensus Estimate for third-quarter 2025 earnings is pegged at $9.88 per share, revised downward by 16.6% in the past 30 days. While the estimate still implies 26.18% year-over-year growth, the downward revision highlights weakening confidence in MELI’s earnings trajectory.
This weakness is also reflected in recent performance. MELI shares have declined 4.6% over the past three months, underperforming the sector and industry’s growth of 8.3% and 11.7%, respectively. The pullback signals mounting investor concern over margin pressure, negative free cash flow and unsustainable credit expansion, all of which weigh on the ability to justify its premium valuation.
MELI Underperforms in Past 3 Months
Image Source: Zacks Investment Research
Conclusion
MELI’s premium valuation stands on shaky ground as margins narrow, free cash flow weakens, and credit risks mount. Downward estimate revisions and share price underperformance versus the sector and industry reinforce the disconnect between expectations and fundamentals. Until the company demonstrates consistent, profitable growth, the stock remains unattractive at current levels.
Given these trends, MercadoLibre’s Zacks Rank #4 (Sell) appears well-justified.
Image: Bigstock
Should You Hold or Fold MercadoLibre Stock at P/E Multiple of 42.7X?
Key Takeaways
MercadoLibre's (MELI - Free Report) current price-to-earnings (P/E) multiple of 42.7X represents a significant premium compared with the Zacks Internet - Commerce industry average of 25.5X and the broader Zacks Retail and Wholesale sector’s 25.7X, reflecting unrealistic expectations that threaten long-term sustainability. This premium would be easier to defend if growth were accelerating and margins widening, but the second quarter results point to the opposite, as slower earnings momentum, heavier spending and rising competition are pressuring profitability.
MELI’s P/E F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Market Performance and Financial Results
MELI’s second-quarter 2025 results revealed a troubling disconnect between headline growth and underlying health. On a year-over-year basis, revenues climbed 34% to $6.8 billion, with gross merchandise volume up 21% and total payment volume rising 39%. Yet operating margin contracted 210 basis points to 12.2% and net income margin slipped to 7.7%, reflecting heavy subsidies and promotional spending.
Adjusted free cash flow of $454 million was reported for the quarter, but this figure was achieved only after $816 million in net fintech funding. Without that lending push, core operations would have delivered negative free cash flow, underscoring the fragile nature of MELI’s growth model.
Intensifying Competitive Threats from Superior Alternatives
MELI’s weakening fundamentals are amplified by rising competition. Amazon (AMZN - Free Report) is scaling its logistics network in Latin America, enabling faster shipping that narrows MELI’s fulfillment edge. Beyond delivery, Amazon can cross-subsidize e-commerce with strong cash flows from cloud and advertising, a flexibility MELI lacks.
Sea Limited (SE - Free Report) has strengthened its Shopee platform in Brazil, winning price-sensitive buyers with ultra-low-ticket strategies. Unlike MELI, Sea Limited offsets e-commerce losses through its gaming and fintech arms, giving it room to expand aggressively.
Meanwhile, eBay (EBAY - Free Report) is building momentum in Latin America’s cross-border trade. Its established marketplace reputation helps attract merchants seeking international exposure. By offering lower-cost access to global buyers, eBay has positioned itself as a credible alternative. The combined presence of eBay, Amazon and Sea Limited intensifies pressure on MELI, exposing its dependence on subsidies to maintain relevance.
Geographic Concentration Heightens Vulnerabilities
MELI’s reliance on Brazil, Argentina and Mexico magnifies regional risks while offering little geographic diversification. In the second quarter of 2025, FX-neutral GMV in Brazil grew 29% year over year, but only after slashing free shipping thresholds, emphasizing volumes over sustainable margins. In the same quarter, Argentina’s currency volatility resulted in $117 million in foreign exchange losses, doubling year over year and directly weighing on net income.
Mexico posted higher fulfillment penetration in the second quarter of 2025; however, gains required aggressive financing concessions and deeper price cuts compared with the prior quarter. Unlike Amazon or eBay, which benefit from global diversification, MELI’s dependence on three fragile markets leaves it exposed to policy shifts, devaluations or inflation spikes that could quickly erode progress.
Rapid Credit Expansion Threatens Financial Stability
A key concern is MELI’s aggressive credit expansion. In the second quarter of 2025, the credit portfolio surged 91% year over year to $9.3 billion, despite weakening risk indicators. Credit cards accounted for 43% of total lending, up from 37% a year earlier, suggesting a rising shift toward higher-risk categories. Non-performing loans over 90 days stayed elevated at 18.5%, up 50 basis points sequentially, highlighting persistent stress in the book.
Net interest margin after losses contracted to 23% from 31.1% a year ago, reflecting deteriorating returns despite higher exposure. This credit-fueled growth model looks increasingly unsustainable in Latin America, where fragile consumer balance sheets and volatile conditions magnify default risk. Instead of strengthening MELI’s ecosystem, fintech now threatens overall stability by concentrating risk just as regional headwinds intensify.
Investment Thesis and Recommendation
Given these challenges, valuation looks increasingly stretched. The Zacks Consensus Estimate for third-quarter 2025 earnings is pegged at $9.88 per share, revised downward by 16.6% in the past 30 days. While the estimate still implies 26.18% year-over-year growth, the downward revision highlights weakening confidence in MELI’s earnings trajectory.
MercadoLibre, Inc. Price and Consensus
MercadoLibre, Inc. price-consensus-chart | MercadoLibre, Inc. Quote
This weakness is also reflected in recent performance. MELI shares have declined 4.6% over the past three months, underperforming the sector and industry’s growth of 8.3% and 11.7%, respectively. The pullback signals mounting investor concern over margin pressure, negative free cash flow and unsustainable credit expansion, all of which weigh on the ability to justify its premium valuation.
MELI Underperforms in Past 3 Months
Image Source: Zacks Investment Research
Conclusion
MELI’s premium valuation stands on shaky ground as margins narrow, free cash flow weakens, and credit risks mount. Downward estimate revisions and share price underperformance versus the sector and industry reinforce the disconnect between expectations and fundamentals. Until the company demonstrates consistent, profitable growth, the stock remains unattractive at current levels.
Given these trends, MercadoLibre’s Zacks Rank #4 (Sell) appears well-justified.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.