MercadoLibre YTD Rise Not Enough Amid Competitive Pressure

MercadoLibre (MELI) shares surged 47.4% YTD but face challenges from growing competition and declining credit margins. Although earnings estimates showed upward revisions, increasing market risks suggest investors may want to hold MELI stock for now.

Date: 27-05-2025

AI Rating: 6

Performance Analysis
MELI shares have significantly outperformed both the Zacks Retail-Wholesale sector and Internet-Commerce industry this year, reflecting investor confidence.
Earnings Per Share (EPS)
The Zacks Consensus Estimate for second-quarter 2025 earnings is now $11.70, indicating a year-over-year growth of 11.64%. This upward revision of 12.28% over the last month suggests a strong outlook, bolstered by the company's financial results that have beaten estimates in three of the last four quarters, with an average surprise of 22.59%.
Revenue Growth
The first-quarter total revenues reported a robust year-over-year growth of 32.3% and 43.3% in commerce and fintech revenues respectively, pointing to accelerating business performance in these segments. The forecast of $6.37 billion in revenues for Q2, reflecting a year-over-year growth of 25.52%, further reinforces this positive trend.
Profit Margins
However, the analysis noted a significant decline in MELI’s Net Interest Margin After Losses (NIMAL), which fell from 31.5% to 22.7% year over year. This decline is concerning as it indicates deeper structural issues within MERCADO's credit portfolio. A shift toward cards that yield lower returns could restrict profit margins, impacting the company's overall profitability.
Market Positioning
The competition is intensifying with global players like Amazon and Walmart entering the Latin American market with robust logistics and financial resources, potentially undermining MELI's market dominance. Such challenges pose risks to MELI’s future growth, as strengthening competition could dilute their user retention and profitability.
Conclusion
Overall, while MELI’s strong EPS growth and revenue performance are promising, the structural issues impacting profit margins amid rising competition warrant a cautious outlook. Investors should consider maintaining their holdings in MELI until conditions clarify, particularly regarding its ability to adapt to competitive pressures and restore credit metrics.

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