Deep Dive: MercadoLibre ($MELI)
There are businesses you trade and businesses you live with; MercadoLibre is trying to be the latter, which is why the quarter-to-quarter commentary always misses the plot.
If You’re In a Rush
What they do: MercadoLibre runs Latin America’s e-commerce + fintech ecosystem (marketplace, logistics, ads, payments/acquiring, and credit) and tries to compound the whole thing as one flywheel.
Challenges: The results are real, but the optics are messy: free shipping compresses near-term margins, credit growth invites “what’s the loss content?” paranoia, and Argentina adds accounting radiation (hyperinflation mechanics + FX noise).
What fixes it: Keep accelerating volume while credit quality stays boring and logistics gets cheaper per shipment. Basically, keep the flywheel spinning without the loan book turning into a surprise thriller.
📄 Download the full 18-page PDF report here for offline reading on your iPad, Remarkable etc.
Atomic Position: High Conviction, but overhang-heavy if credit or Argentina stops behaving.
The Setup
MercadoLibre’s Q3 2025 message is not subtle: the machine is accelerating again.
Net revenues & financial income were $7,409m
Income from operations was $724m, which the company presents as a 9.8% operating margin
Net income was $421m with a 5.7% net income margin
The “why now” sits in three dials moving together:
Commerce volume is still expanding: GMV $16.5bn
Fintech activity is still ripping: TPV $71.2bn
Credit is scaling fast: credit portfolio $11.0bn
The market’s never-ending argument isn’t “is this business good?” It’s “what kind of risk is it, really?” A pure platform story prices differently than a platform-plus-lender story.
Atomic Take: Q3 2025 reads like execution across multiple fronts, but the stock’s narrative risk is still “credit + Argentina + optics.”
Falsifier: Consolidated net revenues & financial income growth falls below 30% YoY for two consecutive quarters (metric: company-reported YoY % on the same line item).
How the Business Actually Makes Money
MercadoLibre is a two-core reactor with a third rail.
Commerce: marketplace + logistics + (increasingly) ads.
Fintech: Mercado Pago payments and acquiring, plus credit (and related financial services).
The third rail is integration: each core exists to make the other less optional.
On the commerce side, the company is willing to “spend” on logistics economics to expand the addressable market.
They accelerated growth “despite a major increase in free shipping and lower seller shipping charges, which reduced shipping revenue.” (source: Q3 2025 shareholder letter)
That’s not an accident. That’s a strategic knob.
A lot of companies claim “ecosystems.” MELI actually pays for one. Free shipping isn’t a promo: it’s capex in disguise, except the asset is habit. The question isn’t whether it hurts this quarter. The question is whether it permanently raises the default choice in Latin America
Brazil is the cleanest example. Management calls out reducing the free shipping threshold (from R$79 to R$19) and then describes what you’d hope happens next:
Conversion and retention up.
Supply in the newly subsidized price band increasing.
And the network absorbing higher volumes without service-level degradation.
This is “scale economies shared” in the wild. If unit shipping costs keep falling, MELI can subsidize demand with efficiency instead of with desperation, and that’s the kind of reinvestment that compounds instead of merely spending.
Now the part that makes the model hard to copy: fintech isn’t just a “payments feature.” It’s an embedded distribution engine.
Payments/acquiring increases frequency and stickiness; commerce gives you high-intent customer and merchant flows; the combined dataset improves risk models; then credit gets underwritten off the back of ecosystem behavior rather than a cold-start bank-style model.
Ads is the margin “third rail” because it monetizes intent without having to squeeze take rate.
The materials frame Mercado Ads as expanding beyond on-platform placements, using first-party data and broader inventory. The company also reports FX-neutral ads growth accelerating to 63% YoY (and 56% in USD).
This is the Nomad playbook in a trench coat: share the scale economies (cheaper shipping per unit) back to the customer, pull demand forward, then let density make the next unit cheaper again. If that loop holds, the short-term margin drama is just the admission price.
And importantly, the marketplace is not “monetizing by force.” 3P take rate is shown at 21.1%, slightly down YoY.
The meta-signal: they’re trying to compound ecosystem density and then monetize through services (logistics, ads, fintech), not just fee extraction.
Atomic Take: MELI’s moat is the compounding cost of recreating the integrated ecosystem while also keeping reliability high—scale is the weapon, but coordination is the trap.
Falsifier: 3P take rate declines >100 bps YoY while GMV fails to re-accelerate (metrics: take rate % and GMV YoY % as presented by the company).
What Went Wrong
First: “wrong” here is mostly “optically unpleasant choices,” not “the business broke.”
The quarter’s biggest optics punch is self-inflicted: a deliberate shift toward more generous shipping terms that reduced shipping revenue.
I invest after the “Nomad playbook”. And this means that investing is basically a character test. Can you watch a great operator choose messy reinvestment over tidy quarterly presentation, and not demand cosmetic profitability as tribute?
MELI keeps choosing mess.
That’s a feature, not a bug, until the flywheel stops paying it back.
That’s near-term pain in exchange for higher conversion, retention, and marketplace health.
Second: scaling credit forces the provision line into the spotlight. Provision for doubtful accounts was $815m.
In isolation, that number is meaningless. In context, longside rapid portfolio growth, it becomes the line item that investors use as a lie detector. It’s also the line item that can make a great platform story look like a risky lender story overnight if it spikes.
Third: Argentina makes the P&L look like it’s been left too close to a microwave.
Management describes Argentina’s hyperinflationary accounting impact and how FX revaluations flow through the income statement, including the tax-rate optics issue.
And the deck shows foreign currency losses, net as $102m.
The Audit: The temptation is to treat “shipping margin pressure” and “Argentina noise” as if they’re operational failure. In the company’s own framing, these are trade-offs and accounting mechanics layered on top of a still-expanding ecosystem. If you want to be bearish, be bearish about the trade-off paying back—not about the quarter looking messy.
Atomic Take: The “hate” is partly self-inflicted. MELI keeps choosing flywheel health over tidy quarterly optics, so the story stays noisy by design.
Falsifier: The company’s operating margin (company-defined) falls below 8% while logistics efficiency stops improving (watch: unit shipping cost trends the company highlights).
Catalysts
MercadoLibre’s catalysts are unusually testable. Management gives you the gauges.
Catalyst #1: Logistics efficiency keeps improving.
The shareholder letter reports unit shipping costs in Brazil down 8% QoQ and Mexico fulfillment unit shipping cost at a record low, down >12% YoY.
This is the compounding hinge: cheaper shipping per unit means the same subsidy buys more demand without permanently poisoning margin. Watch this like a hawk.
If those trends persist, free shipping shifts from “margin crime” to “competitive weapon.”
Atomic Take: This is the compounding fulcrum. If unit shipping costs keep falling while free shipping expands, MELI is literally buying growth with efficiency rather than with brute-force subsidies. That’s the “scale economies shared” test in one line.
Catalyst #2: Brazil demand and supply depth follow the threshold change.
Management frames Brazil as record buyer additions after the threshold reduction, and also highlights the supply response (more merchants selling and more listings in the newly subsidized price band).
This is the “did the subsidy buy durable engagement?” test. If it did, the marketplace becomes harder to dislodge.
Catalyst #3: Ads scales as a margin balancer.
FX-neutral ads growth accelerated to 63% YoY (Q3 2025, %, FX-neutral). Ads is attractive here because it monetizes intent without needing to squeeze take rate—and can help fund shipping generosity without fully sacrificing profitability.
Catalyst #4: Credit scales while quality stays stable.
The company reports 15–90 day NPL at 6.8% and NIMAL at 21.0%, with sequential pressure attributed mainly to Argentina funding costs while asset quality is described as broadly stable.
So:
FACT: Credit portfolio growth is rapid.
HYPOTHESIS: Credit cards move from “investment phase” to “harvest phase” as cohorts mature, if underwriting discipline holds.
MONITOR: NPL + provisions + NIMAL must be watched together; any one alone can lie to you.
Atomic Take: The catalysts are already visible on management’s own scoreboard: logistics costs down, ads up, and credit scaling without obvious quality deterioration.
Falsifier: Ads growth decelerates sharply while logistics costs stop improving and operating margin fails to recover (metrics: FX-neutral ads YoY %, unit shipping cost trend, operating margin).
Financial Quality Rubric (1–5)
Scale + Growth Durability: 5/5
Net revenues & financial income $7,409m
Atomic Take: MELI still behaves like a company running at expansion velocity, not “mature platform” velocity.
Profitability Under Reinvestment: 4/5
Company presents 9.8% operating margin alongside ongoing investment.
Atomic Take: Profitable while reinvesting is the rare combo, until it isn’t.
Cash Generation Quality: 3/5
Net cash provided by operating activities $6,907m
The Audit: CFO strength must be labeled. In the same period, funds payable to customers increased (a float mechanic) while loans receivable expanded materially (cash absorbed to grow credit).
Treating “CFO” as pure earnings power is how you get irradiated by a payments balance sheet.
Balance Sheet Simplicity: 3/5
Cash & cash equivalents $2,582m
Restricted cash $6,617m
Funds payable to customers $10,567m. (Q3 2025 earnings presentation financial statements)
Atomic Take: The liquidity looks huge until you read the labels.
Credit Discipline Risk: 3/5
Credit portfolio $11.0bn with 15–90 day NPL 6.8%
NIMAL 21.0%
Atomic Take: Great when boring; brutal when not.
Accounting / Macro Optics: 3/5
Argentina hyperinflation discussion + FX losses disclosed.
Atomic Take: The business can be executing while the reported GAAP optics look chaotic—especially in Argentina.
MELI looks like a high-quality compounder with a single persistent failure mode: credit + macro optics can flip the narrative faster than operations can respond.
Falsifier: Provisions continue rising faster than net revenues & financial income over multiple quarters (watch the GAAP provision line versus the GAAP revenue line).
The Statements
Balance Sheet (The Geiger Test)
Start with the adult question: what’s liquid, and what’s plumbing?
The Q3 2025 report show cash and restricted cash that are large in absolute terms, but also show large obligations tied to customer funds.
This is normal for a scaled fintech operation. What’s not normal is pretending it’s the same thing as “excess cash.”
The Audit: If you talk about MELI’s balance sheet like it’s a retailer’s balance sheet, you’ll misread risk. A meaningful portion is payments infrastructure, not discretionary liquidity.
Atomic Take: The balance sheet is strong in scale but not simple. Liquidity analysis must separate “available” from “restricted/owed.”
Falsifier: Net debt rises while operating margin compresses (metrics: net debt as presented by the company; operating margin).
Cash Flow (The Turbine)
Net income is not cash, and fintech cash is not “just operating cash.”
The company reports net cash provided by operating activities $6,907m.
In the same period, it reports capex-like investment (PPE + intangibles) $(916)m and an adjusted free cash flow metric of $718m with adjustments described as addressing customer-fund restrictions, loans receivable changes, and working-capital debt mechanics.
The Audit: This is why MELI cash flow debates never die. GAAP CFO can look spectacular while the economic interpretation depends on float growth and loan growth. The solution isn’t cynicism, it’s labeling.
Atomic Take: MELI’s cash generation is real, but the sustainable-cash conversation must acknowledge float mechanics and the cash absorbed by credit growth.
Falsifier: CFO remains elevated while the drivers tied to customer funds flatten or reverse and credit cash absorption remains high (watch: company’s disclosed cash flow line items).
Income Statement (The Reactor)
The P&L tells you two truths at once:
The model works at scale: revenue base and operating profit exist in the same sentence.
Management is actively trading away some “pretty” revenue (shipping) to expand engagement and volume, and the accounting noise (especially Argentina) can distort readability.
Bridge from GAAP net income to Adjusted EBITDA — useful, but always ask what’s being added back and why.
Atomic Take: The income statement is strong enough to fund reinvestment, but noisy enough to keep the valuation debate permanently active.
Falsifier: Gross profit growth lags net revenues & financial income growth for multiple quarters (GAAP-to-GAAP comparison).
Valuation
Valuation is mostly a bet on duration, not a bet on a quarter.
The current market cap is around $102bn. On Q3’25 GAAP net income annualized ($421m × 4), that implies:
~61× Q3’25 net income run-rate P/E (differs from TTM/forward P/E)
~35× annualized Q3’25 GAAP operating income ($724m × 4).
Expensive? In isolation, yes. But this is the cost of entry for a dominant compounder. The market is effectively betting that today’s ‘expensive’ is tomorrow’s bargain, provided the three engines (shipping efficiency, ad monetization, and credit quality) keep firing in sync.
Atomic Take: This is Nomad math: the multiple only works if the flywheel’s lifespan is long.
Falsifier: If credit quality trends deteriorate while growth stays aggressive (e.g., 15–90 day NPL 6.8% moves materially higher and stays there), the market’s “duration bet” gets repriced fast.
The Atomic Verdict
Disclosure: I’m not a neutral observer here. MercadoLibre is the largest position in my Atomic portfolio.
Status: High Conviction (with caveats), 4.0 / 5.0 stars.
Reason #1: The flywheel is visibly accelerating. The company discloses TPV $71.2bn and GMV $16.5bn, and it reports net income $421m even while leaning into free shipping and credit expansion.
Reason #2: Operating system improvements are tangible. The company highlights unit shipping cost improvements in Brazil and Mexico, which is exactly what you want to see if you’re subsidizing shipping as a growth lever.
Reason #3: Credit quality isn’t flashing red—yet. The company discloses 15–90 day NPL 6.8% and NIMAL 21.0% while scaling the portfolio.
What would increase confidence: A longer track record of credit scaling without deterioration in NPL/provisions while logistics efficiency keeps compounding—i.e., the company proves it can run the reactor hotter without stressing the containment vessel.
The market cap is the market’s confidence score. At ~$102bn, the market is underwriting durability, not just growth. The only acceptable way to earn that is: shipping efficiency keeps improving, ads stays strong, and credit stays boring.
Upgrade Triggers
NIMAL stabilizes/improves while the credit portfolio continues scaling (metrics: NIMAL; portfolio size).
Operating margin expands from the company’s Q3 2025 level while the free shipping strategy persists (metrics: operating margin; continued strategy emphasis in materials).
Ads growth remains elevated on an FX-neutral basis (metric: FX-neutral ads YoY %).
Downgrade Triggers
NPL rises materially above the company’s Q3 2025 level and/or provisions accelerate (metrics: NPL; GAAP provision line).
Unit shipping cost improvements stall or reverse (metrics: Brazil/Mexico unit shipping cost trends highlighted by the company).
Balance-sheet leverage expands without margin support (metrics: net debt as presented; operating margin).
Atomic Take: MELI is a compounding machine that keeps choosing to stay aggressive, so the only rational way to underwrite the story is to watch whether credit and Argentina ever force the reactor to throttle down.
Reference Notes
Q3’25 one-slide scoreboard (Net revenues & financial income $7.4bn; operating income $724m / 9.8% margin; net income $421m / 5.7% margin; GMV $16.5bn; TPV $71.2bn; credit portfolio $11.0bn): Earnings Presentation Q3 2025, Slide 4 (PDF p.4).
“Growth accelerated… despite a major increase in free shipping and lower seller shipping charges, which reduced shipping revenue.” (plus the consolidated headline results paragraph): Shareholder Letter Q3 2025, PDF p.4.
Brazil free-shipping threshold move (R$79 → R$19) + management-described outcomes (buyers/supply response/NPS framing): Shareholder Letter Q3 2025, PDF p.1.
Ads growth (FX-neutral Ads revenue growth accelerating to 63% YoY; also the USD growth number): Shareholder Letter Q3 2025, PDF p.2.
Logistics efficiency callouts (Brazil unit shipping costs down 8% QoQ; Mexico fulfillment unit shipping cost record low, down >12% YoY): Shareholder Letter Q3 2025, PDF p.1–2.
Credit gauges (NIMAL 21.0%; 15–90 day NPL 6.8%): Earnings Presentation Q3 2025, Slide 13 (PDF p.13) and Slide 14 (PDF p.14).
Balance sheet “plumbing” labels (cash, restricted cash, funds payable to customers): Shareholder Letter Q3 2025, PDF p.9.
Net income → Adjusted EBITDA bridge: Shareholder Letter Q3 2025, PDF p.13.
CFO → Adjusted Free Cash Flow reconciliation (9M 2025): Shareholder Letter Q3 2025, PDF p.17.
(Optional supporting slide: Adjusted Free Cash Flow chart: Earnings Presentation Q3 2025, Slide 23 (PDF p.23).)
Disclaimer
This Deep Dive is an educational breakdown of a public company based on information available in the materials provided (e.g., annual/quarterly reports, investor presentations, earnings transcripts) and my interpretation of that information. It is designed to be a “bolt-on” intelligence layer to your own due diligence — not a replacement for it.
Independence: I do not accept compensation of any kind from the companies discussed. My research is driven solely by my personal search for high-quality compounders.
Skin in the Game: Unless otherwise stated, assume the author may hold a long position in securities mentioned. Any position creates bias — treat this as commentary, not gospel.
Not Financial Advice: Nothing here is investment advice, a recommendation, or a solicitation. I am not a financial advisor. You are responsible for your own decisions.
Error & Update Risk: Financial statements change, companies restate, guidance evolves, and I can be wrong. Verify key figures in the primary filings and consider reading the footnotes before deploying capital.