Company Reports

MercadoLibre has positioned itself as a one-stop solution for Latin American commerce. It has developed a comprehensive ecosystem of mutually reinforcing services, with a core marketplace supported by a payments and lending arm (Mercado Pago and Mercado Credito), a best-in-breed shipping solution (Mercado Envios), and an increasingly robust advertising platform (Mercado Ads). With effectively all the firm's platform gross merchandise volume funneled through proprietary payment rails and shipped through Envios, the marketplace operator has effectively addressed two of the biggest pain points in e-commerce.

We remain believers in the wide-moat MercadoLibre grand narrative, with the firm's sprawling ecosystem of touchpoints across commerce, credit, fulfillment, and advertising underpinning a strengthening moat for the Latin American retail and financial technology stalwart. After digesting the firm's fourth-quarter results—$4.3 billion in sales edged our $4.1 billion forecast but "just" $586 million in adjusted operating income missed our $685 million expectation—we plan to raise our $1,330 fair value estimate by a mid-single-digit percentage, slightly better than suggested by time value. We also plan to lower our Morningstar Uncertainty Rating to High from Very High, consistent with our quantitative methodology. Shares still look expensive.

We expect limited valuation impact from the election of libertarian president Javier Milei in Argentina for wide-moat MercadoLibre, with dollarization striking us as unlikely and with currency weakness already impacting our $1,330 fair value estimate through foreign exchange losses and a higher risk premium for the firm's Argentine operations. While Argentine markets are closed Nov. 20, U.S.-listed ETF ARGT is up 11%-12% on the news as traders digest results. MercadoLibre shares are up by a smaller amount (1%-2%) but have rallied by more than 20% in the election run-up over the past three months and look slightly overvalued.

MercadoLibre has positioned itself as a one-stop e-commerce solution for Latin American buyers and sellers. It has developed a comprehensive ecosystem of mutually reinforcing services, with its core marketplace supported by a payments and lending arm (Mercado Pago and Mercado Credito), a best-in-breed shipping solution (Mercado Envios), and an increasingly robust advertising platform (Mercado Ads). With effectively all the firm's platform gross merchandise volume funneled through proprietary payment rails and more than 94% of items sold shipped managed through Envios, the marketplace operator has effectively addressed two of the biggest pain points in e-commerce.

Wide-moat MercadoLibre produced another great quarter despite turbulence in its Argentine home market, assuaging investor concerns and offering a mouthwatering glimpse of the profitability that the firm can achieve in the medium term. The firm grew sales by a striking 40% in dollar terms, with $685 million in operating profit and an 18.2% quarterly operating margin representing all-time high water marks. This validates our view that the largest online commerce marketplace can achieve 20% operating margins in the long term, though we expect near-term moderation as management prudently prioritizes investments in its fulfillment network, recently rebranded Meli+ loyalty program, and its financial services ecosystem. We plan to raise our $1,260 fair value estimate by a mid-single-digit percentage after digesting the results.

MercadoLibre has positioned itself as a one-stop e-commerce solution for Latin American buyers and sellers. It has developed a comprehensive ecosystem of mutually reinforcing services, with its core marketplace supported by a payments and lending arm (Mercado Pago and Mercado Credito), a best-in-breed shipping solution (Mercado Envios), and an increasingly robust advertising platform. With effectively all the firm's platform gross merchandise volume funneled through proprietary payment rails and more than 94% of items sold shipped managed through Envios, the marketplace operator has effectively addressed two of the biggest pain points in e-commerce.

In big news for the largest online commerce marketplace in Latin America, Pedro Arnt, the CFO and the most visible figure on the senior leadership team at MercadoLibre, is stepping down to pursue other opportunities. He will be replaced by Martin de los Santos, the head of the Mercado Credito segment. Arnt spent 24 years with wide-moat MercadoLibre, overseeing key periods as the firm grew from a predominately peer-to-peer marketplace into a model analogous to that of wide-moat Amazon in the United States, with a sprawling fulfillment network, large base of professional merchants, and nearly $35 billion in 2022 gross merchandise volume. We expect to maintain our Exemplary capital allocation rating during the transition period, and we expect to closely monitor how the firm's strategy evolves under new leadership.

The bar must be set pretty high when 31% sales growth and 960 basis points of operating margin expansion constitute "meeting" expectations, but that's largely the world we live in for Latin America's largest e-commerce operator. Wide-moat MercadoLibre continues to generate outsize growth despite a challenging backdrop, growing its gross merchandise volume by 12%, 24%, and 52% in Argentina, Brazil, and Mexico (in U.S. dollars), respectively, during its second quarter, taking share in each market and incrementally growing its fulfillment penetration, to 46%. While the firm narrowly missed our expectations going into the quarter, with $3.42 billion in sales and $5.16 in diluted EPS falling just shy of our $3.49 billion and $5.55 estimates, respectively (attributable to an unusually large $182-million foreign-exchange loss in Argentina), we're encouraged by both margin expansion and strong results in Brazil and Mexico. On balance, a slight miss on quarterly sales and earnings is offset by time value, and we expect to make few changes to our $1,250 intrinsic valuation.

MercadoLibre has positioned itself as a one-stop e-commerce solution for Latin American buyers and sellers. It has developed a comprehensive ecosystem of mutually reinforcing services, with its core marketplace supported by a payments and lending arm (Mercado Pago and Mercado Credito), a best-in-breed shipping solution (Mercado Envios), and an increasingly robust advertising platform. With effectively all the firm's platform gross merchandise volume funneled through proprietary payment rails and more than 93% of items sold shipped managed through Envios, the marketplace operator has effectively addressed two of the biggest pain points in e-commerce.

Wide-moat MercadoLibre's robust comps are becoming its own toughest competition; the Latin American e-commerce stalwart posted 43% foreign exchange-neutral growth in gross merchandise volume, 96% foreign exchange-neutral growth in total payment volume, and a healthy 11.2% operating margin during a fantastic first quarter. While the firm continues to fire on all cylinders, results clocked in pretty much in line with our expectations, as both $9.4 billion in GMV and $37 billion in TPV aligned with our own estimates. EPS of $3.97 arrived just shy of our $4.01 forecast, but we remain extremely impressed with management's ability to efficiently deploy capital across a sprawling suite of business segment and country combinations. As we digest results, we plan to raise our $1,200 fair value estimate by a low-single-digit percentage, consistent with time value. Shares look fairly priced.

MercadoLibre has positioned itself as a one-stop e-commerce solution for Latin American buyers and sellers. The firm has quietly developed a comprehensive ecosystem of mutually reinforcing services, with its core marketplace supported by a payments and lending arm (Mercado Pago and Mercado Credito), a best-in-breed shipping solution (Mercado Envios), and an increasingly robust advertising platform. With effectively all the firm's platform gross merchandise volume funneled through proprietary payment rails and more than 94% of items sold shipped managed through Envios, the marketplace operator has effectively addressed two of the biggest pain points in e-commerce.

Wide-moat MercadoLibre posted a strong fourth quarter, achieving its first full year with $10 billion in net revenue, $1 billion in EBIT, and $100 billion in processed payments. It has deftly navigated investments in myriad concurrent initiatives, including a growing financial services ecosystem, an ad platform that has swelled to 1.4% of gross platform sales (five times larger than prepandemic), and a $2.8-billion lending business with enviable economics. Most importantly, the firm has done so profitably, with 11.6% quarterly operating margin representing the highest quarterly print since the firm pivoted from a consumer-to-consumer to a principally business-to-consumer model in 2017-18. We expect to raise our $1,140 fair value estimate by a low-single-digit percentage, with the quarter unearthing nothing that shakes our long-term expectations.

MercadoLibre continues to position itself as a one-stop e-commerce solution for Latin American buyers and sellers. The firm has quietly developed a comprehensive ecosystem of mutually reinforcing services, with its core marketplace supported by a payments and lending arm (Mercado Pago), a best-in-breed shipping solution (Mercado Envios), a robust advertising platform, and a volume-generating classifieds business. With 98% of platform gross merchandise volume funneled through proprietary payment rails and more than 91% of items sold shipped managed through Envios, the marketplace operator has effectively addressed two of the biggest pain points in e-commerce.

Wide-moat Mercadolibre posted robust quarterly earnings, with strong growth across its commerce (22.5%), financial technology (63.5%), and credit (152%) segments, despite surging regional interest rates and declining consumer sentiment. It was encouraging to see strong growth in active users (11.8%) across platforms, attesting to the compelling value proposition the firm has spun around its commerce, digital wallet, and credit business lines, while the expansion of the nascent ads business—up 40 basis points to 1.3% of gross merchandise volume—helped drive record quarterly operating profitability. This last point is perhaps the most important, with management's decision to funnel capital toward longer-term and profitable growth, continuing to yield steady operating leverage, with 11% operating margin marking the highest quarterly print since the second quarter of 2019, by our estimates. On the other side of the coin, the willingness to eschew value-dilutive projects continues to impress, and supports our Exemplary capital allocation rating for the name—in this case, attested to by management's willingness to slow growth in the Brazilian credit business as lending conditions softened, and to pull back on the unprofitable first-party business. While earnings were impressive, only the acceleration of profitability truly bucked our expectations, underpinning our expectation for a low-single-digit increase to our $1,100 fair value estimate.

Wide-moat MercadoLibre trades at a 25% discount to our intrinsic valuation, with the Latin American marketplace behemoth's competitive position looking deeply entrenched and wildly underappreciated. While we are shaving our fair value estimate for the name to $1,100 per share, from $1,400, on the back of our expectation for a macroinduced downturn and lower payment processing take rates, we remain ready buyers, and continue to view shares as attractive for long-term investors.

MercadoLibre continues to position itself as a one-stop e-commerce solution for Latin American buyers and sellers. The firm has quietly developed a comprehensive ecosystem of mutually reinforcing services, with its core marketplace supported by a payments and lending arm (Mercado Pago), a best-in-breed shipping solution (Mercado Envios), a robust advertising platform, and a volume-generating classifieds business. With 98% of platform gross merchandise volume funneled through proprietary payment rails and more than 91% of items sold shipped managed through Envios, the marketplace operator has effectively addressed two of the biggest pain points in e-commerce.

We maintain our $1,400 fair value estimate and Very High Uncertainty Rating for wide-moat MercadoLibre as we digest results from Brazil's first round of presidential elections on Oct. 2. It's difficult to overstate the importance of the largest country in Latin America to MercadoLibre's growth plans, with 56% of the company's revenue in that market as of second-quarter earnings. We view political risk, particularly concerning the peaceful transition of power and preservation of functioning democracy, as one of the larger overhangs on the firm's shares, which continue to trade at a sizable discount—about 40%—to our fair value estimate.

MercadoLibre continues to position itself as a one-stop e-commerce solution for Latin American buyers and sellers. The firm has quietly developed a comprehensive ecosystem of mutually reinforcing services, with its core marketplace supported by a payments and lending arm (Mercado Pago), a best-in-breed shipping solution (Mercado Envios), a robust advertising platform (Mercado Clics), and a volume-generating classifieds business. With 98% of platform gross merchandise volume funneled through proprietary payment rails and more than 91% of items sold shipped managed through Envios, the marketplace operator has addressed two of the biggest pain points in e-commerce.

MercadoLibre continues to position itself as a one-stop e-commerce solution for Latin American buyers and sellers. The firm has quietly developed a comprehensive ecosystem of mutually reinforcing services, with its core marketplace supported by a payments and lending arm (Mercado Pago), a best-in-breed shipping solution (Mercado Envios), a robust advertising platform (Mercado Clics), and a volume-generating classifieds business. With 98% of platform gross merchandise volume funneled through proprietary payment rails and more than 91% of items sold shipped managed through Envios, the marketplace operator has addressed two of the biggest pain points in e-commerce.

Mercadolibre posted strong second-quarter results, with revenue ($2.6 billion), operating margin (9.6%), and diluted EPS ($2.46) healthily outstripping our $2.5 billion, 7.5%, and $2.24 forecasts, respectively. The company outperformed in every major category, with strength across segments. The firm appears to have taken meaningful market share in its commerce and payments businesses, while the lending book remains profitable and continues to grow at a torrid rate, generating more than 230% annualized growth. We've rarely been more convinced in the strength of the firm's network effect, the principal source of its wide-moat rating—yet we note that macroeconomic concerns linger, with elevated unemployment, inflation, and hawkish monetary policy in Brazil, and with fiscal difficulties looming in Argentina.