MercadoLibre Balances Strong Growth and Profitability Despite Macro Headwinds

Wide-moat MercadoLibre MELI 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.

More concretely, quarterly net revenue of $3 billion fell short of our $3.2 billion forecast as MercadoLibre pulled back on less profitable first-party sales. Nevertheless, the firm’s $3.25 in quarterly diluted EPS healthily exceeded our $2.05 estimate, with a higher mix of more-profitable third-party revenue and a pullback in marketing expenditure driving the bulk of outperformance. We still expect modest annual expansion in operating profit and operating margin over the next decade, consistent with management guidance, and view roughly 20% long-term operating margins as plausible, which contemplates midteens first-party sales penetration (against roughly 3% today).

Finally, the firm’s 35% growth in consolidated foreign exchange-neutral gross merchandise volume, or GMV, drove market share gains across all key geographies. We view ongoing market share capture as exceedingly likely moving forward, with preference for integrated fulfillment and competitive pricing driving online commerce toward a winner-take-most equilibrium; we think MercadoLibre’s mid-20% share cements it as the most likely long-term winner in the region.