One of last year's biggest winners was MercadoLibre (MELI -1.96%), soaring 102% in 2017. The leading Latin American online marketplace operator took off as revenue growth accelerated sharply. Investors and analysts alike would go on to beef up their expectations with MercadoLibre growing its top line at its fastest clip since 2008.

MercadoLibre's revenue is taking off on the strength of a free shipping promotion that's clearly resonating with shoppers. It hasn't been perfect. The downside to aggressive marketing tactics is contracting margins, and net income declined sharply for the third quarter and is clocking in flattish through the first nine months of 2017. Investors are obviously placing more weight on MercadoLibre's heady revenue growth over what's trickling down the income statement, but that may not be enough to keep the good times going in 2018.

MercadoLibre presenting at a developer conference.

Image source: MercadoLibre.

Si mas

MercadoLibre's latest quarter was another well-received beauty. Revenue soared 61%, and that's adjusted for the stronger U.S. dollar. Top-line growth actually rose 79% in local currency, with the weakest of its five countries still growing at the local level by more than 50%.

The love hasn't been universal for MercadoLibre. Citi analyst Paola Mello downgraded the stock two weeks ago, concerned about intensifying competition in key markets. She's also worried about the high costs of achieving the recent revenue growth. 

It's fair to knock MercadoLibre's bottom line, but let's not forget that there's a method to the madness. The push to grow its business at the expense of near-term margins maximizes more than just transactions revenue. MercadoLibre's growth makes it easier to prop up its fulfillment and payment platforms, with items shipped through MercadoEnvios soaring 80% and payment volume for MercadoPago rising 74% in the third quarter. 

Analysts see 2018 as another year of growth. They see revenue rising 43%, decelerating from 2017's hot pace. It will still be more than enough to be MercadoLibre's second best growth rate over the past decade, according to data provided by S&P Global Market Intelligence. Earnings will once again fail to live up to its end of the bargain. Wall Street pros are targeting just a 24% uptick in earnings per share. However, MercadoLibre has routinely smoked through analyst expectations.  

MercadoLibre is highly unlikely to double again in the year ahead. Slowing growth and net margin continuing to contract will weigh on the enthusiasm. However, MercadoLibre is sturdy enough to continue to be a winning investment. It should be able to hold up well against the competition, and bears may be underestimating the power of its ecosystem to justify the near-term costs of rapidly expanding its customer base.