MercadoLibre (MELI 6.75%) continues to demonstrate fantastic growth. It's the leader in Latin American e-commerce, and it has tremendous opportunities.
However, MercadoLibre stock fell after it reported fourth-quarter and full-year 2025 earnings, and it's trading down 18% over the past year. Let's check out why the market is unhappy and why this looks like a buying opportunity.
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What's going right for MercadoLibre
MercadoLibre had a strong quarter, with revenue up 47% year over year (currency neutral). Gross merchandise volume (GMV) was up 37%, and items sold rose 43%.
Latin America is still well behind other parts of the world in e-commerce penetration, and MercadoLibre continues to add value to its platform to attract new business. It recently lowered its free shipping threshold in Brazil, one of its biggest markets, from a minimum of 79 reals to 19 reals, and it continues to reap the benefits, with a 26% increase in active buyers. However, less than a third of customers in Brazil transacted on the platform in the quarter, leaving an ample growth runway.
The fintech segment is also moving right along, with a 27% increase in monthly active users and a 78% increase in assets under management. There are high barriers to access in the banking system in Brazil, where customers are in greater need of alternative payment systems, and in many of MercadoLibre's countries, the mass population relies on low-interest savings accounts that are ripe for disruption. MercadoLibre is planning to open a full bank in Mexico and Argentina, where it's aiming to become the largest digital bank in each country.
NASDAQ: MELI
Key Data Points
What went wrong for MercadoLibre
Although MercadoLibre is growing in all sorts of ways and has huge opportunities, that didn't translate into a stronger bottom line in the fourth quarter. It missed on earnings, with $11.03 in earnings per share (EPS) when Wall Street was expecting $11.44. Operating income rose slightly from $850 million to $889 million, but operating margin fell from 13.5% to 10.1%. Management mentioned several times in its shareholder letter that it's sacrificing short-term margin expansion to position itself for long-term success.
This isn't the first time MercadoLibre has built up its platform at the expense of the bottom line. The market didn't like it in the past, either, but the investments have led to the desired results and reinforced the company's dominant position. In a region with as many opportunities as Latin America, there are many competitors who would like to take over the leading spot.
MercadoLibre looks priced to buy, trading at a forward one-year P/E ratio of 22 and a price-to-free-cash-flow ratio of 15. It may not start soaring until the margins reverse and it reaps the rewards of its investments, but it's a great long-term play, and this is an opportunity to buy on the dip.
