MELI: Falling Margins and Rising Loan Losses Keep Us on the Sidelines

What happened

MercadoLibre stock has been punished by the market as e-commerce margins shrink and losses on non-performing loans escalate. Q1'26 revenue surged 49% to $8.8 billion, but operating income fell 20% and credit provisions doubled to $1.2 billion, while gross margin dropped 300 basis points to 43.7%. The Motley Fool suggests this creates a buying opportunity, comparing MELI's current 43x P/E to Amazon's earlier growth phase. However, unlike Amazon during its high-P/E era, MELI's margins are contracting and credit risks are rising, with no near-term catalyst for improvement. Until we see a quarter with stable margins and decelerating credit costs, the risk/reward remains unfavorable at $1,635.

Implication

The market's punishment reflects genuine deterioration in near-term profitability and credit quality, not just sentiment. While MELI's long-term platform power is intact, the high 43x P/E and lack of operating leverage demand a margin of safety. The Amazon P/E analogy is flawed because Amazon's margins were expanding during its high-multiple phase, whereas MELI's are contracting. Without evidence that logistics efficiency is stabilizing gross margins and that credit losses are peaking, the downside scenario of a re-rating toward $1,100 remains a real risk. Wait for either a pullback to $1,500 or a clean Q2 report that confirms the thesis breakers are not materializing.

Thesis delta

No material change; the DeepValue master report maintains a WAIT rating with an attractive entry of $1,500. The news article's bullish framing does not alter our thesis, as the fundamental pressures on margins and credit quality persist.