MELI Falls on Competition Fears, But DeepValue Points to Margin and Credit Erosion

What happened

MercadoLibre's stock has declined amid rising competition, but management argues Latin American e-commerce has deep penetration headroom and touts the company's growth track record. However, the latest DeepValue report reveals that the real stress comes from within: Q1'26 gross margin fell to 43.7% from 46.7% y/y, credit provisions more than doubled to $1.24B, and management explicitly states it will not change its investment posture 'materially in the near term.' The report's base case values MELI at $1,650, near the current price, but assigns a 25% probability of a bear case at $1,100 driven by credit losses spiraling. While the market fixates on competition, the filings show a more immediate threat: operating income dropped 20% y/y despite 49% revenue growth, and past-due loans rose 23% sequentially. The narrative that this is just a temporary growth investment cycle is contradicted by worsening credit metrics and management's own warning that gross margins could continue declining.

Implication

MELI's long-term potential remains intact if logistics efficiency (Brazil shipping unit costs -17% y/y in LC) and credit risk management prove out. However, with no near-term catalyst for margin improvement and credit costs elevated, the favorable entry is below $1,500 or after a clean quarter showing cost control and credit deceleration.

Thesis delta

The news-driven competition narrative understates the operational drag from margin compression and credit provisioning. If Q2'26 shows another gross margin decline and rising past-due loans, the investment cycle narrative breaks and the equity de-rates toward the bear case. Conversely, stabilization would validate that logistics scale is driving efficiency and credit is cyclical, not structural.