Zacks Article Highlights MELI's LatAm Volatility vs. Shopify's Strengths, Echoing DeepValue Concerns

What happened

A Zacks Investment Research article compares MercadoLibre and Shopify, concluding that Shopify's capital-light model, global diversification, and margin gains give it an edge over MELI, which faces persistent Latin American volatility. This external analysis aligns with the DeepValue master report, which rates MELI as a 'POTENTIAL SELL' due to significant margin compression, with EBIT margins dropping from a peak of 14% to under 10% in recent quarters. The report details how aggressive shipping subsidies in Brazil and rapid credit expansion via Mercado Pago are squeezing profitability, while loans receivable surged 68% year-to-date to $11 billion, raising credit risks. Despite MELI's robust revenue growth of over 30% annually, its valuation at 53x P/E and 37x EV/EBITDA embeds optimistic assumptions for a quick margin recovery that may not materialize amid intense competition. The comparison underscores that MELI's capital-intensive, regionally concentrated strategy contrasts with more stable global models, highlighting heightened execution and downside risks.

Implication

MELI's reliance on aggressive subsidies and credit growth in volatile Latin American markets exposes it to sustained margin compression and potential credit events, challenging its premium valuation. The capital-intensive nature of its logistics and fintech expansion increases execution risk, with free cash flow largely recycled into loans and capex rather than providing investor returns. High multiples leave little margin of safety, making the stock vulnerable to any earnings misses or macroeconomic shocks in key regions like Brazil and Mexico. External comparisons with Shopify reinforce that competitors with more diversified, capital-light models may offer better risk-adjusted returns in the current environment. Consequently, investors should consider trimming positions or waiting for a lower entry point below $1,800, as suggested in the DeepValue report, until clear evidence of margin stabilization and credit quality improvement emerges.

Thesis delta

The Zacks article does not shift the core thesis but reinforces it by externally validating the DeepValue report's concerns about MELI's margin volatility and competitive disadvantages. It highlights that market narratives are increasingly focusing on profitability trade-offs, aligning with the report's view that MELI's growth comes at the expense of returns, warranting a cautious stance unless operational metrics improve.