MercadoLibre's Chile Leadership News Masks Deeper Margin and Credit Concerns

What happened

MercadoLibre's stock recently popped after a report confirmed its market leadership in Chile, but this positive headline obscures more pressing issues from its latest filings. The DeepValue master report highlights that MELI's group EBIT margin has compressed from 14.3% to 9.8% in Q3-25, driven by aggressive free-shipping subsidies in Brazil to counter rivals like Shopee and Temu. Concurrently, Mercado Pago's rapid credit expansion has increased financial risk, with loans receivable up 68% year-to-date and provisions rising faster than revenue. While leadership in Chile provides regional stability, it does little to offset the structural margin pressure and credit quality concerns dominating the core Brazilian and Mexican markets. Investors should recognize that this news is a minor positive in a broader narrative of profitability erosion and heightened execution risk.

Implication

The Chile leadership confirmation is a tactical win but does not alter the investment thesis that MELI faces sustained margin pressure from Brazilian subsidies and rising credit costs, limiting upside. With the stock trading at ~53x P/E and ~37x EV/EBITDA, the valuation already embeds a rapid return to low-teens margins, which filings indicate is unlikely in the near term. Management's aggressive reinvestment in logistics and credit has increased capital intensity and leverage, reducing the margin of safety for new capital. Monitoring should focus on Brazil's direct contribution margin and Mercado Pago's NIMAL, as deterioration here would exacerbate downside risks. Until evidence of margin stabilization and credit inflection emerges, investors are better off trimming positions or waiting for a more attractive entry below $1,800.

Thesis delta

The news reinforces MELI's regional dominance in Chile but does not mitigate the key risks identified in the master report, such as EBIT margin compression to under 10% and Net Interest Margin After Losses (NIMAL) declining to around 21%. Therefore, the investment thesis of 'Potential Sell' due to high valuation and operational pressures remains unchanged, with no material shift from this event.