MercadoLibre's Margin Pressure Intensifies as Free Shipping Costs Linger

What happened

MercadoLibre's robust growth in e-commerce and fintech is overshadowed by persistent margin compression, as highlighted in recent filings. A new analysis from The Motley Fool underscores that profitability, not growth, is the key risk for 2026, with free shipping costs potentially becoming structural. The DeepValue report notes that Brazil's free-shipping policies have driven down direct contribution margins from 17.3% to 11.8% YoY in Q3 2025. This margin erosion is compounded by rapid credit expansion, with loans receivable up 83% YoY, raising concerns about balance-sheet intensity. Investors are now awaiting Q4'25 results to see if operating margins can rebound from 9.8% or if the trade-off between growth and profitability worsens.

Implication

The company's high P/E of 48.5x leaves little room for error, making margin stability critical for valuation support. Persistent free shipping costs in Brazil could lead to sustained operating margin pressure, directly impacting earnings and cash flow generation. Credit scaling adds another layer of risk, with loan book growth outpacing delinquency stability, threatening balance-sheet health. Upcoming Q4'25 results on Feb 24, 2026, will be a key catalyst for reassessing the investment thesis, particularly around Brazil's contribution margin. Without clear margin recovery, the stock may face downward pressure, aligning with the bear scenario implied value of $1500, and investors should consider trimming positions above $2300.

Thesis delta

The new article reinforces the DeepValue report's WAIT rating by highlighting margin risks as paramount, suggesting no immediate shift but heightened vigilance. It implies that free shipping may not be temporary, aligning with the report's bear case of structural dilution in Brazil. Investors should maintain a cautious stance until Q4'25 results provide evidence of margin stabilization or deterioration.