MercadoLibre's Q4 Revenue Beat Fails to Mask Earnings Miss and Margin Strain, Reinforcing Wait Rating

What happened

MercadoLibre reported mixed Q4 2025 results, with revenue exceeding expectations due to strong e-commerce growth but earnings missing forecasts, leading to a stock climb that overlooks underlying profitability issues. The DeepValue report had emphasized that operating margin stabilization is critical, noting Q3 2025 margin fell to 9.8% from aggressive shipping subsidies in Brazil, which compresses gross margins. Despite the revenue beat, the earnings miss indicates that margin pressures likely persisted in Q4, keeping operating margin near or below the 10% threshold that weakens the investment case. Concurrently, credit exposure continued to scale rapidly, with loans receivable growth exceeding 70% year-over-year, aligning with the report's warning about balance-sheet risks from fintech expansion. Overall, these results confirm the narrative that growth is being bought at the expense of eroding margins and rising credit vulnerability, validating the 'WAIT' rating.

Implication

The persistent margin compression signals that competitive pressures in Brazil are forcing ongoing reinvestment, which may delay profitability recovery and strain valuation at 48.5x P/E. High credit growth without improved credit quality could lead to increased defaults, impacting future earnings and potentially triggering a credit cycle scare. Revenue beats may provide short-term optimism, but earnings misses underscore the lack of operating leverage, risking multiple compression if margin trends do not improve. Monitoring Q1 2026 results for operating margin rebounds and stable non-performing loan ratios is essential to assess whether reinvestment is translating into durable returns. Therefore, maintaining a wait-and-see approach until clearer signs of disciplined capital allocation and margin stabilization emerge is prudent to avoid overpaying for growth.

Thesis delta

The investment thesis remains unchanged: MercadoLibre's growth is fueled by aggressive reinvestment in shipping subsidies and credit, but profitability and credit risks necessitate caution. Q4 results reinforce this by showing strong revenue but weak earnings, confirming that margin stabilization has not yet materialized as per the report's key checkpoint. Investors should continue to wait for evidence of operating margin recovery to ≥11% and controlled credit growth before considering an entry, as the current valuation offers no margin of safety.