MercadoLibre's Strong Growth Meets Margin Pressure, Testing Investor Patience and Valuation Thesis

What happened

MercadoLibre reported robust 45% USD revenue growth and record user additions in Q4 2025, as highlighted in a recent Seeking Alpha article that praises world-class execution. DeepValue analysis supports this with concrete indicators: Brazil unit shipping costs fell 11% YoY, Ads revenue grew 67% FX-neutral, and credit-card NPL held at 4.4% on a $12.5B portfolio. However, strategic investments in free shipping and fintech expansion have compressed operating margins by 5-6 points, leading to stock price volatility and a decline to $1,768. Management's focus on long-term value over near-term profitability creates investor uncertainty but aims to solidify competitive moats against rivals like Shopee. The valuation now appears attractive historically, but upside depends on visible margin repair from logistics efficiency and Ads scaling within 6-12 months, per DeepValue's base case.

Implication

The stock's drop to near DeepValue's $1,650 attractive entry level offers potential gains if logistics unit-cost deflation and Ads monetization accelerate as projected. In the short term, earnings may remain choppy due to heavy reinvestment, necessitating a high tolerance for volatility and uncertainty around margin guidance. Critical risks include a credit provisioning shock exceeding $99M or recurring non-operational charges, which could derail the thesis and compress multiples further. Investors should prioritize monitoring Brazil cohort performance, credit NPL trends, and Ads growth rates over the next two quarters to gauge margin recovery. Despite these challenges, the base case implies upside to $2,000 if execution aligns, but position sizing must account for the high P/E of 44.9x and dependency on flawless operational leverage.

Thesis delta

The Seeking Alpha article reinforces MercadoLibre's growth narrative and undervaluation, but DeepValue's critical analysis highlights that the thesis remains unchanged yet hinges on timely margin improvement and risk containment. No fundamental shift is warranted; however, the narrative underscores that investor patience is essential, with any deviation in credit quality or cost deflation potentially altering the outlook quickly. The delta emphasizes moving beyond bullish propaganda to focus on measurable checkpoints, such as Brazil logistics costs and credit metrics, which will dictate stock performance in the near term.