To The Moon

$MercadoLibre(MELI)$

Here’s an analogy I never expected to make: Imagine if Amazon and PayPal had a baby, and that baby moved to South America. Well, that’s essentially what you get with Mercado Libre—a company that operates both an e-commerce and a fintech division.

The company just reported earnings after the market closed, and investors are loving the results. Shares jumped more than 12% in after-hours trading. But what does this mean for investors moving forward? Is it too late to buy, or is the stock still attractively priced? Let’s break it down.

Mercado Libre’s Q4 Earnings Breakdown

When the market opens tomorrow, Mercado Libre's market cap will be around $120 billion. The company reported over $6 billion in revenue for the quarter, marking a 37% year-over-year increase and exceeding analyst expectations.

On the bottom line, earnings per share came in at $12.61—blowing past estimates and nearly quadrupling the company’s performance from the same period last year.

Profitability and Margins

Gross margins took a slight step back, mainly due to the company expanding its fulfillment centers in key regions. These facilities aren’t yet running at full capacity, which can temporarily weigh on margins.

However, operating and net margins expanded significantly, contributing to strong profitability. Free cash flow and net income also saw substantial growth. The balance sheet remains solid, with $8.3 billion in cash and $5.7 billion in debt.

Revenue Growth and Cost Management

Revenue was up 37% for the quarter, but the cost of revenue grew slightly faster at 40%. This was largely driven by the company's expanding credit card business. Typically, we don’t like to see costs outpacing revenue growth, as it can pressure margins.

Despite this, the company delivered impressive results, thanks to disciplined cost management. Operating expenses increased by only 12%, while revenue climbed over 30%. This dynamic fueled a nearly 150% increase in income from operations, and net income nearly quadrupled.

A Closer Look at Revenue Streams

FinChat is incredibly helpful when analyzing a complex company like Mercado Libre. I use it daily, and if you want to test it out, just click the link in the show notes. If you decide to go for full functionality, you’ll get a 15% discount on an annual membership.

Now, let’s break down Mercado Libre’s revenue streams:

Commerce Services Revenue – This is the largest segment, covering marketplace transactions where Mercado Libre handles warehousing, fulfillment, and shipping. Revenue from this segment grew 45% year-over-year, thanks to improvements in same-day and next-day delivery.

Commerce Product Sales – This includes first-party sales, such as Mercado Libre-branded products. While it grew 41% year-over-year, it’s a smaller part of the business, so it’s less significant.

Fintech Services Revenue – This includes merchant payment processing through Mercado Pago. This segment generated $1.4 billion in revenue, growing 20% year-over-year, an acceleration compared to the last three quarters—definitely a positive sign.

Credit Portfolio Revenue – This includes short-term loans and credit card revenue. Post-pandemic, this segment has exploded, growing from $132 million in revenue to over a $1 billion run rate.

E-Commerce Growth

The number of unique active buyers on Mercado Libre’s platform reached 67 million by the end of the quarter, with the growth rate accelerating over the last four quarters. This means more people are not only shopping on the platform but doing so at an increasing pace—a great sign for the business.

Gross Merchandise Volume (GMV), or the total value of goods sold, reached $14.5 billion, growing 56% on a constant currency basis. Inflation in Argentina makes US dollar-denominated growth harder to analyze, but in terms of actual transactions, 525 million items were sold, growing at over 25%.

Logistics & Fulfillment: Mercado Envíos, the company’s logistics arm, handled 453 million shipments—roughly 86% of all orders placed—growing 30% year-over-year.

Take Rate Expansion: The company’s marketplace take rate (the percentage of each transaction it keeps as revenue) has steadily increased since 2019, now reaching 25%—an impressive figure.

Fintech & Payments Growth

Mercado Pago had 61 million monthly active users, growing steadily at 35%+ annually. Total payment volume processed reached $59 billion, growing at 32%. While growth has slowed slightly, it remains above 30%, which is still strong.

Interestingly, the number of transactions grew even faster (43%), indicating users are making smaller, more frequent purchases, making the service more integrated into daily spending habits.

One key metric to watch is the revenue take rate, which has declined to 4.3%. While this may seem negative, it’s mainly due to the rapid expansion of the credit card business, which naturally has lower margins.

Credit Portfolio & Loan Risk

As Mercado Libre expands its lending business, one of the biggest risks is loan defaults. The Net Interest Margin After Losses (NIALL) fell to 27.6% from nearly 40%, which was expected as the company scales its credit card offerings.

The good news? The percentage of loans 90+ days past due has declined, currently at 17.5%. Additionally, 15-90 day delinquencies are also decreasing, which is a positive sign. As long as Mercado Libre maintains strong underwriting, this segment should remain a significant growth driver.

Market Expectations & Valuation

Management doesn’t provide formal guidance, but analysts expect 24% revenue growth next quarter, with just 3% earnings growth—a conservative estimate that could be revised upward.

The key risks to watch:

1. 90+ day loan delinquencies – If defaults rise, it could undermine the entire fintech expansion.

2. Take rates & volume growth – Monitoring total payment volume (for fintech) and GMV (for e-commerce) will be crucial.

Is Mercado Libre Still a Buy?

Despite the massive rally, Mercado Libre still appears reasonably valued:

• Price-to-Sales (P/S) Ratio: Currently 4.4x forward sales, below its long-term median.

• Price-to-Earnings (P/E) Ratio: Around 60x forward earnings, historically in line with its average.

• Price-to-Free Cash Flow: At 12x forward free cash flow, which is well below its four-year average.

Discounted Cash Flow (DCF) Analysis

Using a reverse DCF, we estimate that Mercado Libre only needs to grow free cash flow by 6% per year over the next decade to justify its current stock price.

Even under a more conservative assumption of a 25% free cash flow margin, Mercado Libre would only need to grow revenue by 10% per year—a very achievable target given analysts are projecting 22% growth over the next two years alone.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.