Today, I'd like to examine the bull-bear debate around Latin American Internet giant MercadoLibre (MELI)...
I took a quick glance at the company in my June 22 e-mail. And after dozens of requests from my readers, I took a closer look in my July 8 e-mail.
At the time, MELI was trading at a very rich multiple of 45.4 times this year's estimates, but a more reasonable 31.6 times next year's.
On July 8, I concluded:
Do MercadoLibre's growth prospects warrant such a high multiple? In the past, the answer has almost always been yes.
But going forward, there's a sharp divide among investors – and some even think the stock is a short here...
Let's start with the bull side of this sharp divide...
On September 22, 2025, someone posting under the handle "RaisingCapital" pitched the stock on my favorite stock-idea website, Value Investors Club ("VIC"). (Since then, MELI is down 26%.)
RaisingCapital starts with an overview of the business:
MercadoLibre runs on two powerful engines: its e-commerce business and its financial technology (fintech) services. Together, they create a comprehensive ecosystem for users.
MELI combines some of the best features of Amazon (for online shopping), eBay (for buying and selling a wide variety of goods), and PayPal (for digital payments), but all specifically designed and adapted for the unique needs of Latin America. Founded back in 1999, its core mission has always been to "democratize commerce and financial services" in the region.
RaisingCapital then highlights MELI's strong "network effects" and other competitive advantages:
The more buyers use the platform, the more attractive it becomes for sellers to list their products. More sellers mean a wider variety of goods, which in turn draws in even more buyers. This creates a self-reinforcing cycle that is very difficult for competitors to break into. This network effect is further amplified by the tight integration of MELI's other services. Mercado Pago makes transactions smooth and secure, Mercado Envíos ensures reliable delivery, and Mercado Ads helps sellers reach customers effectively. Sellers increasingly rely on this full suite of services, and buyers benefit from the convenience. Evidence suggests that users who engage with multiple parts of MELI's ecosystem are less likely to leave, use the services more frequently, and even present lower credit risk if they take out loans.
MELI has invested heavily in building its own logistics infrastructure, including a vast network of fulfillment centers, cross-docking facilities (where goods are sorted and rerouted quickly), and its own delivery fleet. An impressive 94% of items sold on its marketplace are shipped through this proprietary network. This allows MELI to offer fast and reliable delivery...packages are delivered within 48 hours. In a region like Latin America, where logistics can be complex and underdeveloped, having this level of control over shipping is a massive competitive advantage.
Operating both a massive marketplace and a large fintech platform gives MercadoLibre access to an enormous amount of unique data about what people buy, how they pay, and their creditworthiness. This "first-party" data is incredibly valuable. It allows MELI to make better decisions for its Mercado Crédito lending business, offer more personalized recommendations to shoppers, enable highly targeted advertising for sellers, and more effectively detect and prevent fraud.
RaisingCapital concludes:
E-commerce and fintech are attractive, structurally growing industries in Latin America with a long runway for growth. MELI has dominant market share in e-commerce and a strong presence in fintech – they should be able to grow faster than the industry from continued market share gains.
MELI trades at 26.8x EBITDA [earnings before interest, taxes, depreciation, and amortization]. With reasonable operating assumptions, I expect MELI to deliver a 20% IRR [internal rate of return] over the next 3-5 years: 20% revenue CAGR [compound annual growth rate] driven by the continued strong growth of e-commerce & fintech in Latin America and market share gains. They are able to steadily increase their profit margins, driven by economies of scale, more high-margin advertising revenue, and greater efficiencies. 20x EBITDA exit multiple.
Let's now take a look at a more recent bull case...
Blogger Lorenzo Bastianelli posted about MELI on June 20 after the company reported first-quarter earnings. He called it a "stellar quarter... yet the stock sold off because operating margin fell to 6.9%, down 600 basis points year over year," as you can see in this chart:
But Bastianelli isn't concerned. He argues that the margin decline is due to MercadoLibre "choosing to invest aggressively because the opportunity in front of it is still enormous, and those investments are already producing faster growth, stronger network effects, and better scale economics."
He also argues that it's "too early" for the Latin American market:
Competition, free shipping, better logistics, lower friction, better search, and better prices are not simply taking share from MercadoLibre. They are accelerating the migration from offline retail to online retail. And when more consumers move online, MercadoLibre is structurally advantaged because it has the largest marketplace, the strongest logistics network, the most trusted payments layer, and the best data loop in the region...
Management reminded investors that the average American makes 41 online purchases per year, while the average Latin American makes just 7. MercadoLibre buyers average 11. That gap is the whole thesis.
If the market grows faster because consumers are being pulled online more aggressively, the largest platform can benefit even if the environment looks more competitive on the surface.
That is exactly what [the first quarter] showed.
Bastianelli could be right. But let's take a look at the bear case before drawing any conclusions...
Another VIC member, "a_mozart," shared a short thesis on MELI on April 9:
MercadoLibre is set to be a growth trap for the ages as the business, giving up margin to defend share in e-commerce, increasingly relies on its lending business to drive profitability. With 40% of EBIT [earnings before interest and taxes] coming from interest on a massive $12 billion loan book and growing (90% y/y [year over year] 2025, 60% y/y 2026 [estimated]), we believe MELI is due for a derating towards fintech multiples (22x P/E [price to earnings]) on a diminished earnings base ($50 2026 EPS [earnings per share]), implying -38% downside from current levels.
A_mozart believes that the stock's steep sell-off shows that the market is catching on and "that the business is growing itself into lower margins and lower quality of earnings":
Our view is that MELI is a company with two businesses: a retailer with compressing margins and a fast-growing bank. We do not observe this platform effect, being here on the ground in [Latin America]. Customers buy things in MELI based on their offerings and price. Their fintech offerings are good but [in line] with other fintech players in the region. No one is being held hostage within the MELI platform. If a better price offering exists, if a competitor will lend at better terms, customers go with them.
For these reasons, we view the ongoing margin compression in their retail business as structural in response to growing competition. And, as will be detailed further on, do not see anything special in their fintech operation. Although investors will eventually have to ask themselves whether they want to own a [Latin American] bank trading at twice [that] of Nubank's multiples.
A_mozart concludes:
We expect 44.0% gross margins driven by e-commerce investment and 9.3% EBIT margins driven by their lending business expansion in 2026. Even underwriting an optimistic 39.6% top-line growth, we get 2026 EPS of $50.61, which is not far from current Street numbers ($52 EPS).
Where our views diverge most is the margin profile going forward; we do not see how MELI will pull off higher EBIT margins in 2027 or 2028. However, sell-side revisions are also beginning to delay the margin inflection in their estimates.
We believe a stretched but fair valuation for MELI is 22x NTM [next-12-months] P/E. The closest comp would be a blend of Nubank for fintech and Sea Limited for commerce, both of which trade well below MELI's multiples despite having similar growth profiles (35% and 27% respectively). Adjusted to what these segments contribute to EPS, the comparable multiple for MELI is about 17x for NTM EPS. MELI currently trades above 35x NTM EPS...
We believe this is an asymmetric opportunity where MELI at best goes nowhere for the next two years and most likely de-rates to peer multiples.
So, the bull-bear debate here isn't whether MercadoLibre will hit this year's analysts' consensus earnings estimates of $39.92. It's also not whether the company can continue to grow rapidly.
The question is, what do margins look like going forward? Will they remain depressed due to rising competition and an increasing reliance on its fintech business, as a_mozart argues? Or will they rebound, as Bastianelli believes?
The answer to this question will determine whether MELI's earnings will soar 44% next year to $57.39, as analysts project. If this happens, the stock will likely rally. If it doesn't, there's a lot of downside to a stock trading at 45.4 times this year's estimates...
My take is that this stock is an easy pass as a long... and as a short.
It's madness to short a stock growing this rapidly, with a market-leading position in multiple large, untapped markets, run by capable management.
But there's no way I'd pay 45.4 times earnings for a company with rising competition and declining margins that's increasingly relying on growing its finance business to drive growth.
I can't even begin to count how many times in my 25-plus-year career I've seen high-growth finance businesses blow sky-high – Fannie Mae (FNMA), Freddie Mac (FMCC), AIG (AIG), Countrywide Financial, Washington Mutual, GE Capital... The list goes on and on.
Bulls might argue that a good analogy here is Amazon (AMZN) creating an amazing new business, Amazon Web Services. But I'm not buying it. Financial businesses are a different – and much more dangerous – animal.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.
P.P.S. Yesterday, Susan and I finished our Backroads hiking trip in the Scottish Highlands and said goodbye to our 18 new friends. Here are some pictures from our last two days:
