POST-EARNINGS ANALYSIS

MELI (MercadoLibre, Inc.) — Q4-2025

Reported: February 24, 2026 | Analysis Date: 2026-02-25

Rating: BUY (Maintained) | Target: $2,200 (Under Review) | Current: $1,745

Stock Reaction: -9.25% on Feb 25

1. Results vs. Expectations

Verdict: Revenue and volume metrics significantly beat expectations across the board. Profitability missed due to deliberate investment spending, not operational deterioration.

2. Key Surprises

Positive Surprises

• Revenue of $8.76B crushed even the high end of estimates (+45% YoY); FX-neutral growth was even stronger
• Credit portfolio surged to $12.5B (+90% YoY), with credit card portfolio at $5.7B (+114%) — far above expectations
• Credit quality improved: NPL 15-90 day at 4.4% (historic low), NIMAL expanded to 23% from 21% in Q3
• Items sold +43% YoY (752M units) — acceleration from Q3's +36%, showing marketplace engagement strengthening
• Advertising revenue grew +67% FX-neutral, making ads an increasingly meaningful margin contributor
• Fintech MAUs reached 78M (+28%), AUM surged to $18.8B (+78%)
• Brazil items sold +45% (accelerated from +42% in Q3), showing free shipping strategy is working

Negative Surprises

• EPS of $11.03 missed consensus of $11.77 by 6.3% — the primary driver of the stock selloff
• Operating margin compressed to 10.1% (from 13.5% in Q4 2024), a 340bps contraction
• Argentina revenue growth of +23% underperformed (missed estimates of $1.67B with $1.61B)
• Net income declined -13% YoY despite +45% revenue growth, highlighting the margin trade-off
• No specific margin recovery guidance from management — "not trying to optimize short-term margin"

3. Management Commentary Analysis

Investment Posture

CFO Martin de los Santos explicitly stated: "We are not trying to optimize short-term margin." This confirms the margin compression is deliberate and will continue. Management views the current period as a strategic investment window to capture market share in LATAM e-commerce and fintech while the opportunity exists.

Key Strategic Highlights

• Leadership transition: Ariel Szarfsztejn became CEO on Jan 1, 2026; Marcos Galperin moved to Executive Chairman
• "Agentic Commerce" initiative using proprietary AI for product discovery and negotiation
• 16 new fulfillment centers opened in 2025, including first facility in China for cross-border trade
• Free shipping threshold lowered in Brazil → "record conversion rates" and "record retention rates"
• Credit card issuance accelerated to ~3M in Q4 (from 2M in Q3, 1.5M in Q2)
• AI assistant in Mercado Pago handled 9M conversations in Q4; 87% resolved without human support

Capital Allocation

• Capex 2025: ~$1.23B; 2026 guided at ~$1.42B (+15% increase)
• Minimal share buyback ($4.05M authorization) — NOT a capital return story
• Priority: aggressive reinvestment in logistics, fintech, 1P retail, free shipping, credit

Guidance

No specific numeric guidance for 2026. Management signaled all business units growing at a "fast pace" with investments "generating results and unlocking long-term value." The absence of margin guidance is notable and keeps uncertainty elevated.

4. Geographic Performance

• Brazil (+47.9%) and Mexico (+55.6%) are the twin growth engines, together representing 77% of revenue
• Mexico continues to outperform as nearshoring tailwinds drive economic activity; acquiring TPV +50%
• Argentina underperformed at +23.3% amid ongoing macro uncertainty; currency dynamics remain challenging
• "Other" markets (Colombia, Chile, Uruguay, etc.) showed strong +53.9% growth, indicating geographic diversification

5. Thesis Impact Assessment

Summary: 7 of 8 pillars remain On Track or Strengthened. Only "Margin Expansion" moves to At Risk due to the 340bps operating margin contraction and absence of recovery guidance. However, this is a deliberate management choice, not structural deterioration.

6. Rating & Target Price Review

Rationale for Maintaining BUY

• Revenue growth of +45% validates the core growth thesis — MELI is gaining market share across all key markets
• The EPS miss is investment-driven, not operational: credit quality actually improved, not deteriorated
• 7/8 thesis pillars intact; margin compression is a known, deliberate trade-off for long-term dominance
• At $1,745, the stock trades at ~25x 2026E EPS — attractive for a company growing revenue 40%+
• The -9.25% selloff creates a better entry point; view as tactical buying opportunity

Target Price Under Review

We will update our DCF and comps models with Q4 actuals (see Model Update). Preliminary assessment suggests upward target revision is warranted given the stronger-than-expected revenue trajectory. Higher revenue base partially offset by lower near-term margins.

This document is for informational purposes only and does not constitute investment advice.