MercadoLibre (MELI)

Latin American e-commerce and fintech company MercadoLibre (NASDAQ:MELI) announced better-than-expected revenue in Q1 CY2025, with sales up 37% year on year to $5.94 billion. Its GAAP profit of $9.74 per share was 17.8% above analysts’ consensus estimates.

Company Overview

Originally started as an online auction platform, MercadoLibre (NASDAQ:MELI) is a one-stop e-commerce marketplace and fintech platform in Latin America.

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

Competitors operating similar platforms include Amazon.com (NASDAQ:AMZN), Alibaba (NYSE:BABA), and eBay (NASDAQ:EBAY).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, MercadoLibre grew its sales at an incredible 41.3% compounded annual growth rate. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, MercadoLibre reported wonderful year-on-year revenue growth of 37%, and its $5.94 billion of revenue exceeded Wall Street’s estimates by 8.3%.

Looking ahead, sell-side analysts expect revenue to grow 21.1% over the next 12 months, a deceleration versus the last three years. We still think its growth trajectory is attractive given its scale and indicates the market sees success for its products and services.

User Growth

As an online marketplace, MercadoLibre generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.

Over the last two years, MercadoLibre’s unique active users, a key performance metric for the company, increased by 19.8% annually to 67 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.

In Q1, MercadoLibre added 13.5 million unique active users, leading to 25.2% year-on-year growth. The quarterly print was higher than its two-year result, suggesting its new initiatives are accelerating user growth.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns in transaction fees from each user. ARPU also gives us unique insights into a user’s average order size and MercadoLibre’s take rate, or "cut", on each order.

MercadoLibre’s ARPU growth has been exceptional over the last two years, averaging 16.8%. Its ability to increase monetization while growing its unique active users at an impressive rate reflects the strength of its platform, as its users are spending significantly more than last year.

This quarter, MercadoLibre’s ARPU clocked in at $88.58. It grew by 9.4% year on year, slower than its user growth.

For online marketplaces like MercadoLibre, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification.

MercadoLibre’s gross margin is slightly below the average consumer internet company, giving it less room to invest in areas such as product and marketing to grow its presence. As you can see below, it averaged a 54% gross margin over the last two years. That means MercadoLibre paid its providers a lot of money ($46.02 for every $100 in revenue) to run its business.

MercadoLibre produced a 46.7% gross profit margin in Q1, in line with the same quarter last year. On a wider time horizon, MercadoLibre’s full-year margin has been trending down over the past 12 months, decreasing by 4.1 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Consumer internet businesses like MercadoLibre grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

MercadoLibre is extremely efficient at acquiring new users, spending only 20.1% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation from scale, giving MercadoLibre the freedom to invest its resources into new growth initiatives while maintaining optionality.

Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.

MercadoLibre has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 16.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, MercadoLibre’s EBITDA margin rose by 6.3 percentage points over the last few years, as its sales growth gave it operating leverage.

This quarter, MercadoLibre generated an EBITDA profit margin of 15.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

MercadoLibre’s EPS grew at an astounding 123% compounded annual growth rate over the last three years, higher than its 41.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of MercadoLibre’s earnings can give us a better understanding of its performance. As we mentioned earlier, MercadoLibre’s EBITDA margin was flat this quarter but expanded by 6.3 percentage points over the last three years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, MercadoLibre reported EPS at $9.74, up from $6.79 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects MercadoLibre’s full-year EPS of $40.65 to grow 24.9%.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

MercadoLibre has shown terrific cash profitability, driven by its cost-effective customer acquisition strategy that enables it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 30.2% over the last two years.

Taking a step back, we can see that MercadoLibre’s margin expanded by 24.2 percentage points over the last few years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

MercadoLibre’s free cash flow clocked in at $759 million in Q1, equivalent to a 12.8% margin. The company’s cash profitability regressed as it was 18.7 percentage points lower than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Companies with more cash than debt have lower bankruptcy risk.

MercadoLibre is a profitable, well-capitalized company with $8.06 billion of cash and $7.73 billion of debt on its balance sheet. This $333 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly MercadoLibre blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. A small blemish was that its unique active buyers missed. Still, this print had some key positives. The stock traded up 8.8% to $2,471 immediately after reporting.

Updated: May 16, 2025 at 10:24 PM EDT

When considering an investment in MercadoLibre, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

There is a lot to like about MercadoLibre. For starters, its revenue growth was exceptional over the last three years . On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, and its rising cash profitability gives it more optionality.

MercadoLibre’s EV/EBITDA ratio based on the next 12 months is 30.1x. You get what you pay for, and in this case, the higher valuation is warranted because MercadoLibre’s fundamentals clearly illustrate it’s a special business. We think the stock is attractive here.

Wall Street analysts have a consensus one-year price target of $2,633 on the company (compared to the current share price of $2,560), implying they see 2.8% upside in buying MercadoLibre in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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