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    MERCADOLIBRE (MELI)

    MELI Q1 2025: Argentina GMV double-digit, margins +70bps despite costs

    Reported on May 8, 2025 (After Market Close)
    Pre-Earnings Price$2262.09Last close (May 7, 2025)
    Post-Earnings Price$2470.07Open (May 8, 2025)
    Price Change
    $207.98(+9.19%)
    • Robust Argentina Performance and Margin Expansion: The company delivered strong performance in Argentina with double-digit GMV growth and significant improvements in contribution margins, driven by both commerce and fintech growth, underpinning sustainable profitability improvements.
    • Strength in Fintech & Credit Quality: MercadoLibre’s fintech segment is thriving with a low default profile and expanding product offerings such as credit cards and digital deposits, which are enhancing customer engagement and driving healthy credit portfolio growth.
    • Expanding Advertising and Operational Efficiency: Continued enhancements in digital advertising—with over 100% year-on-year growth in display ads—combined with technology-driven operational efficiencies, support scalable revenue growth across the marketplace.
    • Margin Pressure from Investments: Strategic investments in logistics and the credit card portfolio—especially in Brazil and Mexico, where contribution margins compressed by about 5 percentage points—could continue to pressure margins in the short term.
    • Exposure to Elevated Shipping Cost Risks: The reliance on expanding logistics amid potential higher ocean freight rates may further erode margins due to increased cost pressures.
    • Short-Term Profitability Trade-Offs: The focus on aggressive growth, particularly in markets like Brazil and Mexico where short-term investments are prioritized over immediate margin expansion, presents challenges to maintaining profitability.
    MetricYoY ChangeReason

    Total Revenue

    +37% (Q1 2025: $5,935M vs Q1 2024: $4,333M)

    Total Revenue grew by 37% driven by strong performances in both Commerce and Fintech segments, building on the previous period’s growth trends. The robust performance across key regions also contributed, as seen in earlier fiscal improvements, reinforcing the overall revenue momentum.

    Commerce Revenue

    +32% (Q1 2025: $3,303M vs Q1 2024: $2,496M)

    The 32% growth in Commerce revenue is attributed to higher gross merchandise volumes, increased flat fee contributions, and an improved logistics model—as noted in previous fiscal gains—where a higher share of shipping services were handled as principal rather than as an agent.

    Fintech Revenue

    +43% (Q1 2025: $2,632M vs Q1 2024: $1,837M)

    Fintech revenue surged by 43% due to significant increases in both Credit revenues and Financial services and income, echoing earlier trends seen in FY 2024 where higher payment volumes and increased originations drove revenue growth. The Q1 improvement reflects the continuation and acceleration of these underlying business drivers.

    Argentina Revenue

    +125% (Q1 2025: $1,382M vs Q1 2024: $615M)

    Argentina’s revenue more than doubled (a 125% increase) thanks to exceptional Commerce and Fintech growth, bolstered by higher local currency effects and inflation differentials—a notable acceleration compared to previous periods where strong service revenue increases were already underway.

    Brazil Revenue

    +20% (Q1 2025: $3,082M vs Q1 2024: $2,571M)

    Brazil experienced a +20% increase driven by organic growth in both Commerce and Fintech segments. This moderate improvement builds on previous trends where market dynamics and increased efficiencies in shipping and payments contributed to revenue enhancement.

    Mexico Revenue

    +26% (Q1 2025: $1,222M vs Q1 2024: $971M)

    With a 26% increase in Mexico’s revenue, gains were driven by higher Commerce service and product sales revenues as well as improved Fintech performance from enhanced Financial services and Credit revenues, offset slightly by exchange rate impacts—a pattern consistent with earlier period shifts.

    Other Countries

    +41% (Q1 2025: $249M vs Q1 2024: $176M)

    The 41% revenue growth in Other Countries reflects robust regional performances similar to previous periods, where both Commerce and Fintech contributions boosted overall income despite limited detailed drivers for this segment.

    Gross Profit

    +37% (Q1 2025: $2,771M vs Q1 2024: $2,024M)

    Gross Profit increased by 37%, largely mirroring the Total Revenue growth. This suggests improved operational efficiencies and sustained margin performance in key segments, building on the strong revenue base from the previous period.

    Operating Income

    +44% (Q1 2025: $763M vs Q1 2024: $528M)

    The 44% jump in Operating Income highlights enhanced cost management and scale efficiencies as revenue grows, consistent with prior period improvements where operational leverage began to show significant benefits.

    Net Income

    +43% (Q1 2025: $494M vs Q1 2024: $344M)

    Net Income increased by 43% driven by strong topline growth and effective cost controls across segments, continuing the positive momentum from earlier fiscal periods. This implies that the company’s improved operational performance has translated into higher profits despite evolving market challenges.

    TopicPrevious MentionsCurrent PeriodTrend

    Fintech Growth

    In Q4 2024, fintech growth was strong with over 60 million MAUs, rapid credit card issuance, and a 4x growth in Argentina’s credit book. Q3 2024 noted robust acceleration in credit origination and growing credit portfolios. Q2 2024 highlighted steady growth in MAUs and new credit card volumes.

    Q1 2025 saw over 30% YoY growth in MAUs, a 75% credit portfolio expansion, record‐low defaults in Brazil, and standout performance in Argentina (USD revenues more than doubled).

    Consistently strong growth across periods with improved credit metrics and regional highlights; sentiment remains very positive with an increased emphasis on expanding user engagement and credit scale.

    Credit Quality

    Q4 2024 emphasized a stable credit portfolio with the lowest defaults and controlled NPLs. Q3 2024 stressed confidence in risk models and maintained asset quality. In Q2 2024, despite rising provisions due to portfolio expansion, spreads remained healthy.

    Q1 2025 described asset quality as super good, noting the lowest first payment defaults in Brazil and the lowest delinquency in Argentina.

    A stable and improving credit profile is evident over time; risk metrics continue to improve and support the company’s expansion strategy, maintaining positive sentiment.

    Evolving Credit Risk Management

    In Q4 2024, a risk-first approach with quick adjustments was emphasized. Q3 2024 mentioned improved risk models and disciplined provisioning. Q2 2024 highlighted aggressive credit expansion balanced by flexible adjustments.

    Q1 2025 detailed measures to reduce risk—reducing micro card issuance in Brazil and a slight relaxation in Mexico—while keeping an overall conservative stance.

    The risk management framework remains robust with a continuing focus on tightening measures where needed; sentiment reflects a cautious yet proactive approach in safeguarding portfolio quality.

    Logistics and Fulfillment Investments

    Q4 2024 showcased record productivity improvements and cost management via high warehouse utilization. In Q3 2024, new fulfillment centers and improved cost per shipment were noted despite minor margin pressures. Q2 2024 discussed innovations such as robotics and “slow shipments” boosting efficiency.

    Q1 2025 emphasized continued investments with a seasonally lower pace in new centers, along with short-term margin compression in Brazil and Mexico, but noted significant operational efficiency gains in Argentina.

    Sustained investment in logistics continues to drive long-term efficiency despite short‐term margin pressures; regional differences are emerging with Argentina showing efficiency gains while Brazil and Mexico face margin challenges.

    Digital Advertising

    Q3 2024 reported strong ad revenue growth with an 86% FX‐neutral increase and improved penetration. Q4 2024 and Q2 2024 had little to no detailed information on this topic.

    Q1 2025 highlighted 50% YoY growth in digital advertising on an FX‐neutral basis, with display ads growing over 100% YoY, and annual revenues reaching $1B alongside the launch of advertising on TV.

    Emerging as a key growth driver, digital advertising is receiving renewed focus with significant product enhancements and revenue scale. This topic has gained prominence compared to earlier periods.

    E-commerce Growth

    Q4 2024 noted acceleration in buyer activity and increased purchase frequency. Q3 2024 documented robust GMV growth, record new buyer numbers, and fulfillment expansion. Q2 2024 was marked by the highest growth in sold items and unique buyers since 2021.

    Q1 2025 saw 1P GMV grow 102% YoY, with standout performance in categories like supermarkets (up 65% YoY) and ongoing initiatives to boost FMCG penetration, reflecting a broad-based improvement in e-commerce.

    Consistently strong e-commerce performance with strategic category focus and innovation continues to drive growth, reinforcing a bullish long-term outlook.

    Margin Pressure & Profitability Trade-offs

    Q4 2024 discussed strategic investments in logistics and credit cards causing short‐term margin pressure while promising fixed cost dilution over time. Q3 2024 identified that margin compression stemmed mainly from credit card investments, while fulfillment centers had minimal impact. Q2 2024 saw a 120bps EBIT contraction due to accelerated credit origination.

    Q1 2025 reported margin compression of about 5 percentage points in Mexico and Brazil due to investments in credit card growth and logistics, although profitability begins to emerge in older credit cohorts.

    Persistent short‐term margin pressures are acknowledged and accepted in favor of long‐term growth initiatives; the strategic trade-offs remain consistent, with cautious optimism about future profitability improvements.

    Macroeconomic Risks & Regional Dynamics

    Q4 2024 highlighted rising interest rates in Brazil and credit tightening in Mexico. In Q3 2024, factors such as Brazil’s 11.25% interest rate and different credit card penetration levels were discussed. Q2 2024 mentioned inflation impacts in Brazil and a focus on credit model performance.

    Q1 2025 indicated that while Brazil’s credit portfolios remain stable, margin compression in Brazil and Mexico is driven by currency devaluation and ongoing investment pressures; Mexico saw strong buyer growth despite some sector challenges.

    Macroeconomic challenges persist with regional nuances—while risks remain, particularly in Brazil and Mexico, the company is managing these with targeted measures; sentiment is cautiously optimistic as the overall strategy balances growth with risk management.

    Robust Argentina Performance

    Q4 2024 reported an 18% increase in items sold and a 4x growth in the credit book with high margins in Argentina. Q3 2024 noted record buyer additions, improved consumer behavior, and strong fintech acceleration. Q2 2024 described a turnaround from previous negative growth with a strong recovery in commerce and fintech.

    Q1 2025 showcased exceptional performance in Argentina: USD revenues more than doubled, GMV increased by 126% YoY, items sold grew 52% YoY, and the credit portfolio expanded 4x in dollar terms, achieving the highest contribution margins ever.

    Exceptionally strong and continually improving performance in Argentina makes it a major growth driver; sentiment is extremely positive with robust recovery and high future potential.

    Digital Banking Ambitions in Mexico

    Q2 2024 expressed the ambition to become the #1 digital bank in Mexico leveraging a large user base and aggressive credit expansion. Q3 2024 and Q4 2024 had little or no mention on this subject.

    Q1 2025 renewed these ambitions by stating a goal to be the best and largest digital bank in Latin America, specifically noting strong growth in high‐yield accounts and credit card offerings in Mexico.

    Renewed and elevated focus on digital banking in Mexico underscores its strategic importance; after being mentioned earlier in Q2 2024, it is now emphasized as a key initiative, signaling heightened confidence and ambition in this area.

    1. Margin Trends
      Q: Margins improved and ad unit performance?
      A: EBIT margins rose by 70bps YoY, driven by improved product mix—especially from Argentina’s higher margins—and strong growth in digital ad units like display and brand ads, underpinning strategic investments over short-term margin targets.

    2. Argentina Margins
      Q: What drove Argentina’s margin improvement?
      A: Operational efficiencies, a shift toward higher-margin credit products, and market share gains in Argentina boosted contribution margins by 11 percentage points, supported by lower interest rates and disciplined cost dilution.

    3. Credit Strategy
      Q: Credit business adjustments and funding updates?
      A: Management tightened issuance for lower credit score segments—reducing micro credits—to sharpen risk, while maintaining robust portfolio health funded through stable warehouse facilities and capital market strategies.

    4. Shipping Impact
      Q: What short-term impact from shipping investments?
      A: Investments in logistics and credit card growth have pressured margins by about 5 percentage points in Brazil and Mexico, although offset partly by Argentina’s improved profitability.

    5. Asset Quality
      Q: How are asset quality trends evolving?
      A: The portfolio is strong overall even with an increased share of credit cards that, despite lower margins, are showing improved NIM with maturity, setting the stage for gradually enhanced yields.

    6. Digital Deposits
      Q: Why offer 120% CDI deposits in Brazil?
      A: The enhanced deposit rate is a strategic move to deepen customer engagement and loyalty by positioning MELI as a leading digital bank, backed by a vigorous marketing push.

    7. Marketplace Impact
      Q: Any commerce impact from credit tightening?
      A: Despite tighter credit issuance, overall marketplace activity remains robust thanks to persistent “Blue money” flows, with no expected deceleration and an anticipated credit card launch in Argentina in H2.

    8. Credit Attachment Rate
      Q: What is the credit portfolio’s GMV attachment rate?
      A: Approximately 20–30% of the GMV processed is linked to the credit portfolio, reinforcing stable streamlining of consumer spending within the ecosystem.

    9. E‑Commerce Growth
      Q: What drove Argentina’s 1P GMV and item growth?
      A: A recovering baseline combined with aggressive market share expansion drove robust year‐over‐year increases in Argentina’s 1P GMV, benefiting both commerce and fintech segments.

    10. Supermarket Growth
      Q: What boosted supermarket 1P growth and margins?
      A: Improvements in selection, navigation, and targeted promotions led to 65% YoY growth in the supermarket category, reinforcing better unit economics.

    11. Logistics Expansion
      Q: Update on fulfillment center deployments?
      A: The logistics plan remains on track with steady, seasonally adjusted capacity expansions to meet rising demand, without any revision to earlier commitments.

    12. Competitive Entry
      Q: Impact of TikTok shop and other entrants?
      A: Early-stage observations suggest TikTok’s launch in Brazil and related moves in Argentina have minimal immediate threat, potentially adding new online users rather than eroding market share.

    13. Fintech Competition
      Q: How is fintech competition evolving regionally?
      A: MELI is enhancing its digital banking and fintech offerings to compete against traditional banks and new entrants, supported by strong customer satisfaction and user growth metrics.

    14. CPG & Subscriptions
      Q: What’s the future for FMCG and subscription features?
      A: Although e‑commerce penetration in FMCG remains low, long‑term potential is significant, with planned subscribe-and‑save features slated for future rollout.

    15. High ASP Concerns
      Q: Explain Mexico’s high ASP category impact?
      A: While the technology vertical in Mexico has underperformed slightly due to competitive pricing and limited selection, other categories continue growing robustly at over 25% YoY, mitigating the impact.

    Research analysts covering MERCADOLIBRE.