Date: 2026-02-22 | Analyst: wsm007 | Position: None (Watchlist)
MELI is a dominant franchise deliberately compressing margins to capture an underpenetrated continent. Revenue reaccelerated to 39.5% YoY on a $7.4B/quarter base. Leading KPIs — GMV, items sold, fintech MAU, credit portfolio — are all accelerating. At 3.4x run-rate P/S this is cheap for what you're getting. The risk is not the business; it's the credit cycle.
Action: Watchlist → Active consideration. Not buying today — Q4 FY25 (Feb 24) first.
| Q4 FY22 | Q1 FY23 | Q2 FY23 | Q3 FY23 | Q4 FY23 | Q1 FY24 | Q2 FY24 | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue ($m) | 3,245 | 3,221 | 3,550 | 3,927 | 4,409 | 4,333 | 5,073 | 5,312 | 6,059 | 5,935 | 6,790 | 7,409 |
| YoY % | 52.3 | 43.3 | 36.7 | 46.0 | 35.9 | 34.5 | 42.9 | 35.3 | 37.4 | 37.0 | 33.8 | 39.5 |
| QoQ % | — | -0.7 | 10.2 | 10.6 | 12.3 | -1.7 | 17.1 | 4.7 | 14.1 | -2.1 | 14.5 | 9.1 |
The trajectory is the key story. After decelerating from 46% (Q3 FY23) down to 33.8% (Q2 FY25), it reaccelerated to 39.5% in Q3 FY25. That's a meaningful inflection — and it happened at $7.4B/quarter scale. This is the kind of reacceleration I want to see.
Q3 seasonality context: In prior years Q3 QoQ was 10.6% (FY23) and 4.7% (FY24). Q3 FY25 printed 9.1% — closer to FY23 than FY24. The free shipping threshold reduction in Brazil is working.
| KPI | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | Trend |
|---|---|---|---|---|---|---|
| GMV ($B) | 12.9 | 14.5 | 13.3 | 15.3 | 16.5 | ↑ Accelerating |
| GMV YoY % (USD) | — | 8 | 17 | 21 | 28 | ↑ |
| Items Sold (M) | 456 | 525 | 492 | 550 | 635 | ↑ Accelerating |
| Unique Buyers (M) | 61 | 67 | 67 | 70.8 | 77 | ↑ Steady |
| Commerce Revenue ($m) | 3,139 | 3,554 | 3,303 | 3,839 | 4,174 | ↑ |
| Fintech TPV ($B) | 50.7 | 59.0 | 58.3 | 64.6 | 71.2 | ↑ Accelerating |
| TPV YoY % (USD) | — | 33 | 43 | 39 | 41 | ↑ Stable/up |
| Fintech MAU (M) | 56 | 61 | 64 | 68 | 72 | ↑ Steady |
| Credit Portfolio ($B) | — | 6.6 | 7.8 | 9.3 | 11.0 | ↑ Rapid |
| Credit Card ($B) | — | 2.6 | 3.2 | 4.0 | 4.8 | ↑ Rapid |
| AUM ($B) | — | 10.6 | 11.2 | 13.8 | 15.1 | ↑ Steady |
GMV acceleration from 8% → 28% YoY (USD) over four quarters is dramatic. This is the standout metric. Items sold in Brazil +42% YoY (up from +26% in Q2) after free shipping threshold reduction — the strategy is working. Credit portfolio $11B gross, doubling YoY in Argentina, card cohorts >2 years now profitable in Brazil.
Leading indicator divergence check: Not a classic SaaS divergence story, but the KPI acceleration is well ahead of consensus expectations → green flag.
| Q1 FY24 | Q2 FY24 | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | |
|---|---|---|---|---|---|---|---|
| Gross Margin % [Non-GAAP] | ~46.7 | ~46.6 | 45.9 | 45.4 | ~46.0 | ~46.2 | 43.3 |
| Op Margin % [Non-GAAP] | ~13.3 | ~13.3 | 10.5 | 13.5 | 12.9 | 12.2 | 9.8 |
| Net Margin % [GAAP] | ~9.3 | ~9.3 | 7.5 | 10.5 | 8.3 | 7.7 | 5.7 |
| EPS Diluted [GAAP] | ~$7.95 | ~$9.31 | $7.83 | $12.60 | $9.74 | $10.31 | $8.32 |
GM dropped 260bps YoY (45.9% → 43.3%). Op margin 70bps lower YoY (10.5% → 9.8%). Management is explicit: investing 200-300bps into free shipping subsidies, logistics (+41% fulfillment capacity), marketing (11% of revenues, affiliate 4x YoY), and credit card scaling. This is a deliberate land-grab.
The question is whether you believe them. I do — the KPI acceleration validates the spend is working. The parallel with AMZN's investment cycles is apt. Margin depression by design ≠ structural margin deterioration.
NIMAL concern: Net interest margin after losses compressed from 24.2% (Q3 FY24) to 21.0% (Q3 FY25). NPL 15-90 improved 8.2% → 6.8%. So credit quality is better but yield compression is happening as the portfolio scales and matures into lower-risk products (credit card vs consumer credit). Watch this carefully.
| FY22 | FY23 | FY24 | 9M FY25 | |
|---|---|---|---|---|
| Simple FCF ($m) | 2,485 | 4,631 | 7,058 | 5,991 |
| MELI Adj FCF ($m) | — | — | — | 718 |
Simple FCF is misleading. The credit portfolio grew from $4.9B to 8.2Bnetin9MFY25—consuming 3.3B of cash. MELI adj FCF of 718Mover9months(957M annualized run rate) is the honest number. At $101B market cap, that's 105x adj FCF. Not cheap on this metric.
This is fundamentally a fintech+marketplace business, not a pure-play software compounder. FCF will be structurally suppressed while the credit portfolio is growing. The valuation case rests on run-rate P/S (3.4x) and earnings power, not FCF yield.
| Metric | Value |
|---|---|
| Stock Price | $1,996.87 |
| Market Cap | $101.2B |
| Run-rate Revenue (Q3 FY25 × 4) | $29.6B |
| P/S (run-rate) | 3.4x |
| P/E (FY24 GAAP) | 53x |
| MELI Adj FCF (annualized) | ~$957M |
| P/Adj FCF | ~106x |
| FY24 Revenue | $20.8B |
→ 3.4x run-rate P/S for the dominant marketplace + fintech in LatAm growing at 39%+ is genuinely cheap. This is not a SaaS multiple story — MELI is a vertically integrated logistics/payments/credit platform with a moat that took 25 years to build.
Compare: Amazon trades at ~3-4x NTM revenue and is valued for AWS/ads profitability. MELI is pre-profitability inflection but has the same structural advantages in LatAm. For this quality at this growth rate, 3-4x revenue is a gift — IF margins recover.
The margin recovery thesis: If they can get back to 12-14% op margin (FY23: 14.6%, FY24: 12.7%) at a $30-35B revenue run rate, that's $3.6-4.9B in operating income. At 25-30x that's a $90-150B company — roughly flat to 50% upside from current $101B market cap. Not a screaming asymmetric setup, but this is a quality franchise.
| Q3 FY24 | Q3 FY25 | YoY % | |
|---|---|---|---|
| Brazil | $2,913M | $4,009M | +37.6% |
| Mexico | $1,145M | $1,651M | +44.2% |
| Argentina | $1,033M | $1,441M | +39.5% (97% local) |
| Other | $221M | $308M | +39.4% |
Mexico at +44% YoY is the standout — lowest penetration, largest long-term opportunity, and now accelerating. Argentina numbers are FX-distorted (97% local currency growth vs 39% USD). Brazil remains the engine at 54% of revenue.
Consensus: Revenue $8.52B | EPS $11.77
Based on recent beats and momentum: Revenue $8.5-8.8B feels achievable. Q4 is seasonally strong (holiday, Brazil Black Friday). Items sold acceleration should continue. Key watch: NIMAL stabilization, credit card profitability commentary in Brazil, any signal on banking license timeline.
If they beat consensus by 5%+ and management signals margin stabilization → re-rating catalyst.
Prior belief: MELI is on my watchlist as a high-quality compounder that's too complex and capex-heavy for my SaaS-oriented portfolio. Valuation wasn't compelling enough to displace existing positions.
Updated belief: The Q3 FY25 KPI acceleration is more convincing than I expected. GMV +28% YoY after being +8% three quarters ago is remarkable. The Brazil free-shipping experiment is working. Mexico is becoming a meaningful driver. The deliberate margin compression narrative is validated by the growth response. At 3.4x run-rate P/S, the entry point is better than it's been in years.
What changed: Not just revenue reacceleration — it's the convergence of leading indicators. GMV, items sold, fintech MAU, credit portfolio, TPV, unique buyers — all accelerating simultaneously. That's not luck. That's investment paying off.
What I'm still concerned about: (1) Credit cycle — NIMAL at 21% is still healthy but declining. If LatAm enters recession, the credit book could be the Achilles heel. (2) Margin timeline — management says 200-300bps investment drag but no hard timeline for recovery. (3) Complexity — this business has more moving parts than anything else in my portfolio. (4) FX — USD revenue significantly understates local growth in high-inflation markets.
| Factor | Assessment |
|---|---|
| Revenue trajectory | Accelerating — 39.5% on $7.4B base, reaccelerated from Q2 trough |
| Leading indicators | All accelerating — GMV, items sold, MAU, TPV, credit portfolio |
| Margin | Under pressure, deliberate — management credibility intact; KPIs validate spend |
| FCF | Constrained by credit book growth — adj FCF ~$957M annualized |
| Management | Credible — underpromise/overdeliver pattern; explicit about trade-offs |
| Valuation | 3.4x run-rate P/S — reasonable for quality |
| Risks | Credit cycle, FX, margin timeline |
Overall: Watchlist → Active consideration. Will re-evaluate after Q4 FY25 (Feb 24).
Green flags:
Red flags / watch:
Q3 FY25 commitments to track:
Q4 FY25 to watch:
Not long MELI. Watching Q4 FY25 earnings Feb 24.
-wsm (No position)