Is MercadoLibre (MELI) Still a Buy Despite Citi's Reduced Price Target?

The recent reduction in Citi's price target for MercadoLibre (MELI) to $2,900 from $3,000 has sparked renewed debate about the e-commerce giant's investment potential. While the adjustment reflects near-term margin pressures, the broader narrative remains cautiously optimistic. This analysis evaluates the risk/reward dynamics of MELI amid competitive pressures, valuation metrics, and strategic initiatives to determine whether the stock still warrants a "Buy" rating.

Strategic Moves and Margin Pressures

Citi's revised outlook hinges on anticipated margin compression in Q2 2025, driven by MercadoLibre's aggressive pricing strategies in key markets. The company has lowered the free shipping threshold in Brazil and reduced shipping fees for sellers, prioritizing market share expansion over short-term profitability. These moves, while dilutive to margins, align with MercadoLibre's long-term goal of deepening its ecosystem dominance. For instance, Q3 2025 net revenue surged 39% year-over-year to $7.4 billion, fueled by strategic investments in logistics and customer acquisition.

However, such strategies are not without risks. Analysts at Barclays and JPMorgan have flagged intensifying competition in Brazil, where rivals like Magazine Luiza and Shopee are challenging MercadoLibre's market leadership. While the company's fintech integration-particularly through Mercado Pago-provides a moat, rising operational costs could test its ability to sustain margins.

Competitive Landscape and Valuation Metrics

MercadoLibre's valuation remains a double-edged sword. Its current price-to-earnings (P/E) ratio of 50.3x far exceeds the global industry average of 19.2x and its estimated fair ratio of 31.5x. This premium reflects investor confidence in its ecosystem-driven growth, including Mercado Pago's 100 million monthly active users and Mercado Ads' rising contribution to revenue. Yet, the stock's current price of $2,058.81 is below its estimated fair value of $2,861.96, suggesting potential undervaluation.

Competitive pressures, particularly in Brazil, could delay the realization of this intrinsic value. For example, Q3 2025 data shows a 34% year-over-year increase in Brazil's gross merchandise value (GMV) and a 42% rise in items sold. While these figures underscore MercadoLibre's market strength, they also highlight the trade-off between growth and margin stability.

Risk/Reward Assessment

The risk/reward profile for MELI hinges on its ability to balance short-term margin pressures with long-term growth. On the risk side, rising competition and strategic cost investments could weigh on profitability in 2025. However, the company's ecosystem advantages-particularly in fintech and cross-border commerce-position it to outperform peers in the medium term. Analysts like Cantor Fitzgerald have raised their price targets to $2,900, citing confidence in MercadoLibre's ability to monetize its user base.

From a reward perspective, the stock's current valuation offers a margin of safety. Even with Citi's reduced target, the consensus among analysts remains bullish, with multiple firms maintaining "Buy" ratings. The potential for earnings growth, driven by Mercado Pago's expansion and Mercado Ads' scalability, could justify the premium P/E ratio over time.

Conclusion

While Citi's price target reduction signals caution, MercadoLibre's strategic initiatives and ecosystem advantages continue to support a "Buy" case. The company's ability to navigate margin pressures while maintaining top-line growth will be critical. Investors with a medium-term horizon may find the current valuation compelling, provided they are comfortable with the near-term risks. As the competitive landscape evolves, MercadoLibre's unique position in Latin America's digital economy remains a strong catalyst for long-term value creation.