Up 17% Year-To-Date: Is MercadoLibre for Growth-Focused Investors?

Isaac LaneSunday, Apr 20, 2025 6:13 am ET
89min read

MercadoLibre (MELI), Latin America’s e-commerce and fintech powerhouse, has surged 17% year-to-date (YTD) in 2025, outperforming the broader market. This momentum has sparked debate among investors: Is the stock still a viable growth play, or has it become overvalued amid macroeconomic headwinds? To answer this, we must dissect its financial performance, strategic initiatives, and risks.

Financial Momentum: Beating Estimates, but at What Cost?

MercadoLibre’s Q4 2024 results were a masterclass in execution. Revenue hit $6.06 billion, surpassing estimates by $110 million, while EPS of $12.61 beat expectations by a staggering 66%. This performance propelled its stock to $2,110 post-earnings—a 1.7% jump. Key drivers included:
- User growth: 100 million unique buyers on its marketplace and 60 million monthly active users on Mercado Pago, its digital wallet.
- Fintech dominance: Credit card issuance doubled in 2024, with $6.6 billion in loans outstanding.

However, concerns linger. Analysts project a 9.65% drop in 2025 revenue estimates compared to prior forecasts, driven by economic slowdowns in Brazil and Argentina. While free cash flow hit $1 billion in 2024—a record—the question remains: Can MercadoLibre sustain growth in a tougher macro environment?

Strategic Growth Drivers: Why Investors Should Pay Attention

MercadoLibre’s vision extends beyond e-commerce. It is positioning itself as a full-stack tech platform in Latin America, where e-commerce penetration remains just 15% of retail sales (vs. 29% in the U.S.). Key initiatives include:
1. Fintech expansion: Mercado Pago now offers loans, insurance, and investment products. In Mexico, 50% of small businesses use its credit services—a market where half the population lacks bank accounts.
2. Logistics leadership: It shipped 5.9 million items daily in 2024, with costs rising slower than inflation. Its proprietary network now handles 95% of deliveries, reducing reliance on third parties.
3. Advertising revenue: Brands using MercadoLibre’s ad tools saw sales grow 33%, reflecting its shift from a pure marketplace to a retail media platform.

Risks and Challenges: Debt, Credit, and Macroeconomics

Despite its strengths, MercadoLibre faces significant hurdles.
- Debt burden: Its debt-to-equity ratio hit 129%, up from 39% five years ago. While interest coverage (31x) is robust, leverage remains a long-term concern.
- Credit quality: Brazil’s economic slump has raised default risks. In Q4 2024, non-performing loans rose to 5.8% from 4.7% a year earlier.
- Regulatory risks: Mexico’s proposed tariffs on U.S. goods could disrupt its Texas-based distribution center, though the stock’s minimal U.S. exposure (just 3% of revenue) mitigates this.

Valuation: Growth at a Fair Price?

MercadoLibre trades at a forward P/E of 51.41, reflecting high growth expectations. Analysts project a 43.6% EPS jump in 2025, with a $2,601 average price target—a 28% upside from recent levels.

However, this premium valuation hinges on execution. A PEG ratio of 1.12 suggests it’s fairly priced relative to its growth rate, but skepticism remains. If revenue growth slows further, the stock could face downward pressure.

Conclusion: A Growth Story with Upside, but Risks Ahead

MercadoLibre is a compelling growth story for investors willing to tolerate volatility. Its $21 billion revenue run rate, $1 billion free cash flow, and 100 million buyers provide a solid foundation. Strategic bets in fintech and logistics aim to capitalize on Latin America’s underpenetrated markets, while advertising and retail media offer new revenue streams.

Yet risks are material. Credit quality in Brazil, macroeconomic turbulence in Argentina, and slowing revenue growth could test its valuation. The upcoming Q1 2025 earnings report—scheduled for May 8—will be critical. If it delivers on its $8.24 EPS estimate and signals margin resilience, the stock could climb toward its $2,600 price target. Conversely, a miss could expose its vulnerabilities.

For growth investors, MercadoLibre remains a buy, but with a caveat: Monitor debt levels, credit performance, and macro trends closely. The company’s long-term vision to dominate Latin America’s digital economy justifies its premium, but execution will determine whether this growth story continues—or stumbles.

Data Points to Watch:
- Q1 2025 EPS ($8.24 consensus vs. $6.78 in 2024).
- Revenue trends (projected $18.8 billion for 2025, down 9.6% from prior estimates).
- Non-performing loans in Brazil (Q4 2024: 5.8%).
- Institutional ownership trends (Baillie Gifford reduced holdings, while Capital International increased allocations).

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