Mercado Libre (MELI) Q1 profit slips 15.6% as fintech revenue offsets free-shipping costs

Mercado Libre (MELI) Q1 profit slips 15.6% as fintech revenue offsets free-shipping costs

Mercado Libre reported first-quarter net profit of $417 million, down 15.6 per cent from a year earlier. The Latin American e-commerce and fintech company pushed spending into free shipping and credit card expansion, compressing the bottom line even as revenue surged. Earnings per share of $8.23 missed the consensus estimate of $8.83 by $0.60, according to data compiled by Bloomberg.

Revenue rose 49 per cent to $8.845 billion, beating the $8.465 billion average analyst estimate. Gross merchandise volume climbed 42 per cent to $19 billion. Shares fell 5.87 per cent in after-market trading after the release.

This is the second straight quarter profits have declined. The company has prioritised market share over margin in both its e-commerce and financial services businesses.

Mercado Pago keeps growing

Mercado Pago, the fintech arm, generated $4.0 billion in net revenue, up 51 per cent year over year. Monthly active users reached 83 million, a 29 per cent increase. Total credit portfolio grew 87 per cent to $14.6 billion, and the credit card book doubled to $6.6 billion. The unit issued 2.7 million new cards during the quarter.

Assets under management rose 77 per cent to roughly $20 billion.

On the commerce side, unique buyers in Brazil grew 32 per cent year over year, the fastest pace in five years. Sold items in the country rose 56 per cent. The company said lowering its free-shipping threshold drove the acceleration.

Why margins are shrinking

Leandro Cuccioli, senior vice president for investor relations, told analysts the company is deliberately trading short-term profit for long-term positioning. “We are willing to sacrifice these short term profits because we think that the opportunity is worth it,” Cuccioli said on the post-earnings call.

He called the free-shipping change in Brazil “here to stay” and said the credit card business “can be 30, 40, 50 times larger.”

Chief executive Ariel Szarfsztejn, who took over in January from co-founder Marcos Galperin, has suggested selling part of the loan book could fund Mercado Pago’s regional expansion. The company is not considering an initial public offering for the fintech unit, executives said.

Analyst views

Wall Street remains broadly bullish on MELI despite the miss. All five firms with recent analyst notes cited by QuiverQuant issued buy-equivalent ratings. Scotiabank’s Hector Maya maintained a “sector outperform” rating with a $2,800 price target on May 7. Cantor Fitzgerald’s Deepak Mathivanan set a $2,350 target on April 21. Jefferies’ Alex Wright set a $2,600 target on April 7.

The median analyst price target across nine firms over the prior six months was $2,400, well above the stock’s current level.

No formal guidance

Mercado Libre did not provide formal quantitative guidance for the coming quarters. The company said its investments in logistics, credit expansion and free shipping will continue to weigh on near-term margins. Chief financial officer Pedro Arnt told analysts the company views the current spending cycle as a multi-year opportunity rather than a temporary push.

The report fits a pattern that has held for the past year: revenue beats driven by fintech adoption in Brazil and Mexico, while the cost of acquiring those users eats into reported profit.