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Mercado Libre Q3 FY 2025: Credit Card and GMV Growth Driven by Shipping Scale

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CFO Martín de Los Santos: “Investments across our ecosystem continue to deliver growth. Revenues rose 39% YoY, marking the 27th consecutive quarter above 30%.”

Mercado Pago: Credit Card Portfolio Fuels Expansion

Mercado Pago had a strong quarter. Monthly active users accelerated thanks to UX improvements, credit card investments, and growth in interest-bearing accounts. Credit card usage and share of wallet increased in Brazil, Mexico, Argentina, and Chile. The loan portfolio expanded without compromising credit quality, and more Credit Card accounts are reaching profitability. In Chile, Mercado Pago MAUs grew 75% YoY.

Mercado Libre funds credit card loans through borrowing. Profitability typically lags until users maintain balances and pay interest for a period. This margin compression is expected during portfolio growth. Commerce President Ariel Szarfsztejn noted that credit card customers become profitable after two years. In Brazil, where cards launched in 2021, cohorts from 2023 and earlier—about 50% of cards—are profitable. Mexico, which began issuing cards in 2023 with Visa, is not yet profitable. Argentina only started issuing cards late in the quarter.  The business is hampered by high rates and reduced net interest margins due to inflation.

Mercado Pago benefits from Mercado Libre’s e-commerce market share which lowers credit card customer acquisition costs. This is an example of the mutually reinforcing competitive advantages of Mercado Libre’s ecommerce and fintech businesses.

The investor might question,  Given the perennial economic difficulties in markets such as Argentina, and the expected margin compression as the company invests in Mercado Pago credit growth, what should he expectations?  Mercado Libre’s 25-year track record of overcoming impressive hurdles and building synergies supports confidence in management strategy and execution.

The credit card growth reinforces Mercado Libre ecommerce in various ways.

Credit cards drive financial inclusion. Many new holders never owned a card before—especially in underbanked markets like Mexico, where Mercado Libre ranks second in MAUs among all financial enterprises, including banks,  and first in app downloads. Credit cards accelerate e-commerce adoption.

The Mercado PagoCredit Card has boosted loyalty.  It is one of the few cards with no annual fee in its markets, and various incentives boost usage on MELI ecommerce as well as offline.  In Brazil, the Mercado Pago cards leads on-platform and dominates installment transactions, aided by extra installment incentives. Despite Brazil’s economic slowdown, Mercado Pago’s credit card TPV grew 28% YoY, with over 50% off-platform, signaling broader wallet adoption. Principality in Brazil rose 11 points, driven by three factors: credit cards, interest-bearing accounts, and salary deposits (the latter pending a banking license in Mexico).  The cards  integrate with the Meli Plus loyalty program, incentivizing usage both online and offline.

Mercado Pago’s credit card strategy has resulted in portfolio growth of 83% yoy.  The card introduces new consumers to digital payments, and  incentivizes purchases on Mercado Libre ecommerce, buttressing the competitive advantage of switching costs for the customer.

Reduced Delivery Charges leading to Ecommerce Sales Growth

Another salient achievement noted in the earnings call, was the growth spurt in Mercado Libre ecommerce during the quarter in Brazil.  This resulted from the strategic reduction in shipping charges to customers purchasing online.

In the previous quarter, in Brazil MELI had decided to lower the price threshold to obtain free shipping of purchased items  from R$79 to R$19 (R$19 is approximately $3.5).  During the current Q3 FY 2025, this resulted in increased rate of growth in number of items sold from 26% to 42% yoy. GMV growth increased from 29% to 34% yoy.  NPS reached an all time high. The number of listings has increased sharply in the R$19 to R$79 price range, as new sellers were attracted,

Not only did the expanded free shipping incentive to purchase result in increased ecommerce sales. In addition, the higher transaction volumes enabled MELI to reduce per unit shipping cost in Brazil by 8%, because the slow delivery shipping option enabled more complete utilization of shipping capacity. The slow delivery is a shipping option a purchaser can choose, which allows free shipping with more flexibility in delivery date, allowing MELI to optimize utilization of its containers and network.  As CFO Martin de los Santos described,  this will be part of a long term process of optimizing the slow shipping layer of the logistic network, as the company iteratively improves its process and technology

In Mexico as well, increased sales volume enabled optimized utilization of logistics. Here, as GMV growth accelerated, per unit shipping and fulfillment costs continued to fall. In this case, without the specific new incentive of expanded free shipping.

The decision to lower shipping costs resulted in higher sales volume, and Mercado Libre employed its competitive advantage of scale, as the relatively fixed costs of the logistics infrastructure carried the increased sales volumes. 

Mercado Libre Q2, fY2025: growth-oriented changes in Fintech, Advertising and E-commerce Logistics.

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August 24, 2025.

A review of the  Letter to Shareholders for Q2, FY 2025, ended June 30, 2025, tells of the energetic progress Mercado Libre is making in its businesses.

Mercado Libre is focused on strengthening its competitive advantage of switching costs (value provided to existing customers that makes a switch to another provider uneconomic) and scale (the ability to utilize already existing capital to accomplish incremental sales, requiring relatively low incremental costs).  It is doing so by continuing to advance three long term goals of the business, which mutually reinforce these competitive strengths.  These goals are to provide the best value for advertisers in branding and search, build the Ecommerce platform of choice, and to become the largest fintech provider in Latin America.

E-commerce Logistics

Value provided to customers in shipping strengthens the switching costs for Mercado Libre’s e-commerce marketplace. Mercado Libre lowered the price threshold for free shipping from Brazilian Rial (R$) R$79 to R$19 (about US$3.5)  (meaning the slower, free shipping is now available for items starting at R$19), and reduced  shipping costs for sellers for items priced between R$79 and R$200).  This lowers the friction to buyers and sellers of lower priced items.  This is showing promising results with GMV accelerating in Brazil. 

“We are committed to maintaining our competitive advantage in speed as we are convinced that fast delivery will always be in high demand. In fact, we still see solid demand for fast (paid) shipping on purchases below R$79 in Brazil despite the introduction of free (slower) shipping in this price range. “

It is harnessing it’s scale to continue reducing shipping costs and improve shipping times including for the slower free tier of shipping. 

“Those opting for free shipping below R$79 are served with a slower, lower cost layer of our network that leverages existing infrastructure. We have operated this layer with limited volume for 18 months and are now scaling rapidly. Over time, we expect unit costs to fall and slow delivery promises to improve as we innovate, deploy technology and drive more volume through the network.

Mercado Libre is strengthening its competitive advantage over potential competitors. Competitors face the initial obstacle of shipping costs.  Asian ecommerce companies like Temu, Shopee and AliExpress, already offered free shipping on the lower priced items, a segment where they have been stronger than Mercardo Libre.  But Mercado Libre Mercado Libre has built the fastest shipping Network in Latin America. Its low shipping costs are possible because of its scale. 

“Free shipping remains one of our most effective tools for bringing offline retail online and extending our position as Latin America’s largest ecommerce platform. For nearly a decade, we have offered free shipping on a large portion of our business, so we know it is a crucial driver of conversion, retention and customer satisfaction. “

Advertising

Mercado Libre’s advertising platform integrated with Google Ad Manager and AdMob.  This integration expands it reach beyond Mercado Libre’s ecosystem. Advertisers can now seamlessly manage campaigns that simultaneously target consumers both inside and outside our ecosystem.

Fintech

The number of Mercado Pago monthly active users has doubled over the last two and a half years to reach almost 68 million MAUs in Q2’25, and engagement is growing as well. The relatively high yields on funds held in Mercado Pago savings accounts  are key to attracting new users. This strategy has enabled Mercado Pago  to build the largest retail money market fund in Argentina. In Brazil, there are about $180B in popular bank savings accounts which pay approximately 65% of benchmark rate, competing with Mercado Pago accounts which pay from 100% to 120% of the benchmark.  With Mercado Pago’s competitive savings account yields, the nominal quarter over quarter increase in assets under management (AUM) in Brazil, Mexico and Chile in Q2’25 was the largest ever, with the total more than doubling YoY o $13.8B.

“Mercado Pago’s credit card performed strongly in Q2’25, with the portfolio growing 118% YoY to $4.0bn. The credit card was the primary driver of 91% YoY growth in the total credit portfolio in Q2’25. It now represents 43% of the$9.3bn book, up from 37% in Q2’24.  In Brazil, the entire 2023 cohort is now NIMAL positive (NIMAL: Net Interest Margin After Losses), which is consistent with prior cohorts that typically reached this milestone within two years. ” Overall in the various countries the credit portfolio reflects satisfactory risk management.

In the offline Acquiring business, “We continued to gain market share across all major geographies in Q2’25 with Acquiring TPV growth of 53% YoY on an FX-neutral basis. “

Consolidated Financial Results

Net income was negatively affected by a couple of factors.

There was a slight reduction in operating income margin due to added operating expenses from the extension of free shipping .  Instead of taking the relevant revenue from providing shipping, the company is applying the incremental shipping costs as an operating expense to its gross profit.   In Q2’25, income from operations grew 14% YoY to $825mn while the operating income margin contracted slightly by 2.10% yoy.  The reduction in shipping charges was initiated in June, so we might expect further effects from this in the coming quarters.

But this expense is an investment that will result in stronger competitive advantage and increased engagement. Cheaper shipping drives increased engagement with ecommerce, thereby increasing revenue from linked services, including advertising,  In the past, reduced shipping costs have been followed by gains in market share.

There was a non-operating expense, which is subtracted from operating income, which resulted in a lower net income.  This was the Foreign Exchange (FX) losses of $117mn, which doubled YoY, mainly due to the devaluation of the Argentine Peso by 12% in April. As Mercado Libre sales in Argentina have  grown, fluctuations in the Peso value will affect earnings accordingly.  In 2023, there was a much larger devaluation of the Argentine peso by 50%.  That year, FX losses for Mercado Libre were $239 million. 

The Letter to Shareholders also noted that in July, Standard and Poors (S&P) upgraded Mercado Libre to investment grade with a rating of BBB-. Fitch had upgraded it to investment grade last year.  Since its creation in 1999, Mercado Libre has been able to continue growing by successfully making investments in frontier markets, while also dealing with deterioration in the financial conditions, of one or another of the countries in which it operates. And that story of successful business decisions in the face of adversity is one of the things that makes Mercado Libre a remarkable company…

Amateur Investor: recent underperformance of the broad US market index S&P 500, but longer term outperformance.

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Jan 10, 2025

Annualized Performance (Internal Rate of Return) of Amateur Investor portfolio at 1y, 3y, 5y and 10y (%), as of the last trading day of 2024, is shows in the table below.  Investors might be broadly grouped into those who pursue the future gains in value promised by operating businesses (stock investors), and those who prefer a formally guaranteed stream of income from asset backed securities (Bond investors).  Therefore, I am comparing portfolio performance with the average annual return of securities of interest to Stock, and Bond investors.  The S&P 500 broad US stock market index is represented by The Vanguard S&P 500 ETF (VOO).  The diversified, investment grade bond market, including US Treasury, mortgage backed, and corporate securities,  is represented by the Vanguard Core Bond Fund (VCOBX).

*note VCOBX Core Bond Fund inception was in 2016, so the provided 10-year annualized performance as of 12-31-2024 is that of the fund benchmark.

The S&P500 performed quite well in the past decade, bearing in mind that the average S&P500 return over the last 100 years is just over 10%. Meanwhile, the bond market has not performed as well.  Interests rates remained quite low in the early part of the last decade, and subsequently climbed.  In 2022, the rate of inflation rose in the US.  The Federal Reserve took measures to increase interest rates to correct this inflation. At start of January 2022, rate was 1.637%. At end of December 2022, rate was 3.879%. Bond prices therefore fell. Bond investors began 2023 with a yield not seen since 2010. The bond market did recover somewhat. Meanwhile, investors in the businesses listed in the stock market were exploring growth related to digital transformation, which had been accelerated during Covid; the new focus on AI; and amazing advances in computer chips. Most investors found these prospects more inviting than the bond yields of just under 4%.  Their renewed animal spirits raised the S&P500 index price by 24.23% in 2023, and 23.31% in 2024.

The S&P has not risen by over 20% for two consecutive years since 1997-1998,  which was a very different time from the early 2020’s ….  Come to think of it, the two epochs do share the advent of a transformative digital technology.  Then, investors were enthused over the potential of the internet to drive business reach and productivity. Today, AI is poised to transform productivity.  However clearly in the late 1990s the stock market was reaching into Mania territory, whereas I do not think that is the case currently…yet. But I digress.

Amateur Investor portfolio holdings at end of 2024 are shown in the table below.

The price returns for 2024 of Stocks in the portfolio are shown in the table below.

Amateur Investor markedly under performed the market at 1 and 3 years, and slightly at 5 years.  Microsoft makes up 47.5 % of the portfolio. Microsoft was the worst performing stock in the Magnificent 7 in 2024. Nvidia is the best performing Mag 7 stock this year, but made up only 5.4 % of the portfolio at time of purchase.  It now accounts for 9.94 % of portfolio.

The fact is, because Amateur Investor did not contain most of the Magnificent 7 companies, it did not capture their performance.  The Magnificent 7 companies’ overall strong performance was reflected in the strong S & P 500 return because they make up a significant portion of the S&P market capitalization and total return, accounting for fully 34.6% of the S&P 500 market cap as of June 2024.

There is no specific magic to the success of the Magnificent 7, it is simply a catchphrase for a group of companies which recently achieved the highest market capitalizations, and seem to be popular among investors. I find myself to be unable to heed the siren calls of trendy stock investments. I would rather understand whether and why the key characteristics of a particular business make it a candidate for my portfolio.

While Amateur Investor underperformed the broad stock market in recent years, it outperformed the S&P500 over 10 years.  This shows that the portfolio companies, which over most of that time were MSFT, V and ADBE, are able to consistently grow revenue and earnings, without regard to membership in the club of in-vogue stocks.  This is related to their competitive advantages, which include switching costs, economies of scale and network effects. The more recently added members of the portfolio, MELI, NVDA and UNH, have similar qualities which have been proven over decades of their history.

Things to be fixed:

Possibly the most significant error of this year was the failure to invest enough in NVDA.  This resulted from a lack of consistent research about promising business opportunities in the market.  I only recently learned about Nvidia’s history of anticipating, shaping and adapting to changes in its markets. It has invested massively to achieve this, over multiple decades. Thus, it has come to play a crucial role in the development of the computing power needed for modern business.  It is important to consistently maintain reading habits regarding events in the market and the portfolio companies, while avoiding being drawn into speculative gambles.

Now that Mercado Libre has declined by almost 20% from its 52 week high, I will try to raise its allocation in the portfolio to closer to 10%, in exchange for some stocks that did well this year, such as Visa.

An issue with stocks such as MELI, NVDA and ADBE is their volatility. I feel more comfortable investing a relatively smaller amount with the stock was dropped by at least 15% from its 52 week high. Otherwise the volatility can create some anxiety which must be acknowledged.

Mercado Libre, a Multinationally Diversified Emerging Market Success Story

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May 10, 2024. Mercado Libre is incorporated in Delaware, USA, and therefore reports its financial statement in accordance with GAAP standards. But substantially all of its revenue, cost of revenue and operating expenses, are generated in the company’s foreign operations.  From its inception, Mercado Libre created subsidiaries diverse Latin American countries with quite diverse economies and governments.  Revenues were reported by business segments of the major national markets.  This underlines the relevance of particular characteristics of national markets to current business results. To my mind, it is striking that Mercado Libre has successfully put together a collection of operations in diverse national regulatory regimes.  From the outset, it did the work of becoming a multinational corporation.  This gives it a barrier to entry for a potential competitor who would have to negotiate the political and economic issues of diverse LATAM jurisdictions. 

One of the risks of investing in “emerging markets” is that the fortunes of a company can be held hostage to political and economic crises which can be more volatile than in more developed nations, which are governed by more established and therefore predictable institutions.  Mercado Libre has mitigated this risk by national diversification, as it were.

when one country is beset by a financial or political challenge of the type that seems to recur in LATAM, the effect may be mitigated by the geographic diversification of Mercado Libre operations.

This was in fact a worry that for some time restrained me from investing in this heroic little company.  Recent events in Argentina served to give a fuller perspective on this concern. In November 2023, inflation reached approximately 160% in the land of Malbec and Tango, and subsequently reach 277% in Feb 2024. In spite of this Mercado Libre beat earnings estimates in the first 3 quarters of FY 2023.  The only reason it missed earnings estimates in Q4 2023 was not related to bad economic news from Argentina. It was because of a tax liability originating from disputed Brazilian taxation authority, which the company took a charge on, reducing earnings for one time. The company showed it can sustain consistent strong growth and profitability overall, company in spite of economic instability in part of its geographic distribution. 

In previous years, Venezuela, one of the initial country bases of Mercado Pago, was overtaken by a Socialist regime which in effect criminalized capitalism and subjected participants to confiscatory financial penalties, including suspension of foreign exchange markets. Sadly, Mercado Libre no longer had effective control of the Venezuela business and financial activities.  The Venezuela Subsidiary was “deconsolidated” at end of 2017, a loss of $85.8 million being reported under operating expenses, as all Mercado Libre assets in the country were written off.   However, the company continued to thrive in saner jurisdictions.

This multinational, multicultural corporation engages the potential of its human capital. Mercado Libre develops and operates most software and technology in-house. Several development centers are maintained, in various countries. Development teams native to the several countries draw form their own diverse national linguistic and cultural insights when developing products for their national market.

Mercado Libre, a multinational emerging market ecommerce and fintech company incorporated in the USA, has successfully navigated the diverse economic and political landscapes of Latin America, mitigating risks through geographic diversification. Despite challenges like Argentina’s soaring inflation and Venezuela’s fall to socialism, the company has shown resilience, maintaining strong growth and profitability. Mercado Libre’s in-house development across multiple countries leverages local insights, creating a barrier to entry for competitors and demonstrating the strength of its multinational, multicultural approach.

Amateur Investor Beats S&P performance at 1y, 5y and 10y at end of 2023

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 1y(%)3y (%)5y (%)10y (%)
Amateur Investor43.2821.220.1
VOO26.339.9715.6612
Brk-b15.4615.4312.7611.64
VBIAX17.583.739.617.73
Performance of Amateur Investor portfolio compared with Vanguard S&P500 index ETF VOO, Berkshire Hathaway Brk-b, Vanguard Balanced Index Fund VBIAX.

January 4, 2024. Annualized Performance of Amateur Investor portfolio at 1y, 3y, 5y and 10y (%), as of the last trading day of 2023, December 29.  Performance is compared with those of various securities of interest.  The S&P500 broad US market index is represented by the Vanguard S&P 500 ETF (VOO).  Brkb-b is the affordable Class B share of Berkshire Hathaway Inc. (Warren Buffet, Chairman, CEO and President).  The conservative, traditional 60/40 stock/bond allocation strategy is represented by the Vanguard Balanced Index Fund (VBIAX).

1-3-2024. 2023 was an eventful year, including predictions of recession; the failure of China growth to happen after the Communist regime decided to loosen up on draconian covid related lock downs; a liquidity scare in the US related to devaluation of bank assets caused by rapid rise in treasury bond rates.  Portfolio performance was poor in the first quarter. In response, I found a new investment in a sector I had hitherto avoided, but decided to reallocate some funds into United Healthcare Group (UNH). While the reallocation, as it turned out, was poorly timed in the sense that the current holdings of V, MSFT ADBE subsequently recovered wonderfully. However, UNH has a strong competitive advantage and management culture has proven itself over time, generating a top flight total shareholder return since IPO in 1984.  I will describe my approach to UNH in a separate article. This involved an innovation of the eternal company criteria.

MSFT:41%
UNH21.5%
V20%
ADBE16.28%
MELI1.17%
Cash0.02%
Amateur Investor portfolio holdings, by proportion %

Microsoft continues to grow its Azure cloud revenue and usage and gradually take market share from Amazon;s AWS.  It has become a leader in AI application for developers, and in workflows for information workers, using AI presented as a “copilot”.  These are reportedly increasing worker productivity significantly.  The addition of AI capabilities into the repertoire of Microsoft productivity products could produce a hockey stick increase in revenue.

Adobe is integrating generative AI capabilities (Adobe Firefly) into its flagship Creative Cloud, Document Cloud and Experience Cloud applications and has created an AI-first online suite of applications in Adobe Express.  AI integration in Experience Cloud makes personalized and real time marketing more facile and efficient, exposing more, non-professional users to creativity and sophisticated digital marketing. The freemium Adobe Express suite too, introducers a greater number of non-professional creatives to digital creative applications. As the market of potential Adobe application users expands, Adobe management plans over time, to leverage use of generative AI into price increases according to the value added. As a leading digital marketing software provider for enterprises, Adobe enables companies to build custom AI large language models in which no alien copyrighted material is used, and the company branded content is for their exclusive use.  

Visa continues to expand its network into novel areas such as B2B payments (Visa Direct), cross border payments. Where potentially competing networks are used, such as RTP (such as Zelle), Visa is still required to provide services needed to bring the payment service up to expectations regarding security and other features.  Visa continues to partner with leading novel fintech companies to give them access to global markets in payments.

UNH continues to acquire relevant healthcare services companies and develop its value based care coverage and provider network, as it evolves as a diversified healthcare company, providing healthcare insurance,  healthcare services,  ancillary services, pharmacy benefits and digital information applications. UNH products are indispensable and must be paid for, whether by individuals, or more likely by third parties such as employers, unions, government. The diversified array of healthcare services combined with market dominating insurance creates network effects and cost advantages.

Mercado Libre continues to build its ecommerce ecosystem, with ecommerce, Mercado Libre; fintech: digital payment, Mercado Pago, credit, Mercado Credito; logistics, Mercado Envios; and advertising, Mercado Ads. The logistics network reaches from distribution centers to neighborhood stores that serve as service centers for delivery and returns, as well as for local SMB sellers supplying into the ecosystem. As delivery efficiency has resulted in speed and reliability greater than normally available otherwise, this is an important pillar of MELI competitive advantage, bringing sellers and buyers into the ecosystem, where each component is advantaged by combination with the other.

While we continue to pray for the world’s people in their difficulties, I feel these companies will continue to adapt and thrive, while enabling people to accomplish more.