MELI: Rising Competition In Brazil Will Shape Future Profit Margin Trajectory

Our updated narrative price target for MercadoLibre rises to approximately $2,347, up from about $2,106, as analysts balance robust top line momentum and higher assumed revenue growth with a slightly richer valuation multiple and mounting competitive and margin pressures highlighted in recent Street research.

Analyst Commentary

Street research over the past several weeks reflects a more nuanced and selectively cautious stance on MercadoLibre, with several bearish analysts trimming price targets even as long term growth drivers remain intact. The revisions generally point to a maturing growth profile in key markets, rising competition in Brazilian e commerce, and near term margin compression as reasons to reassess upside potential from current levels.

JPMorgan modestly increased its target, citing reduced macro risk in Argentina after recent elections, but maintained a Neutral stance and highlighted that consensus forecasts may still underestimate the earnings impact of intensifying competition. Other bearish analysts have reduced their targets from prior highs, signaling that execution will need to remain very strong for MercadoLibre to justify premium valuation multiples.

Margin dynamics are another recurring theme, with commentary emphasizing recent EBIT margin compression driven by a shift toward first party sales, a new free shipping program, and associated pressure on take rates. While some research continues to flag MercadoLibre as a top pick for the medium term, the near term narrative has clearly tilted toward a closer scrutiny of profitability trends and the sustainability of current growth rates.

Bearish Takeaways

• Bearish analysts see rising competitive intensity in Brazilian e commerce as a key risk to both revenue growth and pricing power, potentially limiting further multiple expansion.
• Recent price target cuts reflect concern that consensus estimates have not fully captured the earnings drag from a more promotional environment and lower take rates tied to free shipping initiatives.
• EBIT margin compression, driven by first party mix shift and gross margin pressure, raises questions about MercadoLibre's ability to balance aggressive growth investments with stable profitability.
• With the stock already trading at a premium to many regional and global peers, bearish analysts argue that any execution missteps or slower than expected operating leverage could lead to valuation downside.

What's in the News

• Announced a commercial agreement with Agility Robotics to deploy its Digit humanoid robot at MercadoLibre's San Antonio, Texas facility, with plans to expand AI powered humanoid support across Latin American warehouses to improve ergonomics, address labor gaps, and boost productivity (Key Developments).
• Digit, already proven in live commerce operations with over 100,000 totes moved, will integrate via Agility Arc into MercadoLibre's existing logistics infrastructure, coordinating with AMRs, conveyors, and WMS to enhance throughput without major facility redesigns (Key Developments).
• Launched a new video episode of the Inside MercadoLibre podcast on Spotify and YouTube, featuring Roberta Donato discussing tools for sellers to build stores, run promotions, engage on social media, and leverage Mercado Ads, adding to prior episodes on acquiring, culture, strategy, ads, logistics, and AI (Key Developments).

Valuation Changes

• Fair Value Estimate has risen moderately, increasing from approximately $2,106 to about $2,347 per share, reflecting stronger modeled fundamentals despite added risks.
• Discount Rate has inched higher, moving from roughly 10.49 percent to about 10.91 percent, signaling a slightly higher required return in the valuation framework.
• Revenue Growth has increased meaningfully, with the long term assumption raised from around 20.6 percent to roughly 24.0 percent, incorporating stronger top line expectations.
• Net Profit Margin has fallen noticeably, declining from about 10.8 percent to roughly 8.9 percent, reflecting expectations for heavier investment and competitive pressure on profitability.
• Future P/E multiple has risen modestly, expanding from approximately 33.3x to about 36.0x, implying a somewhat richer valuation on forward earnings.