MercadoLibre’s stock up on strong Q1 25 performance

MercadoLibre, Inc. has started 2025 on a strong note, with Q1 performance exceeding guidance, fueled by a rise in unique buyers and fintech operations. The company continues to focus on enhancing its value proposition through strategic investments, including seeking a banking license for Mercado Pago in Argentina to broaden its digital financial services. Moreover, the company’s stock rose 6.5% the following day.

MercadoLibre, Inc., founded in 1999, is a prominent e-commerce and fintech platform in Latin America. It primarily facilitates online marketplaces for buying and selling goods, enhances delivery efficiency through logistics services, and offers digital payments and credit services via Mercado Pago. The company operates across 18 countries, creating an integrated ecosystem that supports both consumers and merchants, contributing significantly to the region's digital economic transformation.

The company has around 84,200 employees. Net sales are distributed geographically as follows: Brazil accounts for 52.5%, Argentina 22.4%, Mexico 20.6%, and other regions 4.5%.

Q1 25 performance exceeds guidance

The company reported an impressive start to 2025, with revenue and EBIT increasing 37.2% and 46.8% y/y, respectively in Q1 25, surpassing guidance levels, driven by a rise in unique buyers and fintech operations. As a result, revenue reached $5,940m in the quarter, while EBIT was $775m, with margins expanding by 85bp to 13.1%. Net income rose 43.6% to $494m.

The y/y growth of 25% is the fastest since Q1 21, during the pandemic. This rapid growth is driven by investments in the company’s value proposition. Notably, the company marked the seventh consecutive quarter surpassing analyst revenue expectations. After the announcement, the stock rose 6.5% the following day.

Expansion plan

MercadoLibre's financial division, Mercado Pago, is set to transform Argentina's banking scene by seeking a banking license from the Central Bank. This strategic initiative enables Mercado Pago to broaden its services in a completely digital environment, offering innovative financial tools and credit options. The leadership aims to redefine user interaction with finance, making services accessible to those historically marginalized in Argentina. With impressive early 2025 results, showing $5.9bn in revenue, market dynamics highlight the potential for success in this venture, positioning Mercado Pago as a major entity in the Latin American banking sector.

Healthy long-term operating performance

MercadoLibre posted a decent revenue CAGR of 55.4% over FY 19-24, reaching $20.8bn. EBIT outpaced revenue growth, reflecting a CAGR of 76.6% over the same period, reaching $2.6bn in FY 24, with margins expanding by 6.2% to 12.7%. As a result, net income surged at a CAGR of 61.9% to $1.9bn in FY 24.

Growth in earnings has helped to strengthen the group's cash and short-term investments, rising from $2.5bn at end-FY 19 to $3.7bn at end-FY 24. Its cash profile has also been bolstered by a steady increase in cash generation from operations, reaching $7,920m, from $451m. The company also reported an improvement in leverage, with debt to equity falling to 158%, from 260% over the same period.

In comparison, PDD Holdings Inc., a local peer, posted a revenue CAGR of 67.2% over the past five years, reaching $394bn in FY 24. However, EBIT rose at a CAGR of 66.3%, reaching $108bn in FY 24.

Impressive stock returns

Over the past 12 months, the company's stock has delivered solid returns of approximately 59%, reflecting a positive fundamental trajectory. In comparison, PDD Holdings’ stock has delivered negative returns of 23.5%.

MercadoLibre is currently trading at a P/E of 52.7x, based on FY 25 estimated EPS of $49.7, which is higher than PDD Holdings’ P/E of 13.6x. However, it is trading lower than its 3-year historical average of 71.6x. Likewise, the company is currently trading at an EV/EBIT multiple of 35.4x, based on the FY 25 estimated EBIT of $3,620m, which is higher than that of PDD Holdings (8.3x). However, it is trading lower than its 3-year historical average of 36x.

MercadoLibre is monitored by 26 analysts, 11 of whom have ‘Buy’ ratings, eight have ‘Outperform’ ratings and three have ‘Hold’ ratings for an average target price of $2,772.2, implying 6.1% upside potential from its current price. Analysts’ views are further supported by an anticipated revenue CAGR of 25.4% over FY 24-27, reaching $40.9bn. EBIT CAGR of 34.4% to $6.4bn, with margins expanding by 293bp of 15.6% in FY 27. In addition, analysts estimate a net profit CAGR of 33.9%, reaching $4.6bn, with EPS expected to increase to $91.4 in FY 27, from $37.7 in FY 24. Likewise, analysts estimate EBIT CAGR of 9.1% and net profit CAGR of 4.6% for PDD Holdings.

Overall, MercadoLibre has demonstrated robust growth and strategic foresight, positioning itself as a key player in Latin America's e-commerce and fintech sectors. The company's impressive Q1 25 performance and ambitious expansion plans, particularly with Mercado Pago, highlight its commitment to innovation and market leadership.

However, the company faces regulatory challenges as it expands fintech services, navigating through complex laws across countries. Market competition requires constant innovation to maintain leadership. Economic instability in Latin America can affect consumer spending and financial performance. Operational risks include managing logistics and ensuring secure payment processing, with potential disruptions and security breaches.