Over the past five years, MercadoLibre has grown both revenue and profit dramatically — yet its stock price has gone nowhere. Could this be an opportunity?
Company Overview
MercadoLibre (MELI $1,700 as of 4/6/26) launched 27 years ago as an online marketplace (think eBay, which was an early investor) and has grown to become the leading e-commerce and fintech company across Latin America. We introduced the company, also known by its ticker symbol “MELI,” in a blog post in the summer of 2024.
Over time, MercadoLibre has layered numerous services onto its platform, including payments, credit, advertising (#3 digital ad share in LATAM), streaming (via MELI+), and impressive logistics capabilities. These interwoven services have resonated deeply with consumers, spurring rapid growth and placing MELI today among the largest companies in Latin America. Revenue of approximately $29bn in 2025 was derived from Brazil (53%), Mexico (22%), Argentina (21%), and other markets (4%).
Investment Merits
MercadoLibre is a multi-sided network business, meaning that — in theory — the value it provides to users increases non-linearly as the network grows. More buyers attract more sellers. More sellers draw in more buyers, but also encourage more advertising, which further attracts buyers. More transactions mean more data and justify deeper logistics investments, which bolster customer conversion and retention. Greater scale lowers unit costs across the platform...and so on. MELI shares these "flywheel effects” with e-commerce leaders such as Amazon and Alibaba.
Although the company is already a giant in its region, the Latin American market still looks immature. MELI's addressable markets span 500+ million consumers and $5.5 trillion in GDP, per management estimates. Yet e-commerce penetration sits at just 14%, compared with 27% in the US or 32% in China. MELI seems well-positioned, with a 25% market share which exceeds the combined total of the next 15 players (Source: eMarketer). In Brazil, MELI is 3x larger than the next competitor (Shopee) and 5x larger than Amazon (Source: Morgan Stanley).
But What About Shareholders?
We invested in MercadoLibre in 2022 and were fortunate to sell part of our stake profitably following a price surge last year. But after its recent 35% slump, MELI’s shares now stand at roughly the same price they were five years ago, in early 2021. Curiously, while the stock price has gone nowhere since 2021, the business itself has thrived. In the most recent quarter, MELI reported growth in gross merchandise volume (GMV), payment volume, and revenue, of 37%, 42%, and 45%, respectively. The table below quantifies this disconnect.
Suffice it to say, the company’s valuation has compressed materially over this time. For instance, the Enterprise Value/Revenue ratio of 9.7x in 2021 now stands at 2.4x for 2026; the EV/EBIT ratio has fallen from 144x to 24x (Source: Bloomberg). So perhaps MELI shares were running ahead of its fundamental performance back in 2021, but in 2026 it appears that they are falling behind.
Market Concerns
The stock market is suggesting an explanation for MELI’s valuation compression: despite actual revenue growth near 40% p.a. over the past three years, the market now expects MELI’s growth to decelerate sharply in 2026 and 2027, and there are plausible reasons this may be correct.
AI Agents: A second cause of worry is the rise of AI shopping agents. Tools like Perplexity's Comet browser could bypass MELI's app entirely. Competitor Shopee has partnered with OpenAI for its "Operator" agent in Brazil. But while AI will surely boost price transparency and shopping efficiency, it seems unlikely that AI could replicate the trust, scale, logistics, and connectivity of MELI’s platform. Meanwhile, we believe MELI is deploying AI to strengthen customer conversion, ad targeting, credit underwriting, and other aspects of its business.
Although the company’s CFO has acknowledged that margins may be constrained in the near term, he sees payoffs down the road. As he noted in a recent podcast: "...with the large opportunity that this represents, we believe at this time it would not be the best idea to try to optimize for short-term margins. We feel comfortable investing to improve our competitive moat, and so long as we continue finding opportunities to grow at accelerated rates, we'll continue to invest..."
Lastly, MercadoLibre operates in emerging markets and is therefore exposed to risks related to political change, currency fluctuations, and other factors. Just recently, the global spike in energy prices is stoking inflation and tightening financial conditions, particularly for emerging markets.
Outlook
So, is MercadoLibre undervalued in the market, or does MELI’s languishing share price reflect a deeper truth, that this once-great company is on the cusp of a distinct decline in growth and profitability? Our analysis suggests that the company’s market leadership stems from many interwoven competitive strengths, making it difficult to dislodge. Thus, the expectations for MELI (cited above) appear conservative relative to our own estimates, and we are invested accordingly. We are intrigued by how this paradox could be resolved as new information emerges this year.
IMPORTANT DISCLOSURES
Strategies managed by City Different Investments own shares of MELI as of 4/6/26. This is subject to change at any time.
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