There’s a version of this story where you look at the numbers and feel good. Revenue up 49%. Gross merchandise volume up 42%. Total payment volume crossed $87 billion. Active buyers up 26% to 84 million people. The fintech arm growing assets under management 77% year-over-year.

Then MercadoLibre’s stock fell 13% anyway.

That’s the thing about markets right now. Top-line strength doesn’t close the trade. EPS came in at $8.23 against consensus estimates ranging from $8.47 to $8.75 depending on the source. Operating margin compressed to 6.9% from 12.9% a year ago. Net income fell to $417 million from $494 million. The stock dropped sharply on May 8 and has continued sliding. As of May 12, MELI closed at $1,557 – more than 40% below its 52-week high of $2,645.

Worth noting: this was also MELI’s fourth consecutive quarter of missing earnings estimates. The market doesn’t forget that kind of pattern.

What’s actually driving the compression

This is not a business losing control of its costs. It’s a business deliberately outspending its near-term income to build something larger.

Management has been explicit about it. Lower the free shipping threshold in Brazil, expand the credit card portfolio, scale out logistics, push into payroll lending. Accept margin pressure now, dominate the market later. The Q1 results reflect exactly that playbook in motion. Brazil delivered 56% growth in items sold. Same-day and next-day shipments hit 199 million, up 39% year-over-year. The credit portfolio nearly doubled to $14.6 billion.

The part that rattled investors most was the fintech credit book. Net interest margin after losses fell to 17.8% from 22.7% a year ago. Management explained on the earnings call that roughly two-thirds of the compression came from a higher mix of credit cards – products that require heavy upfront provisioning before they become profitable. The remaining pressure came from extending average loan durations in Brazil from five months to eight months, which forces larger reserves today against income that arrives later.

Their words on the call: the credit book grew 87% year-over-year versus 49% revenue growth, and that gap is the math behind the margin hit. Not fraud. Not mismanagement. Accounting.

Here’s an interesting wrinkle: management also confirmed that the most recent take-rate cuts for sellers weren’t reflected in Q1 results at all – they were implemented at the end of the quarter and will flow through fully in Q2. That means more margin pressure is coming before any relief arrives.

Where analysts stand

The analyst community has fractured sharply on this one. Jefferies upgraded to Buy ahead of earnings with a $2,600 price target, arguing that margin compression had pushed valuations to record lows while the underlying investment was clearly producing results. UBS took the opposite view, downgrading to Neutral with a $2,050 target, saying margin recovery won’t realistically arrive until 2027 at the earliest.

Goldman Sachs lowered its target to $2,100 but kept a Buy rating. Benchmark cut its target from $2,780 to $2,380 and stayed at Buy. Barclays trimmed to $2,300 and held Overweight. Morgan Stanley lowered to $2,450, also Overweight. Across 17 analysts, the average rating is still Strong Buy – with a consensus 12-month price target around $2,566.

Both the bulls and bears are reading the same financial statements. The disagreement is entirely about how long the investment cycle runs.

Quick aside: Michael Burry disclosed on May 9 via Substack that he built a full position in MELI in the $1,600s the morning after earnings dropped. He described the company as the Amazon of Brazil, Mexico, and Argentina, projected revenue approaching $40 billion this year – a 30% increase from 2025 – and wrote that MELI was trading below his IV15 threshold, at which he expects 15% or more in annualized returns over a 15-year horizon. He’s also noted that MELI does not issue stock-based compensation – it uses cash-settled awards instead – a structural detail he views favorably. You can agree or disagree with his thesis, but the timing and conviction are not nothing.

The numbers, cleanly

• Revenue: $8.85B, up 49% YoY – strongest growth rate since Q2 2022
• GMV: $19.0B, up 42% YoY
• Total payment volume: $87.2B, up 50% YoY
• Credit portfolio: $14.6B, up 87% YoY
• Fintech AUM: $19.9B, up 77% YoY
• Unique active buyers: 84.1M, up 26% YoY
• Fintech monthly active users: 82.9M, up 29% YoY
• Operating income: $611M at 6.9% margin (vs. $763M at 12.9% a year ago)
• Net income: $417M at 4.7% margin (vs. $494M at 8.3% a year ago)
• EPS: $8.23 vs. $9.74 in Q1 2025
• 52-week range: $1,495 – $2,645; current price near lows
• P/E (TTM): ~41.6x vs. 5-year median of ~77x
• Q2 2026 revenue consensus: ~$9.16B

That P/E line matters. A stock trading at roughly half its historical earnings multiple is either deeply mispriced or stuck in a cycle the market has lost patience with. The credit expansion is the swing factor either way.

Three ways this plays out

Bull case: Credit card cohorts season, Brazil consumer loan provisions normalize, and logistics costs begin declining per unit as volume density improves. Margins stabilize, revenue keeps compounding above 30%, and the stock works toward analyst consensus targets. Management’s own operating cash flow of $12.1 billion in full-year 2025 – up 53% year-over-year – suggests the underlying business generates real cash even when reported income is compressed.

Base case: Margins stay under pressure through most of 2026 as the credit portfolio continues growing faster than revenue. Q2 results absorb the full impact of take-rate cuts. The stock trades sideways or lower until investors see hard evidence of improvement. Not a disaster – just a long, uncomfortable wait.

Bear case: The investment cycle extends further than expected. Competitive pressure from Nubank and Amazon intensifies in Brazil. Credit quality in the consumer loan book deteriorates more than management suggests. Operating margin stays structurally impaired through 2027. Bears – now including UBS and JPMorgan – argue the valuation is only fair at best given this uncertainty.

The honest read: no one knows when this turns. Management doesn’t give specific margin guidance. That ambiguity is what’s being priced in right now – not a broken business, but an opaque timeline. Those are two different problems, and only one of them is permanent.

What I’d watch heading into Q2: net interest margin after losses, credit provision trends specifically in Brazil consumer loans, and whether items sold growth holds above 40%. Brazil items sold came in at 56% in Q1. If that rate holds and NIMAL stabilizes even modestly, the story changes faster than the bears expect. If both deteriorate, the investment cycle extends and the stock likely tests lower lows.

MELI at roughly $1,560 with 49% top-line growth and a P/E near decade lows is at least worth serious attention. The next earnings call is scheduled for August 3. That’s the next real data point – and likely the next moment this stock moves hard in one direction.

– Rising Star Stocks