MercadoLibre, Inc.
Analytical review · Quarterly report for the period ended June 30, 2026 (Q2 2026)
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. MercadoLibre's quarterly report on Form 10-Q for the quarter ended June 30, 2026, filed on August 6, 2026; the shareholder letters for the last four quarters (October 2025 to August 2026); the annual report on Form 10-K for 2025; the 2026 proxy statement; and the September 2026 Form 8-K filings on a bond issue. Market data: closing price on October 9, 2026, and the Bank of Israel representative dollar rate of October 9, 2026. This review replaces the previous one, which was based on the 2025 annual report.
Company Profile
MercadoLibre, Inc. operates the largest marketplace in Latin America by gross merchandise volume, alongside a fintech platform. The company was founded in 1999 in Argentina, is headquartered in Montevideo, Uruguay, and has been listed on Nasdaq since 2007. The marketplace operates in 18 countries, and the payments and fintech platform, Mercado Pago, in eight.
The business is built from parts that feed one another: the marketplace (mostly third-party sellers, with first-party sales below 10% of GMV), a logistics network called Mercado Envios (fulfilment centres, dedicated aircraft and thousands of drop-off points), an advertising platform called Mercado Ads, and financial services: in-store and online acquiring, a digital wallet that pays interest on balances, merchant and consumer loans, and a credit card.
In Q2 2026, 89 million unique buyers purchased on the marketplace, and the fintech platform had 88 million monthly active users. Brazil accounts for 54% of revenue, Mexico 23%, Argentina 18% and other countries 5%. Founder Marcos Galperin serves as Executive Chairman and Ariel Szarfsztejn as CEO. There is no controlling shareholder: the largest holders are Baillie Gifford (7.5%) and the Galperin family trust (7.0%).
Financial Performance
MercadoLibre's reports currently show two opposite trends. Revenue is accelerating: dollar growth rose from 34% in Q2 2025 to 50% in Q2 2026, the fastest pace in four years according to the company. Operating income is falling: from $825 million to $683 million, and the operating margin fell from 12.2% to 6.7%. Net income fell 11% to $466 million.
Where the margin decline came from
Compared with the prior-year quarter, as a share of revenue: gross margin fell from 45.6% to 40.9%, and the provision for doubtful accounts rose from 10.2% to 12.5%. Product development and G&A together fell by 1.7 percentage points. According to the filing, the gross margin decline mainly reflects the lower free-shipping threshold in Brazil (from R$79 to R$19, in June 2025), higher shipping costs and the cost of first-party sales. In the latest quarter, PIX payment discounts for buyers and take-rate discounts for sellers in Brazil were added, along with point-of-sale device costs in Mexico. According to management, this is a deliberate decision to reinvest operating leverage in the value proposition.
Two further items for reading profit: Q4 2025 included one-off Brazilian tax credits of $99 million; without them the 2025 operating margin was 10.7% rather than 11.1%. And the effective tax rate fell to 23.2% in the quarter (27.0% a year earlier), mainly due to tax benefits in Brazil.
| $ millions | Q2-25 | Q3-25 | Q4-25 | Q1-26 | Q2-26 |
|---|---|---|---|---|---|
| Revenue | 6,790 | 7,409 | 8,759 | 8,845 | 10,169 |
| FX-neutral growth | 53% | 49% | 47% | 46% | 43% |
| Income from operations | 825 | 724 | 889 | 611 | 683 |
| Operating margin | 12.2% | 9.8% | 10.1% | 6.9% | 6.7% |
| Net income | 523 | 421 | 559 | 417 | 466 |
| Provision for doubtful accounts | 690 | 815 | 983 | 1,244 | 1,276 |
| $ millions | 2023 | 2024 | 2025 |
|---|---|---|---|
| Revenue | 15,107 | 20,777 | 28,893 |
| Income from operations | 2,207 | 2,631 | 3,201 |
| Operating margin | 14.6% | 12.7% | 11.1% |
| Net income | 987 | 1,911 | 1,997 |
| Diluted EPS ($) | 19.46 | 37.69 | 39.40 |
Balance Sheet & Capital
MercadoLibre's balance sheet looks more like a financial institution's than a retailer's. At June 30, 2026: total assets of $51.4 billion against equity of $7.8 billion (6.6x). On the asset side — a net loan book of $12.0 billion, credit card receivables of $8.5 billion, and restricted cash of $13.1 billion, mostly customer funds held under regulatory requirements. On the liability side — $16.0 billion of customer balances in the digital wallet, and $10.6 billion of loans payable and financial liabilities, mostly funding for the credit business.
Corporate debt and rating: On the company's definition, net debt (including leases, net of available cash and investments) was $6.4 billion, versus $4.7 billion at end-2025. In addition to its 2031 and 2033 notes, the company issued $1 billion of 10-year notes at 5.85% in September 2026. All three rating agencies rate the company investment grade (BBB-/Baa3/BBB-).
Cash flow: Cash from operations in the first half totalled $5.7 billion, but most of it came from growth in customer balances and card payables. After investment in loans ($4.1 billion), capital expenditure ($712 million) and the change in restricted cash, and adding fintech funding, the company's adjusted free cash flow was $158 million for the half (versus $512 million a year earlier), and $1,127 million over the last 12 months.
Shares: The share count has been stable at about 50.7 million since 2024. Long-term employee retention awards are paid in cash rather than shares, so they are not dilutive. The company pays no dividend, and buybacks in the quarter were negligible ($1 million).
Segments
The company reports four geographic segments and measures them by "direct contribution": revenue less all local costs, including shipping, credit provisions and funding cost, but before corporate costs.
| Q2, $ millions | Revenue 2026 | USD growth | Direct contribution 2026 | Contribution margin 2025 | Contribution margin 2026 |
|---|---|---|---|---|---|
| Brazil | 5,530 | +59% | 550 | 15.6% | 10.0% |
| Mexico | 2,337 | +55% | 306 | 17.8% | 13.1% |
| Argentina | 1,839 | +20% | 623 | 43.3% | 33.9% |
| Other countries | 463 | +63% | 65 | 9.9% | 13.9% |
| Total | 10,169 | +50% | 1,544 | 22.1% | 15.2% |
Two facts stand out. Brazil grew revenue by 59%, while its direct contribution rose only 1.5%; for the half as a whole it fell 13%. Argentina generates 18% of revenue but 40% of total segment direct contribution. Corporate costs not allocated to segments rose to $861 million, but fell as a share of revenue (8.5% versus 9.9%).
Commerce and fintech
Beyond geography, revenue splits into two lines. Commerce ($5,762 million, +50%): marketplace fees, shipping, advertising and subscriptions (+42%), and the company's first-party sales (+80%). Fintech ($4,407 million, +49%): credit revenue ($2,278 million, +72%) and other financial services (+31%). Credit revenue now represents 22% of total revenue.
Competitive Position
The differentiation the company presents is the combination of commerce and fintech. The marketplace brings users to the wallet and to credit, and marketplace data feeds underwriting. According to the shareholder letter, users active on both sides (which the company calls "ecosystemic") grew 37% in the quarter and generate 70% more GMV than marketplace-only users. According to the company, holders of its credit card remain on both sides at 2–3 times the rate of non-holders.
Logistics is the second component. More than half of shipments leave the company's fulfilment centres. Such a network requires heavy capital investment and years to build, and it allows the company to lower the free-shipping threshold and sell more low-priced items. According to the company, its advertising share passed 10% of the Latin American digital advertising market in the quarter.
What the reports show on the other side: In its annual report the company cites "new international players, particularly from Asia", which may put pressure on pricing, marketing spend and logistics capabilities. The need to cut prices, fees and the shipping threshold in Brazil shows up in margins. In fintech, the company competes with banks and with local and global fintech firms. The company does not publish audited market-share data, and this review includes no such data from a primary source.
How to Think About This Company
At MercadoLibre, margins are the result of a choice, not only of competition. The company states explicitly that it prioritises long-term building over near-term profitability, and it gives no quarterly guidance. As a result, the current reports show a business taking in more money than ever and earning less than a year ago. The central question in reading the reports is how much of the profit decline is investment the company can stop, and how much is the price the market is charging it.
This is not the first time. According to the company, in 2016 (free shipping) and in 2021–2022 (the credit card in Brazil) it deliberately lowered margins, and margins later recovered. This review did not check those periods against source filings. What can be checked in the current reports: operating margin fell from 14.6% in 2023 to 6.7% in the latest quarter, and over the last two quarters it has been stable at around 6.8%.
One number is not enough to read growth. About 47% of the quarter's revenue increase came from two lines booked on a gross basis: the company's first-party sales (+$650 million) and interest revenue from credit (+$952 million). Without them, the rest of revenue grew 38%. Marketplace fees, shipping and advertising grew 42%. FX-neutral growth also requires care: in Argentina it includes inflation of roughly 33% a year.
The credit book is a business in its own right. $16.4 billion gross, growing 75% a year, and almost half in credit cards. Under US accounting rules, the expected loss on each new loan is booked on the day it is made. A fast-growing book therefore generates provision expense ahead of the revenue. In the first half, provisions on loans exceeded write-offs by $1.1 billion. That means part of the profit decline is linked to the book's growth rate. On the other hand, the allowance covers about 104% of loans already 15 to 360 days past due, so it is not an excess cushion.
Credit quality by ageing. The company writes off a loan only after 360 days past due. As a result, a large share of the book (18.7%) is more than 90 days past due, a ratio much higher than is usual at banks. A fairer comparison is against the size of the book six months earlier: on that basis, 15–90 day delinquencies were 9.1% in June 2026 versus 9.5% in June 2025, and 91–360 day delinquencies were 24.5% versus 26.2%. On the credit card, net interest margin after losses fell to minus 2.5% due to accelerated issuance of new cards, and according to management it improves as new cohorts mature.
Argentina carries a large part of the profit. 40% of segment direct contribution comes from a country classified for reporting purposes as hyperinflationary. In the first half of 2026 the official dollar rate in Argentina rose only 1.9%, while inflation was 16.8%. According to the filing, a 10% depreciation of the peso would have produced a foreign-exchange loss of about $63 million on the monetary position alone, before any effect on revenue.
Available cash flow is much smaller than reported cash flow. Most operating cash flow is customer money passing through the digital wallet. What remains after funding loan growth and capital expenditure is adjusted free cash flow, which was 60% of net income over the last 12 months. As long as the book grows at the current pace, equity and debt fund it, and the September bond issue is part of that picture.
Higher-margin engines. On the other side of the ledger are lines that grow quickly and, according to the company, carry high margins: advertising (+62% FX-neutral), assets under management in the wallet ($23 billion, +68%) and cross-border trade (+60%). Product development fell from 8.4% to 7.2% of revenue, which the company attributes to the use of artificial intelligence in development. The effect of these lines on margins depends on how much of it is reinvested in prices.
This framework is intended to organise the questions. It does not reach a conclusion and does not take part in the decision — the decision belongs to the reader.
This framework is intended to structure analysis, not to produce an investment conclusion.
Risks & Monitoring
Risks arising from the reports
- Credit: a book growing 75% a year, write-off only after 360 days, and $14.0 billion of unused credit card limits off balance sheet ($9.0 billion at end-2025).
- Argentina: 40% of direct contribution; a hyperinflationary economy; tightening regulation of payment service providers (central bank communications of February and April 2026).
- Currency: most revenue is in the real, the Mexican peso and the Argentine peso, while reporting is in dollars. 84% of cash and investments are held outside the US.
- Financial regulation in Brazil: licensing requirement for digital-asset services (application filed in July 2026) and a ban on using stablecoins in cross-border FX transfers, effective October 2026.
- Funding: the credit business is funded by customer balances, securitisation, bank loans and notes. The filing includes no quantitative sensitivity analysis to interest-rate changes.
- Competition: entry of international players, particularly from Asia, and a tax reform in Mexico that hurts small sellers (according to the company).
Items to monitor in the Q3 report (late October 2026)
| # | Item | Latest reading |
|---|---|---|
| 1 | Income from operations and operating margin | $683 million, 6.7% (Q3 2025: $724 million, 9.8%) |
| 2 | Gross margin | 40.9% (43.7% in Q1) |
| 3 | Brazil direct contribution | $550 million, 10.0% (Q3 2025: $475 million) |
| 4 | Argentina's share of contribution and the peso rate | 40% · 1,482 pesos per dollar at June 30, 2026 |
| 5 | Loan book delinquencies | 15–90 days: 7.0% · credit card: 4.6% |
| 6 | Net interest margin after losses (NIMAL) | Total: 20.7% · card: minus 2.5% |
| 7 | Adjusted free cash flow | $214 million in Q2 (Q3 2025: $206 million) |
| 8 | Unused credit limits | $14.0 billion |
Scenario Framework
The scenarios below are descriptive, not predictive. They contain no prices, no probabilities, and do not rank outcomes. Their only purpose is to organise the conditions that would need to hold for each state to materialise, so that they can be checked against future filings.
Scenarios are descriptive, not predictive.
- If gross margin stops falling while the number of buyers and items per buyer keep growing
- If Brazil's direct contribution returns to double-digit dollar growth
- If card margin rises while delinquencies, measured against the book six months earlier, stay at their level
- If adjusted free cash flow grows despite continued book growth
- If revenue keeps growing at 40% or more and operating margin stays around 6%–7%
- If the company keeps reinvesting operating leverage in prices, fees and shipping
- If Argentina keeps generating a disproportionate share of contribution, without a currency shock
- If the book keeps growing fast and free cash flow stays below net income
- If gross margin keeps falling and Brazil's contribution declines in dollars
- If delinquencies rise even against the book six months earlier, and write-offs accelerate
- If a sharp devaluation in Argentina hits direct contribution there
- If an interest-rate or regulatory change in Brazil raises the funding cost of credit
Analytical Lens
The following six questions are identical in every company review we publish. They are deliberately open and do not lead to a single conclusion. Their role is to let the reader examine the company along the same six dimensions as any other company.
Key Observations
1. In the April–June 2026 quarter MercadoLibre reported revenue of $10,169 million (+49.8%, and +42.9% FX-neutral) and income from operations of $683 million (−17.3%). Operating margin fell from 12.2% to 6.7%.
2. Brazil, 54% of revenue, grew revenue by 59% and direct contribution by 1.5%. Argentina, 18% of revenue, generated 40% of total segment direct contribution.
3. The gross loan book reached $16.4 billion (+75%), with an allowance of $4.4 billion. 15–90 day delinquency: 7.0%. Net interest margin after losses: 20.7% for the whole book and minus 2.5% for the credit card.
4. Adjusted free cash flow totalled $1,127 million over the last 12 months, against net income of $1,863 million. In September 2026 the company issued $1 billion of 10-year notes, and the share count remained about 50.7 million.
Bakshi Finance operates as a Family Office for qualified clients only. Mr. Yaron Bakshi held a licensed investment adviser qualification in Israel during 2008–2023. As of the publication date of this document, the firm does not hold an investment advice, investment marketing or portfolio management licence.
This document is intended for research and professional study purposes only. Nothing herein constitutes a recommendation to buy, sell, hold or carry out any transaction in securities. Nothing herein substitutes for advice that takes into account the data and needs of each person. Every decision is the sole responsibility of the investor.
Past performance is not indicative of future results. Data were drawn from official sources: the quarterly report on Form 10-Q for the quarter ended June 30, 2026 (August 6, 2026), the shareholder letters for Q3 and Q4 2025 and Q1 and Q2 2026, the annual report on Form 10-K for 2025 (February 25, 2026), the 2026 proxy statement, and Form 8-K filings from September 2026. Filings published after this date are not included.
Review for qualified clients โ Family Office
The full analytical review of MercadoLibre (MELI) for the quarter ended June 2026 is available to Bakshi Finance premium clients.
The review includes a 10-section analysis, "How to Think About This Company" paragraphs, a structured scenario framework, and a six-dimension Analytical Lens.
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