Episode summary
Mercado Libre ($MELI): We Doubled Down on Meli!
The Intrinsic Value Podcast
· · Hosts: Daniel Mahncke, Shawn O'Malley
Summary
Mercado Libre’s thesis remains centered on a reinforcing flywheel: marketplace scale feeds Mercado Pago, credit, logistics, and advertising, while off-platform payments and lending make the ecosystem stickier. The hosts argue that Pago is now more than a checkout tool; it processes more volume off the marketplace than on it, has 88 million monthly active users, and supports a credit and wallet relationship that deepens customer engagement. They also say the lending business is becoming a major profit driver, even though the rapid expansion of credit cards is depressing reported margins today.
Competition is real, especially from Shopee and, to a lesser extent, Amazon, but the hosts think the market is still large enough for multiple players. Shopee has become a tougher rival than expected in Brazil, particularly at the low end and in logistics, yet Mercado Libre still leads on GMV, users, fulfillment scale, and ecosystem entrenchment. Amazon’s Brazil push has not shifted share much, and the hosts see the bigger threat as whether competitor pressure forces Mercado Libre to spend more on shipping and pricing.
The main tension in the valuation is margins versus growth. Operating margin has fallen from 12% to below 7%, but the hosts argue much of the compression comes from investment, free shipping, and upfront credit provisions rather than a pure price war. They view the stock as supported by 50% revenue growth and an increasingly valuable fintech arm, even if the long-term margin outcome is still uncertain.
Key takeaways
- The hosts say Mercado Libre’s payment and credit ecosystem is now the bigger strategic moat than the marketplace alone, with Pago processing more volume off-platform than on-platform.
- They argue margin compression is mainly driven by reinvestment and credit-loss provisioning, not aggressive take-rate cuts in a price war with Shopee.
- Mercado Libre’s Brazil logistics network remains far larger than Shopee’s, with about 3 million square meters of warehouse space versus Shopee’s 1 million.
- The hosts think Shopee is a meaningful rival in Brazil, but not enough to dislodge Mercado Libre as the leader in a market they see as big enough for two or three players.
- They view Mercado Libre’s credit book as profitable over time, but say responsible underwriting matters because consumer credit risks can worsen quickly in a downturn.
Notable quotes
“Melly is now one of our top five positions. So, it feels timely to give an update”
“what has really happened here to current margins is it's been a downward slope from 12% to a little less than 7%”
“So I don't think this will be the case here. Otherwise, obviously, we wouldn't be invested in the stock”
How the episode opens
(00:00) Melly is now one of our top five positions. So, it feels timely to give an update. Margins are depressed because of the current investment cycle.
But Melly has accelerated growth and improved user metrics across the board. The big question will be what we think about margins. If Melly can turn the switch and return to the margin profile pre-investment, this will be a stock returning well over 20% for the next few years.
(00:24) If not, there could be some more downside. And we're not the only ones with a bullish outlook either. Bill Miller recently started a position and so did Tom Gainer, although a small one for now.
So, we're in good company. What's interesting is that Marcato Libre has been your starting point to cover really a whole number of e-commerce companies and of course you pitched Amazon as your first but I think Melly gave you a different appreciation for really the flywheel effect of marketplaces especially when combined with payments and credit and logistics (00:59) and advertising and and all these other things. And after Melly, you covered C Limited, which I believe also made it into your personal portfolio.
And then there's another company, Caspie, which I think might have also made it in your personal portfolio. Yeah, I think it's uh safe to say I very much like how these businesses work together and also reinforce each other. (01:19) And uh yes, I do own C Limited in my personal portfolio.
I looked very smart when I first bought it at about $70 and then went up to $130. So I thought this is, you know, fantastic investment. Now, I got to say it's back in the 70s, so I don't look as smart anymore.
And I haven't yet bought CASBY, but I might eventually do so, too, because it's a fantastic company.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- valuation update
- mercado libre growth
- mercado pago market share
- competition and margins
- meli intrinsic value
Companies and tickers mentioned
- MELI
- AMZN
- Mercado Libre
- Shopee
- Amazon
- Mercado Pago
Watch the episode
Watch “Mercado Libre ($MELI): We Doubled Down on Meli!” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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