TIP859: Mercado Libre ($MELI): We Doubled Down on Meli w/ Daniel Mahncke & Shawn O'Malley

MercadoLibre

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Mercado Pago ties marketplace, payments and credit into an ecosystem that deepens customer lock-in.

  Ecosystem customers who use both Mercado Pago and the marketplace generate about 70% more GMV than marketplace-only shoppers and about 90% more payment volume than Pago-only users. The share of these dual users has risen eight percentage points since the end of 2023. Pago pulls shoppers in through checkout installments and credit offers, lifts conversion and GMV, and generates richer data that improves credit decisions. Off-marketplace use (point-of-sale devices in small shops, wallet balances, bill payments) gives Meli a full picture of customer finances, which helps underwriting. Daniel sees the flywheel as the core strength and expects the ecosystem to become increasingly entrenched.

  “[Ecosystem] customers, so basically customers that use Pago and MercadoLibre instead of just one of them, generate about 70% more GMV than someone who only shops on MercadoLibre and about 90% more payment volume than someone who only uses MercadoPargo.”at 8:27

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Mercado Pago could one day become bigger than MercadoLibre's legacy marketplace business.

  Fintech already makes up 43% of revenue excluding currency effects and has grown faster than commerce in each of the last three quarters at about 30% a year. Mercado Pago processed over $100B of payments last quarter, more than four times the marketplace's roughly $22B of goods sold, and has 88M monthly active users and $23B in assets under management, up almost 70% in a year. Daniel cites PayPal, which became more valuable than the eBay marketplace it was spun out of, as precedent, and says it is not crazy that Mercado Pago could overtake the marketplace, perhaps not far away.

  “So fintech is already 43% of revenue, excluding currency effects, and it grew even faster than commerce in each of the last three quarters. And that's why I don't think it's actually crazy to say that. Mercado Pago could one day, and maybe that day is not even that far away, be bigger than MercadoLibre”at 12:46

• Shawn O'Malley · The Investor's Podcast NetworkUncertain

  Rapid credit growth into Brazil's worst consumer credit environment in 15 years is a risk to watch.

  Mercado Credito's loan book grew 75% year over year to $16.5B, with about $2.1B added in Q2 alone, and the card book is growing around 90% a year. Shawn notes that South American consumers are riskier borrowers and that Brazilian household delinquency reached 6% in August, up more than a percentage point in a year, with system-wide delinquency at its highest since 2011. He describes this as the worst Brazilian consumer credit environment in fifteen years and says he would rather accept less margin for much less risk of a blow-up.

  “You always want [to] be careful when credit portfolios are growing that fast, especially so when it happens with South American consumers where the market there just tends to be a bit riskier for lenders.”at 14:32

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Falling margins reflect upfront card-loss accounting from fast growth, not weaker lifetime card economics.

  When Mercado Pago issues a new card, it must book expected losses for that card's upcoming period almost immediately, while interest income arrives with a lag. Growing the card book quickly therefore depresses reported profit, which Daniel identifies as the biggest reason margins fell. Cards can still be profitable over their lifetimes. Daniel treats the margin compression as largely timing, with the implication that reported margins should recover as growth moderates or cards mature. He notes the caveat 'at least potentially'.

  “So basically, your reported profit looks worse the faster you grow it, even if every one of those cards is profitable over its lifetime, at least potentially.”at 16:56

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Mercado Pago's credit cards are very profitable once mature, though the card portfolio is still loss-making overall.

  Net interest margin after losses on the card book was minus 2.5% last quarter versus roughly breakeven a year earlier, because issuance accelerated. Management says a card cohort reaches breakeven within about 12 to 18 months, and about three-quarters of the Brazilian card book has already reached that point. Estimates have the card business losing a bit less than $450M in operating profit this year, breaking even by 2028, and earning around $1.5B a year by the end of the decade, contingent on continued card growth. Shawn frames the bull case as today's losses being tomorrow's profits, with the bear case being structural losses.

  “And Mello's cards are very profitable, we found once they mature.”at 17:39

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Mercado Pago's credit quality is holding up despite rapid loan growth; the book should de-risk over time.

  Card 15-90 day delinquencies were about 4.5%, which the company says is close to an all-time low, and the overall 15-90 day NPL ratio fell to about 7% from 8% in Q1, so the early buckets have not deteriorated despite about 75% growth. Allowances of $4.5B against a $16.5B book mean more than a quarter of the portfolio is already reserved. Daniel expects the book to get less risky as it matures and as lower-risk products such as payroll loans are added. He acknowledges the 90-plus-day NPLs rose from 17.5% to 18.5% and that the book has not yet been tested in a significant Brazilian recession, so the risk may be bigger than he portrays.

  “it's only about four and a half percent, which the company says is close to an all time low. So despite 75% growth, credit quality hasn't deteriorated, at least in the early buckets.”at 19:14

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Shopee's cheaper loyalty program will not close MercadoLibre's subscriber gap meaningfully.

  Shopee VIP is priced like MercadoLibre's basic tier but offers free shipping on orders above 10 reais, versus 19 reais at MercadoLibre, and gained about a million users in six months. MercadoLibre's subscriber base is estimated at 12 to 15 million and still growing about 70% year over year. Shawn expects the gap to remain material, would be surprised if it closed meaningfully, and is not too worried, while tracking average order value to see whether Shopee wins higher-end purchases.

  “Melly does not disclose its subscriber numbers, but estimates are around the sort of twelve to fifteen million range and they're still growing 70% year over year. I expect the gap to remain pretty material going forward. I'm not too worried about it.”at 31:02

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Lowering free-shipping thresholds to defend the low end costs margin now but is a sound long-term investment.

  MercadoLibre is defending the lower end of the market as well as the upper end, lowering its free-shipping threshold in response to Shopee's VIP offer. Shawn argues this prevents the innovator's dilemma in which Shopee starts at the low end, builds scale and moves up-market. He accepts that it costs some margin now, but sees it as a way to win share and a long-term investment. Daniel agrees the strategy is working.

  “While it costs them some margin right now to focus on the lower end, I think lowering the threshold for free shipping and these similar moves that they're making is really a great way for them to win market share and is correspondingly a great long term investment.”at 32:11

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Shopee is taking share mainly from legacy incumbents, not from MercadoLibre, in Brazil e-commerce.

  Brazil's e-commerce market was about $100B last year. MercadoLibre holds about 43% share and Shopee 18%, and both grew about three percentage points, which Daniel reads as Shopee taking share from legacy players such as Casas Bahia, which filed for judicial recovery, and Americanas, whose online sales fell almost 70%. MercadoLibre's app users rebounded to 134M in Q2 against Shopee's 130M, after trailing a year earlier. Daniel says Shopee overtaking MercadoLibre as the number one player is not his base case, and that the market is big enough for two or three players.

  “...Meli has about a 43% share in that market and Shopee has 18% and both actually grew three percentage points. So Shopee is not taking share from Meli, but mostly from legacy incumbents just like Meli is.”at 32:28

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Sea's Monee is not close to rivaling Mercado Pago or Mercado Crédito in payments and credit.

  Monee is still mainly a digital wallet and has an estimated one to two million active credit users in Brazil, while MercadoLibre has more than 22 million. Shopee has not launched a credit card in Brazil even though it holds the license, and its main credit product is Shopee Pay Later. Shawn sees this gap as reassuring for now. Daniel adds that a Monee gain in share would be a bigger concern than Shopee's, because it would weaken the entrenchment argument, but that this is not yet happening.

  “for the time being, Sea Limited's money business is not really even close to rivaling Pago or Credito.”at 34:52

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  MercadoLibre's logistics network is 2.5-3 times Shopee's, and the gap will not close soon.

  MercadoLibre leases about 3 million square meters of warehouse space in Brazil, against about 1 million for Shopee. It pays roughly 100 million reais a month in rent, against about 33 million for Shopee. It also plans 14 new fulfillment centers this year. Daniel doubts Shopee's stated goal of surpassing MercadoLibre's fulfillment volume will be achieved anytime soon.

  “So Mele's network is still roughly two and a half to three times bigger than Shopee's... I don't see the gap closing anytime soon.”at 37:37

• Daniel Mahncke · The Investor's Podcast NetworkNeutral

  MercadoLibre's Mexico slowdown reflects tax reform and weak consumers, not Amazon competition.

  Mexico is the market where the competition with Amazon is closest. Amazon's Mexican network is about 30 times its starting size and reaches more than 500 cities. Management says MercadoLibre is still growing faster than Amazon there. Daniel attributes the slowdown mainly to Mexico's tax reform and a weak consumer, not to Amazon.

  “And Mexico is where Meli's [growth] was actually slowed this year... And the slowdown had more to do with the tax reform and a weak consumer overall than with competition of Amazon.”at 39:31

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Brazil is too mature to fragment, so one or two dominant platforms are the more likely outcome.

  Brazil is not a young market that could still go in any direction. It is hard to see where other competitors would come from or what gap they would fill that is not already served. Shawn also points to a political incentive. A likely incoming government would favor South American companies over Chinese players flooding the market, which would support local platforms such as MercadoLibre.

  “To me, the former [one or two dominant platforms] seems probably more likely. While there's still plenty of room to grow, Brazil is not some young market that could still go in any direction by any means.”at 46:35

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Brazil's e-commerce will likely end with one or two dominant platforms, like the US, benefiting MercadoLibre.

  China's e-commerce grew fast partly because third-party carrier infrastructure, such as Cainiao-style networks and carriers like J&T, moves most parcels cheaply. A new entrant in Brazil must build that infrastructure itself. Payments are another difference: the US has neutral card networks, while China has a duopoly, and Brazil has Mercado Pago. Brazil's e-commerce market is roughly $60-80 billion in GMV, against about $1.8 trillion in China and $1.2 trillion in the US. That is too small for new players to spend billions entering and still earn profits, so Daniel expects a US-style structure.

  “If you compare the characteristics one to one, it seems definitely more likely that [Brazil] would end up with a US like structure.”at 47:08

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Mercado Pago's ecosystem and lending give MercadoLibre an edge that US and Chinese rivals cannot easily copy.

  Mercado Pago is already dominant in Brazil and is owned by MercadoLibre, which gives it ecosystem benefits. In the US, card networks are neutral, so no e-commerce rival can use payments as a weapon. In China, Alipay and WeChat form a duopoly that powered Alibaba's rivals. Amazon never had a lending book, and Chinese lending is now tightly regulated after Ant Financial. Daniel argues that this combination of payments and credit is a differentiator that is specific to MercadoLibre.

  “So all of this could be an important differentiator because MercadoPago is already highly dominant and it's owned by MELI, obviously, which opens up all sorts of ecosystem benefits. And the same goes for credit. Amazon never had a lending book.”at 48:02

• Daniel Mahncke · The Investor's Podcast NetworkNeutral

  Pix is a partial threat to Mercado Pago, but it cannot lend and its discounts build a profitable ecosystem.

  Pix, the government-run instant payment rail, could pressure Mercado Pago, so the answer is 'yes and no'. Pix is only a payment rail and does no lending, and most of the value in Mercado Pago comes from credit. Daniel would rather have a government rail as competitor than one built by a rival. MercadoLibre's discounts for buyers who pay with Pix are a bet on cheap customer acquisition. Those customers can later be turned into credit-card users, and the wallet still holds their funds. Daniel says Pix will not go away and that PayPal-style pass-through wallets are a weak business model in a Pix market.

  “Yes and no is the short answer. I would say that it could be a problem, but also there are a couple of benefits that Pago actually has because of [Pix]... So [Pix] is a problem, but it doesn't do any lending.”at 48:43

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  MercadoLibre's margin squeeze reflects credit and free-shipping investment, not take-rate cuts from a price war.

  There is no price war in Brazil. Neither platform has cut its take rate, and Shopee has been raising seller fees, which is the opposite of what a company does when it wants to undercut a rival. The margin compression comes from investment in credit and free shipping, plus expansion of logistics. Commerce can run at a thin margin indefinitely as long as it keeps about 90 million buyers in the ecosystem. Shawn says he would worry only if take rates were cut.

  “the margin compression really is coming from investments in credit and free shipping, and then of course expanding logistics... but not from cutting their take rates to undermine each other.”at 50:45

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  MercadoLibre's margin drop comes mostly from upfront credit-card loss provisions, not Shopee competition.

  Booking upfront provisions on newly issued loans is the largest driver of the margin decline. It cost about four percentage points of operating margin in Q1 and about two in Q2. It is an accounting consequence of growing the credit book, not a response to Shopee. Free shipping is the second biggest factor and is a deliberate competitive reaction, but it is working. Daniel holds the stock.

  “Booking the provisions, which is what we talked about before for the loans is actually the biggest part of the margin compression. That has nothing to do with Shopee or competitive pressure.”at 51:34

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Free shipping now breaks even for MercadoLibre, so lower thresholds become affordable as volume grows.

  Free shipping used to lose money on each package. With much higher volume, the logistics network now breaks even or makes money at the free-shipping threshold. Shipping cost per package fell 11% in Q4 and 17% in Q1 while volume rose more than 50%. As volume grows, the threshold can be lowered again without losses. Shopee cannot do the same because it lacks the volume.

  “for the longest time, when MELI was going down with the free shipping threshold, they lost money on those packages. And now they have so much more volume that they basically start to make money or at least break even on the free shipping threshold.”at 55:52

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  MercadoLibre's operating margin should recover to 13-14% by decade's end as investment scales back.

  Daniel expects 2026 revenue to grow another 45% to over $40 billion. From 2027, commerce grows about 25% and fintech about 32%, with both decelerating by a couple of points a year. He assumes investment is scaled back over time, so the operating margin, now about 7%, climbs back to 13-14% by the end of the decade. That level is still roughly where the margin stood two years earlier, at 12%.

  “Then from there, commerce and fintech both decelerate a couple of percentage points per year... the operating margin that currently stands at only 7% will creep higher again, reaching 13 to 14% by the end of the decade”at 59:41

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  MercadoLibre's fair value is close to $3,000, or $2,400 with a 20% margin of safety.

  The model assumes a mid-twenties multiple and a 10% discount rate. It uses revenue growth that slows from 2027 as investment is scaled back, and margins that rise to 13-14% by the end of the decade. Daniel says the model assumes the investment slows within one to three years, which may not happen. He owns the stock because he expects a bigger and better business in ten years, not because margins will improve over five years.

  “Assuming a mid twenties multiple and a 10% discount rate, the fair value based on the above estimates is close to $3,000 with a 20% margin of safety... you would get to $2,400.”at 1:01:18

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Fintech is MercadoLibre's profit engine, with commerce serving as the vehicle that feeds it.

  Fintech is about 43% of revenue and is growing faster than commerce. It earns roughly 20% margins after credit losses. Commerce mainly brings in users for lending and payment processing. Shawn expects the loyal customer base to create advertising opportunities as well. In his model, Mercado Pago grows to the same size as the commerce business by 2030, so the higher-margin part of the company grows fastest and helps overall profitability.

  “Because the fintech side of things is where the profits come from. And you can almost say that the commerce side of the business is just a vehicle for facilitating the fintech part of it, whether that's with the credit card lending or the payment processing.”at 1:03:07

• Shawn O'Malley · The Investor's Podcast NetworkUncertain

  MercadoLibre's credit book worries Shawn, and Nubank exposure adds leverage to Latin American consumers.

  The credit book is the part of the business that gives Shawn the most pause. Combined with the existing Nubank stake, the portfolio becomes highly leveraged to the Latin American consumer. Shawn expects a volatile ride, based on history. He is nonetheless willing to hold a great company and let it run.

  “And so the credit book is probably the one thing that gives me some pause and maybe some anxiety, especially when you pair it with the position that we have with our existing stake in Nubank, making us pretty highly leveraged to the Latin American market”at 1:03:41

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  At about $230 MercadoLibre looks expensive, but growth should let it clear the 12% IRR hurdle.

  Shawn calls the price an outrageous valuation given the growth. He still expects the stock to clear the fund's 12% hurdle over a multi-year period. The reasoning is that growth prospects are strong and the company keeps reinvesting its earnings. Shawn sees the stock as meeting the fund's return requirement despite the high multiple.

  “And I feel pretty confident that with Meli's growth prospects and then at the price we're buying into at this moment, which is an outrageous valuation two thirty given the growth, I feel pretty good that it can meet our IRR hurdle.”at 1:04:10

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  MercadoLibre performed well under both left- and right-leaning Brazilian governments, so election risk is manageable.

  Daniel declines to predict the Brazilian election outcome and questions what either candidate's win would mean for the economy. He takes comfort in the fact that MercadoLibre has performed phenomenally under left-leaning and right-leaning presidents, across Brazil and Latin America. Its model was built to work around the region's political volatility. He also argues that a business reliant on one president's policies would not be worth owning.

  “I think I take comfort in the fact that MELI performed phenomenally under the presidency of left leaning candidates and then also under the presidency of right leaning candidates.”at 1:05:17

Shopee

• Shawn O'Malley · The Investor's Podcast NetworkBullish

  Shopee built a substantial Brazilian logistics network in a couple of years, so logistics moats can be copied fast.

  Shopee built a substantial logistics business and delivery network in Brazil in just a couple of years. Shawn had believed logistics was a huge moat since Amazon, but Shopee showed that, with execution and investment, a logistics network can be recreated and copied much faster than most people thought possible. This makes Shopee a more credible competitor to MercadoLibre, whose logistics arm Mercado Envios is part of its ecosystem moat.

  “The really impressive part is that they built a substantial logistics business and delivery network in Brazil in just a couple of years. ...[Shopee] really showed that, hey, with perfect execution and some investment, it can actually be recreated and copied much faster than most people would have thought possible.”at 28:26

• Daniel Mahncke · The Investor's Podcast NetworkBullish

  Shopee is moving up-market in Brazil and is not just a low-end marketplace.

  Daniel argues that Shopee already expanded into higher-end products in other markets through Shopee Mall, where partner brands sell. Shopee Mall more than doubled in the first quarter and is now about 15% of Shopee's Brazilian GMV. Shopee has also signed deals with major electronics dealers in Brazil, which raises average order value and attracts higher-quality customers. He says that MercadoLibre-focused investors neglect Shopee, which he considers more capable than its low-end image suggests.

  “I don't think you can view Shopee as low end commerce place. I think they have already been successful at expanding into higher end products in other markets through what they call Shopee Mall. ...Shopee Mall has more than doubled in the first quarter and is now about 15% of Shopee's Brazilian GMV.”at 28:50

• Daniel Mahncke · The Investor's Podcast NetworkBearish

  Shopee's rising Brazilian BNPL delinquencies will keep climbing as its loan book expands.

  Shawn notes that the funds holding Shopee's Brazilian loans show 90-day delinquencies rising to about 3% within a little over a year, while group-wide 90-day NPLs remain around 1%. Shopee Pay Later is about 10% of Brazilian GMV, with roughly three-month terms and monthly interest near 10%. Daniel says the number will keep rising as the book grows, particularly into categories beyond buy-now-pay-later. He attributes this to a mechanical lag, since the loan book is growing so fast that bad loans have not yet reached the 90-day bucket, and expects the trend to continue.

  “And the more they expand that loan book, especially into categories outside of buy now, pay later, the more we should expect that number to go up. I'm pretty confident the trend will continue and it's more of a mechanical thing in the end.”at 35:44

Sea

• Daniel Mahncke · The Investor's Podcast NetworkUncertain

  Spinning off Monee can fund growth, but losing marketplace-payments synergies would be a big negative.

  Sea Limited has announced plans to spin off Monee, its payments arm. Daniel says a spin-off makes sense as a way to raise money and grow the loan book. But he says the value of the structure depends on keeping the synergies between the marketplace and payments, which he considers central, and losing them would be a big negative. He notes that Mercado Pago itself is unlikely to be spun off. He describes Alibaba's Ant Group, whose IPO was pulled by regulators, as precedent for how payments arms can be separated.

  “But then again, Sea Limited just announced plans to spin off [Monee], which is their payments arm... Because to me, it makes sense to raise money to grow the book. But if they lose any of the synergies between the marketplace and the payments arm, I think that would be a big negative”at 13:24

• Daniel Mahncke · The Investor's Podcast NetworkBearish

  Shopee pays heavily for free-shipping thresholds it cannot yet cover, because it lacks scale.

  Shopee has to pay to lower its free-shipping threshold because the volume that would make it profitable is not there yet. Daniel says Sea is being punished harder by the market for its investment cycle. He expects Shopee to stop spending at some point. In the meantime, its investment is costly in a way MercadoLibre's is not.

  “Whereas Shopee, for example, they have to pay up for lowering the free shipping threshold because for them, it's not profitable because you don't yet have the volume.”at 55:52

Amazon.com

Across the shows: 47 speakers in other episodes, 60 bullish and 10 bearish calls, past 30 days

• Daniel Mahncke · The Investor's Podcast NetworkBearish

  Amazon's roughly $20 billion Brazil push has not moved its 11% market share.

  Amazon invested close to $20 billion in Brazil in 2025, about five times its average annual investment there. It expanded logistics, launched an ultrafast delivery service, and waived commissions for new sellers. Its market share stayed at 11%, while MercadoLibre and Shopee each gained three percentage points. Daniel concludes the spending has not translated into share gains.

  “Share wise though, that didn't seem to move the needle because Amazon is still sitting at the same 11% of market share that it did last year, while MELI and Shopee, again, both grew three percentage points.”at 39:25

Emerging markets

• Daniel Mahncke · The Investor's Podcast Network

  Latin American e-commerce can grow about 11% a year as penetration rises from 14-15%, big enough for 2-3 players.

  Daniel expects South American e-commerce to grow roughly 11% a year over the next decade, mostly from rising penetration. Penetration is about 14-15% in Latin America, versus roughly 25% in the US, close to 30% in the UK and above 30% in China. He argues that big markets such as Brazil, Argentina and Mexico have the digitalization, young tech-savvy consumers and income levels to reach higher penetration. Brazil's GDP per capita of about $10-11K is roughly twice that of many Southeast Asian countries, so the market is big enough for multiple players to grow profitably, though economics are better when concentrated.

  “I do believe that the South American e commerce market, and this is what we said in our original pitch, is probably big enough for two or three players. So it's expected to grow roughly 11% a year over the next decade, mostly driven by higher e commerce penetration.”at 25:55