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Mercado Libre just reported earnings yesterday and the stock is crashing 12% after the print. And today something very unexpected happened. Michael Burry disclosed a new position in MELI. So, the question is simple. Is the market seeing a broken growth story or is Burry seeing a misunderstood compounder?
Because this quarter was very strange. Revenue is growing almost 50%. Brazil is accelerating. Payments volume is exploding. But at the same time margins are failing. Net income is under pressure and credit risk is becoming more important. So, in this video I'm breaking down the good, the bad and the ugly for this Latin American compounder.
And by the end we'll answer the key question. Is MELI down for a good reason or is this exactly the kind of opportunity long-term investors should watch? Mercado Libre is really a full commerce and fintech ecosystem. On the commerce side they make money from marketplace fees, shipping services, first-party product sales and advertising, subscriptions and other seller services.
On the fintech side they make money from Mercado Pago payments, financial services, credit card fees, loans and interest income. So, when you look at Mercado Libre you are not looking at one business, you're looking at several businesses stacked on top of each other and working together as a flywheel.
Let's start from the good. The revenue keeps growing and in the latest quarter the revenue grew 50%. You can see from June 2025 revenue keep reaccelerating from 33% to almost 50% in the latest quarter. The biggest market for Mercado Libre, Brazil, reaccelerated to 54.9% which is almost the highest growth in 3 years.
This is due to the lowering free shipping threshold in Brazil market. Management told us few quarters ago that they will invest aggressively in a key market. In terms of the unique buyers I see people are saying that from December quarter they almost did not increase quarter over quarter. But if we look at comparison year on year, we actually see that they reaccelerated unique active buyers to 26% from previous 23%.
It is due to some kind of seasonality for Mercado Libre. You can see in previous year, from December quarter to March quarter, it was even declining. And now, from December quarter, we are increased to March quarter 1 million unique active buyers. So, this is actually not bad at all. Fintech revenue is also growing very rapidly 77% year on year.
So, we see hypergrowth in e-commerce part of the business and also hypergrowth in Fintech part of the business. So, now the question is, why the stock is down more than 12% if the company is in hypergrowth and the growth is reaccelerating compared to previous quarter. And there are three yellow flags I found in the report, which could explain the decline in the stock.
Let's start from the first one. NIMAL. NIMAL is credit revenues minus provision for bad loans minus funding cost. So, basically, you can consider this KPI as a KPI, which is showing the profitability for their Fintech service. And we can see that this was declining over time. It was almost 30% in Q4 2024, now declined to less than 18%, which shows that Fintech margins are shrinking and profitability is declining.
And this is always the problem for Wall Street analysts because in their models, they need to put all those numbers into their model, into the Excel, and try to calculate what will happen in 3 to 5 years. So, when the key metrics like this are declining, the analysts will always get nervous, which is partially explaining the decline in a stock price.
Let's go to the reason number two. As you know, Mercado Libre is providing credit and also credit card services to their customers. So, now, here we can see 15 to 90 days past due is 8% in latest quarter. Meanwhile, 90 days past due is 17.6% in latest quarter, which shows the percentage of clients who is not paying back the credit card.
Now, on one hand, you can say that this KPI is relatively stable. It's not increasing to 20%, 25%, and so on. But, on another hand, on absolute basis, this is kind of scary. 17% of people is not paying back the credit card. The management is saying that asset quality remains solid, but from my perspective, I would say this is a second yellow flag I would like to mention, which could make Wall Street a little bit nervous about the company.
Because we can say that Mercado Libre is transforming to some kind of a bank, and for the bank, we have totally different multiples compared to tech company or e-commerce company, which lead us to the operating margin declining, and currently operating margin is a 6.9% in the latest quarter. You can see previously operating margins was in 13s, 12s, and so on and so forth, currently declining to 6.9.
And as I mentioned, for Wall Street analysts, they always need to model the margins for the future, which is becoming very tough because the margins are declining, and management is not clearly telling us when it will flip, and which kind of margins we should expect on a long term. Here, the management is clearly explaining what's the reason for margin decline, and the main reason is bad debt, 4% headwind for the operating margins, which means those kind of bad loans we just went through is damaging profitability for Mercado Libre.
Now, why Michael Burry decided to buy now? The stock is down 12% on a day. Probably, he kept the stock in his watchlist as a high-quality company, and just was waiting for the opportunity to buy when the price reached his target. From the valuation perspective, we can see the Mercado Libre is trading currently on a price-to-sales basis on 2.87 times, with medium 10-years medium of almost 10 times, and price-to-operating cash flow, which is the best magic for the companies which is investing heavily into CapEx, the medium 10-year average is 40, meanwhile currently Mercado Libre is trading at 7.31.
So, from the valuation perspective, we can say that Mercado Libre currently is dirt cheap. But, what return on investment we can expect if we invest into the company today? And to model the return on investment for the next 5 years, the best tool is InvestKit. Currently, Mercado Libre is growing 39% in the latest quarter, and if we project 35% and then revenue deceleration to 20% with net income margin expanding to 10%.
Meanwhile, currently net income margin in the latest quarter was 7% and price to earnings ratio is 25, which I believe is relatively fair for the 20% growth on the top line and 10% profitability on the bottom line. 25% seems reasonable to me. We can expect 143% return, almost 20% CAGR on a base case scenario.
Let me show you my bull case. For the bull case, the return could be more than 350% for the next 5 years, and the numbers is not crazy at all. The revenue decelerating to 35%, then 25%, and 20% until 2030. Net income margin is 15%, which I believe is reasonable because they still have advertising, they still have fintech, they can continue cross-sell their customers with that, and they also can implement robotics and efficiency optimization to reach those kind of 15% net income margins.
And with price to earnings of 30, we can expect 357% on a bull case, which is 35% CAGR from here. So I believe that Michael Burry is kind of seeing this large opportunity. On a base case, you can more than double your money on the next 5 years. On a bull case, you can almost 4x your money. And on a bear case, on a bear case based on my assumptions, we can only lose 20% on Mercado Libre.
My bear case is decelerating revenue to 15%, net income margin of 5%, and PE of 20 for Mercado Libre. So I think Michael Burry is buying because he sees high-quality compounder, founder-led company, the playbook for the company, which already proved itself by Amazon in North America. And now they are playing the same playbook for Latin America.
Yes, competition is severe, but the management is working very hard. They are trying to keep market share. They are even growing market share. The Mercado Libre is very strong in Latin America. Michael Burry sees this opportunity that he can either lose 20% or make almost 4x on his investment, and he considers this as a good opportunity for him to deploy capital.
Full disclosure, I also own Mercado Libre in my portfolio. I'm not hurried to buy the dip because I already have a relatively large position in Mercado Libre, but if the price continue to go down, I will consider dollar cost averaging into my position as well. Let me know in the comments what do you think about the MELI.
Do you believe the management that they are trying to take more market share and grow the business for the long term, or they are just trying to fight the competition, which is relatively severe from Chinese competitors and rivals? Try Invest Kit for financial analysis and advanced projections, and I recorded another video about software as a service stock, which Michael Burry was loaded the boat on. You can watch this video next.
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