MercadoLibre Tumbles After Net Income Miss on Spending Boost

Summary

Bloomberg Businessweek: MercadoLibre Tumbles After Net Income Miss on Spending Boost

Date: February 25, 2026
Hosts: Carol Massar & Tim Stenovec
Guest: Martin de los Santos, CFO, MercadoLibre

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Overview:

This episode examines MercadoLibre’s sharp stock drop following a fourth-quarter net income miss, primarily attributed to heavy investment in its core businesses. The conversation features insights from Martin de los Santos, CFO of MercadoLibre, who discusses the company’s growth strategy, the state of Latin American e-commerce and fintech, and how continued investments are positioning the company for long-term leadership despite near-term margin pressures.

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Key Discussion Points and Insights

1. Earnings Miss and Market Reaction

• Stock Reaction: MercadoLibre experienced a significant stock drop—about 14% intraday—after missing net income estimates for Q4 due to elevated spending.
  • "Shares of Mercado Libre having their biggest intraday drop since 2024, down about 14% intraday after fourth quarter net income missed analyst estimates as the company continued to invest heavily in its main business lines." (01:52)
• Analyst Sentiment: Despite the miss, analysts remain optimistic about the company’s growth prospects, citing robust trends and the role of AI in driving advertising and business acquisition.

2. Growth Across Business Lines

• AI and Advertising: AI has helped advertising revenue grow 70% year-on-year.
  • "Advertising has been held by AI growing at 70% year on year." – Martin de los Santos (02:46)
• E-Commerce and Fintech Expansion:
  • E-commerce is particularly robust (Brazil and Mexico: +35% YoY and increasing market share).
  • Fintech arm, Mercado Pago, is expanding in regions with low financial inclusion.
• Consistent Growth:
  • Net revenue rose 45% YoY to $8.8 billion, marking the 28th consecutive quarter of 30%+ growth.
    • "We deliver 45% year on year growth. This is the 28th consecutive quarter in which we deliver more than 30% year on year growth in terms of revenue." – Martin de los Santos (04:55)

3. Understanding the Latin American Consumer

• E-commerce Penetration:
  • Latin America’s e-commerce penetration is just 15%, about half the U.S. rate.
    • "Penetration of E commerce is only 15% in Latin America is half the penetration than the U.S." – Martin de los Santos (03:48)
  • Infrastructure challenges (logistics, payments) are being addressed by MercadoLibre.
  • "We have built our own logistic infrastructure, we build our own payment methods...enabling people to...move online." (03:48)
• Financial Inclusion:
  • Fewer than 15% of Mexicans have credit cards, presenting a large opportunity for credit products.
    • "Fewer than 15% of people have a credit card...we’re bringing products to them that will include them in the financial system." (04:55)

4. Long-Term Investment vs. Short-Term Margins

• Investment Rationale:
  • Substantial investments target user growth via free shipping, credit products, and platform improvements.
  • Example: Lowering the free shipping threshold in Brazil to drive adoption, at the expense of short-term margins.
    • "We lower our free shipping threshold in Brazil...put pressure on margins in the short term...but increased number of users." (07:46)
    • "We see more users coming to the platform with more engagement...all the metrics are pointing in the right direction."
• Long-Term Outlook:
  • Investment mindset is focused on capturing the region’s early-stage growth rather than maximizing immediate profits.
    • "We try to optimize long term margins as opposed to short term margins. And we're very confident that the investments...will help achieve that goal." (07:46)

5. Path Forward: E-commerce and Fintech Growth

• User Base & Projections:
  • Currently 120 million buyers out of a 600 million population; buyer base growing at 26% YoY.
    • "We have 120 million buyers in our platform in a region of 600 million. Of course we're growing at 26% year on year." (06:20)
  • De los Santos suggests e-commerce penetration could double in 5-7 years, matching China or US levels.
    • "Maybe five to seven years...we should continue to increase that going forward." (07:02)
• Fintech Ambitions:
  • Aim to become the largest digital bank in Latin America.
    • "We have the objective of becoming the largest digital bank in Latin America and we're working towards that." (04:55)

6. Marketing, Retention, and ROI

• Customer Retention:
  • Marketing investments are justified as recent cohorts show improved engagement and retention.
    • "All the metrics that we measure in terms of retention and engagement of users that come through our advertising investments are improving year over year." (09:55)
• Long-Term Payback:
  • The company prioritizes sustainable ecosystem development and is prepared to see margin pressure for several quarters to capture longer-term benefits.
    • "Our main objective is to capture the large opportunity ahead of us and we will not hesitate to invest...we are expecting returns on those investments but in the long term." (08:57)

7. External Risks: Security in Mexico

• Safety Monitoring:
  • Recent cartel violence and disruptions at Mexican airports have prompted MercadoLibre to increase monitoring, but no tangible business impact has been seen so far.
    • "We have not seen any disturbance on events, but we're monitoring the situation and [are in] close contact with authorities to make sure that we don't get any disruption." (10:52)

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Notable Quotes

• On E-Commerce Opportunity:
  "There’s no reason why you shouldn’t reach the levels of China—north of 30% [e-commerce penetration]—that’s double the penetration we have today."
  – Martin de los Santos (06:20)

• On Latin American Market Penetration:
  "At the end of the day, what we're doing is we're trying to move people online and create the market."
  – Martin de los Santos (03:48)

• On Strategic Investments:
  "We try to optimize long term margins as opposed to short term margins. And we're very confident that the investments...will help achieve that goal."
  – Martin de los Santos (07:46)

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Important Timestamps

• 01:52 – Episode context and analyst summary
• 02:46 – Martin de los Santos on growth/AI-driven advertising
• 03:48 – Comparing Latin American and U.S. consumer behavior
• 04:55 – Net revenue growth, financial product access, and strategic intent
• 06:20 – Trajectory and geographic opportunity for e-commerce penetration
• 07:46 – Detailed defense of margin-impacting investment strategies
• 09:55 – Marketing spend, retention, and cohort analysis
• 10:52 – Monitoring security risks in Mexico

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Memorable Moments

• Martin’s forward-looking confidence: Despite immediate market disappointment, de los Santos repeatedly emphasizes the unique long-term runway for MercadoLibre in Latin America.
• Data-driven conviction: Citing 28 quarters of sustained revenue growth and large under-tapped audiences, the CFO builds a case for continued spending—even at the expense of short-term profit margins.
• Fintech mission: The ambition to become Latin America’s biggest digital bank demonstrates MercadoLibre’s broader vision beyond e-commerce.

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This episode offers a thorough look at how MercadoLibre is balancing short-term financial volatility and analyst scrutiny with a clear-eyed commitment to driving inclusion, growth, and digital transformation across Latin America’s e-commerce and financial sectors.

Transcript

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[A]

You're listening to Bloomberg businessweek with Carol Massar and Tim Stanvik on Bloomberg Radio.

[B]

Shares of Mercado Libre having their biggest intraday drop since 2024, down about 14% intraday after fourth quarter net income missed analyst estimates as the company continued to invest heavily in its main business lines. Now I should point out, analysts are broadly positive on the growth trends at the company. They did note that elevated spending will pressure the company's margins. Meantime, our own in house Bloomberg intelligence analyst Poonam Goyal. She follows the company. She pointed out that AI is a catalyst helping spur ad sales and acquire business, and singled out Mercado Pago Pago Pago. I hope I'm saying it correctly. Pago AI Assistant. So let's get into it all and look at the quarter in the business. It's so great to have back with us, Martin de los Santos. He's CFO of the e commerce firm Mercado Libre and he joins us from Montevideo, Uruguay and it is great to have you back. How are you? And talk to us a little bit about business.

[A]

Thank you, Carol. Thank you for having me. It's a pleasure seeing you again. As we mentioned yesterday on earnings report, we are very excited about the growth that we are delivering in all of our businesses. You mentioned advertising that has been held by AI growing at 70% year on year. Our E commerce business in particular in Brazil and Mexico, growing 35% year on year and growing market share. The same thing with Mercado Pavel, our Fintech platform which is also growing very rapidly in a region where financial inclusion is very, very low. So the opportunities ahead are tremendous. And the results that we deliver in Q4 and 2025 makes us very, very excited despite the fact that we are conscious of and we're making investments that put some margin pressure in the short term.

[C]

You have a great view of the consumer given where you sell and what you sell. If you were to characterize consumers differently in different parts of the market, different parts of the world that you sell in, how would you characterize the consumer?

[A]

I think if you compare the consumer behavior in Latin America relative to more developed countries, I think we are behind in terms of adoption of of E commerce and this represents an opportunity to U.S. commerce. Penetration of E commerce is only 15% in Latin America is half the penetration than the U.S. also there are some barriers to that. Payments, logistics more complicated. So we have built our own logistic infrastructure, we build our own payment methods. So we have built a platform that is enabling people to to move online. So I think those are the main difference. At the end of the day, we sell everything in Mercado Liure, what we're doing is we're trying to move people online and create the market.

[B]

So your sales did beat fourth quarter expectations. We were just talking about some of the numbers with you. 45% year on year increase in net revenue 8.8 billion driven by customers taking advantage of free shipping perks and credit offerings. I am curious about these momentum drivers, whether they continue and I'm really interested about the credit offerings. Does it show, Martin, strength of the consumer or a consumer who needs to be buying more on credit?

[A]

Yeah. Let me first talk about the growth opportunity that you mentioned. We deliver 45% year on year growth. This is the 28th consecutive quarter in which we deliver more than 30% year on year growth in terms of revenue. So growth has been consistent. And when we look ahead of us because of a large opportunity that we see in Latin America, Latin America, it will continue to be there. And this is the reason why we are investing behind growth. And in terms of credits, Latin America is a market where it's very, very much underdeveloped in terms of penetration of credit. If you look at Mexico for example, fewer than 15% of people have a credit card. So what we're doing is we're bringing products to them that will include them in the financial system and they also help our ecosystem because when people pick up the credit card for the first time, they tend to buy more Mercado libre. So it is very synergistic. But at the end of the day what we're doing, so we're doing financial inclusion and we have the objective of becoming the largest digital bank in Latin America and we're working towards that.

[C]

Martin, you mentioned when we were just a few moments ago the penetration in Latin America of E commerce and how it's half of what it is here in the United States. So there's a lot of opportunity, there's a lot of Runway for your company. What's a good way to think about the progression over the next few years? Like how does that increase one year, three year, five years from now? What's a good goal for investors to have an understanding of.

[A]

I think a couple of way of looking at it. I think the penetration of E commerce, there's no reason why you shouldn't reach the levels of China north of 30% so that's double the penetration that we have today. Also if you look at the number of buyers, we have 120 million buyers in our platform in a region of 600 million. Of course we're growing at 26% year on year the number of users. But as we continue investing and improving the user experience, that should continue to deliver growth. So we see plenty of Runway for growth ahead of us in commerce. And the same thing could be said about fintech.

[C]

But. But when, like if you were to give a timeline for when that would happen, when would different Latin American markets read reach what what China has experienced?

[A]

I think, I think it's a matter of. It's hard to put a timeline. I mean we've seen a lot of acceleration since pandemic in terms of penetration of E commerce. Yeah, I mean trend. I think we should be able to get to the levels of where China or the US are today. Maybe five to seven years. Then we should continue to increase that going forward.

[B]

Hey, one of the things I want to go back to and I think you touched on this, but it's part of why we're seeing a negative stock reaction and that is the substantial investments that you guys are making in E Commerce and the fintech unit. Analysts say that it's necessary, you got to make these investments in order to bring about future growth. So on that because investors are questioning it certainly in the trade today. Martin, how should we think about the run rate here?

[A]

Yeah, let me give you an example. To make it more tangible, what we're doing right, we lower our free shipping threshold in Brazil. And that was not the first time that we did it several times since 2017. And that's a way to enable more people to come online. You know, shipping cost is one of the main frictions for people to come online. So when we did that we did put pressure on margins in the short term and we are conscious of that. But we have also seen very important metrics in terms of growth. Increased number of users. We accelerated Items sold from 26% year on year to 46%. We see more users coming to the platform with more engagement. They tend to buy more things on market libre. So all the metrics are pointing in the right direction and this is the way to go in particular if you consider the relatively early stages of development of E Commerce in Latin America. So we think again when we try to, we try to optimize long term margins as opposed to short term margins. And we're very confident that the investments that we're doing in Commerce in this case right. Will help achieve that goal.

[B]

But will it be a drag on margins for a couple more quarters? Like do you have a good feel on how that, how long that continues to be maybe an issue? Because obviously investors see it as an issue today.

[A]

Yeah, of course I have been consistent to the market saying that our main objective is to capture the large opportunity ahead of us and we will not hesitate to invest to capture that opportunity. We have a long track record of investment with cautious and very, very prudently and we are expecting returns on those investments but in the long term. So if we see more opportunities to invest in 1B cross border trade, expanding the free shipping offering, the credit card will continue to do so because we think it's the right way to go in terms of expanding and maintaining a leadership position in both Commerce and Fintech.

[C]

Well on that marketing expenses, they rise when you're trying to increase demand. If you think about churn or like if you reach a new customer, the cost of acquisition of that customer, how long does that customer stick around after using the service and how do you make sure that you don't have to keep spending to entice them to come in.

[A]

That's a great question. This particular quarter last year, actually, we increased the level of investment in advertising and the cohorts that we incorporated in 2025 perform a lot better than the previous cohorts because they come and they find an ecosystem that works better, that has more free shipping, better financing alternatives, better assortments. So all the metrics that we measure in terms of retention and engagement of users that come through our advertising investments are improving year over year and that gives us confidence to increase investments like we did in this particular year.

[B]

I don't know if this is a crazy question, but we just want to, I want to ask you before we

[C]

talked about this, you talked about this earlier on the call today.

[B]

Well, what's been going on in Mexico and you know, the taking out of the cartel chief and what I guess know, we kind of continue to watch

[C]

this disruptions at airports.

[B]

Exactly. Is any of that, are you seeing that show up in any way in terms of consumers from Mexico?

[A]

Well, obviously we are monitoring the situation very closely to make sure that our employees and our customers and farmers are safe given the, the recent events. We have not seen any disturbance on events, but we're monitoring the situation and close contact with authorities to make sure that we don't get any disruption.

[B]

All right, we're going to leave it on that note, so appreciate that you addressed that as well, Martin. Thank you so much. Really appreciate the time today. Martine de los Santos, he is the chief financial officer of the E commerce firm in Latin America's most valuable company. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow, here to tell you about our new on Demand news report delivered right to your podcast feed. Bloomberg News now is a short 5 minute audio report on the day's top stories. Episodes are published throughout the day with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations, but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News Now. And we don't wait an hour to publish breaking news. We're when news breaks, we'll have an episode up in your podcast feed within minutes. So you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3,000 journalists and analysts. We're all over the world. Listen to the latest from Bloomberg News now on Apple, Spotify or anywhere you listen at Charmin. We heard you shouldn't talk about going to the bathroom in public, so we decided to sing about it. Light a candle, pour some wine, Grab a roll. The soft kind for a little me time. Charmin Ultra Soft Smoothie. Smooth hair, wavy edges for my rear so let the softness caress your soul. Just relax, you're on a roll. Let her rip. Charmin Ultrasoft Smooth Tear.

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