MercadoLibre (MELI) Q3 2026 earnings review
MercadoLibre sales rise 45%, but shipping costs reduce operating profit
MercadoLibre, Latin America's largest online marketplace and payments service, grew revenue rapidly while its operating profit shrank again. Sales rose 41% in constant currency to $10.8 billion as Brazilian shoppers kept buying frequently a full year after the company cut its free shipping minimum. However, expanding warehouse space by 20% ahead of the holidays and spending more on Brazilian marketing pushed operating profit down 7% to $676 million.
| Revenue in constant currency | +41% 45% in US dollars ($10,750M) |
|---|---|
| Operating margin | 6.3% 9.8% a year ago (6.7% last quarter) |
| Credit portfolio | $17.9B +62% from a year ago |
| Financial outlook | None provided company does not issue formal targets |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because the trade-off between fast user growth and lower profit margins played out just as it did in the first half of the year. Proving that Brazilian shopping volume stays above 40% item growth after lapping last year's shipping cut strengthens the growth case, and older Brazilian credit card cohorts are now profitable. One caution: operating margin slipped another 0.4 percentage points from last quarter to 6.3%, net debt climbed to $8.0 billion, and net income rose only because of a lower tax rate.
The question now is whether lower unit shipping costs and maturing credit cards will lift operating margins back up, or if competition in Brazil will force MercadoLibre to keep spending its efficiency gains on free shipping and marketing. If the investments pay off, operating margin will climb as 2025 card cohorts mature; if competition sets the terms, margins will stay near 6%. The third-quarter 10-Q loan aging table and fourth-quarter holiday margins will tell.
🐂 Bull Case
Brazil Volume Held Up After Free Shipping Cut
In June 2025, MercadoLibre lowered the minimum order for free shipping in Brazil to 19 reais to bring more shoppers online. This third quarter was the first full period compared against that lower bar, testing whether buying habits would last once the initial boost passed.
- Brazil items sold: up 45% from a year ago, staying above 40% for a fifth straight quarter
- Brazil gross merchandise volume (GMV, total value of goods sold): up 36% in constant currency
- Purchases per Brazil buyer: up 16% from a year ago
- Ecosystemic users (people who both shop and bank with MercadoLibre): up 33% from a year ago
Volume held up because shoppers are buying across more categories and using Mercado Pago, the financial services arm, at the same time. Those combined users spend 3 to 4 times as much as single-service users. Scale also lowered unit logistics costs in Brazil by 5% in local currency. For cheaper slow-delivery orders in Brazil, MercadoLibre said that "in September, the range as a whole was variable contribution-positive for the first time".
What to watch: Brazil constant-currency GMV growth in the fourth-quarter holiday season. Holding growth above 30% while filling the 20% warehouse expansion added this quarter would show the new warehouse space is paying off.
AI Tools Cut Engineering and Ad Costs
MercadoLibre spent nearly $30 million more on artificial intelligence than last quarter, but the technology is paying for itself in high-margin advertising and lower staffing needs. Advertising revenue grew 51% in constant currency (58% in US dollars) as AI search models matched ads to shoppers more accurately.
An automated AI ad advisor now manages campaigns for 56,000 sellers, nearly four times the number three months ago. Inside the company, software developer output doubled over the past year, and AI handles enough customer support that 7,000 agents manage volume that would otherwise require a multiple of that staff. As a result, product and technology development costs fell by 0.7 percentage points of revenue from a year ago to 6.9%, by our math.
What to watch: product and technology development expenses as a share of revenue in the fourth quarter. Further savings here are needed to offset higher computer hosting bills in cost of revenue.
Positives this quarter didn't test
One standing growth driver received no update in the third-quarter shareholder letter.
- China cross-border corridor: MercadoLibre opened its first warehouse in China in December 2025 and saw volume more than double in the second quarter, but gave no cross-border figures this quarter; the quarterly filing or conference call will show if growth continued.
🐻 Bear Case
Shipping and Marketing Pushed Operating Margin Down
MercadoLibre says that "we are investing part of today’s margin to accelerate the shift of Latin America’s commerce and financial services online". Even though unit shipping costs fell in Brazil and Mexico, operating profit dropped 7% from a year ago to $676 million, and operating margin fell 3.5 percentage points to 6.3%.
- Cost of revenue (shipping, hosting and goods sold): up 2.5 percentage points of revenue from a year ago to 59.2%, by our math
- Provision for doubtful accounts (bad loan charges): up 1.5 percentage points of revenue to 12.5%, by our math
- Sales and marketing: up 0.3 percentage points from a year ago (and 0.4 points from last quarter) to 11.6%
Free shipping encourages shoppers to buy cheaper items in smaller baskets, which cuts shipping revenue per order by about 2 percentage points of merchandise volume compared with early 2025. Meanwhile, fierce competition in Brazil prompted a "tactical decision to invest more in our affiliates program in Brazil". Net income rose 6% only because the effective tax rate fell 8.4 percentage points from a year ago to 25.5%, by our math, while currency gains added 4 percentage points to US dollar revenue growth.
What to watch: fourth-quarter operating margin. Holding the 6% to 7% range during peak holiday shipping without another step-down would show that logistics and marketing spending has stabilized.
Fast Credit Growth Still Squeezes Lending Margins
MercadoLibre uses its credit card to lock in banking users, and "the cohorts issued between 2021 and 2024 are NIMAL positive and account for more than half of the Brazilian card portfolio". However, issuing record numbers of new cards requires upfront bad-loan charges before new users pay interest, which cost nearly $450 million over the past year and enlarges the company's credit exposure.
- Gross credit portfolio: $17.9 billion by our math, up 62% from a year ago and up $1.5 billion from last quarter
- Net interest margin after losses (NIMAL, lending profit spread): 20.1%, down 0.9 percentage points from a year ago
- Credit card share of loan book: 47%, up from 44% a year ago
- Loan loss reserves as a share of gross loans: 27.1% by our math, up from 26.7% last quarter
While loans 15 to 90 days past due held steady at 7.0%, the company stopped reporting the standalone profit spread for credit cards this quarter, saying only that it improved from last quarter's minus 2.5%. Restocking point-of-sale card readers also stopped dragging down gross margin, adding 0.3 percentage points from last quarter, but AI server hosting costs wiped out that gain.
What to watch: loans 91 to 360 days past due in the third-quarter 10-Q filing. A rise above last quarter's 18.7% of total loans would show that past lending growth is turning into late-stage defaults.
Risks this quarter didn't answer
Four standing concerns regarding loan quality, accounting gains and regulation could not be checked because the details live in the quarterly 10-Q filing rather than the shareholder letter.
- Late-stage loan delinquency: loans 91 to 360 days past due reached 18.7% of the book last quarter; Note 4 of the 10-Q will show if aging worsened.
- Standalone credit card lending spread: disclosed at minus 2.5% last quarter, but given only as a directional improvement this quarter.
- Gains on selling credit card receivables: added $456 million to revenue last quarter; Note 2 of the 10-Q will show how much revenue came from loan sales versus interest.
- Regulatory and tax rules: compliance with Argentina's August 2026 security rules, Brazil's October 2026 foreign-exchange rules, and Brazilian tax disputes await the 10-Q footnotes.
👓 Other Themes
Tax Reform and Soft Demand Slowed Mexico
In Mexico, MercadoLibre's second-largest market, constant-currency merchandise volume growth slowed to 21% from a year ago, down from 26% last quarter and 35% in late 2025. The company said tax reform and "a weaker consumption environment continued to weigh on demand". Even so, active buyer growth in Mexico held steady at 21%, and its Mexican digital bank topped 18 million monthly users, growing over 40%.
💲 Other KPIs
Net debt — total borrowings and leases minus unrestricted cash and investments — rose 71.5% over the past nine months from $4,682 million, and climbed $1,603 million from last quarter. MercadoLibre issued a $1 billion bond in September and spent $503 million on capital expenditures and $2.1 billion expanding its loan book this quarter.
Shoppers who made at least one purchase during the quarter rose 22.1% from 77 million a year ago, adding 5 million buyers since last quarter. Growth eased from 25.4% in the second quarter as Mexico consumer spending slowed, though purchase frequency per buyer kept rising in Brazil and Argentina.
Monthly users of Mercado Pago banking and payment tools grew 29.2% from 72 million a year ago, matching the pace of the past three quarters. User growth topped 35% in Brazil and 40% in Mexico, while monthly servicing costs held flat near $1 per active user.
❓ Key Questions
Did loans 91 to 360 days past due rise again?
The release gives only early-stage delinquency (15 to 90 days past due at 7.0%). Last quarter, late-stage delinquency rose to 18.7% of gross loans while loan write-offs nearly doubled. Investors need the third-quarter aging table to see if credit quality is worsening.
What was the exact lending spread on credit cards?
Last quarter, management disclosed that the credit card net interest margin after losses was minus 2.5%. This quarter, the letter said only that the card spread improved sequentially. Giving the exact figure would show how fast mature Brazilian cards are covering new card losses.
Why does MercadoLibre not provide a financial outlook?
MercadoLibre added 20% more warehouse space and spent more on Brazilian affiliate marketing this quarter, pushing operating margin down to 6.3%. Without a fourth-quarter or full-year forecast, investors cannot tell where management expects the operating margin to bottom.
How much revenue came from selling credit card receivables?
In the second quarter, gains from selling credit card receivables rose to $456 million, or 4.5% of total revenue, and sat outside the lending spread calculation. Investors need to know how much of third-quarter fintech growth came from loan sales rather than interest.