MercadoLibre (NASDAQ: MELI) The “Latin Amazon.com” stock rose almost 5% in early trading on Thursday before reversing and losing almost all of its gains. (As of 11:30 a.m. ET, MercadoLibre is up only about 0.5%).
It’s no secret why MercadoLibre exploded: Wall Street analyst Marcelo Santos of JPMorgan Chase upgraded the stock to “overweight” this morning. The question is: Why did MercadoLibre shares fall again?
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In his note today, covered on StreetInsider.com, Santos cites higher “acquisition rates” on Shopee (owned by Limited sea (NYSE: SE) and based in Southeast Asia, Shopee has been encroaching on MercadoLibre’s territory in Brazil) as evidence that price competition may be waning. (Amazon.com (NASDAQ:AMZN) remains a “smaller player” in this market).
Consequently, Santos predicts that “MELI should be able to sustain a good growth rate in Brazil in 4Q25, above 30%,” which would help the company reach analyst targets in 2026.
Santos set a $2,800 price target for MercadoLibre shares, implying the stock could rise more than 30% over the next 12 months. But does the analyst’s argument hold up?
Shopee is “taking” as revenue a greater proportion of the total transaction value from purchases made on its platform. This would imply that MercadoLibre’s rival is no longer trading profit margins for market share, or at least not as aggressively as it used to. And that should give MercadoLibre breathing room to expand its operating margin, which has fallen 260 basis points in two years.
Assuming MercadoLibre can at least maintain its current 12% margin – enough to generate $8.6 billion in free cash flow over the last 12 months and give the stock a price-to-FCF ratio below 12, the stock looks like a buy – and MercadoLibre stock shouldn’t be going down.
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