Mercado Livre Doubles Down on Brazil as Its Core Growth Engine Despite Margin Pressure

Executives defend free-shipping strategy, saying record engagement and efficiency gains justify the short-term squeeze.

Oct 29, 2025 7:36 PM

By Brazil Stock Guide – During its third-quarter 2025 earnings call, Mercado Livre (Nasdaq: MELI) executives made one point unmistakably clear: Brazil remains the company’s growth engine. The sharp cut in the free-shipping threshold — from R$79 to R$19 — dominated analysts’ questions, as the discussion centered on how much the policy affects margins and whether the company can sustain efficiency while expanding.

Free Shipping and Margins

CFO Martín de los Santos was emphatic when Vinicius Frato of Itaú BBA asked about margin compression. “We manage for long-term value, not quarterly margin,” he said, noting that the lower shipping limit lifted items sold by 42% and unique buyers by 29%. “It’s a strategic investment — and the results speak for themselves.”

Josh Beck of Raymond James followed with a question on logistics costs. De los Santos explained that extraordinary volume growth diluted fixed expenses, cutting Brazil’s unit shipping cost by 8% quarter-over-quarter. COO Ariel Szarfsztejn added that automation is paying off: “We’re deploying robotics across our fulfillment centers and seeing strong productivity gains in picking and packing.”

Competition and Seller Behavior

Competition in Brazil also took center stage. Jeffrey Elliott of Autonomous Research asked whether the e-commerce market had become irrational. Szarfsztejn replied that Brazil has always been “fiercely competitive but extremely attractive.” He called the company’s recent moves “entirely rational,” saying the lower free-shipping threshold aims to expand the user base and loyalty rather than chase market share at any cost. Mercado Livre’s e-commerce market share, he reminded, has doubled since the pandemic and tripled since 2014.

Bob Ford of Bank of America raised concerns over the new price-monitoring system for sellers. Szarfsztejn said the goal is to highlight merchants offering the best value. “We want buyers to find competitive prices and faster delivery — that’s the foundation of our marketplace,” he said.

User Growth and Marketing Discipline

Irma Scars of Goldman Sachs pressed the team on user growth and marketing spend. Szarfsztejn confirmed 4 million new buyers in Brazil and 7.8 million across Latin America, with marketing expenses steady at 11% of revenue. Affiliate-channel investment quadrupled year on year. “We’re acquiring users efficiently and profitably,” De los Santos added.

Asked by Neha Agarwal of HSBC whether Brazil’s 28% shipment increase required new facilities, Szarfsztejn said existing capacity was enough but long-term expansion is under review. “Fulfillment is strategic. Speed and reliability are key to retention and NPS,” he said.

Fintech and Credit Discipline

CFO Osvaldo Gimenez reported that in Brazil, credit-card cohorts older than two years are already profitable, with more than half of the portfolio now mature. He also highlighted Mercado Pago’s rising user base and improving credit quality.

Responding to Jamie Friedman of Susquehanna, Gimenez explained the concept of “principality” — users treating Mercado Pago as their main financial hub. The metric rose 11 points in Brazil, and salary portability is expected to boost it further.

Scale and Technology

Mercado Livre is also turning Brazil into its technology test bed. Szarfsztejn said the company is testing warehouse robots and has launched its first AI assistant for sellers, along with conversational features for Mercado Pago. “We’re converting technology into leverage,” he said.

When Joe Soros of Citi asked about future investments, De los Santos stressed that scale in Brazil underpins Mercado Livre’s entire ecosystem. “The size of our operations here gives us leverage in logistics, fintech and user acquisition. This is where we build our moat,” he said.

A Record of Consistency

Closing the call, De los Santos reminded investors that Mercado Livre has now posted 27 consecutive quarters of revenue growth above 30%. “Brazil is the heartbeat of that story,” he said. “The flywheel keeps spinning — faster and stronger.”