Brazil items doubled in nine months, unit shipping costs accelerated lower, and the cross-sell flywheel widened from 26% to 36% of merchants. Margin compression is moat-building in real time
One of the best Q1 breakdowns I've read on this — the logistics vs credit distinction ("scales like physics vs doesn't") is exactly the right frame and most coverage doesn't make it.
One thing worth adding to the valuation section: the reported AFCF of -$56mm will alarm readers who don't read the footnotes. The $1.95B increase in loans receivable running through operating activities is the entire explanation — that capital is a financial asset earning interest, not a cost. Reported OCF was $3.2B in Q1 alone, ~$12.1B for FY2025, a 15% yield on ~$80B market cap. Your owner's earnings frame is the right instinct; OCF yield gets you to the same place faster for the sceptics.
Also sitting at 12-15% of portfolio and adding on weakness. Published a full IC last weekend with scenario framework and financial model if useful.
Hi Will, thanks, glad you appreciated the article. I agree - AFCF is depressed because credit book is scaling rapidly and I appreciate that they set aside provisions above their expected loss rates, it's conservative for a lender.
For a bank, or a fintech company that is increasing the loan book substantially, with customers' inflows and outflows of cash, I prefer no to value off OCF or FCF though, as those numbers are distorted - I value either on owner's earnings or potential earning power (like in the Q4 2025 earnings article).
Fair point — and your owner's earnings bridge in the Q4 piece is more precise for exactly that reason. I use OCF yield primarily as a quick filter to counter the narrative that MELI is burning cash, rather than as a valuation anchor. For the actual valuation work I'm doing something closer to your normalised earnings power approach.
Also read the bear case piece — the 'each competitor attacks one layer but none attacks the full stack' framing is the sharpest take on MELI's competitive position I've come across. Does that logic extend to valuation for you? If each layer has independent competitive dynamics, shouldn't each warrant a distinct multiple rather than a blended e-commerce screen?
Arrived at a similar place to you from a different direction which is reassuring. Looking forward to the rest of the series.
Possibly, a sum of the parts valuation exercise is something I've done in the past, takes time and often concluded the direction of travel is the same as a consolidated valuation. I tend not to do these anymore, but may consider one for MELI and other aggregators that operate on multiple segments.
Margin compression by design is exactly the right framing.
49% revenue growth while deliberately reinvesting every dollar back into logistics density, fintech rails, and credit. The market sees the margin and panics. The filing shows a company building infrastructure competitors can’t replicate on any timeline.
Brazil items sold doubled in nine months. 82.9M MAUs. Credit portfolio up 87%. This is the build phase. The harvest comes later.
In at $1,750. Holding for at least five years.
One of the best Q1 breakdowns I've read on this — the logistics vs credit distinction ("scales like physics vs doesn't") is exactly the right frame and most coverage doesn't make it.
One thing worth adding to the valuation section: the reported AFCF of -$56mm will alarm readers who don't read the footnotes. The $1.95B increase in loans receivable running through operating activities is the entire explanation — that capital is a financial asset earning interest, not a cost. Reported OCF was $3.2B in Q1 alone, ~$12.1B for FY2025, a 15% yield on ~$80B market cap. Your owner's earnings frame is the right instinct; OCF yield gets you to the same place faster for the sceptics.
Also sitting at 12-15% of portfolio and adding on weakness. Published a full IC last weekend with scenario framework and financial model if useful.
https://substack.com/@wallmanresearch/note/p-199050829
Hi Will, thanks, glad you appreciated the article. I agree - AFCF is depressed because credit book is scaling rapidly and I appreciate that they set aside provisions above their expected loss rates, it's conservative for a lender.
For a bank, or a fintech company that is increasing the loan book substantially, with customers' inflows and outflows of cash, I prefer no to value off OCF or FCF though, as those numbers are distorted - I value either on owner's earnings or potential earning power (like in the Q4 2025 earnings article).
Fair point — and your owner's earnings bridge in the Q4 piece is more precise for exactly that reason. I use OCF yield primarily as a quick filter to counter the narrative that MELI is burning cash, rather than as a valuation anchor. For the actual valuation work I'm doing something closer to your normalised earnings power approach.
Also read the bear case piece — the 'each competitor attacks one layer but none attacks the full stack' framing is the sharpest take on MELI's competitive position I've come across. Does that logic extend to valuation for you? If each layer has independent competitive dynamics, shouldn't each warrant a distinct multiple rather than a blended e-commerce screen?
Arrived at a similar place to you from a different direction which is reassuring. Looking forward to the rest of the series.
Possibly, a sum of the parts valuation exercise is something I've done in the past, takes time and often concluded the direction of travel is the same as a consolidated valuation. I tend not to do these anymore, but may consider one for MELI and other aggregators that operate on multiple segments.
Margin compression by design is exactly the right framing.
49% revenue growth while deliberately reinvesting every dollar back into logistics density, fintech rails, and credit. The market sees the margin and panics. The filing shows a company building infrastructure competitors can’t replicate on any timeline.
Brazil items sold doubled in nine months. 82.9M MAUs. Credit portfolio up 87%. This is the build phase. The harvest comes later.
In at $1,750. Holding for at least five years.