MercadoLibre (NASDAQ: MELI) experienced a sharp after-hours selloff on Wednesday, with shares tumbling 6.8% to $1,791.50. The decline came as investors focused on a significant contraction in operating margins, which overshadowed an impressive 50% jump in quarterly revenue. The stock had closed the regular session up 1.8% at $1,922.57, but the post-earnings reaction erased those gains and then some.
The Latin American e-commerce and fintech giant reported second-quarter revenue of approximately $10.2 billion, beating the LSEG consensus estimate of $9.7 billion by about 5%. Net income came in at $466 million, surpassing expectations of $433 million, while operating profit of $683 million topped the $658 million forecast. However, the company's operating margin narrowed to 6.7% from 12.2% in the same period last year, raising concerns about the sustainability of its growth strategy.
This marks the third consecutive quarter of declining net income, which fell nearly 11% year-over-year. Operating profit also dropped approximately 17% even as sales hit an all-time high. For the first half of 2026, preliminary figures show revenue climbing nearly 50% to about $19.05 billion, while operating profit declined roughly 19% to $1.29 billion, with the operating margin falling to 6.8% from 12.5%.
The margin pressure stems from aggressive reinvestment initiatives, including free shipping promotions in Brazil and higher provisions tied to rapid credit-card portfolio expansion. The company's incremental operating margin was negative 4.7%, as additional revenue of $6.32 billion was accompanied by a $294 million decrease in operating profit. Leandro Cuccioli, senior vice president of investor relations, indicated that the pace of reinvestment is unlikely to slow in the near term, emphasizing that the strategy is expanding the company's ecosystem and driving engagement.
Notably, the number of users who engage with both commerce and financial services grew 37% year-over-year, a segment Cuccioli described as "the most valuable for us." The credit portfolio expanded to approximately $16.0 billion in Q2, up from $14.6 billion in Q1, while the delinquency rate for loans overdue 15-90 days improved to 7.0% from 8.0%, indicating better credit quality despite faster lending growth.
AI initiatives are also contributing to productivity gains, with technology productivity metrics increasing seven to ten times faster than employee growth. However, these advancements have not yet arrested the margin decline. The company noted that AI has enhanced search, fulfillment, and sales productivity.
Prior to the earnings release, analyst sentiment was largely positive. FactSet data showed 19 Buy ratings, one Overweight, and five Hold ratings, with no Sell recommendations. The average price target stood at $2,243.59, implying about 16.7% upside from Wednesday's close. However, some brokers had set targets below the current price, including UBS at $1,750 and Citigroup at $1,950.
The stock's decline wiped out gains made since July 30, when shares had risen about 2% ahead of the report. Investors are now looking to upcoming catalysts, including Mexico's rate decision on August 6 and U.S. inflation data due August 12, which could influence credit demand and asset valuations across the region.
Key risks include the potential need for higher provisions if loan disbursement accelerates, continued pressure on retail margins from reduced shipping minimums, and adverse currency movements or weaker consumer spending in Latin America.
