MercadoLibre, Inc. (NASDAQ: MELI) had a quarter that would make most companies jealous: record revenue, blowout earnings, and a stock that still got punished. That's the paradox of being a growth darling in a market that's suddenly allergic to shrinking profits.
The Latin American e-commerce and fintech giant reported better-than-expected second-quarter earnings on Thursday, but shares traded lower in premarket as investors zeroed in on a third straight quarterly decline in net income. The culprit? Higher spending on free shipping and an aggressive credit-card expansion that's eating into margins, according to Reuters.
Net income dropped 11% year over year to $466 million. That's the third consecutive quarterly profit decline, though it still beat analysts' expectations of $433 million, per LSEG data cited by Reuters. The decline was driven in part by higher free-shipping costs in Brazil and provisions tied to the expansion of MercadoLibre's credit-card business.
"Similar to last quarter, the market is focusing on the year-over-year decrease in net income," Morningstar analyst Michael Miller said in a report, according to Reuters.
Record Revenue Tops Expectations
Adjusted earnings came in at $9.19 per share, beating the $8.58 analysts had penciled in. Revenue climbed 50% year over year to a record $10.2 billion, topping the consensus estimate of $9.67 billion. It was the first time MercadoLibre generated more than $10 billion in quarterly revenue.
Net interest margin improved to 21% from 18% in the first quarter of 2026, supported by stronger performance across its major markets. Operating income rose to $683 million, but the operating margin narrowed 550 basis points year over year to 6.7% as the company kept investing in long-term growth initiatives.
Higher investments in its commerce business, pressure in acquiring services in Mexico, and ongoing ecosystem expansion weighed on profitability. Those headwinds were partly offset by improved credit profitability, particularly in Brazil, where loan-loss provisions normalized after elevated levels in the prior quarter.
The company generated $214 million in adjusted free cash flow during the quarter, while assets under management increased 68% year over year to $23 billion.
Commerce, Fintech And Credit Continue To Expand
Commerce gross merchandise volume (GMV) increased 36% year over year on a foreign exchange-neutral basis to $22 billion. Brazil led growth with a 39% increase in GMV and a 56% rise in items sold. Mexico and Argentina also posted strong gains, while cross-border GMV jumped 60%, driven by higher China fulfillment volumes.
Advertising revenue surged 73% from a year earlier. Mercado Ads now accounts for more than 10% of Latin America's digital advertising market, with AI-powered tools such as AI Advisor and budget optimization helping drive seller adoption.
The credit portfolio expanded 75% year over year to more than $16 billion. Credit quality remained strong, with credit card non-performing loans at 4.6% and total portfolio NPL at 7.0%. MercadoLibre issued 2.6 million credit cards during the quarter.
Management attributed the improvement in credit performance to expansion into higher-quality consumer and merchant segments, increased adoption of Mercado Pago credit cards among lower-risk customers, and the company's ability to leverage its marketplace ecosystem to support responsible lending.
Acquiring total payment volume (TPV) increased 42% year over year on a foreign exchange-neutral basis, supported by market share gains across regions.
User Growth And AI Investments Accelerate
Mercado Pago monthly active users increased 30% year over year to 88 million, while assets under management rose 68% to $23 billion as customers increased deposits and engagement. Total payment volume exceeded $100 billion in a single quarter for the first time.
The number of users active across both MercadoLibre's marketplace and Mercado Pago grew 37% year over year, reflecting stronger engagement across its ecosystem.
The company also completed the rollout of its AI-powered marketplace search architecture across its five largest markets, improving conversion rates and click-through rates while helping offset higher large language model costs. Internally, AI agents reviewed more than 500,000 code submissions, migrated about 9,000 services, and improved engineering productivity.
MercadoLibre Price Action
MercadoLibre shares were down 2.73% at $1,870.00 during premarket trading on Thursday, according to market data.
