# How MercadoLibre makes money

CXProWealth Business Lens · MercadoLibre (MELI) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-06 with the SEC (accession 0001099590-26-000023): https://www.sec.gov/Archives/edgar/data/1099590/000109959026000023/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $10.2B (+71.3% on the year)
- Operating income: $683.0M (operating margin 6.7%)
- Net income: $466.0M (net margin 4.6%)
- Gross margin: 40.9%
- Free cash flow: $3.2B (31.7% of revenue)
- Cash conversion (operating cash flow / net income): 7.86x
- Capital expenditure: 4.3% of revenue

## Where the money goes (Q2 FY2026)

- Net service revenues and financial income → Net revenues and financial income: $8.7B
- Net product revenues → Net revenues and financial income: $1.5B
- Net revenues and financial income → Cost of net revenues and financial expenses: $6.0B
- Net revenues and financial income → Gross profit: $4.2B
- Gross profit → Total operating expenses: $3.5B
- Total operating expenses → Sales and marketing: $1.1B
- Total operating expenses → General and administrative: $340.0M
- Total operating expenses → Provision for doubtful accounts: $1.3B
- Total operating expenses → Product and technology development: $729.0M
- Gross profit → Income from operations: $683.0M
- Income from operations → Interest expense and other financial losses: $62.0M
- Income from operations → Foreign currency losses, net: $45.0M
- Income from operations → Net income before income tax expense: $576.0M
- Interest income and other financial gains, net → Net income before income tax expense: $30.0M
- Net income before income tax expense → Income tax expense: $140.0M
- Net income before income tax expense → Net income: $466.0M

## Where the revenue comes from

### Products and services (Interim Condensed Consolidated Statements of Income)

| Member | Value | Share |
|---|---:|---:|
| Net service revenues and financial income | $8.7B | 85.5% |
| Net product revenues | $1.5B | 14.5% |

The members sum to total revenue.

### Segments (SEGMENTS - Schedule of Financial Performance of Company's Reporting Segments (Details))

| Member | Value | Share |
|---|---:|---:|
| Brazil | $5.5B | 54.4% |
| Mexico | $2.3B | 23.0% |
| Argentina | $1.8B | 18.1% |
| Other Countries | $463.0M | 4.6% |

The members sum to total revenue.

### Subsegments (SEGMENTS - Schedule of Consolidated Net Revenues by Similar Products and Services (Details))

| Member | Value | Share |
|---|---:|---:|
| Commerce | $5.8B | 56.7% |
| Fintech | $4.4B | 43.3% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Net revenues and financial income | $10.2B | 100% |
|   Net service revenues and financial income | $8.7B | 85.5% |
|   Net product revenues | $1.5B | 14.5% |
| Cost of net revenues and financial expenses | ($6.0B) | 59.1% |
| **Gross profit** | $4.2B | 40.9% |
| Product and technology development | ($729.0M) | 7.2% |
| Sales and marketing | ($1.1B) | 11.1% |
| Provision for doubtful accounts | ($1.3B) | 12.5% |
| General and administrative | ($340.0M) | 3.3% |
| **Total operating expenses** | ($3.5B) | 34.2% |
| **Income from operations** | $683.0M | 6.7% |
| Interest income and other financial gains, net | $30.0M | 0.3% |
| Interest expense and other financial losses | ($62.0M) | 0.6% |
| Foreign currency losses, net | -$45.0M | 0.4% |
| **Net income before income tax expense** | $606.0M | 6.0% |
| Income tax expense | ($140.0M) | 1.4% |
| **Net income** | $466.0M | 4.6% |
| Basic net income available to shareholders per common share (in dollars per share) | $9 | 0.0% |
| Weighted average of outstanding common shares (in shares) | 50,697,171 |  |
| Diluted net income available to shareholders per common share (in dollars per share) | $9 | 0.0% |
| Weighted average of outstanding common shares (in shares) | 50,697,301 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2008 | — | $37.5M | $18.8M | $55.8M | $4.9M | $50.9M |
| FY2009 | — | $56.0M | $33.2M | $49.7M | $3.8M | $45.9M |
| FY2010 | — | $74.6M | $56.0M | $67.9M | $13.2M | $54.7M |
| FY2011 | — | $99.8M | $76.8M | $89.4M | $18.9M | $70.5M |
| FY2012 | — | $129.7M | $101.2M | $139.9M | $16.7M | $123.1M |
| FY2013 | — | $153.5M | $117.5M | $142.5M | $113.8M | $28.8M |
| FY2014 | — | $120.5M | $72.6M | $196.8M | $34.4M | $162.4M |
| FY2015 | — | $139.2M | $105.8M | $221.4M | $39.2M | $182.2M |
| FY2016 | $844.4M | $181.1M | $136.4M | $190.3M | $68.5M | $121.7M |
| FY2017 | $1.2B | $56.3M | $13.8M | $269.0M | $55.2M | $213.9M |
| FY2018 | $1.4B | -$69.5M | -$36.6M | $230.9M | $93.1M | $137.8M |
| FY2019 | $2.3B | -$153.2M | -$172.0M | $451.1M | $136.8M | $314.3M |
| FY2020 | $4.0B | $128.0M | -$1.0M | $1.2B | $247.0M | $935.0M |
| FY2021 | $7.1B | $441.0M | $83.0M | $965.0M | $573.0M | $392.0M |
| FY2022 | $10.8B | $1.1B | $482.0M | $2.9B | $455.0M | $2.5B |
| FY2023 | $15.1B | $2.2B | $987.0M | $5.1B | $509.0M | $4.6B |
| FY2024 | $20.8B | $2.6B | $1.9B | $7.9B | $860.0M | $7.1B |
| FY2025 | $28.9B | $3.2B | $2.0B | $12.1B | $1.3B | $10.8B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +39.1% (year before +37.5%): steady
- Operating income: +21.7% (year before +19.2%): accelerating
- Net income: +4.5% (year before +93.6%): slowing
- Free cash flow: +52.6% (year before +52.4%): steady

## Key insights

### Credit loss provisions now run at 186.8% of operating income

Provisions of $1.28B, up 84.9%, took 30.7% of gross profit against 22.3% a year earlier, and now exceed the $683M operating income.

Provision for doubtful accounts, the expected credit losses on the company's financial assets, mainly loans receivable, rose 84.9% to $1.28B from $690M. That is 12.5% of revenue, against 10.2% a year earlier, and 30.7% of gross profit, against 22.3%. The filing ties the increase to faster originations, "mostly related to the credit cards and consumer". _(from the filing)_
Operating income fell 17.2% to $683M from $825M. A year earlier provisions were 83.6% of operating income; this quarter they were 186.8%. The company says the expansion of its credit portfolio "contributes to the increase in our provision for doubtful accounts" and that, as a result, "we may experience decreases in our operating income margins". _(from the filing)_
Expected-loss accounting books a loan's projected losses when the loan is made, before most of its interest is earned. A book growing this fast therefore shows its costs ahead of its income, so the ratio reflects the pace of lending as much as the quality of the loans. The measure that would show whether pricing keeps up is the company's net interest margin after losses, which fell year on year. _(analysis)_

### Gross margin gave up 4.7 points to cheaper delivery and goods

Cost of revenues rose 62.6% against revenue's 49.8%, cutting gross margin to 40.9% from 45.6%, and the filing names Brazil's lower free shipping threshold first.

Cost of net revenues and financial expenses rose 62.6% to $6.01B, 59.1% of revenue, 4.67 points more than a year earlier. The filing attributes the lower gross margin to "the reduction of our free shipping threshold in Brazil", higher shipping operating costs and a higher cost of goods sold as a share of revenue, partly offset by lower sales taxes. Gross profit still grew 34.4% to $4.16B, but operating expenses grew 53.2%. _(from the filing)_
The mix is moving toward lower-margin revenue. Net product revenues, the company's own first-party sales, rose 78.8% to $1.48B, against 45.7% for services and financial income, lifting their share of revenue by 2.36 points to 14.5%. The company says gross margin "could continue declining if we maintain the growth of our first-party business, which has a lower pure product margin due to marketing initiatives". _(from the filing)_
This is a trend, not a single quarter. On full-year figures gross margin went from 50.2% in FY2023 to 46.1% in FY2024 and 44.5% in FY2025, before this quarter's 40.9%. _(from the filing)_
A lower free shipping threshold is a bet that cheaper delivery on small baskets makes people buy more often. It pays only if volume grows enough for shipping cost per item to fall as the network fills. A gross margin that steadies while volume keeps growing would be the sign it is working; one that keeps sliding at the same growth would say the subsidy is not earning back. _(analysis)_

### Operating cash ran 7.9 times net income

Operating cash flow of $3.66B against net income of $466M reflects customer balances and card payables, not profit the company can freely spend.

Operating cash flow was $3.66B in the quarter, 7.9 times net income of $466M. After $441M of capital spending, 4.34% of revenue, free cash flow was $3.22B, or 31.7% of revenue, against a net margin of 4.58%. _(from the filing)_
For the half year, the filing names the increase in funds payable to customers and in amounts payable on credit and debit card transactions among the main sources of operating cash. Loans granted under the lending solution, net of collections, were the main use of investing cash. The company's own adjusted free cash flow, which nets out customer funds, loan growth and fintech borrowing, was far smaller than the reported figure. _(from the filing)_
Money users keep in Mercado Pago accounts is a cheap, sticky source of funds, and it is lent back out to borrowers on the same platform. Reading the 31.7% free cash flow margin as earning power would mistake that float for profit. The useful question is how much of loan growth is funded by earnings and balances, and how much by borrowing. _(analysis)_

### Lower tax and currency losses softened the profit fall

Net income fell 10.9% to $466M while operating income fell 17.2%, because currency losses shrank to $45M from $117M and income tax fell 27.5%.

Foreign currency losses were $45M, against $117M a year earlier, which the filing says came mainly from Argentine subsidiaries. Income tax expense fell 27.5% to $140M, 23.1% of pre-tax income against 27.0%, which the company attributes to higher income tax gains in Brazil from an increase in deferred tax assets. _(from the filing)_
Pre-tax income fell 15.4% to $606M and net income 10.9% to $466M, both less than the 17.2% fall in operating income. Diluted earnings per share were $9.19, against $10.31. _(from the filing)_
Neither cushion comes from the operating business. Currency results swing with exchange rates and tax gains depend on deferred tax assets, so the operating line is the better guide to how the business itself did this quarter. _(analysis)_

### Competitive edge

- **Payments and credit ride on the marketplace's own users** Commerce earned $5.76B and Fintech $4.41B, 43.3% of revenue, and loans go mostly to people and merchants already on the platform.
- **An owned delivery network makes shipping part of the product** The filing says Mercado Envios delivers faster and at lower cost than third-party carriers would, with fulfillment centers handling more than half of shipments.
- **Technology and overhead shrink as a share of revenue** Product and technology fell to 7.17% of revenue from 8.35%, and general and administrative to 3.34% from 3.84%, as revenue grew 49.8%.

### What to watch

- **Lending growth leans on borrowed money** Interest expense and other financial losses rose 72.2% to $62M, which the filing attributes to higher indebtedness, mainly in Argentina and Brazil.
- **The company itself warns margins may keep falling** Operating margin fell to 6.72% from 12.2%, and the filing says first-party growth, logistics and credit expansion may push margins lower.
- **Currencies and fintech rules sit outside its control** Brazil earns 54.4% of revenue in reais, and Mercado Pago faces new crypto, stablecoin and payment rules in Brazil and Argentina.

## Investor view

**Revenue rose 49.8% but operating income fell, as credit losses and a lower free shipping threshold in Brazil absorbed the gain**

### How it makes money

MercadoLibre runs two businesses on one set of users. Commerce, the marketplace with its selling fees, shipping, advertising and first-party sales, earned $5.76B of the quarter's $10.17B in net revenues and financial income, or 56.7%. Fintech, Mercado Pago's payments, credit and accounts, earned $4.41B, or 43.3%. Payments on the marketplace carry no separate charge: the payment service is "already included in the Marketplace final value fee" that sellers pay. _(from the filing)_
Most of the revenue is fees and interest, not goods. Services and financial income were $8.69B, 85.5% of revenue; product sales were $1.48B, 14.5%. Third-party sellers account for most of what sells on the marketplace. The company sells on its own account only "in selected categories where we can enhance price competitiveness and assortment", which is why product revenue is the smaller line. _(from the filing)_
Credit is where fintech earns most and where its main cost sits. Interest and fees on cards, consumer and merchant loans are revenue; the funding cost of the loan book sits in cost of revenues; expected losses are charged as provision for doubtful accounts, $1.28B this quarter, or 12.5% of revenue. Loans go "mostly to merchants and consumers that already form part of our user base". _(from the filing)_
Brazil is the core: $5.53B of revenue, 54.4% of the total. Mexico brought $2.34B, 23.0%; Argentina $1.84B, 18.1%; the other countries $463M, 4.6%. Revenue is earned in local currencies and translated into dollars at monthly average rates, except in Argentina, where the dollar is the functional currency because of the country's "status as a highly inflationary economy". _(from the filing)_

### What shifted

Revenue rose 49.8% to $10.17B from $6.79B. The filing credits "growth in credit originations from our lending business and our first-party business", plus higher payment and merchandise volume. Product sales grew fastest, up 78.8% to $1.48B, so their share of revenue rose 2.36 points to 14.5%. Stronger currencies in Brazil and Mexico against the dollar added to the reported growth. _(from the filing)_
Gross margin fell to 40.9% from 45.6% a year earlier, as cost of revenues grew 62.6% to $6.01B against revenue's 49.8%. The company names "the reduction of our free shipping threshold in Brazil" first, then higher shipping operating costs and cost of goods sold as a share of revenue, partly offset by lower sales taxes. The margin had already eased from 50.2% in FY2023 to 44.5% in FY2025. _(from the filing)_
Provision for doubtful accounts rose 84.9% to $1.28B from $690M and took 2.39 more points of revenue. The filing ties the increase to faster originations, "mostly related to the credit cards and consumer". Loss provisions now absorb 30.7% of gross profit, against 22.3% a year earlier. _(from the filing)_
Operating income fell 17.2% to $683M from $825M, and the operating margin to 6.72% from 12.2%. Fixed costs did dilute: product and technology fell to 7.17% of revenue from 8.4%, general and administrative to 3.34% from 3.8%, and sales and marketing held at 11.1% while growing 50.6%. Shipping costs and credit losses outweighed those gains. _(from the filing)_
Net income fell less than operating income, down 10.9% to $466M from $523M. Foreign currency losses shrank to $45M from $117M, and income tax fell 27.5% to $140M, which the company attributes to higher tax gains in Brazil from rising deferred tax assets. Diluted earnings per share were $9.19, against $10.31. _(from the filing)_

### Risks in the filing

The quarterly report states "no material changes" to the risk factors in the annual report. The risks it names itself, in its forward-looking statements, are exchange rates, the "uncertain macroeconomic and geopolitical environment", inflation, its expected tax rate and tax strategies, and the outcome of pending legal, administrative and tax proceedings or government investigations. _(from the filing)_
Regulation of Mercado Pago keeps changing. In Brazil, crypto asset services now need central bank authorization, and the company's securities distributor has applied for it. A separate Brazilian rule on international payment services prohibits stablecoins as a means of settlement with the foreign counterpart, and the company is "assessing the impact". In Argentina, payment providers now fall under bank-grade technology security rules and anti-money-laundering rules. _(from the filing)_
The company warns that margins may keep falling. Gross margin "could continue declining if we maintain the growth of our first-party business" or keep building its logistics network, and continued spending on marketing and on expanding the credit portfolio means "we may experience decreases in our operating income margins". It does not give earnings guidance. _(from the filing)_
Lending needs funding. The main cash need is working capital for Mercado Pago financing and lending, met by selling and securitising receivables, bank loans, notes and, in Brazil, deposit certificates. Interest expense and other financial losses rose 72.2% to $62M, which the company attributes to "higher levels of indebtedness (mainly in Argentina and Brazil)". Most of its cash and investments sit in subsidiaries outside the US. _(from the filing)_
This quarter already shows two of the named risks. The margin decline the company warns of has arrived, driven by shipping costs and credit losses, and borrowing costs are rising with debt. Currency is the one that eased: foreign exchange losses shrank from a year earlier, though stronger currencies in Brazil and Mexico also flattered reported revenue growth. _(analysis)_

## Founder view: mechanisms

### Commerce data underwrites credit

MercadoLibre lends to people and merchants it already watches transact. Sales history, payment flows and account balances tell it who repays, often for borrowers banks have no file on, and repayment can be collected from flows it already settles. Credit in turn deepens use of the rest of the platform: a borrower has a reason to keep selling, paying and holding money there. _(analysis)_

### Subsidised delivery buys frequency

MercadoLibre runs its own logistics network and uses shipping subsidies to make free or discounted delivery the default. Where carriers are slow and costly, delivery speed and price decide which store a buyer uses, so owning the network turns a cost line into part of the product. Lowering the free shipping threshold in Brazil extends that promise to smaller baskets. _(analysis)_

### Customer balances as float

Mercado Pago pays users a return on money kept in their accounts, which the company presents as a way to compete with large banks. Balances that stay on the platform are a cheap, sticky source of funds, and their growth runs through operating cash flow. That is why a fintech platform's cash statement reads so differently from its income statement. _(analysis)_

### First-party sales fill the gaps

The marketplace is mostly third-party sellers, but MercadoLibre also buys and sells goods itself where sellers leave gaps in price or range. Selling on its own account earns less per sale but can pull buyers into categories they would not otherwise buy on the platform, and each of those buyers is a future fee, ad view and payment. _(analysis)_

## Member research

Signed-in members read, on the page: what MercadoLibre's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- MercadoLibre 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/1099590/000109959026000023/ (2026-08-06)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02