Why MercadoLibre Stock Jumped 11% in July
Key Points
MercadoLibre stock is 30% off its high as the market expresses its displeasure at lower profits.
The company has been growing rapidly, and its e-commerce and fintech ecosystem users are spearheading the growth.
Management is continuing to invest in the platform to set the stage for future success.
MercadoLibre (NASDAQ: MELI) stock rose 11% in July, according to data provided by S&P Global Market Intelligence. There wasn't any news specific to the company, but the market seemed to pick up on a good bargain ahead of the second-quarter report on Aug. 5.
Why MercadoLibre stock has been sinking
To understand why the stock jumped in July, you need to first understand why the stock is 30% off its high. While the company is growing rapidly, profitability has been declining, and the market has been disappointed.
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However, it seems to have bottomed out, for now at least. Investors were scooping up shares in July as it got closer to second-quarter earnings, although the report got a tepid reaction.
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In the 2026 second quarter, revenue increased 50% year over year, driven by a 44% year-over-year increase in gross merchandise volume (GMV) and a 56% increase in total payment volume. Management has been increasing its investments in the platform to grab greater market share and solidify its dominant position in Latin American e-commerce. The main drags on profitability are its lowered free shipping threshold in Brazil and the increased credit card business. Both of those impacts are likely short term, but they should lead to strong long-term results. Some of the results are already in as the business skyrockets in Brazil.
Management spent a lot of time talking about the growth of its ecosystem in its shareholder letter and how users of its two businesses, e-commerce and financial technology, are the most engaged. For example, ecosystematic users generated 70% more GMV and 55% more items sold per user than marketplace-only users in the second quarter. As the company beefs up its platforms, it's positioning itself to win at scale.
The pressure isn't finished
Management explained why it's investing in its business and why profitability is down, but it made no promises that it will end sometime soon. In fact, it did the opposite, noting that it's making the "deliberate choice to continue prioritizing investment in long-term engagement, growth and scale over near-term profitability."
Operating income fell from $825 million to $683 million in the quarter, and operating margin narrowed from 12.2% to 6.7%. However, earnings per share (EPS) came in ahead of Wall Street's expectations at $9.19.
The market is coming to terms with the current situation, and although the stock may not get back to intense gains until profitability gets back to growth, some investors are seizing the opportunity while the stock remains off its high.
Jennifer Saibil has positions in MercadoLibre. The Motley Fool has positions in and recommends MercadoLibre. The Motley Fool has a disclosure policy.