$MELI DCF valuation model - updated
Key assumptions:
1. Explicit 5Y/5Y growth @ 25%/15%
2. Long-term growth in perpetuity @ 3%
3. Adjusted EBOTDA margin expansion from 13% to 20% in 2035.
4. WACC @ 10.9%
5. An EBITDA exit multiple of 8.5
6. Tax rate 27%
7. The input that drives reinvestment is the linearly regressed Sales to Capital ratio, from 1.9 recently to 1.3 in 2035
Historic Growth (for context)
MercadoLibre has delivered exceptional historical growth, evolving from a regional marketplace into Latin America’s dominant e-commerce and fintech ecosystem. Over the past decade, revenue has compounded at well over 25% annually, driven by rapid expansion in Brazil, Mexico, and Argentina, surging logistics capabilities, and the explosive adoption of MercadoPago. Gross merchandise volume, unique buyers, and fintech TPV have all scaled dramatically, while EBITDA has expanded from modest levels to billions as the company gained operating leverage. This combination of platform effects, fintech penetration, and sustained demand for digital commerce has made MELI one of the fastest-growing large-cap companies globally - setting the backdrop for any forward-looking valuation.
Why I believe it can work out well
Sustained high revenue growth
Fintech flywheel gaining momentum
Logistics moat is strengthening
Operating leverage over time
Large TAM still underpenetrated
Ecosystem effects reinforce growth
Strong balance sheet and disciplined execution
Optionality from new verticals
What can go wrong
Margin pressure persists
Credit risk in fintech
Currency volatility
Intensifying competition
Regulatory risk
Macro instability
Execution missteps
Conclusion
My intrinsic value for MercadoLibre is 1,973$. Valuation suggests that the stock is trading at 15% discount to fair value. If adjusted to FV within 3 years, it will generate +6% in annual alpha.
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Disclaimer: This post is for informational and educational purposes only. I don’t own shares in MELI but can buy/sell them at any time after this post is published. Not financial advice. Do your own research.