MERCADOLIBRE INC (MELI) stock intrinsic value fair value estimate & owner earnings analysis

MercadoLibre runs the largest online marketplace, delivery network and digital-payments platform in Latin America. In 2025 the platform moved $65.0 billion of merchandise and $277.8 billion of total payment volume across 121 million active buyers and 78 million active users of its Mercado Pago wallet, alongside a fast-growing consumer and merchant lending business. Brazil, Mexico and Argentina together produced 95.6% of the company's revenue and financial income in 2025; there is no material business outside Latin America. We measure the cash the owners actually get to keep by starting from operating cash flow, removing the swings caused by working-capital timing, subtracting stock-based compensation, and charging only the maintenance share of capital spending against earnings. On that basis, owner earnings per share have grown from roughly breakeven in 2020 to about $43 in 2022, $57 in 2023, $77 in 2024 and $99 in 2025 - operating cash flow itself grew even faster, up 53% in 2025 alone. We've anchored the valuation on the median of the last five years, about $57 per share, rather than the strong 2025 figure, so the estimate isn't built on a single unusually good year. One accounting point worth explaining plainly: as the lending business has grown quickly, the reserve set aside for expected loan losses has grown with it, and this shows up as lower reported profit margins in the segment data, particularly in Brazil. But that reserve is money set aside against future losses, not cash actually leaving the business today - the real cash cost only shows up later, if and when loans are actually written off. Because operating cash flow already accounts for this correctly, we haven't separately slowed the growth path on account of it; doing so would effectively charge the same cost twice. The base case assumes owner earnings grow about 27% in the coming year - in line with the pace the business just posted in 2025 - and decelerate gradually from there as the buyer base and payment volumes mature off an already-large scale. For the years beyond our ten-year forecast, we don't assume growth simply continues at a steady rate forever. Instead it fades toward zero over a second decade, and the value from that point on reflects the logistics and payments infrastructure the company has already built - real, hard-to-replicate assets, evidenced by a fulfillment network that now handles more than half of shipments and a wallet used by 78 million people - continuing to generate cash at that level, without assuming it keeps compounding indefinitely in economies whose long-run path is genuinely hard to predict. The bear case is built from risks the company discloses rather than a generic worst case. Argentina, Brazil and Mexico have each experienced currency devaluation, inflation and shifting capital controls in the past, and Argentina's 2025 inflation ran 31.5% even after the government eased its currency controls in April 2025 (a change that has already narrowed the gap between the official and parallel exchange rate from about 15% at the end of 2024 to under 5% at the end of 2025 - a real improvement, though Argentina has gone through a currency crisis roughly every four to five years for two decades). The bear case assumes one such episode occurs sometime in the next ten years, this time large enough that realized loan losses run ahead of what had been reserved for - a real risk given the lending book's debt funding has grown from about $3.5 billion to $9.2 billion since 2021 - producing two to three years of shrinking owner earnings before the marketplace and logistics businesses, which carry far less credit risk, provide a floor and growth resumes at a slower pace than in the base case. The bull case assumes the growth of the last two years continues without a further currency shock, and that loan losses continue to track the pace of loan growth rather than spiking ahead of it - a continuation of the pattern in the last several quarters of results, not a hoped-for windfall. Discounting these three paths at a flat 6% puts the shares at roughly $1,130 in the bear case, $3,960 in the base case and $5,120 in the bull case. Because the bear case is well under a third of the base case, we've applied the largest margin of safety our approach allows, putting the margin-of-safety price around $1,980 per share. One item we can't fully resolve from the filings: a 2025 Mexican antitrust review into marketplace "Buy Box" practices was closed without corrective measures, but it signals regulators in the region are actively watching how the platform ranks and fulfills listings. We haven't built a specific cost into the estimate for this, but it's worth monitoring.