There was a typo in last night’s Uber earnings review. The 19% bookings growth guidance was actually 18% Y/Y growth. That changes nothing else about the rest of the piece, but I apologize for the error anyway.

MELI is the e-commerce and logistics king of most of Latin America. It has a thriving marketplace and fulfillment business, with support for 3rd-party merchants. It also features a rapidly growing financial services suite and payments platform, entertainment offerings through partnerships, a rapidly growing ads business and a loyalty program called MELI+ where it laces a plethora of product utility into one unique consumer bundle. The business model resembles Amazon without cloud computing and with financial services. Here are the names of its various products:

Note that Meli made a series of changes to reporting disclosures starting three quarters ago. One more quarter before comps normalize. First, for Mercado Pago, the interest income/expense item was moved from below the EBIT line to above it. This will make margin comps tougher in the charts below. For Mercado Envios, it changed its position from an agent to a principal. This means it now reports gross revenue and treats shipping as an input cost. Previously, it netted shipping costs out of reported revenue. As this increased reported revenue on an apples-to-apples basis, this will boost revenue growth a bit in the charts below. Finally, it removed peer-to-peer volume from total payment volume (TPV), which slows that growth item a bit in the charts below.

Items sold per buyer actually fell from 7.6 to 7.4 Y/Y. This was due to rapid buyer growth, with new buyers always starting at lower frequencies and rising from there. This is why items sold growth was still able to accelerate for another quarter from 27% Y/Y to 28% Y/Y.

Note that cash flow from operations was over $1B for the quarter. FCF is heavily influenced by change in loan balance and MELI’s rapid credit book growth. It’s intentional and as planned. This reduced FCF by $770M during the quarter. If it were not investing in credit card growth, FCF margin would have been 13%. As it turns cash into credit and front-loads loss provisions, the successful ramp of the credit card heavily and negatively impacts FCF. It is a concession they are eager to make and one that I fully support.

Definition: Net Interest Margin After losses (NIMAL) measures credit revenue - credit provisions - funding costs. It’s similar to NU’s risk-adjusted net interest margin (NIM). Higher is better. 15-90 day non-performing loan rate measures the proportion of loans 15-90 days past due. Lower is better.

Despite 75% credit portfolio growth (powered by credit cards), the metics you see above remain comfortably within its risk tolerance. First-time payment defaults in Brazil set another record low in March (despite some macro weakness there) and it’s leaning into more originations in some places because of this. It sounds like those places will mainly focus on prime credit customers and existing MELI users where credit risk is the lowest. It has pulled back a tad on subprime and micro originations in a precautionary manner following some of its competitors seeing deterioration. It still hasn’t seen any of that deterioration itself, but did want to play it safe. Always smart.

If things are going so well, why is NIMAL falling so sharply? Great question. This is because of a mix-shift away from personal loans and towards credit cards, as well as a move to higher credit quality consumers. Cards have lower profit spreads than riskier personal loans and are now 42% of its credit portfolio vs. 35% Y/Y. Affluent borrowers also come with lower profit spreads. The NIMAL hit is highest for new card issuance, as margins start at a bottom (front-loaded provisioning & general funding costs) and grow from there. Meaning? As this business matures and a larger portion of its cohorts are seasoned, the NIMAL hit will diminish. The same will be true for FCF margins.

“Underlying spreads and asset quality metrics remain robust.”

Shareholder Letter

MELI trades for 48x EPS. EPS is expected to grow by 35% this year and by 32% next year. Estimates will surely rise following this report.

A Thriving Marketplace:

As you can see from the data above, the commerce business is doing quite well. And? The runway remains massive. Latin America is a full decade behind the USA in terms of e-commerce penetration, with Meli having just a 5% share of total commerce in its markets. Considering its beloved and ubiquitous brand in all of its markets, it has a fantastic opportunity to keep growing quickly at an enormous scale for a very long time. That’s why an obsessive focus on its value proposition and service improvements are both so important. Whatever it can do to take better care of its customers is great for business. I love when interests are aligned.

When they add assortment, optimize checkout experiences or add services like auto parts and repairs last quarter, more volume, more market share gains and more financial success follows. Prioritizing its consumers is why brand preference scores are at all-time highs and why unique buyers continue to briskly grow. This formula has been in place for years and, simply put, keeps working.

This quarter, the service expansion example cited was its budding grocery business. Items sold under this category rose 65% Y/Y, as it added tools such as repeat ordering, better search and more targeted advertising. More 1st-party inventory and updates to the user experience (UX) are also helping it gain the conviction needed to “get bolder in initiatives to generate new demand.” The product has been somewhat immature and nascent up until this quarter; they’ve had to work on improvements to make sure revenue growth came with delighted customers. It’s now at a point where it can get more aggressive. Considering the frequency of grocery shopping, MELI sees this as a real opportunity to create more engaged, more loyal and more dependent customers. And? Doing so will also have indirectly positive impacts on the entire ecosystem, considering grocery customers, on average, buy more things from its other categories.

Mexico Commerce:

A category of technology sales in Mexico held back growth there to a modest degree. MELI was more than capable of overcoming this headwind elsewhere, but this still bothered them (as it would any good team). Competition cut prices and added generous financing terms and MELI also just didn’t have the assortment it needed. They’re fixing this with “several targeted initiatives” and are already seeing trends improve. Excluding this category, the 23% FXN volume growth in Mexico would have been around 30% Y/Y.

Logistics:

As we often talk about, a scaled logistics footprint to offer best-in-class delivery times and a broad range of options is so incredibly powerful for commerce conversion rates. It’s how MELI matches elite customer service on its marketplace with elite customer service on the fulfillment side. It’s how MELI creates the economies of scale and vertical integration-inspired efficiency to offer lower-priced goods and expedite the shift from offline to online commerce. And? It’s a profit driver too.

The hefty infrastructure investments needed to build its scale were very expensive and form an infrastructure moat that’s tough to match. Improvements to its fulfillment business will remain a constant priority, with localization work this quarter allowing them to lower cost per fulfillment across their 3 main markets. If this sounds like Amazon, that’s because the similarities between this business and the non-AWS part of that business are striking.

Interestingly, while MELI’s coverage continues to improve, same-and-next-day delivery rates continue to fall. Why? It’s because people are choosing slower options to save some money. Mix-shift towards this type of delivery rose 3 points Y/Y. This is in no way related to on-time delivery rates falling, as that metric set a new high during the quarter. 

Argentinian Comeback:

Macro in Argentina is improving, as items sold rose 52% Y/Y and the country set a convincing new contribution margin record with 11 points of Y/Y expansion. Argentina carried the company’s margin profile this quarter, as Brazil and Mexico contribution margin fell 5 points Y/Y. That was as expected and related mainly to aforementioned rapid credit card growth. Argentinian operating leverage had a lot to do with better fixed cost leverage, as the country returned to expedient real revenue growth for MELI. Easy comps helped, but structural improvements in the economic backdrop and more market share gains both helped too. 

Meli has been hard at work on improving shipping processes, inventory availability, controlling prices and adding more convenience to this business while macro remained sour. And now? Its product offering is in a great spot as the economy there begins to hum once more. This is the highest-margin ceiling country MELI operates in, so it’s encouraging to see things going so well there right now.

For more positive news, Argentinian credit trends are improving; profits for that specific product are ramping despite meteoric credit book growth and its front-loaded provisioning practices. Lower interest rates are helping, as they’re driving a mix-shift towards cards with higher take rates, while the deep breadth of its customer data profiles is boosting underwriting precision. Much of its consumer base in Argentina interacts with MELI on a daily basis, so they know these people better than a typical lender.

Advertising:

The Mercado Play app is now available on 70 million smart TVs in Latin America. This features a large library of free content, and so ample opportunity for growing its advertising business. As leadership told us during the call, 50%+ of Latin America does not pay for streaming subscriptions. It’s much different than here in the USA. This could be a key unlock for monetizing those customers in new ways, with easy opportunities to promote goods on its marketplace and drive more cross-selling. Overall ad revenue rose 50% Y/Y FXN and the team is “confident in their long-term ambition of becoming a much larger player in Latin America’s digital advertising market.

Fintech:

The team thinks years of “work to build a competitive product stack and user experience” have positioned it to drive profitable fintech growth in the years to come. Net promoter scores across core markets keep rising and MELI’s value proposition keeps resonating. A big piece of that value prop is the high-yield savings account it offers, which dwarfs the putrid rates most incumbent banks offer (not Nu Bank). It strives to give customers the most yield for their savings in its markets, and can do so affordably thanks to its digitally-native, low-fixed-cost business.

They don’t quite match Nu’s cost advantages in using deposits to fund credit, as MELI is still more reliant on more expensive warehouse funding. But they do match Nu’s lack of cumbersome fixed costs inherently present in legacy models. And? MELI doesn’t need its deposit and credit franchises to be the main profit drivers of this business (like Nu does). It can offer great perks and operate at a lower margin than Nu can because it has so much more opportunity to sell other products. And? Fintech users engage with these other products much more than non-users. Meli is working harder to drive even more of this cross-selling advantage by rebranding MercadoPago to something that more closely resembles its marketplace. It also de-cluttered the UX to improve discoverability of core features.

Acquiring TPV:

Acquiring TPV refers to the piece of MercadoPago that lets merchants seamlessly tap into these easier payment options to augment conversion rates (through software and point of sale hardware). Acquiring TPV happens whenever MercadoPago is used as the main payment facilitator/processor on the marketplace or on a merchant’s own site (“off-platform” acquiring TPV). Acquiring TPV continued to grow at a 30% Y/Y clip in Brazil and a 50% Y/Y clip in Mexico.

Acquiring TPV is also a great top-of-funnel tool to drive merchant adoption of its fintech products. It’s a big reason why merchants with a credit product rose from 16.9% to 26.3% Y/Y. It thinks there’s so much opportunity to raise this, especially in Argentina where some product updates, like a new recurring payments offering, are helping create more interest.

Competition:

Meli has seen no early material impact on the competitive landscape following TikTok Shop entering Brazil and Temu entering Argentina. In the past, this has created faster shifts to online commerce and is something MELI welcomes as inevitable. It knows it can win if it executes.

Excellent quarter. Hopefully this makes it clear why MELI was the position I added to most aggressively during the recent pullback. 60%+ FXN growth at this scale is ridiculous and accomplishing it while expanding EBIT margin (despite rapid credit card growth) is even more ridiculous. Everything they do works. The runway is massive and the elite team is more capable of capturing it than anyone else. This is an obvious winner and profitable compounder; I have no interest in taking any profits.

My Shopify Deep Dive can be found here. Most of that is still current, except for the financials, which are updated in this review. A review of its most recent Investor Day can also be found here (section 4).

“The strength of our business enables us to achieve these attractive free cash flow margins while still, importantly, investing in the future. To be clear, while we will continue to drive efficiency, we are ultimately a growth company… Simply too many compelling growth opportunities ahead.”

CFO Jeff Hoffmeister

Shopify trades for 64x EPS and 62x FCF. EPS is expected to grow by 17% this year and by 27% next year. FCF is expected to compound at a 25% clip for the next two years. Estimates may fall a bit following this report.

Macro Resilience Amid Trade Wars:

Shopify’s business has been quite resilient so far amid rising tariffs. That’s especially encouraging considering this resilience has lasted through the first part of May. They have an extremely diverse array of merchants across industries and also geographies. And for the specific removal of tariff exemptions on cheap Chinese goods, they’re quite insulated. Just 1% of their overall GMV is related to imports from China to the USA, which is helping keep cross-border trade stable at 15% of total GMV. Furthermore, most merchants haven’t even hiked their pricing on tariff-impacted goods, which bodes very for cross-border volume and durability. And to put Shopify in even better shape to weather any potential macro weakness, their typical consumer is affluent, with 50%+ of the firm’s U.S. shoppers earning six figures. That naturally guards them against any consumer anxiety that we’ve seen show up in survey-level data.

​“Today's market is uncertain. As the platform that powers global commerce, we're, of course, monitoring for potential slowdowns, but our data through April shows little evidence of that. It's still early to assess the full impact of the current trade environment… Simply put, businesses on Shopify are more resilient than businesses that are not on Shopify.”

Shopify President Harley Finkelstein

More Reasons to Explain the Resilience:

While everything you see above is nice, Shopify is not using this as an all clear to grow complacent in helping merchants navigate the fluid backdrop. They’re instead continuing to innovate as rapidly as they always do. It briskly moved to introduce timely and relevant product updates as soon as the new tariffs were announced. There are many examples.

For duties, it updated managed markets to enable and automate full, global compliance as policies change “within hours.” It added a duty calculator at checkout for merchants to offer more price transparency at a fee of just 0.5% of sales. This “makes it one of the most affordable options in the market,” which is why merchant users doubled since January. It will soon add duty-inclusive pricing to augment consumer transparency and eliminate negative surprises.

To help merchants control supply chain costs, it debuted Tarrifguide.AI. This determines duty levels with solely a “product description and a country of origin.” It greatly helps merchants visualize where tariffs are perhaps more favorable and how they can seamlessly shift vendor usage to minimize cost. For shipping, it added delivered duty paid (DDP) shipping labels for compliance help and more 3rd-party carriers to lower shipping costs during a time when that’s sorely needed. In terms of buying local, it added a new by-country filter on the Shop App to promote local businesses. 

The key theme within all of these launches is Shopify debuting needed products just days after tariff policy changed. Its “reaction time to uncertainty is unmatched.” This is why 38/39 Shopify cohorts have outperformed e-commerce market growth since 2015; this is why its USA GMV growth has been consistently 2x the market, with that lead expanding in recent quarters; this is why its European GMV lead vs. the market is even larger. It takes market share because? It takes elite care of its customers. During times of uncertainty, merchants who all need to do more with less and lower total cost of ownership do so on Shopify. The commerce operating system takes the headache out of maintaining a business so they can focus on growth. This is why new merchant adds remain so strong, including for the small and medium business segment, which is always the most vulnerable to macro.

“We built Shopify for times like these. We handle the complexity so merchants can focus on their customers. We ship products faster than anyone else, giving merchants the edge they need to succeed.”

Shopify President Harley Finkelstein

Offline GMV, Large Enterprise and Business to Business (B2B)

Offline GMV rose 23% Y/Y thanks to strong multi-location growth. I think the most interesting part of this bucket for Shopify this quarter was an Alo Yoga case study. The apparel company wanted to enable same-day delivery and was struggling to do so with other vendors. Shopify was able to create slick integrations with Uber and DoorDash, as well as needed software to make this happen.

“No matter what you want to do in your retail business, we default to yes on Shopify.”

Shopify President Harley Finkelstein

The move upmarket continues to go very well. Recent wins with Vuori, BarkBox, Brilliant Earth and Toys R Us are all scaling nicely, while VF Corp is bringing 8 of its brands to Shopify. It signed Follett Higher Education Group, which manages 1,000+ university bookstores, Caring Beauty in Europe (for online, B2B and offline), Away, Therabody, Life is Good and several more brands during the quarter.

Shopify Payments & Going Global:

Shopify Payments launched in 16 new markets to boost country coverage by 70% Y/Y. Having Shopify Payments in place is so important for international growth. It’s a fantastic top-of-funnel suite, as it takes the complexity out of routing global payments and cuts fees. It also gives merchants seamless access to its consumer-facing checkout accelerator called Shop Pay, which it sees as the highest converting option in the market. Shop Pay GMV rose by 57% Y/Y to maintain a rapid pace of expansion despite chaotic macro. Finally, it launched multi-currency payouts in 20 more European countries.

“Adding more products in more markets remains a key driver of our international growth.”

Shopify President Harley Finkelstein

Shop App:

Its shopping app delivered 94% Y/Y GMV growth, as it welcomed Purple and Birkenstock into the ecosystem. It also added more of Tapestry’s brands, following a successful pilot test with a few of their labels. Shop Pay is turning into a great platform for attracting merchants looking to extend their reach. And in turn, that routinely leads to easy cross-selling for Shopify's other merchant-facing solutions.

Marketing:

The returns-based marketing playbook implemented last year continues to work. It’s allowing them to rapidly shift in and out of channel spend and maintain very strong levels of returns.

AI:

Definition: Model Context Protocol (MCP) servers conjoin large language models with needed access to data, giving models and apps the context needed to perform tasks more effectively.

Shopify rolled out 12 MCP servers last month to help its engineers efficiently complete tasks with needed, interoperable, cross-department information. Its purchase of the GenAI enterprise search company (Vantage Discovery) should help here too. This gets back to its recently-announced mandate of being an AI-first company and not adding headcount unless it’s absolutely needed.

Sidekick (AI assistant) overhauled its foundational model usage to drive more agentic, multi-step functionality across more languages. This helped usage of the product 2x year-to-date.

Average quarter for this special company. I can’t call it amazing, considering the profit weakness, but I also know they can play their financial statements like a fiddle. They could have easily flexed-down growth spend to meet profit expectations for this quarter if they wanted to. That’s just not the focus. They’re fixated on building a 100-year company. And in doing so, they are balancing reasonably strong margins with the freedom to invest into all of the large opportunities they see.

Shopify is a company that I do not worry about much. It’s a company that I’m exceedingly confident will compound at a steady rate for a long time. That’s why it has earned an admittedly lofty multiple for years. The runway is massive and the team (like MELI’s in Latin America) is more capable of taking advantage than any competitor. More growth; more EBIT leverage; more market share gains; more differentiated value; more of the same.