Transcription
Marcato Libre stock is down almost 13% today after the company just reported its first quarter earnings results that I thought looked pretty dang good. The company's revenue accelerated to 49% year-over-year revenue growth and every single business in every economy except for Argentina saw a strong revenue acceleration on a year-over-year basis. So the question is why is the stock down roughly 13% after such a strong earnings report?
So, what I want to do in today's video is run through the earnings report, all of the bullish points, the key things from the transcript and etc. But I also want to spend more time discussing the bare case and why the stock is selling off today because I have received some feedback that I don't necessarily discuss the bare case enough and highlight the risks enough, but every single investment does have risks that people should know about. So, near the end of this video, well, probably the second half, I'm going to be discussing the risks and also the rebuttals to the investment thesis and really what people are seeing in this earnings report on the bare side as well, so that we can all know about them. So, with that being said, I'll stop rambling and let's get right into the video and take a look at Marcato Libresy's first quarter earnings results.
So, this first screenshot from their shareholder letter shows us that revenue increased to $8.8 billion, which was up 49% year-over-year. However, income from operations was $611 million with only a 6.9% operating margin, which means that Marcato Libre's operating margin is continuing to come down. Net income came in at 417 million with a margin of 4.7%, which also means that Marcato Librey's profit margins did suffer this quarter. Total payment volume came in at 87.2 billion, up 50% year-over-year. Gross merchandise volume was 19 billion, up 42% year-over-year. Net revenue and financial income grew 49% year-over-year, the fastest pace in almost four years, reflecting continued progress on our strategic objectives across commerce and fintech in all of our major markets and particularly in Brazil. Income from operations declined by 20% year-over-year as we chose to prioritize long-term growth investments over short-term profitability. 26 years after launch, Marcato Libre is growing at startup rates across all of our major markets. Nowhere is this more evident than Brazil, our largest and most established market where growth is not just flat, it is accelerating. When your business is behaving like this, we believe the right response is not to harvest but to invest.
So the real story of this quarter is that Marcato Libre is once again investing aggressively to continue capturing more market share and expanding the business. And they're making it very clear that they're intentionally sacrificing short-term margins to capture the opportunity that they believe is right in front of the business. And I believe that these investments are actually paying off because the revenue growth rates of the business are accelerating across the board. This is a business now doing $31 billion in trailing 12 months revenue, and they're seeing revenue growth rates of nearly 50% on a year-over-year basis. It's just incredible. But again, that's really the story boiled down. They're sacrificing short-term profits and short-term margins to accelerate revenue at an even faster pace. And the market really did not like this.
Moving on to the next screenshot here Libé wrote, "We have a once in a generation opportunity to transform how hundreds of millions of Latin Americans shop, pay, and access financial services. In commerce, the region is at an early stage of a shift that markets like the US are much further along. The opportunity is just as compelling in fintech. In Mexico, more than half of the population relies on informal sources of credit, and 85% uses cash most frequently for purchases under $30. In Argentina, more than 80% of adults have a bank account, but credit to individuals as a percentage of GDP sits at just a fifth of the level of Brazil. In both countries, we have the opportunity to lead the creation of markets that today are a fraction of their potential size. There are clear indicators of how much runway lies ahead. In Latin America, the digital economy is not slowing down. It is just getting started. We are investing boldly to capture this runway and we have never been better placed to do so. Our cash generation is strong and our market shares are reaching new highs. We are willing to be patient when we see clear signals of this and when we are confident that our investments will contribute to long-term cash generation and profitability."
So once again, this is Marcato Libre saying that they have a once- ina generation opportunity to grow with the digital economy across Latin America and provide digital services to people across Latin America as well as e-commerce services. They also believe that their investments are paying off because they're seeing strong growth, increased market share, and all of their KPIs are moving in the right direction. So that gives them faith that they should double down and continue aggressively investing while their investments they believe are clearly paying off. The long-term focus of the business though has always been to maximize long-term cash flow potential and cash flow generation. So they're sacrificing the margins today to capture more revenue, to capture more growth, to capture more market share, expand the moat, and long-term they believe that this will result in the most cash generation for the business. And I do agree.
This next screenshot starts to talk about their credit card. So here they say, "Investing in our credit card is as pivotal for Marcado Pago as the launch of our managed logistics network was for marketplace 10 years ago. It is one of our most powerful ecosystemic tools, turning millions of marketplace users into active fintech users, too. The credit card increases marketplace conversions, gross merchandise volume per user, and transactions across the ecosystem. This is the cross-ell flywheel at work. Our ecosystem generates the demand that enabled us to issue 2.7 million cards and grow the portfolio by 104% year-over-year to $6.6 billion in the first quarter. It also provides the data which makes our underwriting decisions increasingly accurate, contributing to improving asset quality as the credit cards 15 to 90day non-performing loans fell by 80 basis points year-over-year."
So in this slide, Marcotto Libre is justifying their investments and growing their credit card portfolio and they're really saying that the credit card is bringing people from the e-commerce platform over to the fintech platform and it is increasing the overall usage of Marcato Libre's ecosystem. And I believe that this is the number one main reason why Marcato Libre is investing in their credit card. Not necessarily for the sole purpose of growing their credit card portfolio, which is also profitable for the business. but also because it is increasing the engagement of every single user across the ecosystem. So if you think about the revenue and profits generated for every user on Marcato Libre's ecosystem, it is growing that metric and they believe that by continuing to offer the credit card and get more credit card users. It's also bringing people into their fintech platform and getting them to buy even more off of their Marcato Libre platform as well. So the credit card is not there just to grow the credit card portfolio. It is to grow and compound the flywheel of the entire Marcato Libre ecosystem. And this is partly why the entire business is seeing such a large acceleration. To put it simply, growing the credit card portfolio is also growing the entire ecosystem. And this is very important to understand for Maricott Libre's business.
Now, in addition to that, they're saying that despite growing the credit card portfolio by 104% on a year-over-year basis, their non-performing loans are actually declining as a percentage of the total portfolio, which ultimately means that the portfolio's health has actually increased on a year-over-year basis because less of their loans as a percentage are going bad. The fact that Marcato Libre has been able to double their credit portfolio at the same time as their non-performing loans have actually declined, I think speaks to the quality of their underwriting process and their models. Because typically when you grow your loan portfolio, you have to continue expanding into riskier and riskier segments, which Marcato Libre is actually doing by the way, which we're going to talk about later. But when you do that, you typically see your loan quality decline or your loss rates spike. But this is not happening with Marcato Libre. And the reason for this is because they have a tremendous amount of very deep data on every single person that they're lending to. So they can make very intelligent decisions on who they actually give credit to. And this causes their NPLs to be better than their competitors and to be better than the banks overall, which we're also going to see later on in this video.
This next screenshot talks about their commerce business. A lot of it we have already covered but the bottom paragraph talks about their advertising business specifically where they said we have been one of the fastest growing players in the region 4x the market in 2025 and the strong momentum continued in the first quarter with ad revenues growth of 63% year-over-year on an FX neutral basis and 73% in US dollars. Now, I believe that Marcato Libre's advertising business is highly profitable and over the longer term is going to meaningfully add to their bottom line and on a year-over-year basis, it grew by 73% in US dollar terms and their advertising business is growing four times as fast as the underlying market. What this means is that Marcato Libre is continuing to take advertising market share because they are growing significantly faster than the overall digital advertising market. Now, what this also suggests is that advertisers are seeing a higher return on ad spend by using Marcato Libre's advertising services because the way advertising works is advertisers are going to invest and put their money where they're getting the highest return on investment. So, the fact that Marcato Libre is attracting so much of the advertising dollars to their business suggests that they are the most profitable and highest return way for advertisers to advertise and invest. I think that this is very bullish and I think that this is only possible because Marcato Libre has such a unique data set on its customers through the e-commerce platform and the fintech platform. They have very deep data on every single person where they're spending their money, how their money is coming in, what products they choose to buy, and this helps increase their return on ad spend significantly.
All right, moving on to the next screenshot. This one is their long-term view on the business. So here they wrote, "The results we are seeing across our investments give us confident that we are making the right choices at the right moment. We have the ability to dial margins up or down as circumstances and opportunities evolve. Q1 reflects where we have chosen to set that dial and we do not anticipate this changing materially in the near term. The same investments that are compressing margins today are building the platform, the user base, and the competitive modes that we believe will drive margins and cash flows significantly higher over time. This is a market at the early stages of a transformation that has runway of decades. The important things in this screenshot are that Marcato Libre can dial their investment spend up or down very rapidly. So if they wanted to expand margins tomorrow, they could simply shut off a lot of their investments and profits would go up and probably skyrocket. But they don't believe that this is the best thing for the business because the investments that they're making are deepening the moat and accelerating growth and paying off. That is what they believe. But over time and over the long term, when their investments start to mature, then they can dial them back and the profit margins of the business will expand. Now, the other important thing here is that they're clearly telling the market and investors that they don't plan to dial back in the near future, which basically means that margins are probably going to remain compressed for the foreseeable future. And based on the market and the short- termism in the market right now, I think this is arguably one of the main reasons why the stock sold off so much because the management is clearly telling the market that, you know, we're going to keep our margins down for the foreseeable future and really try to capture this opportunity. So for me as an investor, I am not focusing on the short term. I'm not focusing on the margins next next quarter or even for 2026. Again, while the company is doing this, I think the stock is probably going to see downward pressure because the market really, really wants to see the profit margins expand for proof in the market size that these investments are paying off. So, to put it simply, I do not think that Marcato Libre is a stock for a short-term investor who wants to see returns over the next quarter, the next month, or even the next year. I think that this is really a stock for long-term investors who believe that the investments will actually pay off and expand the company's long-term cash flow potential and also believe on the long-term runway of the market opportunity down in Latin America because for myself I believe that this company has decades of growth left ahead of it and when I think 10 years out into the future I think Marcato Libre is going to be multiples larger than it is today. So that's why I am invested in the company. I'm invested in it for that long-term potential and I'm not invested in it for next quarter's profits or even next year's profits. And I think that's a very important distinction to have if you're looking into the stock or even if you're in it already. Really, just knowing that this is a long-term business, not a short-term one.
All right, this next screenshot shows us the year-over-year growth rates across different economies and the overall business in terms of US dollars, by the way. And here we can see that Brazil, which is Marcato Librey's largest market, had revenue growth of 55% and accelerated every single quarter over the past year. And the same thing goes for Mexico. Argentina, though, is the one market that is not accelerating. Commerce overall has accelerated every single quarter over the past year. Fintech has also accelerated year-over-year, but was flat quarter over-arter. And total marcado Libre is accelerating every single quarter as well to 49% year-over-year growth. Now, gross merchandise volume increased by 42% year-over-year and 54% in Brazil, accelerating massively. Total payment volume was up 50% and total payment volume from acquiring was also up 39%. Both accelerated on a year-over-year basis. Every single business unit in every single economy except for Argentina is accelerating and seeing massive growth.
This next screenshot shows the trailing 12 months underlying free cash flow potential of Marcato Libre making my own manual adjustments which I have described in previous Marcato Libre videos. I have discussed those at length previously. But what you need to know is that Marcato Libre's trailing 12 months free cash flow potential is now sitting at $6.8 billion which is my own estimate of how much cash Marcato Libres business could have generated if they were not aggressively investing back into growth. This means that today Marcato Libre is trading for about 12 times underlying free cash flow potential which I think makes the stock look pretty dang cheap. However, I know that the market is not going to value Marcato Libre off of this metric and it's not realized cash flows today as the business is investing so much into its growth. But I believe that over the longer term this value will be realized and it is growing at a very fast rate. It grew 40% year-over-year.
All right, now let's talk about some rapidfire charts from the quarter. So, here we can see unique active buyers hit 84.1 million in the first quarter, up 26% year-over-year and accelerating, and also seeing a higher growth rate than the fourth quarter of 2025, which is pretty rare for this business given it is an e-commerce company. This next screenshot shows items sold in every one of their different regions. And on a consolidated basis, we can see that items sold accelerated to 47% year-over-year from 28% in the first quarter of 2025. This next chart shows us same and next day shipments. And they grew by 39% year-over-year, which is accelerating versus 25% in the first quarter of 2025. And I believe that this is building the moat of Marcato Libre's e-commerce business because same and next day shipments are very important. This next chart is Marcato Libre's quarterly revenue. And we can see that it is at an all-time high and scaling significantly. This is a beautiful revenue chart. And Marcato Libre has more than 10xed its revenue since 2020. So just over the past 5 years. This next chart shows Marcato Libre's year-over-year revenue growth rates. And we can see that it hit 49% in the first quarter. And it has been consistently accelerating over the past year. This is also the fastest growth rate that Marcato Libre has seen since the second quarter of 2022. And it's worth noting that the business is significantly larger at this scale, but it is still seeing accelerated growth and the fastest growth rates in nearly 4 years.
All right, so everything up until this point looks great, right? So now let's get into the concerns and the bearish points from this quarter. The first one is Marcato Libresy's net interest margin after losses, which is basically the company's profit margin on its loan book. And we can see that quarter over quarter it declined significantly down to 17.8%. This was one of the main sticking points by analysts on the conference call because they believe it suggests that Marcato Librey's loan book is getting less profitable over time. So now let me read what management said in regards to this in the transcript. A big part of that is related to higher mix of credit cards which have a significantly smaller net interest margin after losses and because they are still immature cohorts in the portfolio. Then we are taking heavy provisions in Brazil and that is related on the one hand to extending the average term of our loans. We used to have loans typically on average of 5 months and that has been moved to 8 months. We are also reaching out to customers who had a line of credit in the past. They were not taking it. So we are lowering the spread to see if we entice them to start trying our personal loan products. Also reaching out to segments where they are either more risky or we where we have to work with smaller spreads. It has been a deliberate decision to reach out to further segments to continue accelerating growth. I'll add to that that asset quality remains quite stable and reflects how well the models are working and in general how the underwriting process is working.
So what management is saying here is that the number one reason why the net interest margin after losses are declining is because they are growing their credit card portfolio so significantly. And this portfolio naturally has a lower net interest margin after losses. So as that portfolio grows and makes up more of the overall loan portfolio, it is natural that this metric will continue to come down. They are also expanding into riskier cohorts to try and continue accelerating growth. To put it simply, they are lowering their interest rates and expanding into riskier markets to continue accelerating the growth of their loan portfolio. This was not received well by the market. And straight up, it does increase the overall risk of the loan portfolio. I mean, if you're lending to riskier people, then your loan portfolio is inherently going to get more risky. And they're doing this for the sake of accelerating growth. Now, that is that is a clear risk that is feeding into the bare case. you know, the loan portfolio is getting more risky. The rebuttal to that is that the NPLs, the non-performing loans as a percentage of the overall portfolio have actually come down on a year-over-year basis, which means that the underlying health of the portfolio surprisingly is improving and less loans are going bad. And they are saying that they are able to do this and expand into lending to riskier cohorts or lowering interest rates because their underwriting models are getting better and better and better over time as they continue to improve them and gather more data and learn who they can actually lend to. That is what is giving the management confidence to continue expanding the customers that they can offer credit to while at the same time improving the overall health of their credit portfolio. So, it's interesting. I understand the bare case. I understand how this makes some investors more uncomfortable, but I also think that you have to look at the underlying metrics and see that their actual loss rates are still declining on a year-over-year basis.
This next screenshot talks about the net interest margin after losses once again where they said given that we are growing well and it's profitable, we want to reach out to segments where we believe we can make money even if on the margin the spread we make is smaller than with the segments we are already serving. We can change the periods at which we lend to at any point in time. But we wanted to experiment with this and this confirmed that we could do this in a profitable way. So what Marcato Libre is saying here is that they're making more net dollars. So the net profits of the business, the actual amount of dollars that the business is generating is increasing. However, they are doing this at a lower margin. So you can think about it in terms of volume. Like if you could lend out $10 million at a 10% profit, you would make a million. Or would you rather lend out $100 million at a 5% margin and make what would that be? $5 million. So you'd make five times as much money on a lower margin because you have higher volume. That is what Marcott Libre is doing here. And that's what they're saying they're doing is they're intentionally lowering their margin to increase the net profit that the business can make. And they started to do this. They started to experiment and test this in this quarter and they confirmed that they can actually offer more loans at lower interest rates and still make more money. So that is their justification for experimenting with this and doing so.
Now another rebuttal to the risk of the loan portfolio is that Marcato Libre is extremely conservative with their provisions for credit losses. Provisions on the credit portfolio remain above 100%. Marcato Libre is very conservative because it sets aside cash today to absorb all of the potential bad loans. The real risk is if more loans in the portfolio start to go bad at a higher rate than they initially expected. But the rebuttal to that risk is that Marcato Libre's loan duration is so short that they can quickly adapt to a weakening economy and respond before things get out of hand and the portfolio blows up. But still, there are risks to lending and every investor should know about that.
This next chart is one that I have made and it is Marcato Libresy's non-performing loans percentages. Every single quarter back to when they started reporting this metric. And you can clearly see that over time their NPLs are trending down. And on a year-over-year basis, they are in fact still down. And again, this is at the same time as Marcato Libre has dramatically grown its loan portfolio and expanded their credit offering into riskier people. and lowered their interest rates.
Now, another thing that I found interesting in the conference call in relation to their credit portfolio is this right here. I would say that in general, the 15 to 90day non-performant loans in Argentina has improved sequentially. When we look at the market, we see that some banks are having worsening NPLs. That has not been our case. I think that the reason for that is that we have several advantages. is that we are issuing loans with very short durations relative to the banks and we have a very nimble approach to pricing those loans. We have high levels of principality in Argentina. Lots of our users use their Marcato Pago account every single day. We have very sophisticated underwriting models. Now why I think that this is interesting is because in Argentina the banks are seeing their NPLs worsen. at the same time as Marcato Libre's NPLs are actually improving and they're issuing more cards, credit cards in Argentina. This in my opinion shows that Marcato Libre has a superior underwriting model than even the large banks in Argentina. And this is due to the fact that Marcato Libre has reached such a high principality of their products in Argentina. So many Argentines use Marcato Pago. They shop on the e-commerce platform. So, Marcato Libre has a significant amount of data on their users and who they want to lend to. And this has caused them to have a higher quality credit portfolio than even the banks throughout Argentina. And I think that this same thing is going to happen across Latin America as they continue to get higher and higher principality across the region.
So, now let's talk about competition because this is another huge area of concern for the business and it's one that comes up every single quarter for the past 20 years. So here's what management said about competition. "We thrive in competitive environments, right? Competition makes us stronger. It pushes us to evolve, to continue innovating. That's exactly what we have been doing over the years. Actually, for the past 26 years, every single engagement metric you look in Marcato Libre Brazil is strengthening. Frequency, multiple category shopping, retention, all those metrics are gaining. All this feeds into the rapid growth that we are delivering, the record market shares. we have never been in a stronger position on that regards. The second point that I would highlight is that this competitive intensity is also having a positive impact in the market as a whole by bringing new customers from the offline world into the online world and we feel we are very much equipped to offer all those customers the opportunity to buy on Marcato Libre. The pie is increasing at a faster pace than it was before and we are taking an even larger slice of that pie. We are basically comfortable and confident with the competitive position that we have and we will continue to execute behind it."
So first off, Marcato Libre is saying that competition has caused them to innovate at a faster pace than they would have if competition didn't exist. And competition has been around in Latin America for 26 years. It's always been high. And despite the competition, Marcato Libra has continued to take more market share despite them having the largest market share already. Then the second interesting point is that competition is causing more people in Latin America to get online which is overall increasing the total addressable market for Marcato Libre's products as a whole. So the rate of growth of their markets is accelerating because competition is bringing more and more and more people online throughout Latin America and then they are able to attract more of that market to their services and platforms over time which is helping accelerate the growth of their business even further. So yes, there's competition, but they're also continuing to take market share when their competitors are bringing people online, which I think is kind of interesting. And the data suggests that they're successfully taking that market share, too.
So, let's wrap up the video by discussing my overall thoughts on Marcato Libre and this quarter. So, overall, I thought that this was a great quarter where the revenue growth rates are continuing to accelerate, which was something that I actually was not expecting. I was expecting along the lines of 40% revenue growth year-over-year. So, they beat my own expectations for the top line and I thought that this was great because I do believe that their investments are going to pay off long-term and increase the profits of the business. I mean, just take a look at Marcato Libre's revenue. I'll throw a chart up on your screen again. This business is growing incredibly quickly. And there is no other business in the entire stock market that has achieved such consistent growth rates over the past 29 quarters because Marcato Libre has managed to grow their revenue by over 30% for 29 quarters straight. They are one of one in the market and they're actually accelerating even at this scale. But at the same time, as their revenue is continuing to grow and scale and accelerate, their margins are compressing. And this is giving real worries to the market that maybe their investments are paying off. Maybe competition is increasing and they're having to compress their margins as a defensive tactic. And maybe their loan portfolio is going to blow up and it's not as profitable as people think. The fact that margins are lowering is not increasing the market's confidence that their investments are paying off. You basically have to have faith that the investments are paying off and trust that management knows what they're doing and that they can actually dial back that investment and increase profit margins whenever they want because obviously it would be more ideal to see the profits growing at 49% with the revenue. But that's not the case right now and they're sacrificing profits to accelerate growth.
Now, the rebuttal to that is that the investments, in my opinion, are clearly paying off. When they dial up the investments, we're seeing the growth rates accelerate, which I think suggests that the investments are paying off. And it's the same thing with Meta right now. I know that Meta and Marcato Libre, very different businesses. We're not talking about business models, but right now, Meta's growth rates are accelerating. The top line is accelerating, but it's because they're making investments back into their business. So I see a lot of similarities with how the market views Meta with how the market views Marcato Libre right now as well. And I really think that the the sentiment towards both of these businesses will change when the profit margins start to grow and profits start to materialize again. I also believe that Marcato Libre's true profit potential is actually massive. like this underlying business is generating billions and billions of dollars of free cash flow, but it's masked by the fact that they're growing their credit portfolio using internal cash flows, which is an expense in the short term, and they're also spending capex and growing the underlying business and their logistics network. So, they're investing all of their available cash back into growth, which is clearly paying off, by the way, but it's also masking the true profit potential of this business.
Now, as a long-term investor, as I said earlier, I believe that they are actually going to be able to realize these profits and grow these profits over time. And the price of the business relative to its underlying free cash flow potential, I believe that it is very attractively priced. Like, if Marcato Libre wanted to stop growing the credit portfolio today and just produce as much profits as they possibly could, then they would be selling for about 12 times free cash flow based on my own estimates. for a business at this high quality that's also growing so rapidly. I think that's an extremely fair price. So I believe that Marcato Libre stock is very undervalued in the market today. If their investments can pay off and if long-term that free cash flow can be realized. That's really the investment thesis. As I said earlier, I do not think that this is a stock that's going to produce returns next quarter, next year, and in the short term. It's really not a stock for short-term thinkers in my own opinion. I think that this is a business and a stock that's going to continue compounding over the long term. And I'm talking 5 10 15 20 years. I think that this business has so much runway ahead of it. I think they're executing incredibly well. They're capturing more market share and I just see them having tailwinds that last decades. So when we look at Marcato Libre stock next month or next year, who knows? Maybe the stock is down. Maybe it's continuing to be flat. But when we look at the business over the next decade, as I said earlier, I think it's going to be multiple times bigger. And I think the stock is not going to be here where it is in 10 years from now, in 15 years from now, in 20 years from now. I think it has the chance to be Latin America's first trillion dollar business over the coming decades. And that's really what I'm invested in. I'm invested in the long term. I'm not invested for next quarter. And I really don't think that this is a stock for short-term thinkers. I really think that you have to have faith in the management. You have to have faith that the investments are going to pay off, that what they're doing makes sense, and that the long-term free cash flow potential of this business is massive.
So, with that being said, I thought that it was a great quarter. I think that there are risks. I think everyone has to consider the risks. I think I laid them out in this video. And that is my summary of Marcato Libre's first quarter results. This is probably going to be a longer video on my channel, but it's one of those stocks where I think it it you really just got to dive in, and I think it's one of those those videos where I should take the time to explain the risks, explain the thesis a little bit more, and really just lay it out. So, if you enjoyed this video, please leave a like on it. If you're new here, then please consider subscribing to my channel. And if you made it to the end of the video, then thank you so much. I hope you have a great weekend. It's been a crazy week in the markets and um that's really all I got. So, thank you so much for tuning in as always. I truly do appreciate it and I hope to see you again in my next.