Mercado Libre Chooses Growth Over Profit as Free Shipping Reshapes Brazil’s E-Commerce

Mercado Libre, Latin America’s largest online marketplace, just took a major risk to secure more shoppers in Brazil.

The company cut its free shipping minimum order—from R$79 to just R$19—to win over cautious buyers and outpace rivals in a country obsessed with delivery costs.

This strategy led to impressive sales results. Revenue jumped to $6.8 billion from April to June 2023, up 34% from last year. Mercado Livre sold 31% more items in Brazil, its main market, than it did a year before.

Altogether, customers purchased a record amount of merchandise, with the value of goods exchanged (GMV) rising 37%. But the numbers reveal a tradeoff. More sales came at the price of slimmer profits.

Net profit dropped 1.5% to $523 million, missing expert forecasts by a wide margin. Profit margins thinned: the company kept just 12.2% of revenue as operating profit, down from 14.3% a year ago.

Executives openly acknowledged that free shipping and direct selling cost more upfront but argued that building customer loyalty and dominating the market matter most right now.

Behind the scenes, competition is heating up. Global giants and local players vie for Brazil’s booming crowd of new internet shoppers. Free shipping has become a weapon. Mercado Libre’s aggressive move leaves less room for rivals to lure customers with similar perks—at least for now.

Mercado Livre’s financial arm, Mercado Pago, also grew quickly, with loans outstanding reaching $9.3 billion and late payment rates dropping to 6.7%, their lowest in years.

This adds another layer to the company’s fight for consumer loyalty and market share. For shoppers, this race means more deliveries, better deals, and faster service.

For the company, the bet is clear: trading near-term profit for future market strength. How long this can continue and whether rivals will follow remains an open question.

Mercado Libre’s story in Brazil highlights a classic business dilemma. To become the default choice for online shopping, they are spending more now to tie down millions of customers for the long haul.

Everyone involved—buyers, businesses, and competitors—will feel the effects of this bold move as the fight for e-commerce supremacy in Latin America intensifies.

LatAm Markets: Live Signals → — real-time movers, turnover leaders and FX across Latin America.