Our Valuation Method

We employ a sum-of-the-parts (SOTP) valuation using a two-part DCF framework, first deriving the enterprise value of Eli Lilly’s stable core business and then valuing its growth engine separately. This approach allows us to tailor assumptions more precisely to each segment, resulting in a more representative enterprise value for the business as a whole. We then bridge this enterprise value to equity value, enabling us to assess whether Eli Lilly’s current premium valuation of $1tn is justified.

Forecast period

We use a 10-year explicit forecast period, modelling the business from the top line through to free cash flow. This is an appropriate horizon for a pharmaceutical company of Eli Lilly’s scale. Beyond year ten, we assume the business enters a more mature phase, with terminal value reflecting stable and normalised cash flows.

Part I: The Stable Core

Separation of segments

First, we separate the top line to distinguish Eli Lilly’s stable business from its growth engine. The company’s stable income streams are driven by oncology, neuroscience, immunology, legacy diabetes, and other established franchises, while the GLP-1 operations represent the primary growth driver.

As we can see here, what we refer to as the legacy diabetes business largely stems from GLP-1 drugs historically sold under the diabetes treatment umbrella. As GLP-1 therapies expanded into weight-loss treatment from 2023 onwards, the segment rapidly grew to dominate Eli Lilly’s top line, with further growth expected as penetration into the global obesity population continues to increase. As a result, legacy diabetes is now treated as part of Eli Lilly’s stable, cash-flow-generating business.

Assumptions

We now arrive at a crucial part of any valuation, the assumptions. The accuracy of our revenue growth, cost structure, margins, capital expenditure, and other inputs that feed into free cash flow to the firm ultimately drives the output of the model. This is also where the valuation is most sensitive, and where small changes in assumptions can materially influence the direction of the result.

Starting with the top line, we forecast segment-specific growth rates across each year of the explicit period. Immunology and oncology are the fastest-growing segments, benefiting from near-term launch tailwinds before gradually fading into maturity at around 3% growth, and ultimately converging to a 2% terminal growth rate. Neuroscience is the most stable segment, with revenue growing at a steady 1.5% across all periods.

We forecast legacy diabetes revenues to decline, reflecting GLP-1 cannibalisation within weight-loss treatment and a reallocation of manufacturing capacity toward the growth engine. This dynamic also explains the contraction in other smaller, established segments of the business.

On the cost front, we have made calculated assumptions grounded in both industry benchmarks and Eli Lilly’s historical financials. Cost of goods sold is assumed at 20%, which is above recent levels, reflecting our view that manufacturing capacity and efficiency will increasingly be prioritised toward the growth side of the business.

R&D, SG&A, and CapEx assumptions are broadly aligned with industry trends and sit within a reasonable range based on historical behaviour. Smaller line items such as depreciation, amortisation, and changes in net working capital are derived from the company’s past financials and observed cost patterns, and are attributed to the stable core.

The effective tax rate is set at 16.5%, representing a conservative midpoint within Eli Lilly’s reported non-GAAP range of 13–17%.

We apply a 7.5% WACC to discount the projected cash flows, derived from estimates for mature, large-cap pharmaceutical companies. Terminal FCFF growth is assumed at 1.8%, broadly in line with long-run US and global GDP growth, inclusive of inflation.

Enterprise value contribution

Using these assumptions and the latest reported revenues, we derive an enterprise value of approximately $125bn for the stable core. Terminal value accounts for around 57% of this valuation, which we view as reasonable for a mature pharmaceutical business and consistent with other defensive sectors.

Part II: The Growth Engine

GLP-1 market size

To estimate the portion of the GLP-1 market Eli Lilly can capture, we utilised the projections for the growth of the obese population by the World Health Organization. We expect GLP-1 adoption to ramp up quickly at first, then settle into a steadier growth trajectory, ultimately reaching 26% of the total obese population by 2036. This gives us a view of the actual number of people the GLP-1 market addresses in each period.

As the market matures and new entrants increase price competition, we also expect the annual price paid by customers to decline over time. This aligns with scaling in manufacturing, which supports lower prices, and broader insurance coverage, which further drives this trend.

Overall, we see the GLP-1 market growing at an 11.3% CAGR from 2026 to 2036, expanding from $72bn in 2026 to roughly $400bn by 2036.

Eli Lilly’s take

We see the obesity treatment market evolving from a two-horse race into a much more competitive landscape when we consider the pipeline timeline. Using actual data through 2025, our projections show Novo Nordisk gaining share in 2026, supported by the rapid rollout of oral Wegovy, before Eli Lilly re-accelerates following the expected H2’26 approval and launch of Orforglipron.

From 2027 onward, we expect pipeline expansion to materially intensify competition, as new entrants start to carve out meaningful positions across GLP-1 and alternative obesity therapies. In this environment, we see Eli Lilly maintaining a long-term market share in the high 30% range.

By combining the projected size of the GLP-1 market with our forecasted market shares, we can estimate the annual revenue coming from this growth driver.

Assumptions

On the cost side, we benchmarked scaled GLP-1 operations from Eli Lilly and Novo Nordisk. We expect COGS to remain elevated and slightly increase as manufacturing efficiencies taper off, stabilising at 28% in the terminal period. R&D costs are projected to be lower than the stable core, reflecting the maturation of GLP-1 drug development. SG&A and non-cash expenses are assumed to align with the stable business, as these costs are broadly consistent across segments.

CapEx is front-loaded to support early manufacturing scale, before normalising in later years. Changes in net working capital are initially negative due to advance payments and favourable terms, then move toward neutral.

We use the same WACC as for the stable core business, while the higher terminal growth of 2.5% reflects our expectation that the GLP-1 market will continue growing faster than the stable business over the long term.

Enterprise value contribution

Based on the projected GLP-1 market size, market share and growth assumptions, we derive an enterprise value contribution of roughly $823bn. This is well above the stable core and highlights where Eli Lilly’s share price premium truly comes from.

It’s also notable that the terminal value accounts for a larger portion of discounted cash flows around 65%, reflecting the higher terminal growth we associate with the GLP-1 market.

Part III: The Valuation

Now that we have assessed both parts of the business, we can bridge the combined enterprise value down to equity.

After subtracting Eli Lilly’s current net debt, and no other adjustments required, the valuation per share comes to $968.76 based on current shares outstanding, roughly 10% below the stock price at the time of writing.

While this implies a modestly lower valuation-derived share price, it still sits within the premium range reflected in the current market price. This reinforces our long-term view that Eli Lilly is well-positioned to capitalise on GLP-1 led growth. We see the company as an industry leader, benefiting not only from its robust pipeline and scale advantages but also from broader structural tailwinds in obesity treatment. Over the next decade, we expect these factors to continue driving sustained revenue growth, strong market share, and durable shareholder value, highlighting the potential for continued outperformance relative to peers.

Disclaimer: This publication is for informational and educational purposes only and should not be construed as investment advice. Readers should conduct their own research or consult a qualified financial advisor before making investment decisions.

A bit of background

What began as research for diabetes treatment led to an unintended breakthrough in weight-loss therapy through the discovery and development of GLP-1, a naturally occurring gut hormone. Earlier generations of obesity drugs were constrained by poor efficacy, safety concerns, and poor patient satisfaction, limiting adoption and payer support.

GLP-1 based therapies marked a structural shift, delivering clinically meaningful and durable weight loss alongside cardiovascular and metabolic benefits, while also offering convenient dosing formats. This was a key turning point, reframing obesity from a lifestyle condition to a chronic, pharmacologically treatable disease.

Together, regulatory approvals, broader access pathways, and improving affordability and usability have driven excess demand across the weight-loss drug market today. These dynamics have accelerated market concentration around two scaled and established innovators, reinforcing a duopolistic structure as manufacturing capacity, clinical data, and physician trust become key barriers to entry. That said, a growing number of potential challengers are approaching the market with differentiated strategies and products.

The Players

Market concentration

Needless to say, the market is heavily dominated by the two heavyweights, Novo Nordisk A/S and Eli Lilly & Co.

As a first mover, Novo Nordisk controlled majority of the GLP-1 market in 2023. However, Eli Lilly’s broader and high-efficacy product portfolio shifted the balance in 2024 and further in 2025, allowing it to overtake Novo in GLP-1 revenues. Other large pharmaceutical players, including Pfizer, Amgen, Roche, and Sanofi, failed to meaningfully capture market share over this period, leaving the market largely concentrated among the two heavyweights.

While competitive pressure is beginning to build as pipeline activity expands, the market remains sufficiently early-stage and allows potential entrants over the next few years. Particularly those that provide differentiated mechanisms, improved efficacy, or superior delivery profiles are capable of achieving market adoption.

Notably, despite the shift in relative market leadership, both Novo Nordisk and Eli Lilly have reported sustained and accelerating GLP-1 revenue growth over the past three years, underscoring the strength and depth of the underlying demand.

This chart highlights a clear divergence in growth trajectories despite continued expansion for both players. Novo Nordisk’s GLP-1 revenues have grown steadily at a CAGR of 16.5% over three years, reflecting a more mature franchise compounding off a larger installed base.

By contrast, Eli Lilly exhibits a sharp growth inflection, with GLP-1 revenues growing at a CAGR of 66.9% over the same period, driven by the rapid scaling of Mounjaro and Zepbound. The elevated growth rates in 2024 and 2025 underscore Lilly’s faster ramp and successful expansion into obesity.

Novo continues to compound reliably, while Lilly’s superior near-term momentum allows it to overtake on absolute revenues, fortifying the duopolistic structure of the GLP-1 market.

Pipeline expansion

The market is poised for significant expansion over the next decade, driven by the continued evolution of GLP-1 and dual-agonist therapies. Currently, category-defining names like Ozempic, Wegovy, and Mounjaro are dominating with Novo and Lilly set to expand their franchises with oral and dual-agonist candidates in 2026-2027. This strengthens their position in the near-term and underpins strong revenue visibility.

Beyond the incumbents, a wave of next-generation entrants is positioning themselves to capture market share in the latter part of this decade. Boehringer Ingelheim and Structure Therapeutics have pipeline candidates expected between 2026-2028, signalling potential for incremental competition in the GLP-1 and oral GLP-1 segments. Roche and Viking Therapeutics are developing dual-agonist therapies for a 2027-2028 launch window, representing potential long-term growth opportunities should these candidates succeed in differentiating from existing products.

Several large-cap pharma players, including Pfizer, Amgen, Sanofi, and AstraZeneca, remain in early to mid-stage development, with launches largely expected post-2028. While near-term revenue impact is limited, their programs indicate a broader industry commitment to obesity and metabolic therapies, suggesting that the competitive landscape will continue as pipeline developments materialise.

The Addressable Market

Now that we have mapped out the supply side, the pressing question is whether demand can grow in line with the pipeline expansion.

Unsurprisingly, obesity treatment via GLP-1-based therapies is increasingly penetrating the addressable obesity population. Since 2023, penetration has expanded at a rapid CAGR of 91.4%, making it reasonable to expect penetration to reach the 13-18% range beyond 2027. When combined with the continued structural growth in the global obesity population, this supports a GLP-1 market growing at a 20.7% CAGR, exceeding $150bn in annual revenue by 2030.

Importantly, this outlook is somewhat conservative. Street estimates already point to the GLP-1 market reaching approximately $100bn in revenue in 2026, implying that our longer-term projections offer a more risk-adjusted view of demand, particularly in scenarios where adoption is temporarily constrained by pricing, reimbursement, or supply limitations.

Given the scale and durability of this projected demand growth, the expanding supply-side pipeline is both rational and necessary. The industry is responding to a demand environment that is not only present, but structurally large and still underpenetrated, justifying significant capital allocation toward next-generation GLP-1 dual-agonist, and oral formulations.

A key question looking ahead is whether existing incumbents can scale manufacturing capacity and innovation quick enough to meet demand, and which emerging players are best positioned to successfully commercialise pipeline assets. That said, for the foreseeable future, Novo Nordisk and Eli Lilly remain exceptionally well positioned, benefiting from first-mover advantage, deep clinical expertise, expanding capacity, and robust late-stage pipelines that reinforce their leadership in what is shaping up to be a long-duration obesity therapeutics growth cycle.

The Bottom Line

In our view, incumbents offer the most compelling exposure to the obesity therapeutics market, while potential entrants remain several years away from commercialising products at scale. The industry is characterised by high barriers to entry, spanning regulatory approval, lengthy and capital-intensive clinical trials, complex manufacturing requirements, and the need to build long-term physician trust. As a result, we believe the current Novo Nordisk - Eli Lilly duopoly is likely to persist for the foreseeable future.

Novo Nordisk v Eli Lilly

At present, the primary drivers of the GLP-1 market are Novo Nordisk and Eli Lilly. From an investment perspective, gaining exposure to the obesity therapeutics theme through both incumbents effectively provides exposure to the industry as a whole, alongside the broader operations of each business. As such, it is critical to understand where strategic focus and capital allocation differ between the two.

While Novo Nordisk and Eli Lilly have long competed in metabolic diseases (diabetes and obesity care) well before the GLP-1 boom, their operational visions have historically diverged.

Novo Nordisk has maintained a highly focused strategy, concentrating capital and R&D predominantly within diabetes and obesity care, with rare diseases serving as a secondary growth pillar. In contrast, Eli Lilly has pursued a more diversified operating model, with meaningful exposure across oncology, neuroscience, and immunology, alongside a deep and growing presence in diabetes and obesity care.

However, the emergence of the GLP-1 opportunity has materially narrowed this strategic gap, bringing the two global pharma leaders into closer competitive alignment than at any point in the past.

A brief look at the top line

On a trailing-twelve-month basis for 2025, Novo Nordisk’s revenue mix remains weighted towards diabetes care (~77%), with obesity care contributing roughly 23%. Notably, obesity care revenue grew an exceptional 57% year-on-year as of Q3’25, underscoring the pace at which the revenue mix is shifting. While obesity is increasingly driving incremental growth, Novo Nordisk continues to generate strong profitability from its diabetes and rare disease franchises.

Eli Lilly’s revenue profile, by comparison, is more diversified. Approximately 59% of revenue is derived from obesity care, followed by 16% from oncology, 13% from diabetes care, 8% from immunology, and the remainder from smaller segments. Despite this broader segment exposure, obesity care has already emerged as Lilly’s dominant revenue driver, a trend that continues to accelerate. Importantly, profitability is strong and expanding across all segments, reflecting both operating leverage and effective execution.

Polaris’ View

All things considered, Novo Nordisk A/S and Eli Lilly & Co. represent not only category leaders in weight-loss therapeutics, but high-quality businesses across the broader therapeutic areas in which they operate. Backed by decades of scientific expertise, deep operational capabilities, strong industry positioning, and expanding network effects, both companies are uniquely equipped to scale and defend leadership in GLP-1 based therapies.

Their accumulated GLP-1 know-how, manufacturing depth, and execution track records create formidable competitive advantages that are difficult to replicate. As a result, we view exposure to Novo Nordisk and Eli Lilly as a compelling way to participate in a structurally growing duopoly, offering long-term investment exposure to what is shaping up to be one of the most explosive growth opportunities in global pharmaceuticals.

Disclaimer: This publication is for informational and educational purposes only and should not be construed as investment advice. Readers should conduct their own research or consult a qualified financial advisor before making investment decisions.

Core Thesis

Novo Nordisk represents a high-quality compounder positioned at the centre of two structurally growing therapeutic markets; diabetes and obesity care. The company benefits from deep scientific expertise, a defensible GLP-1 intellectual property portfolio, and strong operating leverage that allows revenue to scale materially faster than headcount. While near-term free cash flow and balance sheet strength have softened due to elevated capacity investments, Novo continues to generate exceptional ROIC well above WACC, underscoring sustained economic value creation.

We believe the obesity market is evolving toward a long-term duopoly led by Novo Nordisk and Eli Lilly, where both players can grow rapidly alongside an expanding total addressable market rather than purely competing on market share. Novo’s expanding delivery formats, including the recent FDA approval of an oral GLP-1, meaningfully strengthen its competitive position, reduce injection fatigue risk, and broaden patient adoption. Current valuation compression reflects growth normalisation rather than structural deterioration, creating an attractive positioning opportunity for long-term growth.

The company is currently undergoing an organisational restructuring alongside a CEO transition, which has created short-term pressure on the income statement through higher operating costs, capacity build-out inefficiencies, and elevated investment intensity. These effects are visible in moderating free cash flow conversion and a temporary decline in adjusted ROIC, but are primarily investment-driven rather than demand-led. Execution risk remains, particularly around manufacturing scale-up and cost discipline, placing credibility on the new CEO’s ability to stabilise margins while sustaining growth.

Business & Competitive Position

Global leader in diabetes and obesity care

• Around 77% of revenue from diabetes and 23% from obesity, this mix is shifting rapidly towards obesity care.

• End-to-end control across discovery, manufacturing, and commercialisation.

Deep GLP-1 moat

• Decades of proprietary GLP-1 know-how, formulations, and manufacturing scale.

• Difficult to replicate due to biological complexity and regulatory barriers.

Operating leverage advantage

• Revenue per employee around $0.6M and rising, highlighting scalable economics.

• Gross margins around 85% reflect IP-driven pricing power.

Duopoly market structure emerging

• Novo Nordisk and Eli Lilly are likely to dominate obesity care long-term.

• TAM expansion (penetration still <10% of eligible patients globally) allows both players to win.

The following visual shows the top global pharma companies by revenue generated per employee. This metric is particularly useful for comparing how efficiently companies scale revenue relative to headcount. With intellectual property and operating leverage driving value creation, generating high revenue with a lean workforce highlights management’s execution capability.

Novo Nordisk sits in the lower half of the revenue per employee ranking at roughly $0.6M, materially below high-IP, asset-light peers such as Halozyme, United Therapeutics, or Exelixis, and also below large US pharma peers like Eli Lilly (~$1.3m). This positioning primarily reflects Novo’s manufacturing-intensive business model and heavy in-house capacity build-out to support GLP-1 demand, rather than weak operating efficiency.

Importantly, Novo’s revenue per employee has trended structurally higher over recent years as GLP-1 volumes scale faster than headcount growth, demonstrating improving operating leverage despite workforce expansion. Compared with peers at similar scale (e.g. Roche, J&J, Novartis), Novo now sits broadly in line, with a clearer upward trajectory driven by obesity and diabetes mix shift, suggesting meaningful scope for further catch-up as capacity investments normalise and revenue continues to compound.

Key Growth Drivers

Explosive Obesity market growth

• Obesity care revenue growing around 57% YoY.

• Structural tailwinds; rising obesity prevalence, payer acceptance, and medicalisation of weight loss.

GLP-1 franchise expansion

• Wegovy (Semaglutide) remains a cornerstone therapy.

• Oral GLP-1 FDA approval materially expands addressable population.

Product efficacy and differentiation

• Novo (Semaglutide): ~15-17% average weight loss.

• Eli Lilly (Tirzepatide): ~20-22% weight loss (higher efficacy).

• Novo compensates via broader delivery options, earlier market entry, and scale.

Manufacturing and capacity build-out

• CapEx around 14.8% of revenue which is elevated but strategic.

• Supports multi-year volume growth and supply normalisation.

Operating leverage

• Incremental EBIT margins around 68% signal strong profit flow-through as volumes scale.

The Numbers That Matter

This snapshot presents the key financial, operational, and growth metrics most relevant to Novo Nordisk, highlighting the figures that matter for its industry positioning and long-term performance.

Valuation

• Valuation has meaningfully compressed with EV/Revenue (4.9x), EV/EBIT (11.5x), and EV/EBITDA (9.6x) all trending down from previous years.

• Premium quality but no longer premium priced as compression has been driven by growth normalisation and FCF pressure rather than a margin collapse.

• ROIC (~27%) vs WACC (~7%) spread (~20%) remains compelling and indicates continued economic value creation despite capital intensity.

• FCF softness is cyclical rather than structural and normalisation is expected as capacity investments mature.

Catalysts

• Continued obesity prescription volume growth globally.

• Further payer reimbursement expansion, particularly in the US and Europe.

• Ramp-up of oral GLP-1 adoption following FDA approval.

• Margin re-acceleration as CapEx intensity peaks and moderates.

• Incremental clinical data supporting broader indication or improved formulations.

Key Risks

• Competitive intensity from Eli Lilly as superior product efficacy could pressure Novo’s market share in certain segments.

• Pricing and reimbursement pressure with payers negotiating harder as volumes scale.

• Execution risk on manufacturing scale-up with delays or inefficiencies prolonging FCF weakness.

• Long-term safety scrutiny given chronic use of obesity drugs in large populations creates a big regulatory question mark.

• Balance sheet deterioration with net debt rising and a negative working capital requiring careful monitoring.

Positioning & Sizing

• Core long-term compounder; suitable as a core healthcare allocation and a tactical trade alongside Eli Lilly, given synergy in the obesity care market.

• 5-7% position justified by durability and ROIC profile.

• Portfolio role; structural growth and defensive healthcare characteristics.

Bottom Line

Novo Nordisk remains a best-in-class pharma compounder with unmatched scale and intellectual property in GLP-1 therapies. Despite near-term pressure on free cash flow, working capital, and net cash (net debt) due to heavy investment, the business continues to exhibit exceptional operating margins, rising revenue per employee, and a strong ROIC-WACC spread, underscoring enduring value creation.

Valuation multiples have compressed materially, reflecting growth normalisation rather than a breakdown in fundamentals. Obesity care market is likely to evolve into a long-term duopoly between Novo Nordisk and Eli Lilly, Novo’s expanding product portfolio, including a first-mover advantage gained by its FDA-approved oral GLP-1 therapy, positions it to benefit disproportionately from a rapidly expanding TAM. We view current valuation levels as an attractive opportunity for long-term investors seeking exposure to one of the most powerful secular growth trends in global healthcare.

Disclaimer: This publication is for informational and educational purposes only and should not be construed as investment advice. Readers should conduct their own research or consult a qualified financial advisor before making investment decisions.

Core Thesis

MercadoLibre is the structural winner in Latin American e-commerce and digital financial services, with a deeply integrated ecosystem that compounds competitive advantages over time. The combination of category leadership, strong network effects, improving unit economics, and sustained free cash flow generation supports a long-term compounding equity story despite near-term macro and FX volatility.

Founder-led execution under Marcos Galperin provides a strategic edge in navigating infrastructure, regulatory, and macro complexities. Additional upside exists through under-served LatAm markets and selective international expansion, including Spanish-speaking regions and the U.S. Hispanic market.

In essence, MercadoLibre combines secular tailwinds, durable advantages, and strong execution, supporting a multi-year compounding opportunity.

Business & Competitive Position

MercadoLibre operates the leading two-sided commerce and fintech ecosystem across LatAm, anchored by dominant market share in Brazil, Argentina, and Mexico.

• Marketplace leadership: The platform benefits from scale-driven liquidity, superior selection, and high brand trust, which reinforces buyer and seller retention.

• Ecosystem integration: Marketplace, payments (Mercado Pago), logistics (Mercado Envios), and credit are tightly integrated, creating high switching costs and reinforcing network effects.

• Logistics moat: Proprietary fulfilment and last-mile capabilities materially differentiate MELI from regional competitors and raise the economic barrier for global entrants.

• Fintech optionality: Mercado Pago has evolved beyond a payments rail into a full financial services platform, increasing monetisation and customer lifetime value.

MELI’s competitive position is difficult to replicate without sustained losses and long investment horizons, providing durable economic protection.

Key Growth Drivers

• Structural e-commerce penetration: LatAm remains significantly underpenetrated versus developed markets, supporting long-duration volume growth.

• Fintech monetisation: Payments, merchant acquiring, and credit expansion drive higher ARPU (Average Revenue Per User) and margin diversification.

• Operating leverage: Increased fulfilment density and scale efficiency support long-term margin expansion.

• Cross-ecosystem engagement: Higher overlap between MercadoLibre and Mercado Pago users improves retention and monetisation.

• Geographic mix shift: Faster growth in Mexico and newer markets provides incremental upside.

The Numbers That Matter

This snapshot presents the key financial, operational, and growth metrics most relevant to MercadoLibre, highlighting the figures that matter for its industry positioning and long-term performance.

Valuation

• MELI trades at an EV/Revenue of ~4x and EV/EBITDA of ~25-28x in TTM terms, reflecting a premium on traditional multiples.

• The company generates high incremental returns on invested capital (AROIC ~15%) and strong, durable free cash flow.

• There is a long runway for growth across multiple verticals, supporting the premium valuation.

• Overall, the stock is fairly valued to modestly attractive for a high quality compounder, and multiple expansion is not required for attractive long-term returns.

Catalysts

• Sustained margin expansion as logistics and fintech scale.

• Improved credit performance with Mercado Pago.

• Continued free cash flow durability, supporting valuation confidence.

• Macro stabilisation or FX normalisation in key markets.

• Upward earnings revisions driven by operating leverage.

Key Risks

• Macro & FX volatility: Exposure to inflation, currency devaluation, and political risk in LatAm.

• Credit cycle risk: Expansion of lending increases sensitivity to economic downturns.

• Regulatory risk: Growing fintech footprint raises regulatory scrutiny.

• Competitive pressure: Global players and local fintechs may pressure pricing or take rates.

• Execution risk: High operational complexity and sustained CapEx requirements.

Positioning & Sizing

• Portfolio role: Core long-term growth compounder with emerging market exposure.

• Position sizing: 4-7% of portfolio

  • Below mega-cap US platform leaders due to macro and FX risk.

  • Above typical EM positions due to ecosystem quality, scale, and cash generation.

• Time horizon: Multi-year hold; volatility can be used opportunistically to add to position.

Bottom Line

MercadoLibre represents a rare combination of platform dominance, structural growth, and improving cash economics in the large, underpenetrated region of Latin America. LatAm presents a structurally expanding addressable market as the shift from offline to online retail accelerates from a low base. E-commerce penetration remains below developed markets, offering a long runway for volume growth. MercadoLibre is well-positioned to capture market share, leveraging deep local scale, integrated logistics, and an embedded fintech ecosystem, led by a great executive who has a proven track record of navigating complex markets.

Global incumbents such as Amazon and Walmart lack the same regional focus and operational expertise. While near-term volatility is inherent, the long-term compounding thesis remains intact. At current valuation levels, MELI merits a high-conviction core position within a diversified growth portfolio.

Disclaimer: This publication is for informational and educational purposes only and should not be construed as investment advice. Readers should conduct their own research or consult a qualified financial advisor before making investment decisions.

Core Thesis

Mobileye is a category-defining ADAS platform with improving unit economics and strong balance sheet optionality, as evident by its growing net cash position. Currently priced for mid-teens growth, rather than long-term autonomy upside unless it can leverage its data-led platform and focus efforts on a software-driven push towards onboarding autonomous driving partnerships. While near-term auto production volatility has compressed valuation multiples, improving adjusted profitability, rising software mix, and a robust net cash position enables the company to compound value as ADAS penetration deepens and higher-value autonomy features scale.

Business & Competitive Position

• Global leader in ADAS and autonomous driving perception software, embedded in >170m vehicles cumulatively.

• Deep OEM integration creates high switching costs and long product lifecycles (5-7 years).

• Vertically integrated stack (EyeQ SoC + software + data) differentiates from camera-only or commoditised Tier-1 solutions.

• Competitive edge reinforced by proprietary datasets, regulatory trust, and proven safety record.

• Key competitors (NVIDIA, Qualcomm, Tier-1s) face higher cost, weaker OEM lock-in, or longer validation cycles.

Key Growth Drivers

• ADAS penetration expansion: Increasing content per vehicle (from basic ADAS to SuperVision to Chauffeur).

• Rising software mix: Higher-margin perception and autonomy features layered on existing hardware.

• New product cycles: EyeQ6 adoption supports performance uplift without proportional cost increases.

• Regulatory tailwinds: Mandated safety features in EU/China drive baseline demand.

• Operating leverage: R&D intensity stabilising while revenue scales, pointing towards improving adjusted margins and ROIC.

Financial Snapshot (TTM unless stated otherwise)

Revenue & Growth

• Revenue: $1.94bn - Increasing

• Revenue growth (YoY/4-yr CAGR): 17.2% / 0.9% - Increasing

• ADAS unit volumes: 35m - Increasing

• Revenue per unit (ASP): $55 - Steady

Technology Quality

• Gross margin: 48.6% - Steady

• Adjusted GM : 68% - Increasing

• Hardware margin : Low

• Software margin : High ~ 70%

R&D Intensity

• R&D as % of rev: ~60% - Increasing

• Absolute R&D spend: $1.1bn - Increasing

Path to Profitability

• EBIT margin: -19.9% - Improving

• Net income margin: -17.3% - Improving

Free Cash Flow

• FCF: $628m - Increasing

• SBC: $350m - Increasing

• Adjusted FCF: $980m - Increasing

• FCF margin: 32.4% - Increasing

Balance Sheet Strength

• Net cash position: $1.69bn - Increasing

• Accounts receivable: $201m - Decreasing

• CapEx as % of rev: 3.6% - Decreasing

Metrics & Multiples

• Adjusted ROIC : 18.6% - Increasing

• EV/Revenue multiple: 3.41x - Decreasing

• Implied Rev growth: (3-yr future CAGR): ~10-15% - Decreasing

Valuation

• Trades at ~3.4x EV/Revenue, well below historical levels for category leaders.

• Market valuation implies ~10-15% revenue CAGR, modest relative to long-term ADAS/autonomy opportunity.

• Adjusted ROIC ~19% (Q3 2025) and trending upwards, indicating capital efficiency is improving despite GAAP losses.

• Strong net cash position (~$1.7bn) reduces downside risk and supports optionality.

• Valuation doesn’t fully reflect upside from software monetisation and autonomy feature adoption, with the recent partnership with MOIA to deploy an autonomous fleet in Oslo.

Catalysts

• Acceleration in ADAS unit volumes and content per vehicle.

• Evidence of software margin expansion and sustained adjusted profitability.

• New OEM wins or expanded platform adoption (SuperVision/Chauffeur).

• Normalisation of auto inventories and production cycles.

• Investor re-rating as focus shifts from GAAP losses to cash generation and adjusted returns.

Key Risks

• Slower-than-expected auto production recovery or OEM inventory destocking.

• Increased competition from integrated SoC (System on a Chip) providers compressing pricing.

• Delays in autonomy roadmap adoption or regulatory approvals.

• Customer concentration risk with large global OEMs.

• Technology disruption if alternative sensor stacks gain traction faster than expected.

Positioning & Sizing

• Mid-conviction core growth position.

• Appropriate for a 5-8% position in a diversified long-only growth or tech-enabled industrials portfolio.

• Position sizing justified by strong balance sheet, improving adjusted ROIC, and asymmetric upside vs downside.

Bottom Line

Mobileye offers exposure to long-term autonomy and ADAS growth at a valuation that reflects near-term caution rather than structural opportunity. The autonomous driving and robotaxi industry remains in its infancy and represents a significant long-term growth opportunity for players able to capture market share. Mobileye’s infrastructure and data-driven platform are well positioned to penetrate this market; however, execution remains a key catalyst. Success will depend on the company’s ability to leverage its proprietary data and accelerate a software-led strategy focused on onboarding autonomous driving partnerships. With improving adjusted returns, strong competitive positioning, and embedded optionality, the stock presents an attractive risk-reward for investors willing to look through short-term cyclicality.

Disclaimer: This publication is for informational and educational purposes only and should not be construed as investment advice. Readers should conduct their own research or consult a qualified financial advisor before making investment decisions.