SAO PAULO (Reuters) -Latin American e-commerce giant MercadoLibre ( MELI ) on Monday missed analysts' estimates for second-quarter net profit and core earnings, as increased free shipping in Brazil drove sales up but also hit margins.

MercadoLibre ( MELI ), Latin America's largest company by market value, reported net income of $523 million for the quarter through the end of June, down 1.5% year-on-year and below the $596 million expected by analysts in an LSEG poll.

Shares in MercadoLibre ( MELI ), which operates an online marketplace and the fintech Mercado Pago, fell some 4% after the bell. The firm, based in Uruguay, sells products in around 20 Latin American countries.

Net revenue of $6.8 billion was up 34% year-on-year, beating the estimate of $6.7 billion, with sales measured by gross merchandise value rising 37% on a forex-neutral basis.

In early June, MercadoLibre ( MELI ) cut the threshold for purchases eligible for free shipping in Brazil, after also lowering shipping costs for companies and users selling on its platform in May, amid fierce competition in the country's e-commerce segment.

Brazil, the firm's main market, together with Mexico helped MercadoLibre ( MELI ) to increase total items sold by 31% in the quarter, the fastest pace year-on-year since mid-2021.

However, that also hurt margins, said Chief Financial Officer Martin de los Santos.

"We don't want to miss the growth opportunities ahead of us," he said in an interview. "That might generate some short-term margin pressure, but we are very optimistic about the long-term trajectory of our profitability."

Earnings before interest and taxes (EBIT) reached a record high of $825 million, but also missed the $869 million forecast. The EBIT margin stood at 12.2%, down from 14.3% a year earlier.

The CFO said that among the main impacts on margins were investments in free shipping and related marketing, and growth in its so-called 1P business, which sells directly to customers.

"We expect a negative reaction given the earnings miss, however, we do not expect sustained underperformance as downward revisions should be limited," Santander analysts, including Ruben Couto, wrote in a note to clients.

Asked if similar free-shipping policies could take place in other countries, MercadoLibre ( MELI ) commerce head Ariel Szarfsztejn, who is set to become chief executive next year, told an analysts' call that the firm "will evaluate, and we will decide eventually which policies we want to bring where."

In its earnings report, MercadoLibre ( MELI ) also said deeper currency-related losses, mainly due to Argentina's peso, and a higher tax rate hit its net profit in the quarter.

The firm's fintech arm grew its credit portfolio by 91% to $9.3 billion, while the 15-to-90-day default ratio fell 1.5 percentage point to 6.7%, the lowest since it started to release the figure seven years ago, the CFO said.