SAO PAULO (Reuters) -E-commerce firm MercadoLibre ( MELI ) posted on Wednesday a net profit below analysts' expectations, impacted by currency effects and weaker demand in Argentina, while a free-shipping boost in Brazil hit margins but helped to drive a revenue beat.

Uruguay-headquartered MercadoLibre ( MELI ), Latin America's most valuable company by market cap, posted a $421 million net income for the July-September quarter, up 6% year-on-year but missing the $481 million expected by analysts in a LSEG poll.

Net revenue for the firm, which runs an e-commerce platform in Latin America and fintech Mercado Pago, grew 39% to $7.4 billion, above the $7.2 billion expected by analysts, as sales measured by Gross Merchandise Value (GMV) jumped 35% on a currency-neutral basis.

"We made investments in Brazil and we are already seeing the paying-off of those investments," Chief Financial Officer Martin de los Santos told Reuters.

MercadoLibre ( MELI ) in June lowered its free-shipping threshold in Brazil, its main market, which helped it to deliver in the country a 34% GMV jump and its fastest unique buyers growth since early 2021.

However, the initiative continued to hurt profitability, with its operational margins, or EBIT margins, falling to 9.8%, the lowest since the fourth quarter of 2023.

Sales in Argentina slowing down from the first half of the year also contributed to margin contraction, as higher economic instability led to weaker demand, de los Santos said, adding that on the other hand Mexican operations were margin accretive.

MercadoLibre's ( MELI ) management has been saying that the company will not miss growth opportunities that could be key to long-term development even if those opportunities might generate short-term margin pressure.

The firm's EBIT (earnings before interest and taxes) increased 30% year-on-year to $724 million, but missed the $752 million estimated by analysts.

The CFO said the peso devaluation and higher tax rate in Argentina also negatively impacted MercadoLibre's ( MELI ) net profit.

For the fintech Mercado Pago, its loan book rose 83% year-over-year to $11 billion, mainly driven by credit cards, while the 15-to-90-day delinquency rate fell to 6.8% from 7.8%.

Total payment volume from Mercado Pago's acquiring operations grew 32% to $47.7 billion.