SELL MERCADOLIBRE INC. @ USD 373
NASDAQ: MELI
NASDAQ: MELI
COMPANY DESCRIPTION
MercadoLibre, Inc. hosts online
commerce platforms in Latin America. It offers MercadoLibre Marketplace, an
automated online commerce service for businesses and individuals to list items
and conduct their sales and purchases online in a fixed-price or auction-based
format. The company’s Marketplace platform enables commerce through online
classifieds for motor vehicles, vessels, aircraft, services, and real estate;
and Internet users to browse through various products that are listed on its
Website and to register with MercadoLibre to list and purchase items and
services. It also provides MercadoLibre Classifieds service that enables users
to list their offerings related to motor vehicles, vessels, aircraft, real
estate, and services outside the Marketplace platform; and Mercado Pago, an
integrated online payments solution to facilitate transactions on and off the
MercadoLibre Marketplace by providing a mechanism that allows its users to send
and receive payments online. The company was founded by Marcos Galperin on
October 15, 1999 and is headquartered in Buenos Aires, Argentina.
RECOMMENDATION
We rate Mercadolibre Inc a Sell at USD373. Below are the basic reasons to recommend this stock as a Sell.
·
Margins are currently under pressure due to
increased investments toward free shipping, loyalty programs and improvement in
customer services, marketing, chargebacks, as well as higher maintenance,
hosting and fraud prevention cost. Especially, free shipping and loyalty
programs are currently at initial stages of deployment and will increasingly
put pressure on margins as its deployment speeds up.
·
MercadoLibre is exposed to high foreign exchange
risk. The company operates in 19 different countries with different currencies
and must convert the money earned into dollars as required by the Securities
and Exchange Commission (SEC). Thus, appreciation or depreciation of the U.S.
dollar versus foreign currencies could severely impact the company’s financial
results. the company's Q1 results showed a major impact due to forex. Strength
in the US dollar against the three currencies of the countries where
MercadoLibre generates its most revenues - Brazil, Mexico, and Argentina -
pulled down growth rates quite a bit.
·
E-commerce, with a large user base worldwide,
has turned out to be a sweet spot with more and more companies jumping on the
bandwagon and further intensifying the competitive scenario. MercadoLibre faces
tough competition from Amazon, Rakuten, Cnova, Aliexpress to name a few.
Competition from brick-and-mortar stores such as Wal-Mart, Casas Bahia,
Garbarino and Falabella are also increasing at a considerable rate. Lack of
appropriate counter strategies could be a matter of worry in the long run.
·
MercadoLibre’s business segments experience
seasonality. Fewer listings after Christmas, summer vacation and other holidays
result in weaker demand in the first quarter. Year-end shopping season causes
stronger demand in the fourth quarter. But the first quarter remains the
weakest for the company in a year. The seasonality causes considerable
fluctuations in revenues and profits and makes forecasting difficult.
LAST EARNINGS
MercadoLibre reported second-quarter 2018 loss of 25 cents per share wider than the Consensus Estimate of a loss of 21 cents per share. The figure also compares unfavorably with the earnings of 12 cents in the year-ago quarter but came narrower than the loss of 29 cents in the previous quarter.
Disclaimer:
Views are strictly personal. This Interim Financial Results & News posts or updates includes forecasts, projections and other predictive statements that represent Vtrade's assumptions and expectations in light of currently available information. These forecasts, etc., are based on industry trends, circumstances involving companies and other factors, and they involve risks, variables and uncertainties. The Group’s actual performance results may differ from those projected in these Interim Financial Results. Consequently, no guarantee is presented or implied as to the accuracy of specific forecasts, projections or predictive statements contained herein.
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