Hello, Fool! | Login | Signup | My Fool
Oct 7, 2008 2:21 AM ET | Feedback | Site Changes | Help
An online trading company which focused on enabling e-commerce and its related services.
View All Commentary (MELI)
Recs
sluup (< 20) Submitted: 2/03/08 12:45 AM : Start Price: $38.28 MELI Score: -25.28
The unrestricted sellers have basically washed themselves of their positions over the past few days following the filing with the SEC. This is empirically supported by historical data when the lockup period approaches - this large selloff should have been expected. Furhtermore, the slight miss on the revenue number only added to the selloff frenzy. There is a float of 37 million and judging by what the company filed, they are looking to sell only about 5.5 million (292 million / $54.5 per share). That wont have much impact downwards although the price could dip a little more before turning around. With the slight miss on revenues as well as the secondary offering there is really nothing left to drive this much lower at all. I suspect given the valuation here, that buyers on sitting on the sideline ready to purchase MELI following or on the lockup date. I suspect that this will begin an upward climb from there and lead to sigfnicant outperformance from mid February on. I am not a Cramer fan at all but I do agree with him that you may want to buy in on the secondary offering - especially if u bought in the 70s - lower ur average cost. Finally keep in mind that several of the insiders (5% or more holdings) have already said they have no intention of selling - such as Tiger, General Atlantic and Ebay - clearly they see the potential - I suspect that most of the insiders selling will be the CEO for one and the other gentleman who owns 3.5 million shares - The CEO has in the past sold close to 2 million shares when the IPO came - so why not do it again - those two together will make up most of the insider selling of the proposed 5.5 million shares or less. Finally, 1/2 of the sale will be to raise funds for acquisitions anyways etc - so not everyone is selling to cash out and take a profit. Given this business model, growth will come through expansion. They have already started buying competitors and it will only continue going forward. Doesnt anyone realize the purchase of the car seller site is big (tucarro)? Thats been the strongest part of their market thus far and this acquisition will only drive up earnings that much more - and fraud is reduced because its car dealers making the sales rather than individuals. The results dont reflect that this quarter. I think we have come very close to hitting bottom on the stock price here and I look forward to increasing my position. Its interesting to me that the stock has gone up the last two days and volumes are down slightly to more normal levels which tells me the sellers (traders) have mainly been driven out - the investors are ready to step in. Thats my 2 cents. Cheers,
Report this Post Replies: 2 | Reply
Oops! There appears to be a problem with your comment. Check to see if there's something you left out.
leowise2008 (< 20) Submitted: 2/05/08 11:48 AM
Recs: 0 | Rec This
Well put sluup! I agree with your view, I suspect that EBAY will eventually take over, the trick will be to determined the stock price at that point! Have you considered this scenario?
Report this Post Reply
sluup (< 20) Submitted: 2/05/08 1:28 PM
Actually, I dont think Ebay would buyout Meli - at least not in the near future. Ebay's business model has them partner with similar companies - ie, GMarket? (the name slips my mind) in Korea is an example. Ebay doesnt understand the marketplace - but it does understand the business model. Secondly, Ebay has no desire at this point to assume any risk by taking on such a project - they just sit back and watch Meli go up while they get to report it on their bottom line - and they dont need to worry about trying to gauge the market as well as other more structural issues they would have to take on by taking MELI over. EBay has a significant say in MELI's decisions - as the prospectus indicates (although they do not name EBay by name) however its no surprise MELI is following in the footsteps of EBay and has significant ties. I look at MELI as more of an EBay protoge - the better they perform, the better it is for EBay's vision, business model and bottom line profits. I also dont buy this ridiculous argument that EBay could come into the market and directly compete with MELI - thats just not going to happen. I do however think that growth will not be as crazy to the upside as people think however it will be strong. You only have to look at South American economic data to see this. Brazil's consumer confidence is as high as its been in a decade, their unemployment is low and trending lower, and one cannot forget the impact of the appreciating Brazilian real (currency). MELI's business converts the local currency into US dollars and the Brazilian real has had the greatest appreciation against the US dollar of more than 150 currencies in the past 12 months - also continues to appreciate. I like this stock and I will be buying more - and for those who bought it high and sold low on the panic made a mistake. I wrote a paper on the effect of lockup dates and stock prices and for high growth companies - the downward movement is always significantly worse - likewise, when the bottom is reached, the movement upwards is also larger in nature. I must admit, I am writing covered calls to make some extra cash as it bottoms - and I would suggest doing the same - but I suspect that after the 5th you should start to see a slow and steady recovery. I have a target of $75 by years end only because I dont buy huge growth rate priced in - people are getting ahead of themselves - but I do believe this will be a multibagger going forward. Cheers,
Terms & Conditions
RSS Headlines
Fool UK