MercadoLibre, Inc. (MELI)

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,

Stock was hammered yesterday (1/28/08) since the company is going to issue offering in the neighborhood of 292mln. Also, buried in there 8-k filing was news that revenues will be around 26mln for the quarter and that operating margins will be lower QoQ.
I'm wondering why they need all this cash? The already have $60mln in the bank, with no debt and from my understanding, little to no competition. (Even though their non-compete agreement with Ebay has expired, they still arent stepping on Mercado's toes yet.. they own enough of the company anyway). If its an acquisition they after Im curious to know who?
The recent S-1 filing is a nice treasure trove of information about what they do, and the markets they serve. When you read over it, you realize the vast, untapped potential of the total Latin American population. I was pleased to note that they now do business in Panama, Costa Rica, and the Dominican Republic in addition to all the others.
So the new offering is sort of a yellow flag in my mind - Its ok by me for a young, growing company to raise more cash. Management is supposed to be pretty shrewd, so I'm very eager to see what they do with this new cash.

Cheers,
Matt

One thing about this stock is obvious: Everyone investing in it is expecting it to be the eBay for the large Latin American market as it grows. This begs two questions: (1) Will it actually do that? and (2) Is the answer to (1) already baked into the stock?

(1) It would be great if someone who is from Latin America or knows it well could provide input on how likely this seems. That said, from my outsider's perspective, it seems like MercadoLibre is on track to become Latin America's eBay.

(a) They are making a profit and growing very fast.
(b) It's very hard to have more than one competitor in this space due to strong network effects.
(c) eBay has a 19.5% stake in them.

If someone else takes this market from MELI, eBay's investment will become essentially worthless, so I'm sure they thought carefully about which company to deal with. Their analysis is certainly worth more than any I can offer, so I will trust their judgment on this.
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(2) This question is much harder to answer. First off, their financials look fine: not that much debt, lots of cash, and a decent profit margin (5.4%). There isn't yet a whole lot of data or analysis on future profits available (or at least easy to find), but if you believe this article (http://biz.yahoo.com/ts/071009/10383537.html?.v=2) their forward P/E is about 76, and they have 148% growth, giving them an attractive PEG of 0.51.

Now, the following is a very rough way to guess at how much they could grow, but bear with me. Let's suppose that Latin Americans already using the Internet are using MercadoLibre as much as US Internet users use eBay. According to Internet penetration data internetworldstats.com, Latin America has about 20% penetration, while the US has 70%.

Now pretend that we wave a magic wand and the Internet is as pervasive in Latin America as it is in the US. That means 3.5 times more earnings than today for MercadoLibre, pushing its P/E down to about 22 (call this the "magic wand P/E"), which is pretty reasonable compared with eBay's forward P/E of 25.
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If what I've written to answer (2) is somewhat accurate in predicting MELI's value, I think it's certainly worth a buy. There are several big inaccuracies above:

* This is fully of rough and sloppy guesses. Better analysis from more experienced investors is very welcome here. :-)
* eBay is also benefiting from other emerging markets like India and China. However, in China, it is getting lots of competition from TaoBao.
* My "assumption" that MercadoLibre is gets the same per capita use amongst Latin American Internet users as eBay does in America is almost certainly very conservative. Latin Americans are not as affluent as Americans and thus have less money for online shopping. MercadoLibre likely also does not have the brand-recognition of eBay yet. This should push the magic wand P/E down much further, making this stock an even better buy.
* I've read that fraud is a big concern from Latin Americans and apparently some countries don't have the same legal protections against as perhaps Americans do. This may be, but if the demand for such online markets exists (and I see no reason why over the long run this shouldn't be), I think these countries will set up such safeguards.

Summing up, this is a risky stock, but I think the potential rewards are quite great. It has a high P/E, but this can be sustainable for such growth stocks (look at Google's P/E history: http://seekingalpha.com/article/31973-p-e-ratio-and-future-earnings-make-google-a-buy). If the stock goes up very quickly, I would keep an eye out for a speculative bubble (which may have already happened to some extent in recent weeks).

I have no idea what the hell I'm doing

Overpriced growth stock.

If it doesn't excrete golden eggs, I'm not going to pay 100 times earnings for it.

MELI is the EBAY equivalent in Latin America. The region is experiencing rapid growth and this firm is poised to take advantage of this growth

This stock is mainly supported by the great expectations on Latin American e-commerce, but we should also consider the regional economy's environment for IT and e-commerce. I think these sectors will grow up in the next five years, but I don't expect to see a higher movement compared to the global rates.

I think MELI will have a speculative trend in the mid-term. We should consider that the company is monopolizing e-commerce in the region, but the sites are not diversified: You often can see the same ads in 3 different sites: mercadolibre, dereto and deremate. I have explained in other message here that the company needs to fix some "holes" to improve operations and to bring more users (both sellers and customers) to e-commerce.

My buy is under $10.00

Are you kidding? At the rate internet usage is increasing in South and Central America a company which acts as a amazon/ebay/craig's list is a no brainer.

Well down on a P/E that exceeded 80 prior to the bear market, this one combines several virtues. It's an obvious growth pick with added bells. Well diversified over all Latin American countries, it offers a nice short position against the US Dollar which I consider to be at the top of a long decline. The diversification of the stock is not just geographical though as the business is built on auction sales, fixed-cost sales and payments. So that would be eBay, Amazon and PayPal all rolled into one with no end in sight growth-wise. Gimme gimme gimme!

Spanish version of Google and Baidu, Just went puplic. Fool me once, shame on me, fool me twice, shame on me, fool me three times...?

Ebay, amazon and Craigs List all over again? Probably not but get any part of it and this will really take off. It is pretty stupid for anyone to think it would be an AMZ or something like that. South American sales will boom but not as fast and far as the US dot-bubble.

I believe that this stock may catch fire but it will be purely on speculation. Not based on fundamentals. I do business in Mexico and culturally it is going to be very hard to convince latins to purchase products from complete strangers. I know that this is the same rationale that many bears took against ebay but the facts are the facts. Doing business with latins takes time. Americans make impulsive decisions when it comes to purchasing items whereas the latin buyer wants to know who he or she is buying from. Check out the website, the auctions on Mercado Libre last MONTHS NOT DAYS. Culturally latins do not buy from someone they do not trust whereas Americans just want the best price. Futhermore most latins do not trust the banking system and therefor probably will not be as willing to use a credit card over the internet. Besides, the stock is selling at 200 x's earnings. EXPENSIVE!

With eBay buying GMarket and spinning off Skype I would be willing to bet they eventually buy the 82% of MEIL that they don't already own to compliment their international expansion.

At the 50 day EMA and early December gap

No compitition and a burgeoning market and a 38% growth rate it has strong possibilities.Garanteed rocky ride but end game high rewards.I notice also that some of our folks on this site feel the same way I do about raising more cash.I feel this is a good thing especially for a young company and I suspect that because of this we will be in for an upside suprise shortly down the road.

alexa.com (a tracker of internet usage statistics) reports yesterday that mercadolibre.com was visited by .115% of the entire world's internet population. The one week avg. is .106% and the three month avg is .08895%, these statistics show an increase of 45% over the past three months. Now the average page views are not astounding at only 1.3 unique page view per visitor (while ebay hits about 15 unique page views per visitor) and mercadolibre doesn't rank nearly as high in site visited ranking to its countries as eBay does to our own country. I do see that mercadolibre reaches a portion of the latin american world that eBay does not and that is mostly in Columbia, Argentina, Peru, Uruguay, and Ecuador. Venezuela competes directly with eBay in internet ranking and eBay seems the dominant choice for those in Mexico, Chile, Brazil, Costa Rica, and the Dominican Republic. It seems that MELI is only adding more business and growth to eBay's already amazing success story and that eventually I do believe eBay will entirely consume Mercado Libre so that it can deliver their service to these other countries that do not visit the eBay.com page. According to internet usage growth statistics it seems fair to say you could see a 194% (rough estimate) increase in total visitors to mercadolibre.com this year which will ultimately lead to higher profits and increased eps possibly reaching as high as $0.19 for the 4th qtr of 2008. These is my analysis for a raised guidance from the investor relations portion that mercadolibre seems to be ignoring. I believe we could see up to $0.13 eps for 4th qtr 2007, $0.14 eps for 1st qtr 2008, $0.15 eps for 2nd qtr 2008, $0.16 for 3rd qtr 2008 and finally $0.19-$0.20 eps for 4th qtr. 2008. This stock is a buy at at $45 without blinking. A strong balance sheet and low overhead indicate a strong future. Now lets just hope they're advertising since I can't see the tv commercials in Columbia and Argentina.

this has been a good company with a bad stock. The valuation is getting close to reasonable and you always have to pay up for great growth.

I would add shares at this level (below $25) and hold for the long term.

Reasons for outperform are same as those listed by other players. Some caution is warranted due to the Argentine government's anti-business, pro-tax policies and the poor Argentinian airline system (for moving those packages). Leave it to the Argentine governement to spoil this company's riches at some point.

I've traveled extensively in Brazil and Argentina these past few years. Brazil is making inroads into becoming a stable, pro-business, market economy. Argentina is not.

I am curious as to why this company is based in Buenos Aires and not Sao Paolo. Personal safety of its employees?