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With Quiver Quantitatives recentinstitutional holdings data, we can see that hedge funds and asset managers have been increasing their holdings in MercadoLibre MELI . Firms such as Scottish investment managerBaillie Gifford, Fidelity Investments, andBlackrockhave all added to their MELI positions recently. Most notably, Baillie Gifford increased shares held by 4.28% (as filed on 6/30), bringing their total MELI holdings to 6,389,959 shares (nearly 13% of MercadoLibres float) worth around $8.28 billion dollars at current market prices. With this in mind, we took a closer look at some of the reasons why many investors may be bullish on MercadoLibre.

Last week, MercadoLibre posted impressive second quarter earnings results. The Latin American e-commerce giant, which has a presence in 18 countries across Latin America, posted impressive revenue and net income figures as sales volumes and user counts increased significantly. Net revenue and net income rose 57.3% to $3.4 billion dollars and 113% to $261.9 million dollars in the second quarter, respectively, showing the business increased operational efficiency. This came as MercadoLibre announced it added 8.1 million users to the platform over the quarter, bringing their active user base to 108.6 million customers. An important e-commerce and retail KPI, gross merchandise volume (GMV), rose 47.2% to $10.5 billion dollars, showing the platform's explosive growth in sales and transaction volume. After such a strong quarter, it is becoming increasingly evident that MercadoLibre is winning the e-commerce market in Latin America, one of the fastest growing markets in the world, leading to a compelling investment opportunity at a relatively low valuation.

MercadoLibreis the largest commerce ecosystem in Latin America and is present in 18 countries (Argentina, Brazil, Mexico, Chile, Colombia, Peru, Venezuela, Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, El Salvador, and Uruguay). MercadoLibre offers an ecosystem of six integrated e-commerce and digital finance services (Mercado Libre Marketplace, Mercado Pago Fintech platform, Mercado Envios logistics service, Mercado Ads solution, Mercado Libre Classifieds service, and Mercado Shops online storefronts solution). MercadoLibres e-commerce platform provides buyers and sellers with a robust and safe commerce ecosystem across Latin America, a region with a population of over 650 million people and one of the fastest growing internet penetration and e-commerce growth rates in the world. The Mercado Libre Marketplace is a topically arranged, fully automated, and user-friendly e-commerce platform that allows merchants and individuals to list merchandise and conduct sales and purchases digitally. The marketplace offers a wide range of products from consumer packaged goods to electronics and home goods, and management believes that their world-class technological and commerce solutions address distinctive cultural and geographic challenges that an e-commerce business faces operating within Latin America, giving them a strong competitive advantage within the Latin America market.

The e-commerce market is a highly competitive and rapidly evolving industry, with low barriers of entry and low costs of entry. Management mentions that they are a market leader in a number of markets that they operate within, however, competition has intensified over the years as local players grow out their e-commerce businesses and international players expand to the region, namely Brazil and Mexico. The financial services market, another market that MercadoLibre operates within Latin America, is also becoming increasingly competitive. MercadoLibres Mercado Pago payment business competes with banks and a number of players within the rapidly growing fintech space, both local and international players.

MercadoLibre plans to expand into additional transaction offerings. This includes maximizing the utilization of Mercado Pago, offering additional categories in the Mercado Libre marketplace, expanding their presence in vehicle, real estate, and services classifieds, maximizing the utilization of Mercado Envios, expanding their Mercado Credito service (MercadoLibres credit solution service available in Argentina, Brazil, Mexico, and Chile), and expanding their advertising offerings. Additionally, management plans to continue to improve the shopping experience for users, increase monetization of the business transactions, take advantage of natural synergies that exist among the business services, and continue to grow the business and maintain market leadership. These goals set out by management plan to make MercadoLibre the leading commerce ecosystem across Latin America. These goals will further strengthen their market share within the fast growing Latin America market, strengthening their moat and building a very resilient business model.

Management is solid and their capital allocation priorities are shareholder friendly. In 2022, management repurchased around 37,000 shares at an average share price of around $1,816.5 per share, worth around $67.2 million dollars. While share repurchases are a great capital allocation practice that returns value to shareholders, it seems that management repurchased shares at relatively high valuations, lessening the impact of the share repurchases. In February of this year, the Board of Directors terminated the prior share repurchase program, replacing it with a new program set to expire on March 31st, 2024 that allows management to repurchase up to $900 million dollars worth of shares. At current market prices, that represents around 670,000 shares that could be repurchased (although there can be other costs associated with such a large repurchase of shares). As for management incentives, management is incentivized to meet corporate performance measures to receive their bonus. In 2022, the corporate performance measures were measured via performance in net revenues, income from operations, total payment volumes, and competitive NPS (Net Promoter Score, a metric that measures the business commerce and fintech customer satisfaction). We believe these are all solid incentives that incentivize management to maintain solid growth, strong operational efficiency, and strong competitive advantages within their payments and commerce businesses across Latin America. Looking at 2022 executive compensation, we can see that President and CEO Marcos Galperin was the highest paid executive, making $8,766,100 in total compensation, compared to $17,671,854 and $22,996,123 in 2021 and 2020, respectively. Within his 2022 compensation, $448,824 was his base salary, with $218,958 in an annual bonus and the rest in an all-cash long term retention plan, a long-term cash based incentive paid over 6 years through annual fixed payments. Although we would like to see a stock-based incentive rather than a cash-based incentive, this 6-year long-term incentive plan does a great job of retaining talent over a long period of time. Skilled management is hard to come by, especially in such a niche and fast growing market, so it is important that MercadoLibre retains its skilled management team.

MercadoLibre is an efficient business. The business operates at LTM ROIC and LTM ROE figures of 19.7% and 39.5%, respectively. Looking further at efficiency metrics, we can see that MercadoLibres ROIC has had a rough patch over the past few years, but as the business matures, we can see that ROIC is on a pathway for growth. In 2016, ROIC stood at 25.1%, falling to as low as -6% in 2018. Since 2020, however, ROIC has increased from a measly 3.7% to nearly 20% today. With a relatively high ROIC, MercadoLibre is able to reinvest cash back into the business at favorable rates of return, rapidly compounding intrinsic value and handsomely rewarding shareholders. We believe that a high ROIC sustained for long periods of time can represent a business strong moat within their respective sector and / or industry. As MercadoLibre matures and grows, rapidly gaining market share throughout he rapidly growing LATAM e-commerce sector, we believe that these efficiency metrics will grow as the company solidifies itself as a LATAM e-commerce giant.

Analyzing MercadoLibres income statement, we can see stellar sustained growth in revenue, gross profit, and earnings. Since 2013, revenue has grown at a CAGR of around 38%, with gross profit growing at a CAGR of around 34% in that same time period. Gross profit grew less than revenue in that same time frame largely due to diminishing gross margins. In 2013, MercadoLibre operated with 72.5% gross margin, compared to today where the company operates at a LTM gross margin of 56.4%. While these diminishing margins may be a concern for some investors, it is important to compare them to their two largest competitors, Alibaba and Amazon, to get the full picture. Amazon currently operates with LTM gross margins of 45.5%, with Alibaba operating with LTM gross margins of 36.9%. While these diminishing margins are certainly not a positive for the business, MercadoLibre still operates with the highest margins amongst its principal e-commerce competitors.

In terms of earnings, MercadoLibre has grown its EBITDA at a CAGR of around 24% since 2013, with EPS growing at a CAGR of around 17%. EPS lagged EBITDA growth during that time period largely due to share dilution. Since 2013, shares outstanding have actually increased 13%, diluting shareholders. However, it is important to note that shares outstanding have actually fallen around 0.7% since 2021. While a 0.7% decrease in shares outstanding is very small, it shows that management is on the right track with share repurchases, no matter how small. While share dilution is another concern for investors to consider, we believe that the risks of dilution are relatively mitigated as MercadoLibre has a low float (around 50 million shares outstanding) and management has begun to buy back shares, although very lightly for the time-being.

Looking at MercadoLibres balance sheet, we can see that the business is in good financial health. MercadoLibre has around $1.86 billion dollars worth of cash and equivalents on hand, with an additional $1.44 billion dollars worth of short term investments. In tandem with this, the business also holds around $2.48 billion dollars worth of long-term debt, operating at a very healthy cash to long-term debt ratio. Additionally, with an EBIT / Interest Expense (interest coverage ratio) of 4.11x, MercadoLibres operating income is 4.11 times higher than the its interest expenses. While we would like to see a company with an interest coverage ratio of at least 5x to ensure maximum safety in an investment, this 4.11x ratio is not a point of concern. The business has plenty of cash on hand to pay down its debt if needed, and the business has been continually increasing its operating income over the last few years, meaning that this ratio is likely to expand over time, assuming that the business doesnt take on any additional debt.

Looking at MercadoLibres cash flow statement, we can see sustained growth in free cash flow and net income over the last decade. Since 2013, MercadoLibre has grown its net income at a CAGR of 20.5%, impressive given that the business operated with negative net income between 2018 – 2022. Since 2021, MercadoLibre has grown its net income at a CAGR of nearly 200%. Although the 200% CAGR in net income over the past 2 years is very unsustainable, it shows the business increased operational efficiency over the past few years. Within that same time frame, MercadoLibre has increased free cash flow at a whopping CAGR of 64%. This large increase in free cash flow over the past few years can largely be attributed to expanding free cash flow margins. In 2013, MercadoLibre operated with a free cash flow margin of 6.1% of revenue, compared to today where the business operates at a LTM free cash flow margin of 33.9%. As we can see, MercadoLibre is able to efficiently produce cash from its operations, which it can then use to reward shareholders via dividends, share repurchases, or reinvestments back into the business at favorable rates of return (which the business is capable of doing based on their ROIC).

After conducting a reverse discounted cash flow analysis, we can see that MercadoLibre is trading at share prices that imply a growth rate of a 6.2% in free cash flow over the next 10 years, using a perpetuity growth rate of 3% (largely in line with US GDP growth) and a discount rate of 10%. With free cash flow growing at a CAGR of 64% over the last few years (over 10x what current share prices are implying), we believe that this 6.2% growth rate implied by current share prices is very cheap. While past performance is not indicative of future results, and the 64% CAGR in free cash flow is largely unsustainable, it is very likely that the business will grow its free cash flow at a CAGR of at least 6.2% over the next few years. One catalyst for future increases in free cash flow is increased operational efficiency and expanding free cash flow margins. As stated above, MercadoLibre has expanded its free cash flow margins over the last decade, however, free cash flow margins seem to fluctuate by year. If the business is able to incrementally expand free cash flow margins over the next few years, we believe that the business should have no issue meeting a 6.2% growth rate in free cash flow. Additionally, the other catalyst for increased free cash flow generation is the fact that MercadoLibre operates within the fastly growing LATAM geographic region. With Deloitte stating that the LATAM market grew by 6.8% in 2021, and macroeconomic conditions improving around the world, we believe that explosive growth in the LATAM market will continue to fuel growth in revenue, and most importantly free cash flow, over the next few years.

Keep an eye out forMELI stocks latest news, data, and more withQuiver Quantitative.

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‘Chipocalypse Now’: Trump threatens ‘war’ on Chicago in immigration crackdown

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'Chipocalypse Now': Trump threatens 'war' on Chicago in immigration crackdown

Donald Trump has signalled his intention to send troops to Chicago to ramp up the deportation of illegal immigrants – by posting an AI-generated parody image from Apocalypse Now on social media.

There were protests in the city, the largest in Illinois, on Saturday night, with thousands of people marching past Trump Tower to demonstrate against possible immigration raids.

That came as the US president ramped up his threats to deploy federal authorities and military personnel in Chicago, as he has done in Los Angeles and Washington DC.

In a post on Truth Social, Mr Trump shared an AI-generated image of himself as a military officer in the movie Apocalypse Now, with the title changed to “Chipocalypse Now” over flames and the city skyline.

The post – a screenshot from X – said: “‘I love the smell of deportations in the morning…’. Chicago about to find out why it’s called the Department of WAR.”

Pic: Truth Social
Image:
Pic: Truth Social

Mr Trump signed an executive order on Friday to rename the Pentagon as the Department of War.

“The President of the United States is threatening to go to war with an American city. This is not a joke,” Illinois Governor JB Pritzker, a Democrat, wrote in a post on X, responding to Mr Trump’s post.

“This is not normal. Donald Trump isn’t a strongman, he’s a scared man. Illinois won’t be intimidated by a wannabe dictator.”

Mr Pritzker previously said that he believed Immigration and Customs Enforcement (ICE) raids would coincide with Mexican Independence Day festivals scheduled for this weekend and next weekend.

Some Mexican festivals in the Chicago area were postponed or cancelled over the threatened stings.

A protest against threatened immigration raids in Chicago on Saturday. Pic: AP
Image:
A protest against threatened immigration raids in Chicago on Saturday. Pic: AP

A military deployment in Chicago has long been reported. Last month, the Pentagon was said to be drafting plans to send the US Army to Illinois.

In a statement responding to that report, originally from The Washington Post, Mr Pritzker said the state had “made no requests for federal intervention” and accused Mr Trump of “attempting to manufacture a crisis”.

Vice president JD Vance said on Wednesday that there were “no immediate plans” to send the National Guard to Chicago.

Read more from Sky News:
Trump orders ‘take down’ of 44-year-old peace vigil
Former President Biden has skin cancer surgery
The proxy war that will redefine public health in America

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ICE arrests 475 Hyundai workers

On Thursday, ICE agents carried out a raid at a Hyundai car battery plant in Georgia, saying 475 people, mostly South Koreans, were found to be illegally working there.

It marked the largest single-site enforcement operation in the history of the Department of Homeland Security, which includes ICE.

The day after the raid, ICE posted a video and photos of workers shackled at the wrists, waist and ankles getting on a bus.

South Korean junior foreign minister Park Yoon-joo told a US government official in a phone call that the video release was regrettable.

Seoul’s foreign ministry added the post came “at a critical time, when the momentum of trust and cooperation” between the two countries, forged through their first summit, “must be maintained”.

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Sports

‘Fearless’ Mateer’s risks pay off as OU tops U-M

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'Fearless' Mateer's risks pay off as OU tops U-M

NORMAN, Okla. — A week after John Mateer threw for the most yards in an Oklahoma quarterback debut against Illinois State, the transfer passer’s instinctive playmaking highlighted an imperfect performance that helped propel the No. 18 Sooners to a 24-13 win over No. 15 Michigan on Saturday night.

While Oklahoma smothered Wolverines freshman quarterback Bryce Underwood, Mateer completed 21 of his 34 passes for 270 yards with a passing touchdown and an interception. He also finished with a team-high 19 carries for 74 yards, adding a pair of rushing scores on either side of halftime in his second career start for the Sooners.

“You saw what he can do,” Oklahoma head coach Brent Venables said of Mateer. “He falls forward a lot. He’s got great strength and great skills. Tough guy. He’s fearless. He attacks everything without fear.”

Playing behind four new offensive line starters, including freshman left tackle Michael Fasusi, Mateer remained poised against the Michigan pass rush early, connecting on completions of 34, 31 and 21 yards across the Sooners’ initial pair of offensive drives. According to ESPN Research, Mateer finished 8-of-13 with 156 passing yards and a touchdown in blitzing situations Saturday.

Oklahoma opened the scoring on its opening possession via a pop pass from Mateer to wide receiver Deion Burks, who logged a team-high seven receptions for 101 yards. Mateer’s 2-yard rushing score with 22 seconds remaining in the second quarter handed Oklahoma a 14-0 halftime lead, and he used his legs again for a 10-yard touchdown run early in the third quarter.

Mateer’s 19 carries marked the fourth-highest single-game tally of his career and included three runs of at least 10 yards. With his pair of rushing scores, Mateer joined Lamar Jackson and D’Eriq King as the only FBS players to record at least one passing and rushing score in eight consecutive games since 2015, according to ESPN Research, dating to his breakout campaign at Washington State last fall.

“John’s a willing runner,” Sooners offensive coordinator Ben Arbuckle said. “He understands what it takes to win. They’re definitely designed QB runs in the game. At the end of the day, you’re just trying to win a football game, and John Mateer is willing [to run]. He probably took a big hit or two tonight. But hopefully all for the good of the team.”

Mateer’s night was not without mistakes. He was intercepted by Michigan defensive back TJ Metcalf in the first quarter after overthrowing tight end Will Huggins. Mateer was nearly intercepted again after halftime, and his third-quarter overthrow in the end zone beyond the hands of tight end Jaren Kanak cost the Sooners seven points as the Wolverines mounted a second-half comeback.

But Mateer’s risk-taking and flair for the extraordinary were also the drivers for Oklahoma in only the Sooners’ third win over a top-15 opponent under Venables. The Sooners led 14-7 early in the third quarter when Mateer shed a tackle in the backfield, rolled to his right and fired a 36-yard strike to wide receiver Isaiah Sategna. Mateer ran in his second touchdown and lifted the Sooners to a 21-7 advantage just two plays later.

“The thing with John, I trust that kid to like no end,” Arbuckle said. “He understands moments and situations. He knows when to take a chance, when not to take a chance. So whenever he lets one rip and puts the ball in what someone may say is a risky situation, whenever he does that, I have the utmost confidence that he’s making the right decision.”

Another one of Mateer’s risks paid off early in the fourth quarter, ultimately launching an 8:27 drive that allowed Oklahoma to drain the remaining minutes and any lingering hope of a Michigan comeback.

Facing second-and-10 from the Sooners’ 38-yard line, Mateer again rolled out and — with Wolverines linebacker Jaishawn Barham bearing down on him — made a daring throw off his back foot into heavy traffic to find Kanak for a 9-yard connection.

“[Kanak] kind of went to the open space and I threw it a little dangerous,” Mateer said. “But he made it happen.”

A timely bit of innovation, Mateer’s throw marked the start of a 16-play, 78-yard scoring drive that effectively iced Oklahoma’s Week 2 victory and showed off the very best of Mateer and what his game-changing playmaking ability can offer the Sooners.

Oklahoma visits Temple in Week 3 before embarking on a gauntlet of an SEC schedule at home against Auburn on Sept. 20.

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Business

Unions demand no retreat on workers’ rights after Rayner quits

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Unions demand no retreat on workers' rights after Rayner quits

Union leaders are demanding no eleventh-hour retreat by the government on workers’ rights now their champion Angela Rayner is no longer in the cabinet.

As delegates gather in Brighton for the TUC’s annual conference, the movement’s leadership is claiming four million people – one in eight of the UK workforce – are in “pervasive” insecure work.

And union bosses are urging the government to stand firm and reject attempts by Tories and Liberal Democrats to weaken the former deputy prime minister’s Employment Rights Bill in its final stages in parliament.

The TUC’s general secretary, Paul Nowak, has claimed Ms Rayner, who resigned on Friday over unpaid stamp duty on a seaside flat, was a victim of misogyny and was being hounded out by right-wing politicians and right-wing media.

Paul Nowak believes Angela Rayner was a victim of misogyny
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Paul Nowak believes Angela Rayner was a victim of misogyny


As well as Ms Rayner leaving the government, the other minister driving the bill through parliament, Jonathan Reynolds, was demoted in Sir Keir Starmer’s cabinet reshuffle from the senior post of business secretary to chief whip.

Until last week, Ms Rayner had been expected to deliver the keynote Labour Party speech at the TUC on Tuesday, but it emerged midweek that the education secretary, Bridget Phillipson, would be the speaker.

However, in Friday’s reshuffle she lost responsibility for adult skills – a key issue for the unions – to the new work and pensions secretary Pat McFadden, who will now head a new, beefed-up super-ministry promoting growth.

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And ironically, the TUC conference in Brighton is taking place less than two miles from the luxury seaside flat in Hove, on which Ms Rayner’s avoidance of £40,000 in stamp duty led to her resignation as deputy PM, housing secretary and Labour deputy leader.

Just before parliament’s summer recess, the House of Lords backed by 304 votes to 160 a Tory-led amendment to Ms Rayner’s bill to reduce the qualifying period for unfair dismissal claims from two years to six months, rather than from day one, as proposed by Ms Rayner.

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The rise and fall of Angela Rayner

Third reading of the bill in the Lords was last Wednesday, the day of Ms Rayner’s Sky News confession, and the bill is now set for parliamentary ping-pong, assuming the government overturns the Lords’ amendments in the Commons.

But in a pre-conference interview with Sky News, TUC chief and Rayner supporter Mr Nowak demanded no diluting of her bill, which also includes banning zero hours contracts which exploit workers and fire and rehire.

Read more:
Despite her exit, Rayner remains a powerful force
What a moment for Shabana Mahmood
Cooper picking up the reins at a challenging time

“We are now at a crucial stage in the delivery of the Employment Rights Bill, just weeks away from Royal Assent,” said Mr Nowak. “And our clear message to the government will be to deliver the bill and deliver it in full.

“Ignore the amendments from the unelected peers, Tory and Lib Dem peers in the House of Lords, that are aimed at gutting the legislation, weakening workers’ rights.

“Stand with the British public, deliver decent employment rights. That’s important in workplaces up and down the country, but it’s important because these are proposals that are popular with the British public as well.”

Education Secretary Bridget Phillipson will be making a speech at the TUC's conference
Image:
Education Secretary Bridget Phillipson will be making a speech at the TUC’s conference

The TUC says its analysis shows low-paid jobs in occupations such as the care, leisure and service sectors account for 77% of the increase in insecure jobs since 2011.

Black and ethnic minority ethnic workers account for 70% of the explosion in insecure work, according to the TUC, and southwest England and Yorkshire and Humber are insecure work hotspots.

Mr Nowak told Sky News: “We’ve got well over a million people now on zero-hours contracts. We’ve got millions of people who don’t have sick pay from day one and 70% of the kids who live in poverty have parents who go out to work.

“The government is absolutely right to be focused on making work pay. And the Employment Rights Bill is about putting more money in the pockets of working people, giving people more security at work.

“That’s good for workers, but it’s also good for good employers as well, so they’re not undercut by the cowboys.”

Speaking to Sky News last Wednesday, shortly after Ms Rayner’s tearful confession to Sky’s political editor Beth Rigby, Mr Nowak said: “There’s a real heavy dose of misogyny when it comes to Angela.

“Angela Rayner is playing a really important role in government and I wouldn’t want to see her hounded out of an important role by right-wing politicians and the right-wing media, who frankly can’t handle the fact that a working-class woman is our deputy prime minister.”

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