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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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Entertainment

UK content creators demand formal recognition from the government

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UK content creators demand formal recognition from the government

The UK’s YouTubers, TikTok creators and Instagram influencers have been surveyed en masse for the first time ever, and are demanding formal recognition from the government.

The creator economy in the UK is thought to employ around 45,000 people and contribute over £2bn to the country in one year alone, according to the new research by YouTube and Public First.

But, despite all that value, its workers say they feel underappreciated by the authorities.

Max Klyemenko, famous for his Career Ladder videos, wants the government to take creators like himself more seriously. Pic: Youtube
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Max Klyemenko, famous for his Career Ladder videos, wants the government to take creators like himself more seriously. Pic: Youtube

“If you look at the viewership, our channel is not too different from a big media company,” said Max Klymenko, a content creator with more than 10 million subscribers and half a billion monthly views on average.

“If you look at the relevancy, especially among young audiences, I will say that we are more relevant. That said, we don’t really get the same treatment,” he told Sky News.

Fifty-six per cent of the more than 10,000 creators surveyed said they do not think UK creators have a “voice in shaping government policies” that affect them.

Only 7% think they get enough support to access finance, while just 17% think there is enough training and skills development here in the UK.

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Nearly half think their value is not recognised by the broader creative industry.

The creative industries minister, Sir Chris Bryant, said the government “firmly recognises the integral role that creators play” in the UK’s creative industries and the fact that they help “to drive billions into the economy” and support more than 45,000 jobs.

“We understand more can be done to help creators reach their full potential, which is why we are backing them through our new Creative Industries Sector Plan,” he said.

Ben Woods said the government needs to "broaden its lens" to include creators
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Ben Woods said the government needs to “broaden its lens” to include creators

“The UK has got a fantastic history of supporting the creative industries,” said Ben Woods, a creator economy analyst, Midia Research who was not involved in the report.

“Whether you look at the film side, lots of blockbuster films are being shot here, or television, which is making waves on the global stage.

“But perhaps the government needs to broaden that lens a little bit to look at just what’s going on within the creator economy as well, because it is highly valuable, it’s where younger audiences are spending a lot of their time and [the UK is] really good at it.”

Read more from Sky News:
Trump says ‘very wealthy group’ has agreed to buy TikTok in US
Major porn sites to introduce ‘robust’ age verification in UK

According to YouTube, formal recognition would mean creators are factored into official economic impact data reporting, are represented on government creative bodies, and receive creator-specific guidance from HMRC on taxes and finances.

For some, financial guidance and clarity would be invaluable; the ‘creator’ job title seems to cause problems when applying for mortgages or bank loans.

Podcaster David Brown owns a recording studio for creators
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Podcaster David Brown owns a recording studio for creators

“It’s really difficult as a freelancer to get things like mortgages and bank accounts and credit and those types of things,” said podcaster David Brown, who owns a recording studio for creators.

“A lot of people make very good money doing it,” he told Sky News.

“They’re very well supported. They have a lot of cash flow, and they are successful at doing that job. It’s just the way society and banking and everything is set up. It makes it really difficult.”

The creative industries minister said he is committed to appointing a creative freelance champion and increasing support from the British Business Bank in order to “help creators thrive and drive even more growth in the sector”.

The government has already pledged to boost the UK’s creative industries, launching a plan to make the UK the number one destination for creative investment and promising an extra £14bn to the sector by 2035.

These influencers want to make sure they are recognised as part of that.

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Astros’ Alvarez to see hand specialist after setback

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Astros' Alvarez to see hand specialist after setback

DENVER — Houston Astros slugger Yordan Alvarez has experienced a setback in his recovery from a broken right hand and will see a specialist.

Astros general manager Dana Brown said Alvarez felt pain when he arrived Tuesday at the team’s spring training complex in West Palm Beach, Florida, where he had a workout a day earlier. Alvarez also took batting practice Saturday at Daikin Park.

He will be shut down until he’s evaluated by the specialist.

“It’s a tough time going through this with Yordan, but I know that he’s still feeling pain and the soreness in his hand,” Brown said before Tuesday night’s series opener at Colorado, which the Astros won 6-5. “We’re not going to try to push it or force him through anything. We’re just going to allow him to heal and get a little bit more answers as to what steps we take next.”

Alvarez has been sidelined for nearly two months. The injury was initially diagnosed as a muscle strain, but when Alvarez felt pain again while hitting in late May, imaging revealed a small fracture.

The 28-year-old outfielder, who has hit 31 homers or more in each of the past four seasons, had been eyeing a return as soon as this weekend at the Los Angeles Dodgers. Now it’s uncertain when he’ll play.

“We felt like he was close because he had felt so good of late,” Brown said, “but this is certainly news that we didn’t want.”

Also Tuesday, the Astros officially placed shortstop Jeremy Peña on the 10-day injured list with a fractured rib and recalled infielder Shay Whitcomb from Triple-A Sugar Land.

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Sports

Springer’s 7 RBIs help Jays pile on Yankees late

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Springer's 7 RBIs help Jays pile on Yankees late

George Springer had a career-high seven RBIs, including his ninth grand slam, and the Toronto Blue Jays celebrated Canada Day by beating the Yankees 12-5 on Tuesday and closing within one game of American League East-leading New York.

The seven RBIs are tied for the second most by any Blue Jays player in a home game, behind Edwin Encarnación (nine RBIs in 2015), according to ESPN Research.

Andrés Giménez had a go-ahead, three-run homer for the Blue Jays, who overcame a 2-0 deficit against Max Fried. After the Yankees tied the score 4-4 in the seventh, Toronto broke open the game in the bottom half against a reeling Yankees bullpen.

Springer went 3-for-4, starting the comeback with a solo homer in the fourth against Fried and boosting the lead to 9-5 with the slam off Luke Weaver after Ernie Clement‘s go-ahead single off shortstop Anthony Volpe‘s glove. Springer has 13 homers this season.

Toronto won the first two games of the four-game series and closed within one game of the Yankees for the first time since before play on April 20.

New York went 2-for-17 with runners in scoring position, dropping to 3-for-24 in the series, while the Blue Jays were 5-for-7. After going 13-14 in June, the Yankees fell to 10-14 against AL East rivals.

The Associate Press contributed to this report.

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