Within the Free Market, development can dribble the macro within the US and Argentina
Goldman Sachs projects share at US$ 1,500 in 12 months, almost double the current price, with execution in ecommerce and fintech
After plummeting nearly 8% last Friday, Mercado Livre’s shares rose 2% after hours thanks to a report by Goldman Sachs. The bank says that the third quarter of MELI should be yet another demonstration of strong execution in ecommerce and fintech and believes that, despite the macro scenario (interests in the US and Argentina melting), the stock has a good entry point.
“We recognize that, over the last year, MELI tends to trade in greater correlation with the US market and interest rates than with macro from other regions or with micro execution,” the bank writes. “This could continue to create an overhang as valuations for tech/growth stocks continue to adjust.”
In the bank’s accounts, the paper is currently trading at a multiple of 40x the Ebit of 2023 and 27x the projected for 2024. “For investors willing to look beyond that, however, it is an appealing entry point into a growth story profitable that has room for significant margin gains over the next five years.”
The bank notes that in recent months there has been more frequent questioning about the potential impact of the Argentine peso devaluation for the company, considering that it is its host country. The Argentine business has a higher direct contribution margin to MELI’s profit than Brazil or Mexico. Goldman Sachs projects that every 10% devaluation of the Argentine peso against the dollar will lead to a 3% reduction in consolidated Ebit.
MercadoLibre’s share is currently trading at US$757, and the bank’s 12-month price target is US$1,500 (a slight correction from the previous target of US$1,520) – already considering a pessimistic scenario for Argentina.
The bank estimates that loans should have a higher share of next quarter’s revenues, representing 20% of the total – compared to 12% in the same period last year. The provision for losses in the loan portfolio should increase in the quarter and in the annual comparison, with NPL exceeding 20%, above the 18% in the second quarter, a projection that takes as a reference the performance of the company’s FIDCs in Brazil.
“While we believe the loan margin is likely to have declined year-over-year (primarily due to credit card rollout and higher cost of borrowing), we expect the overall contribution to margins to be positive,” write analysts Irma Sgarz, Felipe Rached and Gustavo Fratini.
Analysts expect an increase in global merchandise sales (GMV) of 19% for the Brazilian operation, which should be combined with an increase in the processing volume of Mercado Pago, the fintech of the ecommerce giant, and of 23% for the total operation.
Goldman has been one of the most bullish on the stock in recent quarters. In the last balance, he highlighted that the ad segment was still far from the company’s profitability potential, which could be another result trigger soon. Announcements accounted for 1.2% of GMV and 4% of implied revenues last quarter and the bank projects this contribution at 3% of GMV and 8% of revenues by 2024 and 5% and 14%, respectively, by 2027.
Source: Value Pipeline