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MercadoLibre Inc MELI

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Morningstar’s Analysis

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Nothing to Fear From MercadoLibre's Equity Issuance; We Maintain Our Fair Value Estimate

Sean Dunlop Equity Analyst

Analyst Note

| Sean Dunlop |

Wide-moat MercadoLibre saw its shares drop 6%-7% in morning trading on Tuesday, Nov. 16 as the company announced the pricing of a 1 million share equity issuance (at $1,550 per share). We suspect that investors have responded adversely due to pecking order theory--with equity issuance often considered a signal that management views shares as overvalued (priced shares will be issued at a 5% discount, which isn't uncommon for shelf registrations). We take a slightly different view, surmising that management is moving proactively to shore up accounts amid an uncertain macroeconomic backdrop in Latin America, with concerns about upcoming elections, constitutional referendums, and fiscal discipline starting to simmer across the region. We encourage investors to look at the firm's track record before considering such behavior aberrant; MercadoLibre has issued shares in each of the last four years, a pattern that isn't uncommon among younger, high-growth companies. Despite the modest (2%) dilutive effect, we expect to maintain our fair value estimate of $1,760 per share and don't mind the modest cushion that cash on hand will provide, as the firm invests heavily in its fulfillment infrastructure, scales its grocery partnerships, and continues to add financial services functionality.

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Company Profile

Business Description

MercadoLibre runs the largest e-commerce marketplace in Latin America, connecting a network of more than 132 million active buyers and 1 million active sellers across its 18-country footprint. The company also operates a host of complementary businesses, with shipping solutions (Mercado Envios), a payment and financing operation (Mercado Pago), advertisements (Mercado Clics), classifieds, and website development rounding out its arsenal. MercadoLibre generates revenue from final value fees, advertising royalties, payment processing, insertion fees, subscription fees, and interest income from consumer and small-business lending.

Pasaje Posta 4789, 6th Floor
Buenos Aires, C1430EKG, Argentina
T +54 1146408000
Sector Consumer Cyclical
Industry Internet Retail
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 15,546