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No. of Recommendations: 2
"Fourth Quarter Results Summary

Consolidated net revenues for the three months ended December 31, 2009 grew to $49.0 million, representing 46.5% year-over-year growth in US dollars. In local currencies year-over-year net revenues grew 48.8% for the quarter.

Results for the quarter were negatively impacted as the company decided to translate financial results from its Venezuelan operations at the "parallel" exchange rate of 5.67 bolivars instead of the official rate which was 2.15, and is now 4.3. Excluding the impact of these changes, consolidated net revenue would have been $56.0 million, a 67.5% year-over-year growth.

Revenue growth was solid in both the Marketplace and Payments businesses. Specifically, Marketplace revenue grew 31.1% to $34.1 million while Payments revenue grew 100.9% to $14.9 million.

Both platforms benefited from strong growth in items sold, gross merchandise volume, total payments, and total payments volume. Items sold on MercadoLibre grew 47.3% to 8.6 million, representing the seventh consecutive quarter in which this key metric has accelerated. Gross merchandise volume grew 50.3% over the prior-year period to $786.9 million. Total payments transactions grew 107.7% to 1.0 million when compared to the fourth quarter of 2008. Total payments volume increased 145.7% to $135.8 million during the fourth quarter of 2009.

Gross profit grew 43.3% to $38.7 million compared with the fourth quarter of 2008. Gross profit margin contracted slightly to 78.9% from 80.7% for the prior year period, as the lower gross margin Payments business grew faster than the Marketplace business.

Income from operations grew 60.2% to $17.9 million in the fourth quarter compared to the fourth quarter of 2008. Operating income margin improved to 36.5% for the fourth quarter of 2009 from 33.4% for the same period in 2008.

Net income for the three-month period ending December 31, 2009 increased 42.5% when compared to the same period of 2008 to $11.3 million. Earnings per share were $0.26 for the fourth quarter of 2009 and $0.18 for the fourth quarter of 2008. Excluding the impact of the Venezuelan translation effect, net income would have grown 71.1% year over year."

link:

http://www.sec.gov/Archives/edgar/data/1099590/0001171843100...

John
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No. of Recommendations: 1
I think things are going good, but I do worry about any revenues made from Venezuela. The main question I have from the report is the receivable issue on the Payment Processing side. It lowered Cash from Operations by a good bit. Is this a true one time event or not? I am working on a DCF of MELI and this is a major point to get dealt with. I did know that MELI working capital management has been great but wondering if it has been so great that an eventual hit to FCF would take place. And in the cash flow statement there has been wild swings in the working capital part the last few years. It makes it tough to determine true FCF. Just wondering what the team/members think?

eric2800 long MELI
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No. of Recommendations: 5
I do worry about any revenues made from Venezuela.

The company made the right move to beging translating results at the parallel exchange rate since the reason that rate exists is because that's actually the rate people are willing to exchange money at.

I'm not sure if you're alluding to the fact that Venezuelan operations could be nationalized or shut down or some such, but that risk is somewhat smaller than the currency risk the company had been carrying.

The main question I have from the report is the receivable issue on the Payment Processing side. It lowered Cash from Operations by a good bit.

Remember last year the company sold $32.6mm of payments receivable to turn them into cash, which juiced last year's cash flow (see our Q4 2008 update: http://boards.fool.com/Message.asp?mid=27472249). This was the one-time event, which made it a tough comp to roll over.

You're right that FCF has been lumpy, the general direction is a good one. In terms on building a model, you might ignore the receivables stuff on the front end and opt to build a valuation off of owner earning's and then at the end dock OE some percentage for working capital since based on last year's action, using last year as a guide to say they take a $3mm hit to turn $30mm of receivables into cash. Because receivables probably will continue to pile up as they were previously. The good news this time is the company has $91mm in cash and minimal capex requirements, so it remains in good financial shape.

Overall, I thought this was a strong report notable for the company showing continued operating margin improvement. MercadoPago also continues to scale nicely. Although the company has underperformed the market since our sell recommendation, the company has exceeded my expectations -- a combination that gets my attention.

You'll recall from our original write-up that we called $27 to $35 a "fair value." That range has increased given the margin improvement, though I would like to see the stock fall a bit more before buying -- and perhaps we'll get that opportunity.
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I'm not sure if you're alluding to the fact that Venezuelan operations could be nationalized or shut down or some such, but that risk is somewhat smaller than the currency risk the company had been carrying.

Yes I was alluding to Venezuela as a business risk. Thanks for your reply on this.


You're right that FCF has been lumpy, the general direction is a good one. In terms on building a model, you might ignore the receivables stuff on the front end and opt to build a valuation off of owner earning's and then at the end dock OE some percentage for working capital since based on last year's action, using last year as a guide to say they take a $3mm hit to turn $30mm of receivables into cash.

Thanks for answering about receivables and what to do as far as valuation is concerned. I was wondering and will determine how a variation of earnings would be to my MELI FCF number. I was thinking

earnings variant = NOPAT (using higher tax rate) + Depreciation and amortization - CapEx

This would penalize by not taking good capital management into account but would show a "normalized" growth rate over time. I'll see how that changes things on my FCF.
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(using higher tax rate)

Definitely normalize for taxes up to 35% or so. I don't know how they've been doing what they're doing vis a vis tax benefits, but it's not sustainable.

Tim
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