Intrinsic value of MercadoLibre - MELI

Previous Close

$286.02

  Intrinsic Value

$2,112

stock screener

  Rating & Target

str. buy

+638%

  Value-price divergence*

+522%

Previous close

$286.02

 
Intrinsic value

$2,112

 
Up/down potential

+638%

 
Rating

str. buy

 
Value-price divergence*

+522%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MELI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 12.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  29.45
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  844
  1,350
  2,086
  3,120
  4,527
  6,387
  8,781
  11,787
  15,477
  19,915
  25,154
  31,235
  38,188
  46,029
  54,766
  64,395
  74,907
  86,287
  98,515
  111,574
  125,442
  140,102
  155,539
  171,740
  188,699
  206,412
  224,883
  244,118
  264,132
  284,941
  306,570
Variable operating expenses, $m
 
  1,049
  1,616
  2,412
  3,496
  4,928
  6,771
  9,086
  11,928
  15,345
  19,380
  24,054
  29,409
  35,447
  42,175
  49,591
  57,686
  66,449
  75,867
  85,923
  96,603
  107,893
  119,780
  132,257
  145,317
  158,958
  173,182
  187,995
  203,408
  219,433
  236,089
Fixed operating expenses, $m
 
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
Total operating expenses, $m
  663
  1,053
  1,620
  2,416
  3,500
  4,933
  6,776
  9,091
  11,933
  15,350
  19,385
  24,059
  29,414
  35,453
  42,181
  49,597
  57,692
  66,455
  75,873
  85,929
  96,610
  107,900
  119,787
  132,264
  145,324
  158,965
  173,190
  188,003
  203,416
  219,441
  236,097
Operating income, $m
  181
  297
  466
  704
  1,027
  1,455
  2,005
  2,696
  3,544
  4,564
  5,769
  7,176
  8,774
  10,577
  12,585
  14,799
  17,215
  19,831
  22,643
  25,644
  28,833
  32,203
  35,752
  39,476
  43,375
  47,447
  51,693
  56,115
  60,716
  65,500
  70,472
EBITDA, $m
  210
  321
  498
  746
  1,084
  1,532
  2,107
  2,830
  3,717
  4,784
  6,044
  7,507
  9,179
  11,065
  13,166
  15,481
  18,009
  20,746
  23,687
  26,827
  30,162
  33,688
  37,400
  41,296
  45,375
  49,635
  54,077
  58,703
  63,516
  68,520
  73,722
Interest expense (income), $m
  8
  11
  29
  57
  97
  150
  221
  311
  425
  566
  734
  933
  1,164
  1,427
  1,725
  2,057
  2,422
  2,821
  3,253
  3,717
  4,213
  4,739
  5,295
  5,881
  6,496
  7,140
  7,812
  8,513
  9,243
  10,002
  10,792
Earnings before tax, $m
  185
  287
  437
  646
  931
  1,305
  1,784
  2,384
  3,119
  3,999
  5,035
  6,243
  7,610
  9,149
  10,860
  12,742
  14,793
  17,010
  19,390
  21,927
  24,620
  27,464
  30,456
  33,595
  36,879
  40,307
  43,881
  47,602
  51,473
  55,497
  59,680
Tax expense, $m
  49
  77
  118
  175
  251
  352
  482
  644
  842
  1,080
  1,359
  1,686
  2,055
  2,470
  2,932
  3,440
  3,994
  4,593
  5,235
  5,920
  6,647
  7,415
  8,223
  9,071
  9,957
  10,883
  11,848
  12,853
  13,898
  14,984
  16,114
Net income, $m
  136
  209
  319
  472
  679
  952
  1,303
  1,741
  2,277
  2,919
  3,675
  4,557
  5,556
  6,679
  7,928
  9,302
  10,799
  12,417
  14,154
  16,007
  17,973
  20,049
  22,233
  24,524
  26,921
  29,424
  32,033
  34,750
  37,575
  40,513
  43,566

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  487
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,367
  1,627
  2,514
  3,759
  5,454
  7,695
  10,579
  14,201
  18,646
  23,993
  30,306
  37,633
  46,010
  55,457
  65,983
  77,584
  90,249
  103,960
  118,693
  134,426
  151,135
  168,798
  187,396
  206,916
  227,348
  248,689
  270,943
  294,118
  318,231
  343,303
  369,361
Adjusted assets (=assets-cash), $m
  880
  1,627
  2,514
  3,759
  5,454
  7,695
  10,579
  14,201
  18,646
  23,993
  30,306
  37,633
  46,010
  55,457
  65,983
  77,584
  90,249
  103,960
  118,693
  134,426
  151,135
  168,798
  187,396
  206,916
  227,348
  248,689
  270,943
  294,118
  318,231
  343,303
  369,361
Revenue / Adjusted assets
  0.959
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
Average production assets, $m
  90
  143
  221
  331
  480
  677
  931
  1,249
  1,641
  2,111
  2,666
  3,311
  4,048
  4,879
  5,805
  6,826
  7,940
  9,146
  10,443
  11,827
  13,297
  14,851
  16,487
  18,204
  20,002
  21,880
  23,838
  25,877
  27,998
  30,204
  32,496
Working capital, $m
  292
  -135
  -209
  -312
  -453
  -639
  -878
  -1,179
  -1,548
  -1,991
  -2,515
  -3,124
  -3,819
  -4,603
  -5,477
  -6,440
  -7,491
  -8,629
  -9,852
  -11,157
  -12,544
  -14,010
  -15,554
  -17,174
  -18,870
  -20,641
  -22,488
  -24,412
  -26,413
  -28,494
  -30,657
Total debt, $m
  314
  840
  1,638
  2,759
  4,285
  6,302
  8,898
  12,157
  16,158
  20,970
  26,651
  33,246
  40,785
  49,287
  58,761
  69,202
  80,600
  92,940
  106,200
  120,360
  135,398
  151,294
  168,032
  185,600
  203,989
  223,196
  243,225
  264,083
  285,784
  308,348
  331,801
Total liabilities, $m
  939
  1,464
  2,262
  3,383
  4,909
  6,926
  9,522
  12,781
  16,782
  21,594
  27,275
  33,870
  41,409
  49,911
  59,385
  69,826
  81,224
  93,564
  106,824
  120,984
  136,022
  151,918
  168,656
  186,224
  204,613
  223,820
  243,849
  264,707
  286,408
  308,972
  332,425
Total equity, $m
  429
  163
  251
  376
  545
  770
  1,058
  1,420
  1,865
  2,399
  3,031
  3,763
  4,601
  5,546
  6,598
  7,758
  9,025
  10,396
  11,869
  13,443
  15,114
  16,880
  18,740
  20,692
  22,735
  24,869
  27,094
  29,412
  31,823
  34,330
  36,936
Total liabilities and equity, $m
  1,368
  1,627
  2,513
  3,759
  5,454
  7,696
  10,580
  14,201
  18,647
  23,993
  30,306
  37,633
  46,010
  55,457
  65,983
  77,584
  90,249
  103,960
  118,693
  134,427
  151,136
  168,798
  187,396
  206,916
  227,348
  248,689
  270,943
  294,119
  318,231
  343,302
  369,361
Debt-to-equity ratio
  0.732
  5.160
  6.520
  7.340
  7.860
  8.190
  8.410
  8.560
  8.670
  8.740
  8.790
  8.830
  8.860
  8.890
  8.910
  8.920
  8.930
  8.940
  8.950
  8.950
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
Adjusted equity ratio
  -0.066
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  136
  209
  319
  472
  679
  952
  1,303
  1,741
  2,277
  2,919
  3,675
  4,557
  5,556
  6,679
  7,928
  9,302
  10,799
  12,417
  14,154
  16,007
  17,973
  20,049
  22,233
  24,524
  26,921
  29,424
  32,033
  34,750
  37,575
  40,513
  43,566
Depreciation, amort., depletion, $m
  29
  24
  31
  42
  57
  77
  102
  134
  173
  220
  276
  331
  405
  488
  581
  683
  794
  915
  1,044
  1,183
  1,330
  1,485
  1,649
  1,820
  2,000
  2,188
  2,384
  2,588
  2,800
  3,020
  3,250
Funds from operations, $m
  197
  233
  350
  514
  737
  1,029
  1,405
  1,875
  2,450
  3,139
  3,951
  4,888
  5,960
  7,167
  8,508
  9,984
  11,593
  13,332
  15,199
  17,190
  19,302
  21,534
  23,882
  26,345
  28,922
  31,612
  34,417
  37,337
  40,375
  43,534
  46,816
Change in working capital, $m
  7
  -51
  -74
  -103
  -141
  -186
  -239
  -301
  -369
  -444
  -524
  -608
  -695
  -784
  -874
  -963
  -1,051
  -1,138
  -1,223
  -1,306
  -1,387
  -1,466
  -1,544
  -1,620
  -1,696
  -1,771
  -1,847
  -1,924
  -2,001
  -2,081
  -2,163
Cash from operations, $m
  190
  283
  424
  618
  877
  1,215
  1,644
  2,175
  2,819
  3,583
  4,475
  5,497
  6,656
  7,951
  9,382
  10,947
  12,644
  14,470
  16,422
  18,496
  20,689
  23,000
  25,425
  27,965
  30,618
  33,384
  36,264
  39,261
  42,377
  45,614
  48,979
Maintenance CAPEX, $m
  0
  -9
  -14
  -22
  -33
  -48
  -68
  -93
  -125
  -164
  -211
  -267
  -331
  -405
  -488
  -581
  -683
  -794
  -915
  -1,044
  -1,183
  -1,330
  -1,485
  -1,649
  -1,820
  -2,000
  -2,188
  -2,384
  -2,588
  -2,800
  -3,020
New CAPEX, $m
  -69
  -54
  -78
  -110
  -149
  -197
  -254
  -319
  -391
  -470
  -555
  -645
  -737
  -831
  -926
  -1,021
  -1,114
  -1,206
  -1,296
  -1,384
  -1,470
  -1,554
  -1,636
  -1,717
  -1,798
  -1,878
  -1,958
  -2,039
  -2,121
  -2,206
  -2,293
Cash from investing activities, $m
  -84
  -63
  -92
  -132
  -182
  -245
  -322
  -412
  -516
  -634
  -766
  -912
  -1,068
  -1,236
  -1,414
  -1,602
  -1,797
  -2,000
  -2,211
  -2,428
  -2,653
  -2,884
  -3,121
  -3,366
  -3,618
  -3,878
  -4,146
  -4,423
  -4,709
  -5,006
  -5,313
Free cash flow, $m
  106
  221
  331
  486
  695
  970
  1,323
  1,764
  2,303
  2,949
  3,709
  4,585
  5,588
  6,715
  7,968
  9,346
  10,847
  12,470
  14,211
  16,067
  18,036
  20,116
  22,304
  24,599
  26,999
  29,506
  32,118
  34,838
  37,667
  40,609
  43,666
Issuance/(repayment) of debt, $m
  0
  538
  798
  1,121
  1,526
  2,017
  2,596
  3,259
  4,001
  4,812
  5,681
  6,594
  7,539
  8,503
  9,473
  10,441
  11,398
  12,339
  13,260
  14,160
  15,038
  15,896
  16,738
  17,568
  18,389
  19,207
  20,028
  20,858
  21,701
  22,564
  23,453
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  4
  538
  798
  1,121
  1,526
  2,017
  2,596
  3,259
  4,001
  4,812
  5,681
  6,594
  7,539
  8,503
  9,473
  10,441
  11,398
  12,339
  13,260
  14,160
  15,038
  15,896
  16,738
  17,568
  18,389
  19,207
  20,028
  20,858
  21,701
  22,564
  23,453
Total cash flow (excl. dividends), $m
  91
  760
  1,130
  1,607
  2,221
  2,987
  3,918
  5,023
  6,304
  7,761
  9,390
  11,180
  13,127
  15,218
  17,441
  19,787
  22,246
  24,809
  27,471
  30,227
  33,074
  36,013
  39,042
  42,166
  45,388
  48,713
  52,147
  55,696
  59,369
  63,173
  67,119
Retained Cash Flow (-), $m
  -90
  -72
  -89
  -125
  -170
  -224
  -288
  -362
  -445
  -535
  -631
  -733
  -838
  -945
  -1,053
  -1,160
  -1,266
  -1,371
  -1,473
  -1,573
  -1,671
  -1,766
  -1,860
  -1,952
  -2,043
  -2,134
  -2,225
  -2,318
  -2,411
  -2,507
  -2,606
Prev. year cash balance distribution, $m
 
  339
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  1,025
  1,041
  1,482
  2,051
  2,763
  3,630
  4,661
  5,859
  7,226
  8,758
  10,447
  12,289
  14,273
  16,389
  18,627
  20,979
  23,438
  25,998
  28,654
  31,403
  34,246
  37,183
  40,215
  43,345
  46,579
  49,921
  53,378
  56,957
  60,666
  64,513
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  983
  953
  1,290
  1,689
  2,142
  2,634
  3,149
  3,662
  4,151
  4,592
  4,961
  5,244
  5,427
  5,502
  5,469
  5,331
  5,100
  4,788
  4,412
  3,990
  3,542
  3,085
  2,636
  2,208
  1,812
  1,456
  1,146
  881
  662
  486
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

MercadoLibre, Inc. hosts online commerce platforms in Latin America. It offers MercadoLibre Marketplace, an automated online e-commerce service for businesses and individuals to list items and conduct their sales and purchases online in a fixed-price or auction-based format. The company’s MercadoLibre marketplace enables commerce through online classifieds for motor vehicles, vessels, aircraft, services, and real estate; and Internet users to browse through various products that are listed on its Website and to register with MercadoLibre to list, bid for, and purchase items and services. It also provides MercadoLibre Classifieds service for users to list their offerings related to vehicles, real estate, and services outside the marketplace platform; and MercadoPago, an integrated online payments solution to facilitate transactions on and off the MercadoLibre marketplace by providing a mechanism that allows its users to send, receive, and finance payments online. In addition, the company offers MercadoLibre Advertising program that allows retailers, small and medium brands, and various consumer brands to promote their products and services on the Internet; and enables users and advertisers to place display and text advertisements on its Website to promote their brands and offerings. Further, it provides MercadoShops on-line stores, a software-as-a-service, which allows users to set-up, manage, and promote their own online Webstores; and MercadoEnvios, a shipping solution for marketplace users. As of December 31, 2015, the company operated online commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, Uruguay, and Venezuela; and a real estate classified platform that covers various areas in Florida. The company was founded in 1999 and is headquartered in Vicente López, Argentina.

FINANCIAL RATIOS  of  MercadoLibre (MELI)

Valuation Ratios
P/E Ratio 92.9
Price to Sales 15
Price to Book 29.4
Price to Tangible Book
Price to Cash Flow 66.5
Price to Free Cash Flow 104.4
Growth Rates
Sales Growth Rate 29.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 68.3%
Cap. Spend. - 3 Yr. Gr. Rate -9.6%
Financial Strength
Quick Ratio 41
Current Ratio 0
LT Debt to Equity 70.4%
Total Debt to Equity 73.2%
Interest Coverage 24
Management Effectiveness
Return On Assets 12%
Ret/ On Assets - 3 Yr. Avg. 11%
Return On Total Capital 19.7%
Ret/ On T. Cap. - 3 Yr. Avg. 17%
Return On Equity 35.4%
Return On Equity - 3 Yr. Avg. 28.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 63.6%
Gross Margin - 3 Yr. Avg. 67.4%
EBITDA Margin 26.3%
EBITDA Margin - 3 Yr. Avg. 26.6%
Operating Margin 21.4%
Oper. Margin - 3 Yr. Avg. 21.5%
Pre-Tax Margin 21.9%
Pre-Tax Margin - 3 Yr. Avg. 22.3%
Net Profit Margin 16.1%
Net Profit Margin - 3 Yr. Avg. 15.2%
Effective Tax Rate 26.5%
Eff/ Tax Rate - 3 Yr. Avg. 32%
Payout Ratio 17.6%

MELI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MELI stock intrinsic value calculation we used $844 million for the last fiscal year's total revenue generated by MercadoLibre. The default revenue input number comes from 2016 income statement of MercadoLibre. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MELI stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for MELI is calculated based on our internal credit rating of MercadoLibre, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of MercadoLibre.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MELI stock the variable cost ratio is equal to 78.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4 million in the base year in the intrinsic value calculation for MELI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for MercadoLibre.

Corporate tax rate of 27% is the nominal tax rate for MercadoLibre. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MELI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MELI are equal to 10.6%.

Life of production assets of 10 years is the average useful life of capital assets used in MercadoLibre operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MELI is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $429 million for MercadoLibre - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 44.703 million for MercadoLibre is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of MercadoLibre at the current share price and the inputted number of shares is $12.8 billion.

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COMPANY NEWS

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Stock chart of MELI Financial statements of MELI Annual reports of MELI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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