Intrinsic value of MercadoLibre - MELI

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$286.95

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$286.95

 
Intrinsic value

$2,119

 
Up/down potential

+638%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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 12.9

 

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
  329
  511
  766
  1,114
  1,573
  2,164
  2,907
  3,818
  4,914
  6,208
  7,710
  9,427
  11,364
  13,521
  15,900
  18,496
  21,306
  24,327
  27,552
  30,977
  34,598
  38,411
  42,412
  46,601
  50,976
  55,538
  60,289
  65,232
  70,371
  75,714
Interest expense (income), $m
  8
  11
  23
  47
  81
  127
  188
  267
  365
  487
  632
  804
  1,004
  1,233
  1,490
  1,777
  2,093
  2,439
  2,812
  3,214
  3,643
  4,099
  4,580
  5,087
  5,619
  6,176
  6,758
  7,365
  7,997
  8,654
  9,338
Earnings before tax, $m
  185
  287
  444
  657
  947
  1,328
  1,817
  2,429
  3,179
  4,078
  5,136
  6,371
  7,770
  9,344
  11,095
  13,022
  15,122
  17,393
  19,830
  22,430
  25,190
  28,104
  31,171
  34,389
  37,755
  41,271
  44,935
  48,750
  52,719
  56,846
  61,135
Tax expense, $m
  49
  77
  120
  177
  256
  359
  491
  656
  858
  1,101
  1,387
  1,720
  2,098
  2,523
  2,996
  3,516
  4,083
  4,696
  5,354
  6,056
  6,801
  7,588
  8,416
  9,285
  10,194
  11,143
  12,132
  13,163
  14,234
  15,348
  16,506
Net income, $m
  136
  209
  324
  480
  691
  969
  1,326
  1,773
  2,320
  2,977
  3,749
  4,651
  5,672
  6,821
  8,099
  9,506
  11,039
  12,697
  14,476
  16,374
  18,388
  20,516
  22,755
  25,104
  27,561
  30,127
  32,803
  35,588
  38,485
  41,498
  44,628

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
  1,408
  2,176
  3,254
  4,721
  6,660
  9,156
  12,291
  16,138
  20,766
  26,229
  32,571
  39,821
  47,997
  57,107
  67,148
  78,109
  89,976
  102,727
  116,344
  130,805
  146,092
  162,188
  179,082
  196,766
  215,237
  234,497
  254,555
  275,424
  297,123
  319,677
Adjusted assets (=assets-cash), $m
  880
  1,408
  2,176
  3,254
  4,721
  6,660
  9,156
  12,291
  16,138
  20,766
  26,229
  32,571
  39,821
  47,997
  57,107
  67,148
  78,109
  89,976
  102,727
  116,344
  130,805
  146,092
  162,188
  179,082
  196,766
  215,237
  234,497
  254,555
  275,424
  297,123
  319,677
Revenue / Adjusted assets
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
  0.959
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
  -293
  -453
  -677
  -982
  -1,386
  -1,905
  -2,558
  -3,358
  -4,321
  -5,458
  -6,778
  -8,287
  -9,988
  -11,884
  -13,974
  -16,255
  -18,724
  -21,378
  -24,212
  -27,221
  -30,402
  -33,752
  -37,268
  -40,948
  -44,791
  -48,800
  -52,974
  -57,317
  -61,832
  -66,526
Total debt, $m
  314
  643
  1,334
  2,304
  3,625
  5,370
  7,617
  10,437
  13,900
  18,065
  22,982
  28,690
  35,215
  42,574
  50,773
  59,809
  69,674
  80,354
  91,831
  104,086
  117,101
  130,859
  145,346
  160,550
  176,465
  193,089
  210,423
  228,476
  247,258
  266,787
  287,085
Total liabilities, $m
  939
  1,267
  1,958
  2,928
  4,249
  5,994
  8,241
  11,061
  14,524
  18,689
  23,606
  29,314
  35,839
  43,198
  51,397
  60,433
  70,298
  80,978
  92,455
  104,710
  117,725
  131,483
  145,970
  161,174
  177,089
  193,713
  211,047
  229,100
  247,882
  267,411
  287,709
Total equity, $m
  429
  141
  218
  325
  472
  666
  916
  1,229
  1,614
  2,077
  2,623
  3,257
  3,982
  4,800
  5,711
  6,715
  7,811
  8,998
  10,273
  11,634
  13,081
  14,609
  16,219
  17,908
  19,677
  21,524
  23,450
  25,456
  27,542
  29,712
  31,968
Total liabilities and equity, $m
  1,368
  1,408
  2,176
  3,253
  4,721
  6,660
  9,157
  12,290
  16,138
  20,766
  26,229
  32,571
  39,821
  47,998
  57,108
  67,148
  78,109
  89,976
  102,728
  116,344
  130,806
  146,092
  162,189
  179,082
  196,766
  215,237
  234,497
  254,556
  275,424
  297,123
  319,677
Debt-to-equity ratio
  0.732
  4.570
  6.130
  7.080
  7.680
  8.060
  8.320
  8.490
  8.610
  8.700
  8.760
  8.810
  8.840
  8.870
  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
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
  324
  480
  691
  969
  1,326
  1,773
  2,320
  2,977
  3,749
  4,651
  5,672
  6,821
  8,099
  9,506
  11,039
  12,697
  14,476
  16,374
  18,388
  20,516
  22,755
  25,104
  27,561
  30,127
  32,803
  35,588
  38,485
  41,498
  44,628
Depreciation, amort., depletion, $m
  29
  32
  45
  63
  87
  118
  159
  211
  274
  350
  439
  534
  653
  787
  936
  1,101
  1,281
  1,475
  1,684
  1,908
  2,145
  2,395
  2,659
  2,936
  3,226
  3,529
  3,845
  4,174
  4,516
  4,872
  5,241
Funds from operations, $m
  197
  241
  369
  542
  778
  1,088
  1,486
  1,984
  2,594
  3,326
  4,189
  5,185
  6,325
  7,608
  9,036
  10,607
  12,320
  14,172
  16,160
  18,282
  20,533
  22,911
  25,414
  28,040
  30,788
  33,656
  36,647
  39,761
  43,001
  46,369
  49,870
Change in working capital, $m
  7
  -110
  -160
  -224
  -305
  -404
  -519
  -652
  -801
  -963
  -1,137
  -1,320
  -1,509
  -1,702
  -1,896
  -2,090
  -2,281
  -2,469
  -2,654
  -2,834
  -3,009
  -3,181
  -3,350
  -3,516
  -3,680
  -3,844
  -4,008
  -4,174
  -4,343
  -4,516
  -4,693
Cash from operations, $m
  190
  412
  529
  767
  1,083
  1,491
  2,005
  2,636
  3,395
  4,289
  5,326
  6,505
  7,834
  9,310
  10,931
  12,696
  14,601
  16,641
  18,814
  21,115
  23,543
  26,093
  28,764
  31,556
  34,468
  37,500
  40,655
  43,935
  47,344
  50,885
  54,563
Maintenance CAPEX, $m
  0
  -14
  -23
  -36
  -53
  -77
  -109
  -150
  -202
  -265
  -340
  -430
  -534
  -653
  -787
  -936
  -1,101
  -1,281
  -1,475
  -1,684
  -1,908
  -2,145
  -2,395
  -2,659
  -2,936
  -3,226
  -3,529
  -3,845
  -4,174
  -4,516
  -4,872
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
  -68
  -101
  -146
  -202
  -274
  -363
  -469
  -593
  -735
  -895
  -1,075
  -1,271
  -1,484
  -1,713
  -1,957
  -2,215
  -2,487
  -2,771
  -3,068
  -3,378
  -3,699
  -4,031
  -4,376
  -4,734
  -5,104
  -5,487
  -5,884
  -6,295
  -6,722
  -7,165
Free cash flow, $m
  106
  344
  427
  621
  880
  1,217
  1,642
  2,168
  2,802
  3,554
  4,430
  5,430
  6,563
  7,826
  9,218
  10,739
  12,386
  14,154
  16,042
  18,047
  20,165
  22,394
  24,733
  27,179
  29,734
  32,397
  35,169
  38,052
  41,049
  44,163
  47,399
Issuance/(repayment) of debt, $m
  0
  341
  691
  970
  1,320
  1,746
  2,246
  2,821
  3,463
  4,165
  4,917
  5,707
  6,525
  7,359
  8,199
  9,037
  9,865
  10,679
  11,477
  12,255
  13,015
  13,758
  14,487
  15,205
  15,915
  16,624
  17,334
  18,052
  18,782
  19,529
  20,298
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
  341
  691
  970
  1,320
  1,746
  2,246
  2,821
  3,463
  4,165
  4,917
  5,707
  6,525
  7,359
  8,199
  9,037
  9,865
  10,679
  11,477
  12,255
  13,015
  13,758
  14,487
  15,205
  15,915
  16,624
  17,334
  18,052
  18,782
  19,529
  20,298
Total cash flow (excl. dividends), $m
  91
  685
  1,118
  1,592
  2,201
  2,962
  3,889
  4,988
  6,265
  7,719
  9,347
  11,137
  13,088
  15,185
  17,417
  19,776
  22,251
  24,834
  27,519
  30,302
  33,180
  36,152
  39,219
  42,384
  45,649
  49,020
  52,503
  56,104
  59,831
  63,692
  67,697
Retained Cash Flow (-), $m
  -90
  -187
  -77
  -108
  -147
  -194
  -250
  -313
  -385
  -463
  -546
  -634
  -725
  -818
  -911
  -1,004
  -1,096
  -1,187
  -1,275
  -1,362
  -1,446
  -1,529
  -1,610
  -1,689
  -1,768
  -1,847
  -1,926
  -2,006
  -2,087
  -2,170
  -2,255
Prev. year cash balance distribution, $m
 
  475
  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
 
  973
  1,041
  1,484
  2,054
  2,768
  3,639
  4,675
  5,880
  7,257
  8,800
  10,503
  12,363
  14,367
  16,506
  18,772
  21,155
  23,647
  26,244
  28,940
  31,734
  34,624
  37,610
  40,694
  43,881
  47,173
  50,577
  54,098
  57,744
  61,522
  65,442
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
 
  933
  953
  1,291
  1,691
  2,146
  2,641
  3,158
  3,675
  4,169
  4,614
  4,988
  5,276
  5,463
  5,542
  5,511
  5,376
  5,145
  4,833
  4,456
  4,032
  3,581
  3,121
  2,667
  2,235
  1,835
  1,476
  1,161
  893
  672
  493
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 93.2
Price to Sales 15
Price to Book 29.5
Price to Tangible Book
Price to Cash Flow 66.7
Price to Free Cash Flow 104.7
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 6.2 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 -21.7%. 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 44.867 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 $12.9 billion.


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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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