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Mercadolibre, Inc. Message Board

  • yelyacs yelyacs Jan 13, 2010 10:44 PM Flag

    effect of Vz devaluat on EPS- an estimate

    I estimate the 50% VZ currency devaluation will lower MELI's Q1 2010 EPS ~15%.

    First, some background (from meli 2008 report):

    pretax income(million USD):
    Vz 2007: 1.7; 2008: 9.9
    Bz 2007: 11.4; 2008: 11.7

    Bz contributed 40%, Vz 34% of pretax income in 2008. Sure, EPS calc'd after tax, but this shows Vz was a driver of meli's EPS growth.

    Q4 2009 EPS (to be reported in 3 weeks, ~Feb 3) analyst consensus is 0.26/share, up 44% from Q4 2009, last Q unaffected by the Vz currency devaluation

    Q1 2010 (reports in May) compares YOY to a very weak Q1 2009 EPS (0.12), so even with the deval (which I calculate will trim EPS by 0.035-0.045; Boxtime estimated 0.02-0.04), I est good growth in EPS in the other segments will still double EPS to 0.24 vs. Q1 2009.
    (my Q1 2010 estimates assume Q1 revenues of 64 million (100% over that of Q1 2009), net margin 0.165, and Vz would have contributed 26%-33% of income w/out deval).

    My estimate of Q1 EPS of 0.24 (with deval factored in) is more bullish than analyst consensus of 0.20 (without deval factored in) so I'm probably full of bullish*t but if you disagree with inputs its easy to redo with your own. My bottom line is I don't see the panic selloff on Mon/Tues as market maker manipulation, but a fair response to devaluation lowering earnings ~15% (the selloff reached 43, ~15% below the pre-deval areas of recent support)

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    • For in-depth analysis of deval and other economic issues in Vz today check out this site:

      now that I think of it my est of rev for Q1 2010 too high, did not factor in deval on rev's. If I guess Q1 rev's come in at 58 million. I still guesstimate Q1 EPS coming in significantly below Q4 2009 EPS and net margin decreasing ~15%.

      There are other possible effects of the deval on EPS I ignored- like how roaring stagflation in Vz will affect MELI's biz prospects there. Or how the new regulations affect MELI's accounting/use of dual exhange rates? Was meli using dual exchg rate to pad income, and if so can it still do so now? From MELI's 2008 report:

      "Venezuela has a dual exchange rate system that includes an official exchange rate which was $2.15 “Bolivares Fuertes” per U.S.dollar at December 31, 2008, and a parallel exchange rate that was $5.4 “Bolivares Fuertes” per U.S. dollar at December 31, 2008. During 2008, we re-measured the fair value of our assets and liabilities in our Venezuelan subsidiaries at the parallel exchange rate (5.4 “Bolivares Fuertes” per US dollar as of December 31, 2008) resulting in a foreign currency gain of $5.0 million in the fourth quarter of 2008 and $3.6 million for all of 2008. The after tax positive effect on Net Income of the re-measurement was $3.3 million in the fourth quarter of 2008 and $ 2.4 million for all of 2008. "

      and from Q3 2009 report:

      "Our Venezuelan subsidiaries re-measure their foreign currency cash and cash equivalents and investments at the parallel exchange rate of 5.42 “Bolivares Fuertes” per US dollar. Since there is an observable market rate of exchange for securities traded in the parallel market, based on facts and circumstances, this market rate has been used for the re-measurement of foreign currency denominated transactions that could be settled through the parallel market mechanism. In the absence of unusual circumstances, the rate applicable to conversion of a currency for purposes of dividend remittances shall be used to translate foreign currency statements...The official exchange rate of 2.15 “Bolivares Fuertes” per US dollar is used for dividend remittance. The foreign currency effect generated by applying different exchange rates on the above mentioned assets has been accounted for in non-current other assets for a total amount of $11.2 million".

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