Goldman Sachs Initiates MercadoLibre At Neutral, Sees Long-Term Leadership Risks

Goldman Sachs initiated coverage of Mercadolibre Inc MELI with a Neutral rating and price target of $170, implying 2 percent downside from current levels.

Mercadolibre is the largest digital marketplace in Latin America and operates exclusively as a marketplace for third-party sellers. eBay Inc EBAY owns an 18.4 percent stake in the company.

Mercadolibre generates above peer-average margins, cash flows and returns as it takes no inventory risk, operates no warehouses or logistics assets. It works on a commission basis, charging vendors a takerate of on average 9 percent of the transaction value.

"While we see MELI well-positioned to benefit from near-term structural growth drivers, we see risks to its long-term leadership as consumers become more demanding in terms of user/fulfilment experience, which MELI cannot fully control," analyst Irma Sgarz wrote in a note.

Sgarz sees a 2016-18E EPS CAGR of 20 percent, fueled by 15 percent growth in GMV and 25 percent rise in sales, partly offset by a 190bp pa decline in adjusted EBITDA margin, as higher growth in service revenues results in a negative mix shift.

Sgarz expects 2016 EPS of $2.82 on revenue of $862.6 million and 2017 EPS of $3.48 on revenue of $1.096 billion.