MercadoLibre Inc.'s Weighted Average Shares Fiasco 5 comments
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I was just about to finish writing my analysis for MercadoLibre’s (MELI) Q4 earnings and I hit a roadblock. I was going to divide my estimates for the company’s net income available to common shareholders by the number of weighted average shares and I realized the company’s shares have expanded considerably.
If I use the weighted average shares
number for Q3 I get Q4 earnings of just under 0.10, which is the
consensus among analysts. If I use the number the company lists as
being outstanding at September 30, 2007 (44,226,563) I get earnings of
just over 0.06 per share.
I first ran into confusion with MercadoLibre when I read Patrick Schultz of thestreet.com reporting that MercadoLibre earned 0.13 per share for Q3 but everywhere else it says they earned 0.07. Worse still, if you take the number the company lists as the net income available to common shareholders for Q3 and divide that by the number listed as the weighted average shares for Q3 you get just over 0.10! Am I missing something here?
If you look at Apple’s earnings report for the last quarter of 2007 everything adds up. Here is Apple’s explanation for basic earnings per share and diluted earnings per share:
Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options, shares to be purchased under the employee stock purchase plan, and unvested restricted stock units (“RSUs”).
If anyone has any answers they would be much appreciated!
This was the article I was about to write:
MercadoLibre shares have been hit hard due to the fears of a U.S. recession and global slowdown as well as due to a new issuance of shares and slightly lower than expected guidance on revenue and operating income margins. Despite these, the company is still on track to meet earnings expectations. I expect the company to earn roughly 10 cents per share (which has been the consensus estimate) for the 4th quarter of 2007.
My calculations are quick and dirty but I think they’re close to reality.
Low end of revenue guidance: $26 Million
Lower operating income margin guidance for Q4 relative to Q3 (operating income margin is income from operations as a percentage of net revenues):
Operating income margin in Q3 was 26% and operating income margin average for quarters 1 to 3 was 23.4%. Going with 23.4% for Q4 we get $6,084,000
Foreign currency holdings loss estimate: $1,000,000
Other expenses: $1,000,000
Income/Asset tax expense rate from Q3: 33.4%, Q4 with same rate gives $1,364,056
Preferred stock cost estimate based on rough average: $100,000
Net income: $2,619,944
Taking into account the appreciation of the Brazilian Real (Brazil accounts for roughly 40% of net income), which gained an average of 10% during the quarter from the average of Q3: $2,619,944(0.40)= $1,047,977.60 $1,047,977.60(1.10)= $1,152,775.36 (0.6)$2,619,944= $1,571,966.40 $1,152,775.36 + $1,571,966.40= $2,724,741.76
$2,724,741.76 / ???
As you can see I had trouble knowing what number to use here for the weighted average shares.
Disclosure: I own (too many) shares in MercadoLibre
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This article has 5 comments:
Peter
February 8, 2008 at 12:36 pm · Edit
Tim,
Take a look at Note 3 to MELI´s 3Q financial statements: investor.mercadolibre....
It explains the calculation of the weighted shares. Since Q3 included over one month of the company as a private company, the share count has to be the WA of the number of shares when it was privately held and the shares publicly held.
From Q4 onwards that number will be easy to calculate as it is simply the number of shares outstanding.
Regards,
disclosure: I work for MELI.
onlyebay
February 8, 2008 at 12:59 pm · Edit
Timothy, MELI just went public and issued a bunch of shares in Q3 so any weighted average that includes Q3 or before is garbage in garbage out.
www.sec.gov/Archives/e...
Read MELI’s IPO prospectus from way back when and you find “common stock to be outstanding after this offering: 44,226,567″ (with over-allotment). This includes all the new shares they issued and has not changed since day 1 as a public company.
timopg
February 8, 2008 at 7:59 pm · Edit
Thank you both for helping me to understand what’s going on here.
There still is the issue of what calculations MercadoLibre is using to get 0.07 per share for Q3. I get 0.10 using the data they supply or using the 44 million share number I get 0.06. I don’t see where Patrick Schultz’s 0.13 comes from either.
Good luck!
Good luck to you too!