MercadoLibre slumps as BofA says Brazil tax rule set to bite
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MercadoLibre (NASDAQ:MELI) slid more than 7% after BofA said a new cross-border tax rule in Brazil will hurt results.
The firm lowered its rating on the Latin American ecommerce company to Neutral from Buy, and its price objective to $1,350 from $1,680.
New cross-border tax rules exempt direct-to-consumer ecommerce purchases of up to $50 from a 60% import tariff, and impose a 17% value-added tax, BofA Global Research analysts led by Robert E. Ford Aguilar wrote in a note. "An official $50 exemption would encourage new entrants, activate existing channels, and attract greater investment," and would disrupt Mercado Libre.
MELIâs Brazilian merchant base competes with tax-exempt cross-border, particularly in fashion, consumer electronics, appliances and more. The change is so dramatic that some bulls suggest that policy makers will surely reverse or attempt to address asymmetry by other means, the bank wrote, though that could prove to be exceptionally unpopular with Brazilian voters.
"While we anticipate MELI to pivot towards its own cross-border opportunities, accelerated by its Mexico successes, that change could take time, and we expect pure cross-border platforms and other derivatives to raise competitive concerns," BofA analysts wrote.
Shares of MELI are up nearly 30% year-to-date but the company has lost its place as Latin America's biggest publicly-traded company to PetrÃ³leo Brasileiro S.A. (PBR) and Vale S.A. (VALE).
The company has beat EPS estimates for the past four quarters.
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