Blog Post

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