Digital Advertising Reliance And Bitcoin Volatility Will Challenge Earnings Yet Offer Long-Term Upside

Catalysts

About Méliuz

Méliuz operates a large scale digital shopping and loyalty platform in Brazil, monetizing users through cash back, media and financial services.

What are the underlying business or industry changes driving this perspective?

• Although the user base and active cohorts are expanding on the back of growing e commerce penetration in Brazil, Méliuz depends heavily on maintaining exceptionally high GMV retention levels and low customer acquisition costs. Any deterioration in engagement economics could cap revenue growth and compress EBITDA margins over time.
• While new monetization avenues such as Méliuz Ads and Méliuz For Brands benefit from increasing digital advertising spend and richer first party data, these lines are still young and exposed to budget cuts from partners. This may slow their scalability and limit incremental contribution to net revenue.
• Although subscription products like Méliuz Prime are riding the trend of consumers seeking savings and rewards in online retail, raising subscriber penetration and ticket size without eroding perceived value will be challenging and could limit upside to GMV per user and overall earnings.
• While the shift toward digital wallets and online funding supports the BV Bank partnership and broader financial services agenda, renegotiations like the recent BV repricing highlight counterparty risk that can abruptly reduce take rates and keep net margins under pressure.
• Despite the long horizon thesis around Bitcoin as a monetary asset and the compounding effect of the Bitcoin per share strategy, the allocation of operating cash to this treasury strategy introduces balance sheet volatility that may offset operating progress and obscure the translation of EBITDA growth into stable earnings.

Assumptions

This narrative explores a more pessimistic perspective on Méliuz compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Méliuz's revenue will grow by 3.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 12.8% today to 7.9% in 3 years time.
• The bearish analysts expect earnings to reach R$37.8 million (and earnings per share of R$0.32) by about December 2028, down from R$54.6 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as R$64.5 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 40.0x on those 2028 earnings, up from 8.2x today. This future PE is greater than the current PE for the BR Interactive Media and Services industry at 8.2x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.72%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Méliuz is increasingly relying on subscription, media and branding products such as Méliuz Prime, Méliuz Ads and Méliuz For Brands. If advertisers or consumers pull back on discretionary marketing and loyalty spending during a weaker macro environment, revenue growth could decelerate materially and pressure EBITDA margins and net income in the long run.
• The strategy of favoring profitable GMV over maximum volume means growth is deliberately constrained. If competitors choose to prioritize aggressive GMV expansion and market share at lower margins, Méliuz could lose relevance in Brazilian e commerce, which would weigh on take rates, revenue and ultimately earnings.
• The recent renegotiation with BV Bank has already led to a 40% decline in financial services net revenue. Any further repricing or loss of key partners in payments, funding or insurance could structurally limit the scalability of financial services, capping future revenue diversification and compressing consolidated net margins.
• Allocating a growing portion of operating cash generation to a long term Bitcoin strategy and derivatives introduces significant balance sheet volatility. A prolonged downturn in Bitcoin prices would erode shareholder equity and reduce the cash available for marketing, product development and share repurchases, ultimately constraining earnings growth.
• The current strategy assumes that very high GMV retention and low customer acquisition costs will persist over many years. If user behavior shifts, referral and organic channels weaken or competitors match Méliuz’s cash back and rewards proposition, active user growth and engagement could slow, dragging on GMV, net revenue and EBITDA over time.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Méliuz is R$6.2, which represents up to two standard deviations below the consensus price target of R$7.23. This valuation is based on what can be assumed as the expectations of Méliuz's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$9.0, and the most bearish reporting a price target of just R$6.2.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be R$477.7 million, earnings will come to R$37.8 million, and it would be trading on a PE ratio of 40.0x, assuming you use a discount rate of 20.7%.
  
• Given the current share price of R$3.96, the analyst price target of R$6.2 is 36.1% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.