Buying Kangu Boosts Logistics Capability, Says Goldman By

© Reuters

By Ana Beatriz Bartolo – After the announcement of the purchase of the Kangu delivery platform by Mercado Livre (SA:) (NASDAQ:), Goldman Sachs reiterated its buy recommendation for the stock. The acquisition was interpreted as a positive move in the strategy of expanding the capillarity of the delivery network and in improving the collection point and reverse logistics infrastructure, which is important for the apparel segment. The target price is $2,670 USD in 12 months.

The report also points out that for further structural growth, Mercado Livre will need to work on differentiated service experience and competitive free shipping policies.

Kangu is a company created in 2018, which operates in 5,000 delivery points in 700 cities in Brazil, Mexico and Colombia. In Brazil, specifically, it operates with 2,600 delivery points and 5 cross-docking stations, and the expectation is that by the end of the year it will reach 3,500 points and 13 stations in the country. Kangu mainly operates small neighborhood stores functioning as mini-hubs for pickup and delivery.

The acquisition of these additional collection and delivery points was not considered by Goldman Sachs (NYSE:) as a deviation from the organic strategy of Mercado Livre. The expectation now is that the company will continue investing in the construction and expansion of technology and internal operating resources, as it has been doing for the past five years, the report points out.

In addition, the addition of Kangu should boost the Free Market’s logistical capacity. It should be noted that in 2Q21, 83% of deliveries made by the company were made through its managed network and 77% of the entire volume was delivered in less than 48 hours.

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