Itaú BBA cuts Locaweb’s target price by 42.6% and cites increased competition

Locaweb
Bank maintained the purchase recommendation for the shares. (Image: Disclosure/Locaweb)

Itaú BBA cut the target price for the shares of Locaweb (LWSA3), from BRL 33.10 at the end of this year to BRL 19.00 at the end of 2022 — an adjustment of 42.6%, but still representing a potential increase of 31.6% over the price of this Wednesday (24).

The bank, which maintained its purchase recommendation for the shares, assesses that the prospects for the company have been impacted by increased competition and increased customer acquisition cost (CAC) in the short term, amid the reopening of physical stores.

“Most new sellers have physical stores, reducing customer rotation due to greater friction with the closure of operations”, says an excerpt of the report signed by Enrico Trotta, Cristian Faria and Gabriela Moraes.

O Itaú It also sees more “selective” mergers and acquisitions due to the company’s implicit valuation levels that suffered from the stock’s fall — Locaweb shares have accumulated a 28.4% drop this year, although they rose 4.2% this Wednesday, the R $14.43.

For the institution, Locaweb should maintain pro forma organic growth, which in the third quarter was 48% year-on-year, amid the advance of GMV (gross volume of goods within digital platforms), which has surpassed the e-market. commerce in Brazil.

Analysts say margins are affected by rising selling (S&M) and research and development (R&D) expenses, “because of capitalized competitors and the challenges of attracting new customers after the pandemic.”

Itaú considers that the behavior of margins in the short term is difficult to assess, but projects a gradual recovery in the metric, reflecting the two-year investment cycle in R&D.

In an interview with Money Times on the 16th, Locaweb CEO Fernando Cirne said that the margin reduction in the third quarter was a deliberate and controlled move, made to allow the company to continue its expansion trajectory.

According to the executive, at a time of economic reopening, when the participation of e-commerce is still small in Brazilian retail, Locaweb doesn’t want to risk slowing down.

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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