MercadoLibre, Inc.

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended December 31st, 2022. Thank you for joining us. I'm Richard Cathcart, Investor Relations Officer at MercadoLibre. Today, we will share our quarterly highlights on video, after which we will begin our live Q&A session with our Chief Financial Officer, Pedro Arndt, and President of our FinTech business, Osvaldo Jimenez. Before we go on to discuss our results of the fourth quarter of 2022, I remind you that management may make, and this presentation may contain, forward-looking statements. So please refer to the disclaimer on screen, which will also be available in our earnings materials on our investor relations website and our Form 10-K for the year ended 2022. With that, let's begin with a summary of our results.

Hi everyone. I'm happy to share the key messages about MercadoLibre's performance during the fourth quarter of 2022 and the year as a whole. We're particularly pleased to have been able to deliver an attractive combination of growth and profitability throughout the year, alongside strong operational KPIs and market share gains, all while sustaining a high level of investment in products and technologies. We've successfully navigated a challenging environment, and we've reached new records across the business, despite uncertainty around consumer spending, interest rates, and inflation. With a strong fourth quarter, we end 2022 with record results in GMV, TPV, items shipped, and net revenue, as well as EBIT. revenues for example for the first time ever surpassed the 10 billion dollar mark for the year quite a milestone for our company EBIT also came in at a new landmark level, surpassing $1 billion while delivering margin expansion. And perhaps even more unique is the combination of record EBIT and margin expansion while still growing revenues at roughly 50% year-on-year. During 2022, MercadoLibre strengthened its leadership of the e-commerce market in Latin America, as our data indicates that we achieved market share gains across the entire region with Brazil and Mexico standing out. These market share gains are grounded in our consistent investment and execution around all aspects of our commerce value prop, and also over an extended period of time. Our ability to offer a very broad product assortment from sellers of all sizes at competitive prices and with fast deliveries continues to be a key differentiator for the company. The profitability of our commerce business also improved substantially year-on-year during the fourth quarter, helped by the expansion of Mercado Ads revenues, better management of promotional budgets, a healthier margin on 1P merchandise sales, and the continued overall scaling of our business. Development of technology for Mercado ads has been a major focus during 2022, increasing presence of ads and their monetization as well. Ads penetration, for example, grew another 10 basis points in the fourth quarter despite strong growth of GMV while maintaining its attractive EBIT margins. we still see plenty of opportunities for ads growth ahead of us as we continue to improve technology to better serve our advertisers. 2022 was also a fantastic year for Mercado Pago, with TPV growth exceeding our expectations while delivering take rate expansion on a year-over-year basis. On the acquiring business, first of all, we maintained our strong growth and margin performance, driven by QR payments and our POS business in Brazil, Mexico, and Chile. On the other side of Pago, the digital accounts business, both tape payments and cards TPV continued to grow at triple digits in 2022, highlighting the traction in becoming the digital account of choice for many of our users. Mercado Credito performed well in the fourth quarter once again and in the year as a whole, positively contributing to our profit growth, despite tougher economic conditions. Throughout the year, we were able to manage the performance of our book closely and adjust to the changing realities. These effective risk controls resulted in record profits. We remain optimistic about the positive ecosystemic effects of Mercado Credito as well going forward. 2022 has been a year of adjustments, on the other hand, for the credit card product. But with improvements to the underwriting models, we've seen a much improved performance from the most recent cohorts on the credit cards. That leaves us encouraged by the performance of that product, which will remain a key element of the wider Mercado Pago value proposition and strategy going forward. All of these credit products complement our wider Mercado Pago offering, for which 2022 has been an important year in terms of broadening the scope of financial services we're able to offer. We think we now have a product stack in place that is sufficient to meet our users' core day-to-day needs, which will enable us to accelerate our efforts to achieve principality within that user base. All of these strong results have been made possible by top-notch execution from the team and discipline in leveraging our scale to deliver continued cost dilution. You have a much more detailed review of all of these fourth quarter operational and financial results made available to you, both in our shareholder letter and also presentation, which are published on our Investor Relations website. With that, but before turning to the live Q&A section, I'd like to hand it back to Richard to go through some of the latest business and product updates of the quarter and year. Thank you.

2022 was another important year for investment in technology at MercadoLibre. And today we want to share some of the key impacts that these investments have delivered to our ecosystem as we continue on our mission to democratize commerce and financial services in Latin America. We're now able to offer a full stack of day-to-day financial services and products to our millions of Mercado Pago users after 18 months of intense technology deployment. We are leveraging our data in order to cross-sell new products and services to our users. Users of our digital account have access to debit and credit cards, along with QR code payments and online transfers, making Mercado Pago more useful for their day-to-day needs. This is an important step in building towards achieving principality. Mercado Pago also offers saving buckets dedicated to our users' specific objectives, and they are able to choose from different risk profiles with a minimum investment of just one real in Brazil. Users can now also make investments in a quick and simple process via the MercadoPago app. This includes banking deposit certificates from our financial institution with a fixed rate. And more recently, users in Brazil have access to three simple investment funds. Mercado Pago also offers different insurance options to suit our users' needs, with life, personal accident and online transactions insurance. This offers protection against uncertainties that many of our customers may face in their daily lives. Now, with a complete product stack, Mercado Pago is well positioned to become a leading financial services provider in the region, enabling us to foster financial inclusion across the region. Our commerce platform currently serves millions of buyers and sellers. By offering a world-class experience, we've surpassed the mark of 1.1 billion items sold in 2022. We are investing in technology to continue to improve the online shopping experience of our users, as we believe this will drive more retail spend online, particularly in categories where e-commerce penetration is low. We deployed improvements to several categories in 2022, including home and decor, fashion and beauty, and auto parts. For example, in the auto parts category, we have simplified the search and filters in order to create a more specialist experience, whilst in the home and decor category, we've further developed our discovery-led navigation experience. New features have enabled sellers to promote their products in different formats. Short videos recorded by sellers to promote their products have reached millions of monthly views and improvements in our advertising platform have increased the presence of ads in product pages. MercadoLibre continues to have the fastest delivery times in all of our key geographies. We're also investing in technology to improve the efficiency of our logistics network. And in 2022, we were able to deliver significant improvements in the productivity of our fulfillment centers, which means that even with a higher penetration of fulfillment deliveries, our overall net shipping costs as a percentage of GMB remain broadly flat year on year. Our many places network grew to over 7,000 locations with over half of the returns already done through places. These returns have a higher MPS than other options, such as the local postal service. For buyers that choose to pick their items up from the many places network, the MPS is the same as for deliveries made to the buyer's home. We also delivered improvements in lead times with the MeliAir operations, reducing over one day in lead times as well as optimizing costs. We ended 2022 with a stronger ecosystem and great opportunities ahead of us, and we are as confident as ever that the best is yet to come.