MercadoLibre, Inc.

Hello everyone and welcome to the MercadoLibre earnings conference call for the quarter-ended June 30th, 2024. Thank you for joining us. I'm Richard Cathcart, MercadoLibre's Investor Relations Officer. Today we will share our quarterly highlights on video, after which we will begin our live Q&A session with our CFO, Martín de los Santos, our FinTech President, Oswaldo Jiménez, and our Commerce President, Ariel Scharstein. Thank you. Thank you. Thank you.

Tomorrow, August 2nd, 2024, marks 25 years since we founded Mercado Libre with the mission of democratizing commerce and financial services in Latin America. Over those 25 years, we have built a sustainable company that provides millions of small and medium-sized businesses with the tools they need to compete with larger players. We have enabled the shift to online retail by providing tens of millions of consumers with world-class levels of service. And we have included millions of people into the financial system across the region for the first time. These are notable achievements, but they are also just a baseline from which we think about our even bigger ambitions to deliver on our mission at an even greater scale. We are as optimistic as ever about the opportunities that are ahead of us and we are excited to pursue them with a culture of entrepreneurship, excellence and innovation that has served us well for the last 25 years. This is therefore a great moment to reaffirm our belief that the best is yet to come. Now I will pass it on to Martin for more information on the second quarter of 2024. Thank you, Marcos. Hello, everyone.

I am pleased to highlight MercadoLibre's outstanding performance in the second quarter of 2024, with strong growth across our key business units, as well as solid bottom-line financial results. In commerce, we saw the highest growth in sold items and unique buyers in 2021, with both metrics accelerating sequentially. GMB performed well across geographies, particularly in Brazil, where the 36% growth remarks the highest level also since 2021. In Mexico, we maintained our momentum with successful hot sales once again. And in Argentina, we saw a positive growth in terms of item sales, reverting the negative growth that we saw during Q1. This growth is a result of our commitment to improving the user experience through innovation and technology, and the investments we continue to make in our key strategic initiatives such as fulfillment and minimize. In fintech services, we saw a strong growth in monthly active users, which surpassed the 50 million mark for the first time. And we also saw very solid engagement metrics demonstrating the traction that Mercado Pago has within our users. We continue to see a very positive adoption of our remunerated account in all of our major markets, resulting in strong growth of asset under management. Our consumer and merchant credit books continue to scale while delivering strong profitability. During the quarter, we issued 1.6 million new credit cards and the TPV grew by 3x compared to last year. The credit card is a critical component of our fintech value proposition, and we feel confident about scaling this product as a result of the improving accuracy of the underwriting model. Acquiring TPB grew also very strongly in Brazil, Mexico, and Argentina, and this was a result of the move-up market strategy that we're implementing that enables us to reach larger merchants and also the continuous investments that we make in the online payment segment. Our consolidated financial results for the second quarter reflect the strong performance of our commerce and fintech operations, with revenues of $5.1 billion growing above 40% year-on-year. We delivered income from operations of $726 million and net income of $531 million. resulting in net income margin of 10.5%, which is the highest in the last eight years. For more information on our results, please refer to our shareholders' letter. Now I will pass it on to Richard for more business news.

Our logistics network plays a major role in enabling e-commerce in the region and driving more offline retail online. It has become a key competitor advantage for MercadoLibre. Innovation is a foundation of the success of our logistics network, and we are pleased to share some of our most recent innovations today. During the second quarter of 2024, Mercado Libre launched a fulfillment center in Texas in the USA. This is the first fulfillment center outside of Latin America, and it was open to expand the assortment of products we offer to Mexican consumers by plugging U.S. sellers into our ecosystem. This is complementary to our existing cross-border business from China into Mexico. We are offering a great shipping service for our US-based assortment. Buyers are receiving their packages from the USA within a couple of days in the north of Mexico and within approximately three days in Mexico City. Shipping is free and we also offer interest-free installments. In June 2024, we took another major step in our innovation journey with the launch of robotics in our distribution center in Cajamar, just outside the city of Sao Paulo. A total of more than 300 robots will have arrived by the end of the year, with 100 of those already up and running. These robots will collaborate with the human workforce and will handle tasks such as transporting shelves containing products from storage areas. This optimizes processing time by 20%. It also enables us to automate repetitive tasks like product sorting, whilst reducing the distance that our workforce has to walk around the distribution center. It also increases total storage capacity by up to 15% per square meter. These robots operate autonomously, handling up to 20,000 items and 2,500 shells per day, returning to charge stations when their batteries are low. This ongoing investment in technology and innovation reflects our commitment to creating an increasingly efficient logistics network. By building greater flexibility into our logistics operations, we have developed slow shipments which offer additional shipping options for buyers and efficiencies for MercadoLibre. Slow shipments occur when a buyer chooses a slower shipping option than would be otherwise available to them because it may be more convenient or in some circumstances it may come with a lower shipping cost. This enables us to take advantage of moments of idle capacity in two key cost areas of our network. Firstly, the processing in our fulfillment centers, and secondly, the line haul trucks that travel between cities. With slow shipments, the shipping window becomes larger and more flexible for MercadoLibre, which means we can choose the moments of greatest idleness to process products in our fulfillment centers and ship them between cities in line hauls to maximize network capacity utilization. Meli Delivery Day is another innovation which has slightly different benefits to slow shipping. The main efficiency built into the MDD model is in the last mile, where several deliveries at a single address on a single drop means that last mile vans can drop more packages at fewer addresses. This helps us to dilute our last mile costs. Innovation and efficiency will continue to be key to the success of our shipping operations. For a more detailed discussion, check out the podcast on our investor relations website with the head of Mercado Envios, Agustin Costa. From cross-border in Texas to robotics in Sao Paulo and MDD across Brazil, Mexico and Chile, we continue to innovate and we'll continue to do so. Because as always at Mercado Libre, the best is yet to come.

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. The first question comes from the line of Andrew Rubin of Morgan Stanley. Andrew, please go ahead.

Thank you. So considering where you are the 25 year and congratulations for that, can you talk about where we are in the interplay between commerce and fintech? It's a quarter we see the acceleration in GMV, also a number of fintech operating metrics picking up. So I'm curious how much you'd say is independent business drivers versus the two sides feeding each other. I'd be interested in the strategic update and maybe just honing in on the same topic near term. You have the Brazil GMV accelerating to the 36% XFX. You also called out the higher remunerated account. We see growth in the credit business. So how much of that pickup would you attribute to these fintech initiatives versus something more commerce specific? Thank you.

Hi, Andrew. How are you? Martin here.

Thanks for your question. Obviously, as we have been saying over the years, being part of an ecosystem feeds both the fintech side to commerce and vice versa, right? So I think in this particular quarter, credit is a good example to that. Credit is fueling growth on our commerce side as we provide better payment solutions for users. Also, it's very beneficial to our fintech value proposition, just like we have credit cards very strongly this quarter. And in terms of growth in both on commerce side, we are very satisfied with growth that we've seen in Brazil. I mean, this is the second consecutive quarter which we accelerated in Brazil. We are sustaining very solid growth rates in Mexico, gaining market share in both markets, and also seeing a very strong recovery in Argentina, both on commerce as well as on fintech side. So I think, for the most part, our strategy continues to perform extremely well. Just like you said, you know, 25 years after our beginning our company, we continue to grow at rates of, you know, really a startup rate. And we are super excited, not only for what we have done so far over the past 25 years, but more importantly, to the many growth opportunities that we have ahead of us.

Let me compliment that. I think that, Andrew, both businesses, we have always said that both businesses are very zoologistic. We continue to believe that, and we have many, many examples of that. One is, for example, in order to grow, how we can deploy products on the marketplace to drive the growth of the marketplace. For example, in Mexico, a significant part of our GMB is paid either with Mercado Pago, with store balance on Mercado Pago, or we pay it offered by us. or by our own credit card on the one hand. On the other hand, how we can, for example, offer insurance products in the marketplace and grow the number of policies we sell. Both businesses have been extremely synergistic. We have a huge user base on the marketplace and also on Mercado Pago, and we drive users from one platform to the other one. I think that we are very excited with that. That continues to work very well.

That's great. Thank you both.

One moment for your next question.

The next question comes from the line of Irma Sars of Goldman Sachs. Irma, please go ahead.

Yes, thanks for taking my question. Congratulations also on the 25th 25th birthday tomorrow. You had a great quarter again in terms of operating leverage, and yet I can think of several items that can still contribute or unleash higher margins from here, like scaling ads incrementally, low increases in provisioning, efficiencies in logistics, as you laid out. But before we all get ahead of our skis, are there any perhaps items or headwinds or areas of investment that we should think through especially into the back half of this year, perhaps related to carrier cost adjustments or higher deposit rates in Mexico, any marketing campaigns, just to sort of level set expectations here a little bit in terms of what we should keep an eye on. Thank you very much.

Hi, Jermais Martin here. Let me talk about this quarter. I think, as you mentioned, we had a very strong quarter in terms of both EBIT results, but more importantly, net income. As you know, net income after the devaluation of Argentina has become a more relevant metric to look at, and we grew it by 100% year-on-year, and we delivered 10.5% margin. In terms of the EBIT margin specifically, you see, on a comparable basis, you see a contraction this quarter. Most of that contraction is roughly 120 basis points of contraction. Most of it comes from um bad debt provisioning and as you know as we accelerated our credit book origination we provisioned our expected losses up front and that generates some pressure on margin but we feel comfortable with that as we see very good performance in terms of mpls and nine mile margins continues to be very very you know very solid and with good profitability so we are okay with scaling the book We're increasing our credit card books as well. We issued more than 1.5, 1.6 million cards this quarter. We're in our credit card CPV by 3x compared to last year. So we feel comfortable with that kind of pressure on margins. In addition to that, we continue to invest in the strategic initiatives. We increase the penetration of fulfillment by 6 percentage points year on year. We increase the penetration of free shipping also by 6 percentage points. So, you know, investments will continue to be, as we have been saying for several quarters, at a similar pace, and there will be no change in our investment strategy. We will continue to invest behind our investment strategy initiatives, mailing mails, free shipping, credits, and so on.

Thank you.

One moment for your next question.

The next question comes from the line of Robert Ford of Bank of America. Robert, please go ahead.

Hey, thank you. Sorry about that. Happy birthday and congratulations on the quarter. I just had a few questions and, and the first was, could you talk a little bit about MeliMice and MDD and how that's contributing to conversion and the acceleration you're seeing in GMV as well as the seller promotional tools that you call out today? Um, and, and, you know, particularly the ones that are resonating with consumers. And then how do you expect the end of tax withholding requirements for small businesses on their digital transactions to impact Pago in the marketplace in Argentina? And what's the timing for that? And then the third one I had was, um, you know, we've understood, we understand you've taken over a hundred thousand square meters of distribution space in Guadalupe. And we were curious as to the role that you envisioned for that space, particularly when it comes to centralizing inventory for Brazilian air cargo or processing cross border transactions into Brazil. And where do you open up capacity in the rest of the network with the addition of that space in Guadalupe at all? And then how should we think about the implications of a Mexican banking license in terms of product enablers, funding, and then the various predictions, whether it be regulatory tax or something else. And then lastly, and I apologize for all this, in the press release, you mentioned some downstream benefits of your more aggressive remuneration strategies and AUM strategies. And I was wondering if you could expand on those, please. And that was it. But thank you.

Hey, Bob. Ariel here.

I think on MeliMICE, we are going through the same trajectory that we've been seeing over the last few quarters. MeliMICE is successfully generating incremental engagement and incremental GMB. So users who enroll in the program have higher frequency, higher GMB, lower churn compared to the previous program. Engagement KPIs are looking good. And to your point on MeliDeliveryDay, we see adoption of NDD trending upwards. So general terms, we are extremely satisfied with the impact that the program is having in our business and particularly in the satisfaction of our users, and we pretend to continue increasing the user base of subscriptors.

And Ariel, is that NDD adoption coinciding with more packages per week or? Yes.

In every single market, we see consumers choosing to get their packages with MDD trending upwards, and within MDD, we see consolidation also going up.

Yeah.

In terms of capacity and distribution centers, I think you mentioned a couple of things that are different. So we did move our air hub in Sao Paulo. We just needed more space to deal with the volume that we are applying. But more on a general view, I think, as Martin was mentioning in the previous answer, we will continue building the capacity linked The growth of our business and the increase in penetration of fulfillment and that is true for every single market This quarter or these few quarters in particular we have been expanding capacity in Mexico at some point We will continue expanding capacity in Brazil and the rest of the market as well nothing changing or directionally radical with the way we've been operating so far and But in the end, we are compounding the growth of MercadoLibre as a whole with the increase in fulfillment penetration.

Sorry, I was just going to ask if that facility is domestically oriented. Is that fair?

Yes, we are not doing any international flights from Brazil to other countries, nor from any country of Latin America into another one. The only international connection that we do is from Texas into Mexico, which is not going through air. Great.

Bob, let me cover the two questions related to FinTech. One of them was, how do we expect the end of tax withholding requirements in Argentina to impact Mercado Pago? And we are very excited about that. Today, electronic payments in Argentina had a drawback versus cash payments because There were perceptions and taxes we needed to withhold on behalf of the local IRS from every seller, so there was a detractor for further adoption of electronic payments in general, and the law that passed Congress recently removes that at a federal level. Not at a state level, but at a federal level. This, however, has not yet been implemented by the local IRS, so we need that to happen. and then we will make the implementation. But that really will be a positive on all kinds of electronic payments. If I recall correctly, the second question was regarding the implications of the Mexican banking license. And I would say that that is something that we believe there's a huge opportunity in Mexico to compete and further deploy financial services. and that by having a banking license, we will be able to add products to a stack of products and, for example, let people be able to collect salaries using the Mercado Power account. And so we believe that the opportunity we see in the country is huge. We have been already growing our credit book very significantly. This will be a process that will be long, typically around two years, but it depends on the regulator. But we believe that we will continue growing our footprint in Mexico throughout that period. For example, recently, we increased the rate we append to the depositors in our cuenta remunerada, and we are very excited with the results we are seeing.

And that's what triggered my question with respect to the downstream benefits of those AUM strategies. Could you expand a little bit on that further?

Yeah, the reason for the cuenta remunerada is it really drives principality. We see that the two main drivers for principality is where people put their savings first and together with that where they get most of the credit. So we are driving those two up significantly by having a very competitive cuenta remunerada and also be aggressive deploying our credit card strategy in Mexico.

So these are not just opportunistic depositors taking advantage of the 15% rate. You're seeing some real adoption of the rest of the ecosystem.

Yeah, Bob, we'll probably go to the next question, and we can go into more detail on this. But yeah, the short answer is yes, it contributes to the . Thank you.

One moment for your next question.

The next question comes from the line of Marcelo Santos of JPMorgan. Marcelo, please go ahead.

Hi, good evening. Thanks for the opportunity for asking questions. I have two on my side. The first is, given that you launched your distribution center in Texas, could you please comment a bit on your broader ambition on cross-border, how relevant this could be? Where do you think this could be in a couple of years? And the second question is regarding the net shipping subsidy. So getting the shipping revenue minus shipping cost divided by GMV, we see that it improved a lot on a quarter-over-quarter basis. If you could please dissect the drivers that led to the sequential improvement from one quarter to the other, and if you see further room for more efficiency there. Thank you very much.

Hey Marcelo, how are you?

This is Ariel. So let me start with your first question related to cross-border. I think we've always said that cross-border is still a huge opportunity for Mercado Libre in general. Today, almost 15% of the GMB that we have in Mexico is coming from cross-border, mostly Chinese. But I would say that in the rest of Latin America, our cross-border business is still small and we think we have an opportunity to generate some value there. Specifically about Texas, as our introductory video was mentioning, we think that we can complement the selection that we have in Mexico from local Mexican sellers with inventory coming from North American sellers. And that is particularly relevant considering that there are certain pieces of that selection that we cannot get locally in Mexico or we cannot find at the right price. So in the end, our North American strategy is to complement the offering that we have in Mexico and be able to serve our consumers better. And eventually thinking about the strategic impact, we think this can be relevant. We think this could be multi-country in the future, but it's too early to tell. First signs of that operation are really, really positive. We see consumers getting extremely engaged with the products that we are offering, and we see our sellers from the U.S. also very satisfied with the sellout that they have. in the inventory that they are bringing to our warehouse. Going to the second part of your question about shipping margins and cost, I would say that we are pleased with the results that we are seeing from our logistics operation. So in terms of discipline with which we are managing the operation itself, but also with our ability to manage our P&L while continuing to invest behind our strategic priorities. This quarter, as you were saying, we saw an expansion in shipping margin. That expansion is mostly coming from our ability to drive efficiencies in our operation. And that happened even with some headwinds coming from Mexico where we are operating at max capacity and where we have an extremely strong hot sail season. I would say, broadly speaking, we continue committed to running shipping with a very disciplined P&L. And you can see that clearly when you look back into the longer-term picture. So if you go back to 2019, you can see that our net shipping cost remains broadly flat, or even improving if you were to add our flat fee revenues into that one. And in that same period, we moved fulfillment penetration from 6% into 50%. We moved pre-shipping up 30 percentage points. We increased our square meters by 5x, all this across the region. So again, shipping is a key driver and a key Carlos Zarazaga- You know, strategic priority for MercadoLibre and we are committed to executing what we need, while managing costs and revenues with strong discipline.

Carlos Zarazaga- Thank you very much.

Alicia Reinhard, One moment for your next question.

The next question comes from the line of Maria Clara Infantosi from Itao.

Maria Clara, go ahead.

Hi, everyone. Thanks for taking my question. It's about your view on the implementation of China AI in the edge business. So this has been a key topic of discussions in the earnings calls of some big techs during these past days. And can you please share your thoughts on this topic? Is Mel investing in this room? And which opportunities of improvement in business do you foresee with the implementation of GEN AI? And if I may add, can you please comment on how the AI business has been affecting your recommendation in GEN? Thank you.

All right, let's see. Okay, what is this? Hi, Maria Clara and Martin. I mean, as you... Can you mute the line on the other side? You're hearing some noise. Thank you. Yes, as you mentioned, we have been putting a lot of resources into AI and chain AI throughout the company, really. We don't have a centralized department of AI, but all of our different business units and particularly the IT team have been focusing on trying to find opportunities to improve our efficiency and deploy AI solutions, both in the way we manage the business as well as consumer facing. And some examples of that, On the commerce side, obviously, we are using AI to help us with recommendations, as you mentioned, but more important than that, on reviews, for instance, that in the past, if you were to review a product, you have to go through many different reviews. Now we can consolidate that into a more efficient way of communicating the qualities of the prospect of a particular product. Pictures, as you know, some of the pictures that are published might not be the same quality that we are expecting from our merchants. And we can improve those with AI. Answers from sellers is another good example. In the past, if you were to buy something at 2 AM in the morning, you have to wait until the next day to get an answer. That obviously affected significantly the conversion of a product. Now we can respond right away with using general AI models. Obviously, on the developer side, we have 16,000 developers which are also using AI tools to improve productivity, and that's also generating some improvements and efficiencies in the way we deploy products throughout the company. And I think one of the most important projects that we have is on CX, customer experience and customer support, by which we are also applying AI tools that will help us to not only respond more efficiently in terms of cost, but also be more in terms of the way we manage those issues. Those are some examples, but there are many others that I'm sure maybe also can complement.

Yeah, the only thing I was going to add, you asked about search, and we're using a technique called embeddings to power search. That technique turns search into something more semantic, so it's easier to try to send the users to what they're looking for.

One moment for your next question.

The next question comes from the line of Keo Deprado of UBS. Keo, please go ahead.

Hello, everyone. Thanks for the question. So, too quick on my side, please. With all these good trends that we are seeing in the fintech business, I was wondering if you can share some idea about the profitability of the fintech business in your three main countries, Brazil, Mexico and Argentina. And what levels do you think you can achieve in each of them? Just an idea or how it has been evolving over time would be really helpful here. And additionally, you are mentioning that you would like to become the number one digital bank in Mexico. What do you think are your competitive advantages against the digital players in Mexico today? I think that now you are with similar offerings compared to most of them nowadays. Thank you very much.

Hi, Caio.

So, you know, we don't share a lot of details regarding specific profitability in each of the three countries. Let me share with you that we are profitable in all three countries, in all the three largest markets, in Argentina, Brazil, and Mexico. In the case of Brazil and Mexico, it's driven mostly on the syntax services side, driven mostly by a credit book. and acquiring is profitable in all three markets. In the case of Argentina, the importance of credit is less relevant than in the other markets, but we have such a strong position as a wallet, leveraging the payments every day users make. That makes up for a lower credit volume at this point. And we are very profitable in all three markets. Regarding the second question was, that we have claimed that we are applying for a license and that we want to be the number one digital bank in Mexico. We believe we have several competitive advantages. First of all, we already have a large user base given the importance of On the one hand, the marketplace, and on the other hand, our acquiring business, which is very developed in Mexico, and furthermore, we have been doing aggressively. First, initially, our consumer case book there for several years, but also recently, our credit card, and we're very excited with the kind of growth we are seeing, and we believe that this synergy we have between the marketplace, acquiring business, and the fintech services businesses is something that nobody else has. So we believe we have a very strong position in Mexico.

Okay, great. Thank you very much.

One moment for the next question.

The next question comes from the line of Joa Suarez of Citi. Joa, please go ahead.

Thank you, and congratulations on the results. I have two quick ones on my side. The first one is I wanted to dig a little bit deeper into the GMP performance in Brazil. We initially had the impression the scores are going to be more challenging. And actually, you had, right, the flood in Rio Grande do Sul. And not only did we see an acceleration, but we saw volumes driving these accelerations. So I just wanted to understand. I realize there's no single bullet here, silver bullet, What do you attribute this to multi-plus? How much do you attribute this to? I mean, I just wanted to go and pinpoint what are the main points that we would attribute this acceleration to. It would be interesting to hear. And we also saw a good development of the ads penetration right now at 2%, right? So I just wanted to hear your thoughts on the broader retail media adoption. How much of this comes from your view involving your own capabilities? And also any thoughts on the profitability on these businesses that will also be interesting to hear. Thank you.

Hey, Joao.

This is Ariel. So thank you for your question on Brazil. I think it's a good thing, the fact that I am getting kind of the similar question on why we grew so much in Brazil quarter. We must be doing something positive on that one. So the answer to your question is that there is no silver bullet to the performance. So it's not something specific that I can attribute that growth to. I would say several strategies and actions were executed across the business. From improvements in selection, expanding our 3B selection complemented with more 1B, which is helping us, you know, strengthen Mercado Libre's position as the go-to place to buy in Brazil. Improvements in pricing, we are getting more and more obsessed with our price competitiveness. We continue also improving our shipping offering with faster deliveries, slower deliveries, more fulfillment, more free shipping. As we said in the past, we are putting a lot of effort in the averaging Brazil into regions, into categories, into different type of users as to find the right solution to push for growth in each of those segments. Product and experience continues to be a key priority for us. We continue to deploy innovation. In beauty, we deployed virtual try-ons. We are expanding our compatibilities in auto parts, trading in consumer electronic presets. I mean, we continue to improve our experience more and more. I think we also developed over time a good muscle to quickly identify and adjust our promotional calendars and marketing efforts as to capitalize the opportunities that appear in the market at every single point of time and that's also helpful and last but not least as osvaldo was saying before with the first question our payments ecosystem so blue money including buy now pay later credit card account money continues to gain share in our checkout and that's definitely helping us increase conversion so in summary i would say that what you see today is probably the compounded effect of 25 years investing fully focused in in latin america So the second part of your question related to advertising. So I would say, again, another good quarter or great quarter for us. Our penetration reached 2% of GMB, which is 40 basis points improvement year over year. The revenues grew 51% year over year in dollar terms. That's the eighth consecutive quarter with a growth rate above 50%. In particular, we saw a great performance coming from cross-border sellers, from 1P brands, and that product continues to represent the majority of the business. I will also add to the ad thing, a big milestone for ads.

One moment for your next question.

The next question comes from the line of Jamie Friedman of Susquehanna International Group. Jamie, please go ahead.

Hi, good evening and congratulations on the 25th. I just wanted to briefly get your summary message about credit quality because, you know, I realize that there's a lot of different inputs here, but the nine-mile did deteriorate on a year-over-year basis about 500 basis points, though admittedly it was roughly flat sequentially. the provision that's page 10 and then on page 19 the bad debt provision which i realize is also a function of growth math but that that also increased about um 300 basis points sequentially so i know there's a lot of detail but if you could just give us like the overall message about how you're thinking about credit quality that would be helpful thank you

Hi, sorry, we just got, we dropped, you know, our line got dropped, so if you can give us one second, we'll try to get back here.

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We're trying to dial in once again. hello uh we can hear you okay if you could please i don't know if you if you listen to the last part of the answer from from us from from ari but we can move on to the next question if needed we can go into more detail on that please go ahead please so i was just asking this jenny freeman such queen i was just asking for the one minor on credit quality on page 10 the nine miles

though they were roughly flat sequentially. They did deteriorate about 500 basis points year over year. On page 19, the 300 basis point increase in the bad debt provision, though I realize that is growth math. But I know there's a lot of detail. But if you could share the one-liners, how you're thinking about credit quality, that would be helpful. Thank you.

Absolutely. NIMAL was slightly down, but that compression was I would say fully explained by the growth of the credit card portfolio as percentage of the total portfolio. So it's mostly a change of mix. The credit card structure has a lower NEMA because we look provisions up front, but only a small portion of the portfolio generates revenue initially. Having said that, we are very excited with the evolution of all of our credit portfolios. We are seeing very good results in the earlier cohorts of the credit cards. we continue to see that the improvement in our scoring models and shortening of the payback periods for each cohort, that's why we have been growing the credit card portfolio. And beyond that, also, the credit card is obviously strategically very, very, very important. And then when the second part of the question is regarding, if I understood correctly, is regarding to MPL evolution, And again, we are comfortable with the results we're seeing. The spreads we have are very, very healthy. And I think overall, we are comfortable with the credit portfolio.

Yeah, and going back to NIMAL, just to complement, we don't disclose specific NIMAL for product or for countries. But as Osvaldo mentioned, this is a mixed issue. If you were to look at individual product portfolios, NIMAL are stable or improving year on year. So that's, you know, That's why we feel comfortable accelerating growth. Our credit book reached $4.9 billion, growing 51% year-on-year, you know, on the back of very strong profitability results.

Okay. Thanks, Joaquin. Thanks as well.

One moment for your next question.

The next question comes from the line of Jeffrey Elliott of Autonomous. Jeffrey, please go ahead.

Hello. Thanks very much for taking the question. There's clearly lots of growth, lots of acceleration, lots of positives in the numbers. Can you tell us what has been the biggest positive surprise for you over the last year? If you went back to 12 months ago and you could see the numbers that you've just printed, which part of the business is it which has exceeded your expectations?

Hi, Jeffrey. I think if you look at the results over the past year, we are super excited about all parts of our business. I mean, on commerce side, as Ari mentioned, we are growing Brazil 36% on the back of 30% last quarter and sustained growth. In Mexico, this is the third consecutive quarter by which we grow 30% year on year. So, gaining market share in both markets. Also, very positive surprise about the The turnaround of Argentina, we had a tough quarter last quarter in Q1. We'll regain growth once again on the commerce side of Argentina. Our fulfillment infrastructure continues to be deployed and great gain in penetration, which results in much better user experience. Number of users have been growing, number of buyers, as well as monthly active users on the fintech side of the business. Then on the fintech side, we have tremendous opportunity ahead of us in Mexico. Asset under management are performing very well throughout the region. Our credit books, just like Osvaldo mentioned earlier, performing very well, and we accelerated growth the past two quarters. So we're very excited about all of our businesses, and particularly also the new businesses that are growing. Mercado Play, which is something relatively new, showing some positive signs so far. Nelly Mice, which we launched a year ago, performing very well. So we are very excited about both the commerce as well as the fintech side of the business.

Okay. It sounds like the answer to that is everything. I'm tempted to ask you to pick one, but I won't. Just to follow up, the new customers, the monthly active user growth, Who are those people? Are they people who've not used e-comm before? Are they coming from competitors? Where are the new users coming from?

Just to be fair with you, it's true that the answer was broad because we're really excited about the performance of the business. I think if I had to highlight one, it's probably the surprise of continuing to gain market shares in Brazil. For several quarters, for more than a year now, every quarter we continue to grow at a faster rate than the market at a very large scale. So that's obviously something that we are very proud of, very positively surprised.

If I were to pinpoint something on the fintech side, I would say that several quarters ago, we restructured how our team is organized with a strong focus on fintech services. And since then, we have seen very strong growth, both in Brazil and Mexico, not only in number of users, but in the frequency they use our products and how, for example, has grown and has gone. So I'd say the increased focus we put on FinTech services is paying off, and that is really according to the expectations we have.

Great. Thanks very much.

One moment for your next question.

The next question comes from the line of Craig Maurer of FT Partners. Craig, please go ahead.

Yeah, thanks. Again, congratulations on your 25th. Most of my questions have been asked and answered, but wanted to ask you a follow-up to Jeff's question, you know, on market share. If you could characterize for us where you think market share is for MercadoLibre in each of the main markets and how that's progressed year on year, that would be helpful.

Yeah, as you know, market shares are a lot of information, public information. Sometimes it's not that accurate. I mean, the reason why we believe we are gaining market share is because we're growing at a very rapid pace, most likely, for sure, above market. But in terms of specific market share numbers, those are numbers that we don't share, but it's public information I'm sure you can get. What we can say is that at the growth rate of 36% year-on-year in Brazil and 30% in Mexico, we are gaining share for sure.

Okay. Thank you.

One moment for your final question.

The final question comes from the line of Marvin Fong of BTIG. Marvin, please go ahead.

Good evening. Thanks for taking my questions and congratulations as well on the anniversary as well as the strong quarter. I would just like to turn to the topic of the Brazil macro environment in terms of, you know, it looks like inflation is kind of ticking up and the central bank is pausing. So, just with respect to your FinTech business, um, you know, two parts on this, you know, does it factor at all or how does, you know, that trajectory factor at all into your willingness, uh, to, you know, lean into, um, you know, acquiring more, extending more credit and acquiring more borrowers in that country. And then secondly, you know, how, how might it affect, um, your, your, your spreads? Uh, you know, I think in the, in the second quarter you had some, uh, positive gross margin impact from credit spreads and credit funding. Just any thoughts on how you might pass or not pass on interest rate funding costs to your customers. Thanks.

Hi, Marvin. So mostly the decision of how to expand our credit books, our credit offerings is principally related to how we are seeing However, we see our models evolving, and as long as we continue to see that our models are working well and NPLs are coming down, we will continue being aggressive with expansion of credit. Our credits typically are very short. and therefore we are very flexible to adjust to any change in interest rate policy that may come. And with regards to credit spreads and funding, I would say that today we have spreads that are very healthy. We are always looking for ways to continue growing in the the k book we have and in some cases that will imply working with very positive spreads but smaller than the one we have now because there's an opportunity to continue further expanding up market where in order to reach those customers we need to be even more competitive with vis-a-vis traditional banks and just to complement the macro i mean we've been operating in latin america for 25 years and we've seen many different

macro situations. And we believe that in our industry, both in commerce and fintech, it's a lot more important, stronger, the secular trend of people moving online, both to commerce online as well as to bring their finances, digitalize their finances. So we are a lot more focused on continuing to improve our products, continue to offer faster shipping, better assortment on the commerce side, increasing the credit book, as Sofaldo mentioned. And macro should not affect us. a performance or goals in the future, at least what we're seeing so far in Brazil, Mexico, and Argentina.

I really appreciate the insight there. Thanks so much.

This concludes the question and answer session. I would now like to turn it back over to Martin De Los Santos for closing remarks.

Well, thank you, everybody, for joining. Once again, very excited about the results of the quarter, but more importantly about the future of MercadoLibre, you know, celebrating our 25th year tomorrow. But we're looking ahead. We continue to see as many as big opportunities as we saw 25 years ago. So, again, looking forward to the second half of the year and to reporting to you in three months. Thanks again.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.