Q2 2020 Mercadolibre Inc Earnings Call
[music].
Hello, everyone and welcome to my color <unk> earnings Conference call for the quarter ended June Thirtyth 2020, I infer that he goes on the Investor Relations Officer for my color, leaving a senior manager presenting today, it's Pedro Arnt, Chief Financial Officer. Additionally, although other human.
C O my call a Bible will be available during today's call when they session.
I remind you that management may make forward looking statements relating to such matters acid continued growth prospects for the company industry trends and parts and technology initiatives. These statements are based on currently available information and current assumptions expectations projections have a feature that well, we believe it or assumptions expectations.
And projections are reasonably music currently available information you are cautioned not to place undue reliance on these forward looking statement. Our actual results may differ materially from those these costs in this call for a variety of reasons, including those described in the forward looking statements I respect their sections of our 10-K for year ended December 31st 2009.
Team item, one night risk factors part two of our farm. Thank you for the quarter ended March 31st 2020, and on any of my colleague <unk> Inc. other ethical filings with the Securities and Exchange Commission, which are available on our Investor Relations website.
Finally, I would like to remind you that during the course of this conference call. We made this cost some non-GAAP measures I reconciliation of those measures still in years comparable GAAP measures can be found in our second quarter 2020 earnings press release available in our Investor Relations website.
Now, let me turn the call over to bed.
Hello, everyone and welcome to our second quarter 2020 earnings Conference call.
Before we begin I want to take a moment to highlight that her thoughts and well wishes continue to go out to all the individuals and families affected by Kobe 19.
Both at our company and everywhere.
We particularly extend our immense gratitude for and depreciation and recognition to all those Braves soles, who continue to work on the front lines through this unprecedented global health crisis.
As you may have seen our latest branding campaign elbow to elbow, which promotes social distancing is one of the ways. We are contributing to awareness around prevention raising funds for treatment effort and paying tribute to health care professionals.
I will detail our other contributions in a moment.
We also want to take this opportunity to thank all of medical leave it is employees, who have shown endless amounts of resiliency effort sense of purpose encourage.
Whether it be balancing the requirements of family household and work responsibilities, well conforming to social distancing norms and working from home.
We're showing up to work at our warehouses and service centers everyday enabling us to deliver the goods that are users need.
We are all immensely proud of all the hard work our employees are doing during such trying times.
Before I dive into the quarterly performance overview, let me share with you some of the efforts we continue to undertake in response to this pandemic.
We have.
Kept remote work for all the teams except for our logistics personnel for which we have applied the strictest norms of prevention in hygiene in all our logistics centers.
Added temporarily to our payroll employees from Lippincott T.D.N. in Argentina, well in July we signed agreements with the master franchisees of brands such as Mcdonald's in Starbucks.
In this manner and together with the agreement that we have already implemented with L.P. Q. We will total 350 contracts under this collaborative labor initiative in Argentina.
We are working towards extending this offer throughout Latin America.
We have continued to manage the operation of our commerce shipping and fin Tech solutions without significant interruptions throughout the quarter, helping new and existing sellers to continue their operations as well as buyers to get their products on time.
We have launched comprehensive support and training platforms for thousands of Smbs and interpret irrs in the region facilitating the onboarding of merchants that are starting to operate in the world of online commerce for the first time as well is generating alliances with some of the main ecommerce platforms.
[noise] operate in this segment.
We continue to strengthen our presence and our offering in the long tail and mid tell segments by enabling merchants to processed food aid cards in Argentina and Brazil.
Already representing 10% of our Npos TPV in Argentina, and allowing for more than 40000, new merchants to accept these emergency payments.
We have promoted our payments link to avoid crowds of people that physical points of sale, while also allowing small and medium sized businesses to continue to operate.
We improved the Providence experience and enhance the communication positioning the payment link as an excellent solution for distance sales in the current context without needing to have an E commerce site.
And finally, we continued with our donation campaigns, helping and Geos and food banks in Argentina, Brazil, Mexico, Chile, Colombia, Peru, and Uruguay through the elbow to elbow challenge and campaigns.
With that said, let's recap our performance during the quarter, starting with our ecommerce business.
Ecommerce surged during the second quarter as we reached new milestones in penetration and experienced powerful tailwinds, which drove solid performance and overall execution across the board.
Traffic and buyers accelerated strongly versus the first quarter with an unprecedented increase in engagement rates.
Sessions grew by 48% year on year, an acceleration of 28 percentage point versus last quarter's growth.
We also improved our conversion rates with buyers on our marketplace, surpassing the 30 million Mark reaching 31.5 million during the quarter.
Engagement rate in terms of frequency of purchase increased from 4.3 items per unique buyer last year to 5.7, representing more than a 30% improvement annually on a consolidated basis.
A new buyers.
Attained a record growth of 75% year on year.
Consolidated gross merchandise volume doubled over last year growing at a 102% during the quarter with all countries accelerating sequentially on an FX neutral basis.
On a country level all of our country's accelerated from the first quarter as we delivered FX neutral year on year growth rate of 230% for Argentina.
58% for Brazil, and 122% for Mexico.
Colombia, and Chile is combined growth was almost 200% year over year.
We've become more focused on these two Indian markets given their increasingly attractive growth profiles as the business accelerates in scale.
Our other segment grew 69% year on year on an FX neutral basis.
Furthermore, underlying the strength of the quarter units sold growth exited the quarter growing above 100% year on year in all of Brazil, Argentina, Mexico, Chile and Colombia.
At the category level consumer electronics, which was once when are the most affected verticals at the beginning of the year started recovering during may and June to complement the sound growth rates in categories more directly related to co bid.
Driven consumer behavior changes, such as CPG and health to name a few.
Regarding consumer electronics in Brazil, where we had been doing significant work to improve price competitiveness assortment.
Amongst other initiatives.
In this country, we exited the quarter with an almost 40% growth acceleration throughout the period, indicating that many of our efforts are beginning to pay off.
In consumer packaged goods, specifically not only have we continue to see improvements in terms of adoption and growth, but we are also continuing to verticalized. The experience in this increasingly important category for us.
On the product side during the month of April we launched our supermarket navigation in Brazil, and Argentina, helping us accelerate conversions and growth in that category.
In line with that we also continued enhancing the navigation experience through our shopping cart as we enable users to bundle items in a single order and be able to access free shipping benefits on this category as well.
We have also made solid progress on our cross border trade initiatives to deepen assortment and selection during the quarter, especially in Mexico.
Our improved output was primarily driven by our Chinese sellers being able to recover from the initial impact of cobot 19 to their businesses.
Additionally, during the second quarter, we launched pricing per category in Mexico in Chile.
This had already been made available in Colombia since the first quarter.
Where we lowered commissions for consumer electronics categories and increased them for higher margin merchant categories, like fashion and apparel as well as furniture among others.
This initiative allowed us to better adapt pricing to our merchants margin structures and be more competitive without compromising overall monetization and take rates.
I'll now turn to logistics growth area that continues to unlock a powerful synergies with our marketplaces.
Our managed network has been central to growing our ecommerce businesses and being able to handle the increased demand, resulting from the pandemic validating the resources, we have been allocating to the growth of our own logistics network over the previous years.
We are delivering on time and cost efficiently across the region with our consolidated net promoter score continuing to improve in fact, our managed network NPS reached an all time high in Brazil with users highlighting speed of delivery.
And merchant quality.
Of our shipping services.
We've also been able to maintain delivery speed well growing volume, particularly for deliveries arriving in less than 48 hours where year over year, we improved by 10 percentage points. The consolidated share of these rapid deliveries, especially in Brazil, where that.
Improvement was a 13 percentage points.
Same day delivery is also improved on a consolidated sequential basis with countries, such as Brazil more than doubling from prior year quarter share mainly attributable to a higher penetration of our flex service, which already accounts for 5% of the consolidated volume.
Important milestones in Mercadoenvios did not stop there.
Our managed network penetration surpassed the 50% Mark on a consolidated basis.
Brazil, and Argentina reached 51% and 79% respectively.
Fulfillment in Brazil reached 17% of total shipments exiting the quarter with a penetration of nearly 20% in June.
The remaining 30 points of the Brazilian managed network coming from our rapidly expanding cross docking operations.
In Mexico, we maintain the pace of execution with fulfillment penetration stable on a sequential basis.
On the shipping product and technology front, we are pleased to report that Meli logistics, our integration of micro carriers into our managed network gained penetration in Brazil in Mexico.
We also launched technology for this product in Argentina during the quarter, enabling us to more efficiently manage the pandemic driven surge in demand we have faced.
As a result of this integration and does our flex logistics solution continues to gain share we continue to generate efficiencies in our shipping costs with savings Q on Q of around 23% per unit shipped.
Given the success of our managed network. We've continued scaling this important initiative with the launch of our first fulfillment centers in Chile and Colombia.
As we doubled down on our efforts to maintain our leadership position in these countries.
Additionally, we also continued with the expansion in rollout of our flex logistic solution launching it in Uruguay in Chile during the quarter.
The latter should not only help us drive greater penetration of Mercadoenvios in the aforementioned countries, but also enable us to have more influence over the last mile delivery being able to generate efficiencies on the most cumbersome part of the shipping journey.
Additionally, we continue to expanding places our drop off point solution in Brazil, We now have over 1.3 thousand places drop off points throughout four states.
During the pandemic given that some of our drop offs weren't marked as non essential activities and weren't able to open we implemented an alternative places offering meli branded place trucks.
This initiative was deployed in safe high density locations in some Paolo providing an innovative experience to sellers at a reduced cost.
With that now let's move onto the Fintech side of the business. Another critical building block of our ecosystem extract Angie.
Our off platform payments business exceeded our expectations during the period due to the strong performance of our online payments business and the relative resiliency demonstrated by our physical in store solutions.
Pos and QR.
Consequently, mercadopago surpass the 52 million payers market during the quarter growing 64% year on year accelerating sequentially by more than 21 percentage point.
We've also seen better engagement rates with our payment solution, achieving almost eight transactions per quarter per unique payer.
During the quarter off platform total payment volume accelerated sequentially to 175% year on year on an FX neutral basis with a stellar 339% year on year growth in Argentina.
A strong performance in Mexico and in the other segments, which are growing over 220%.
Brazil on the other hand has a greater off platform total payment volume contribution from mobile Pos systems, which rely on foot traffic, which given the aforementioned lockdowns was a more compromise segment than online payments.
The impact of the pandemic on the M. Pos business translated into a slower off platform TPV growth pace in Brazil of 84% year on year.
During the second quarter, our online payments processing business, what we call merchant services delivered one of the highest historical growth rates, reaching 164% year on year on an FX neutral basis.
The latest shift towards E commerce consumption benefited us across all regions, notably we recorded year on year growth of 457% in Colombia, and 258% in Argentina, both on an FX neutral basis.
Not only did or online services accelerate on both number and volume processed but also on the onboarding of new merchants adopting our payments offerings.
This has accelerated the migration of sellers to the online world, both large and long tail, leading to a record acquisition during the second quarter.
Mobile wallet also had a strong quarter as it benefited from a consumer shift to contact less payments.
Although we did observe a deceleration in the in store payment solutions like our Q R and Npos products.
The latter to continue to be affected by lower foot traffic due to covert 19 throughout the quarter.
As a result consolidated wallet TPV accelerated to 373% year on year on an FX neutral basis.
Overall wallet adoption reached 9.5 million active payers during the quarter with almost 10 transactions per quarter per unique payer accelerating the frequency of purchase versus prior quarters.
Second quarter Mpls TPV grew on a consolidated FX neutral basis by 80% year on year.
This performance was impacted more negatively during april with year on year growth of 71%, but accelerated through may and June exiting the quarter at a growth rate of 89% year on year, almost reaching pre covert levels.
Additionally, in Argentina, we are happy to report that we launched our point plus device, which should enable us to move up the merchant base and have a more complete value proposition that facilitates better cross selling to marketplace merchants, who also have physical stores.
Although as I just mentioned the pandemic negatively impacted the physical retail footprint across the region. Our active npos merchant base increased during the second quarter to 3 million, while on a consolidated basis device sales surpassed the previous quarter Mark reached.
Almost 1 million devices sold.
This strong momentum of device sales and user base growth is mostly due to the trend towards digital payments cash shortages and an increased propensity towards local purchases in smaller convenient stores.
We also implemented different initiatives to accelerate the transactional volume, including but not limited to lowering fees eliminating interest charges on credits cross selling the payments link and enabling the feature of acceptance of emergency aid as a means of payment.
Staying on Fintech, one quick update on our pay Pal commercial agreement.
We're very pleased to announce that Paypal is now available for cross border transactions on Mercardolibre in Brazil, and Mexico, and also available as a payment option within Mercadopago those online checkout for foreign shoppers.
This is a first step that we hope will generate powerful synergies between both companies and boost even further our common objective to democratize payments throughout Latin America.
Moving on to Medicare look at 82.
During the quarter, we slowed our pace of originations in order to manage our exposure to merchant and consumer credit risk as the pandemic and Lockdowns got stronger at the beginning of the corridor.
We've been able to mitigate default rate impact due to the swift preventative measures taken.
Consequently, nonperforming loans actually improved Q on Q on a consolidated basis.
This was in large part explained by the slowed down in the pace of originations during April that I, just mentioned as our teams shifted origination towards users with good historical credit behavior.
Well, we also enhanced our collection mechanisms and processes.
Along these lines. It's also important to highlight that as we entered into May and June and we had more data in our models. We gained a better more confident understanding of users, which enabled us to more accurately predict their behavior and also to ramp up originations again.
When we analyze the nonperforming loans through the second quarter on a monthly basis. They have kept improving all the way through the end of June.
The lower bad debt levels, plus higher interest rates have resulted in an improvement in the profitability of our credits business during the second quarter.
Let me now move onto the review of our financial progress report for the quarter.
The financial performance, we delivered during the second quarter has been stellar however, I do want to take a moment to highlight two things before I walk you through the actual resorts.
First.
I want to acknowledge an event that took place during the quarter rich resulted in a bad debt charge of $27 million.
Within Mercadopago, we traditionally have agreements with multiple an affiliated entities under which our users are able to deposit cash at the agencies of these entities for credit to their mercadopago accounts.
These amounts are recognized on our balance sheet as receivables from these an affiliated entities.
During the month of June we became aware that one of the unaffiliated entities, we work with in Argentina that acted as a cash collection agent had accumulated a number of receivables that they did not settled to our bank accounts.
Upon review, we realize that collection efforts for these balances had not been carried out and that the aging of these accounts receivables exceeded the allowed limits established by our internal controls.
As a result, we booked the charge to our PML to reflect that the collections our past due our aging policies, while we continue to work to recover the amount from the counterpart.
We've also identified this event as an opportunity to improve our internal controls on this specific matter in order to avoid a similar situation occurring in the future.
We've also revised all other accounts and have found no evidence of similar deficiencies in collections efforts with other entities that form part of our payments value chain.
Second.
And to state the obvious this has been a unique quarter.
Changes in consumer demand brought about by the pandemic have accelerated adoption of digital platforms significantly throughout the region.
We believe this has both the enduring impact of greater scale benefits in general to our financials as well as the short term benefit of allowing us to significantly decrease marketing spend while still benefiting from accelerating organic traffic.
As we see it that first trend is sustainable the second one less so as we plan to re ramp up sales and marketing investments in our business to acquire and retain the growing number of users that have moved online during the last few months.
With those two comments out of the way, let me start my review of our piano with comment unconsolidated net revenues.
For the second quarter, they ascended to $878.4 million a year on year increase of 61% in U.S. currencies and 123% on an FX neutral basis, as we continue to optimize shipping subsidies and costs that minimize contra.
Revenues from free shipping programs.
And benefit from the surge in demand throughout our platforms.
Gross profit for the second quarter was $427.2 million at a margin of 49% compared to 50% during the second quarter of 2019.
The margin compression resulted primarily from an increase in shipping operating costs as a percentage of net revenues, partially offset by a decrease in collection fees as a percentage of revenues.
Sequentially, we've improved gross margins by 66 basis points, mostly driven by better margins on the shipping warehousing front and efficiencies both in shipping carrier costs Npos purchase of devices and collection fees.
In the slides accompanying this presentation. We've included as we do every quarter a detailed breakdown of these as well as the Opex margin evolution that I'll cover quickly now.
Operating expenses increased to $327.7 million, an increase of 15% year on year in dollars.
As a percentage of revenues operating expenses were 37% compared to 52% during the second quarter of 2019.
The 43.1 million dollar decrease is mainly due to marketing expenditure decreases that were made possible. It was the result of the extraordinary growth inorganic demand brought about by the effects of the cobot 19 pandemic on consumer behavior.
This was partially offset by 25.5 million increase in bad debt expenses explained by the recognition of a 27 million charge from the aforementioned accumulated accounts receivables from an unaffiliated entity in Argentina.
An increase of 14.5 million in our buyer protection program expenses, mainly in Mexico and Argentina.
A 2.3 million increase in charge backs from credit cards due to the increasing our mercadopago transaction volume.
A 1.6 million dollar increase in other sales expenses, mainly related to marketing initiatives and a 1.5 million increase in salaries and wages.
Additionally, we had a one time charge in the valuation methodology of how we account for our long term retention plan of $15.3 million.
As a result operating income was $99.4 million compared to a loss of 29.7 million during the prior quarter.
As a percentage of revenues operating income margin was 11.3% improving by 1587 basis points on a sequential basis.
Excluding the bad debt onetime charge operating income would have been $126.1 million, representing a margin of 14.4%.
Moving down our PML the company incurred 27 million in financial expenses for this quarter, mainly attributable to financial loans entered into during the second quarter of 2020, mainly in Brazil, and Argentina and interest expenses from our trust.
Related to our factoring business in Argentina, and the 2028 convertible notes we have issued.
Interest income was $18.8 million, a 44% decrease year over year as a result of lower interest rates in our investment as a consequence of the pandemic.
As a result of this net income for the second quarter ascended to $55.9 million.
Before wrapping up I want to recognize this delicate moment in history. One that has taken a toll on all of us in health wealth and spirit.
At medical leave it at our stated business mission is to democratize commerce and payments.
With so many businesses being hard hit we have the unique opportunity to connect and empower millions of Latin American interpret yours, while continuing to partner with governments across the region in our role as an essential service.
Never has our mission been more relevant and never have we felt more determined to fulfill it.
We will continue to do our part to help get the world back on its feet and once we get there we hope to celebrate that achievement with all of you elbow to elbow.
Thank you everyone as always for joining the conference call and we look forward to keeping you updated on our progress report next quarter.
With that we can take your questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press star one she on your touched on telephone question Thats been answered so from the Q. Please press the pound.
First question comes from Stephens Your with credit Suisse.
Okay. Thank you so Pedro.
Can you talk about the changes through the fee structure that is now expanding Colombia.
Presumably this should result in greater listing selection and hopefully purchase philosophy, but.
We wanted to confirm that you are indeed seeing this pickup.
Although it might be difficult at this aggregate.
Versus endemics.
Also when do you anticipate rolling out the fee structure changes to Brazil. Thank you.
Hi, Stephen Thanks.
So the fee structure aim.
Anticipates to better match.
The fees, we charge merchants with the economics of different categories.
And therefore should drive more merchants to want to lease.
We're trying to accomplish this in a way that is take rate neutral. So we're not trying to raise take rates nor diminish them.
And you are correct.
Gating impact from the overall context is extremely difficult I think the one its or should we can make is that the balancing of take rate has worked well in the markets, where we've done this and obviously our marketplaces are on fire across the board.
So we anticipate and we are working on the rollout to Brazil, we have communicated specific I.
I believe but this is something that given the positive impact in the other countries.
We are looking to roll it out to the other markets.
Thank you.
Our next question comes from our response from Goldman Sachs.
Hi, good morning.
Right.
Yes.
Sure.
How much revenue.
Yes.
Well I know that.
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You mentioned.
Yes.
Optimized.
Shifting subsidy.
Revenues could you maybe.
Okay.
Hello.
Thanks.
Oh you maybe.
We made.
Thank you.
Im sorry, I'm not sure understood. The first part of the question.
It's about.
Both.
Hey, Craig.
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Revenue.
Yeah.
Year over year.
Quarter over quarter.
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And I want to trend.
Yes.
From.
Well.
Okay.
Thanks.
Okay.
Revenue.
Shifting to different.
How should we.
Okay.
Yes.
So I think what you're seeing now.
Already begins to reflect.
A more stabilized level in terms of.
Re presentation of where the revenues are.
Presented and in terms of free shipping I think we're analyzing going forward, where there are opportunities increase free shipping, but given that there are also have been significant improvements as we called out in cost of shipping and whatnot, we actually see pockets of opportunities to offer more free shipping.
Without negatively affecting monetization so.
I think the quarters should be a reasonable indication where the year could play out in terms of the monetization level on the marketplace. The other issue.
Right.
Deltas in monetization on a consolidated basis. If you look at the growth rates, we are seeing tremendous performance out of Colombia, Chile.
Even Mexico continues to drive phenomenal growth, Brazil rebounded significantly, but when you compare growth rates to these other markets.
Lower so our mix shift is moving some of these newer markets with big opportunity.
They typically have lower monetization levels on the commerce site.
Earlier stage.
Thank you.
Our next question comes from Bob for America.
Hey, good morning, everybody and.
Quarter.
Two questions.
Can you talk a little bit adoption rates at Q Arnie lenses.
Thanks.
The Brazilian partners.
That's right.
It also thank you Susan the adoption of the digital solution.
Free cash orientation of the market today.
And then you've made tremendous progress.
Brazil can you talk a little bit about possible impact in the event of another strike in Brazil.
And mitigate that.
Okay.
Hi, Bob will follow with regard to dogs, you'll know your codes in Brazil, but we saw in general not only in Brazil, but in general going into second quarter was that due to the money.
Well traffic in in it gives awarded we saw an acceleration in those flows.
Well, we've got people to be in person. So we saw ethanol raising in b to b payment.
The bump up more falls and also impairment of utilities in terms of all of your goal given that there wasn't significant degrees in dropping and that some of the category, where we have been stronger I related to food or or gas station, what do we need world we abused.
The number of incentives on these gains were providing with regard to your specific question. So.
How do we expect their ramp up we'd the yellow a link so far that we have seen some collections there but difficult to discern the quad the effect given the these without getting over all rural foot traffic on a lower use though it is still payments during the quarter.
If I'm not sure I got your second what's the right it wasn't related to remittances right.
Given the cash.
Today.
We plan to change that.
Hi.
Yeah.
And the foreign exchange spreads have to be much more competitive.
Sure.
Yes.
Absolutely.
We have been doing more business development on partnering with other companies to to become stronger here as you know part of the agreement we have with Paypal is that we will leverage there soon platform.
Our already working on on together my doesn't limit doesn't from the U.S. into Mexico. They have a huge use enough people, who could fund those accounts in the U.S. and there would be able to paid to our account holders in Mexico beyond that we have also started working with western Union robot.
Having them within with Yeah. We lead the also do both fun and his role as president not live yet, but how about altitude already you can already pumped on success using multiple bio, but you will also be able to disbursements actually even mercadopago.
Great and on the managed network just to quickly levels.
So the managed network and it has been or Buildout of our own logistics network over the past few years, where we control.
Transportation Cross docking and fulfillment within the managed network. There is an operation, we called Meli logistics, which further.
Has driven the success we've had in terms of managing the surge in demand over the past few months, which is where we begin to rely less and less on large transportation companies and are able to rely on smaller middle mile last mile and first mile operators.
Consequence of all this is better overall reliance on Koreas has continued to diminish month on month and Q on Q.
So if you look at the rumblings of a court radios potential strike I think we anticipated to not be very long were severe.
We believe that quarter Aaos, we'll try to maintain level of operation as well as possible. We're in constant communications with them, but most importantly, we are much more able today to shift volume away from quickly.
We are not entirely unreliable on them, but we are incredibly better equipped than in all the previous strikes we've had to face as a consequence of everything that we've been building on the logistics front, which is really really.
In light of our execution over the past few months in quarters.
Thank you are not as question comes from Andrew Rubin Morgan.
Hi, Thanks very much for the question. So wondering if you could please talk more about some of the assortment initiative first you mentioned CPG and supermarket.
Curious how meaningful these categories are now and how you're viewing the pace of roll out and then second on the first party assortment any similar color there on your target for one p. within the mix thanks very much.
Sure.
So.
Practical goods, which supermarket is a sub initiative is the category that has been obviously surging throughout the period, but it still represents mid single to high single digits for us in the most successful markets.
With tremendous upside in opportunity as we begin to focus more and more on it.
Our first party initiatives are still smaller than that they're probably in the lower single digits.
But again also a lot of building blocks that we have put in place over the last few quarters and we feel we are increasingly better equipped to be able to accelerate investments and execution behind one p. to complement inventory gaps.
Drive greater price competitiveness of our Threepi efforts.
And I would say that the third element in terms of Assortments that you don't mention but it is important is.
Current crisis has also generated.
Significant pickup inbound interest and pipeline of brands and merchants working with us.
On board into our marketplace. So that is also being another area, where because of all the building blocks that we put in place over the last few years, we feel we can be of assistance to many merchants large brands Oems as well that we're working with us in the past it can start work.
Turning now where for merchants, who are already working with us to be able to double down on their marketplace efforts.
Great. That's building blocks makes sense. Thank you.
Our next question comes from Robert just.
Okay.
I think I'm wanting a couple of quick ones from my end in terms of the investment priorities.
What do you see as maybe most and indirect.
I'd now and maybe what is something just slightly delayed bullet maybe on the marketplace and backend.
And the second one is specifically on funding I mean, you announced a partnership with HBIO recently.
So do you expect them to future to have multiple streaming.
No those services that you would kind of well equipped.
And what other features could you kind of.
Some color on that you're planning for the loyalty program.
And do you expect that that will be a strong marketing campaign, along the loyalty program at some point.
Thank you.
Great Hi, Robby.
So with the risk of being repetitive, but I think this is important.
Our strategy and our investment cycle.
In large remains unchanged. If we were scrambling now to try to react to the opportunities are rising because of coated.
I don't think we could be as successful as would be this as a consequence of work in logistics and category expansion in overall user experience that obviously, we've been highly focused on over many years now fortune comes to those that are prepared so at the margins I would say.
We have accelerated even further the rollout of our logistics network because that has been key throughout this period and it's been tremendously encouraging to see how well the logistics operation has been able to deploy an even greater number of nodes in our own networks and.
Rating pace successfully.
Obviously from a category perspective, we have.
We directed resources in focus potentially away from some slower categories over the next few quarters like apparel or auto parts to some of the faster growing ones like CPG supermarket health and beauty.
But again this is not a change in strategy, it's marginal reallocations of capital.
On the Fintech side I would say there is an increased focus on the overall digital account.
We see greater digital adoption and a somewhat slower adoption of.
In store QR categories, primarily in restaurants and food.
So theres a bit of a shift there we still see restaurants foods in other in store Q added to our categories and Npos as tremendous opportunities long in mid term. So I would say this is more of a pause before we start accelerating and we've already began to see that when you look at our comments on.
Yes in Brazil in other markets as we compare the exiting the quarter to the beginning of the quarter.
The final point I would say is we have also.
Sequence of this scene and been able to work with governments in helping them distribute a lot of the aid that is being distributed.
Throughout Latin America, particularly in Brazil that has generated a ramp up in users receiving account balances as a consequence of these eight services and fundings by governments. So that's also driven the focused I mentioned previously on digital accounts.
On your second question.
We do intend and this strategy is to be able to work with leading.
Entertainment and content companies.
In ways that are accretive to their objectives of customer acquisition and billing and charging of those customers throughout Latin America, given the capabilities that Mercadopago has.
While simultaneously being able to generate value for our users within the loyalty program from discounts and special benefits in promotions that we are able to negotiate with these partners. So the idea is to generate sort of a subscription hub.
For our users with benefits while at the same time driving incremental customer acquisition of digitally savvy and high frequency users and also helped to these partners with the challenges in billing.
Charging and credit that exist throughout the region that we saw very efficiently with Hello Hello.
But content is only one of the problems behind the loyalty program free shipping obviously with the initial one thats been incredibly successful, but our idea is to continue to overlay other benefits as we partner with more and more companies in the region that want access to our growing.
Your base of loyal users and are willing to give benefits in discounts to those users in order to acquire them.
That's helpful. Thank you.
Okay.
Our next question comes from the start Rolling there yes.
Hello Pedra.
Hello for the decline.
Good morning, Phil I have two questions.
The first fun.
Federal in maybe a bit repetitive but.
Do you foresee any and logistics bottleneck in your entire system Vidic centers help grow over your very comfortable with the beef up the investment that you are making.
And if you could highlight where where do you see more more more critical volumes and capacity to drive and the second question.
Question is related to the payment link.
You mentioned in your opening remarks that you're promoting more dipping link as a feature tool to help the like reduce.
In store agglomerations et cetera, but do you foresee a long term opportunity here.
Of both engagement in one and monetization possible.
Great. So let me take the first one and what's called the can take the second one.
We are extremely focused on continuing to generate incremental capacity in our logistics networks.
And we are investing significantly behind that we have already communicated incremental warehouses for Brazil. We have recently launched a new warehouse in Chile, we will be doing so in Colombia, and very very rapidly.
Moving out when I mentioned before which is medical you the logistics, which allows us to access capacity from small companies independent truck drivers and whatnot. So our expectation is that we can continue to generate that incremental capacity as our volumes.
Yes.
So far so good it's an ongoing process, it's challenging but most importantly, we believe that it generates an enormous competitive advantage because what we are building is truly unique.
You look at service levels.
That logistics part of our overall network throughout the call that crisis, they have been extremely good.
While at the same time driving down prices. So this is a strong competitive advantage as we build it out.
With regard to the famous link.
Technology will help form for many many years, but he has clearly our accelerated as a consequence of coffee that part of what has happened in many ways was more businesses, which in the past did not sell OLED or.
I would also could always be able to collect in person.
We're not able to do so so they have started to silverline.
Probably very big sickening falling from that sharing women's link through what top or other social media or even the liberty is where they are able to collect online and this has seen a significant back acceleration we see this as an opportunity to engage those more merchants on help them.
Move along.
Doing more borrowing colomer in general.
We see that they wanted essentially pretty healthy because usually these are the merchants in the very long tail. So we do not need to offer any any these council that on our fees of one of the decision is very good with regard to the long term opportunity. We believe we still mostly as an entry point into we call muscle.
Indeed, Watson's one Norton.
Thank you.
Our next question comes from.
Keybanc capital markets.
Hey, good morning, Thanks for taking my questions two quick ones from me first.
Thank you for that commentary in marketing I guess, what point do you believe that you'll have to re layer in marketing.
Occur in the third quarter and stacking given some of that April quarter on quarter trend and out of credit though are you expanding now at this stage credit issuance. Thank you.
Sure so very quickly without guiding which we don't.
We have began to once again invest behind customer acquisition and even more so Brian to building.
This is this is a unique opportunity with tremendous fast forward digital adoption by consumers throughout the region and so this is not a time to focus on.
Marketing efficiencies, we believe the scale benefits from the business will still be there.
But certainly we want to be aggressive and to capture the opportunity. So we have already began to spend more on marketing Q2 really was anomalous in that marketing spend we cut back entirely as we try to understood what was going on in the organic demand was still there. We've now began to take the learnings from all that.
And to selectively deploy capital in both sales and marketing again.
It should still be efficient, but yes, we are already spending.
And with regards to Martello Cradle initially in the second quarter, we were cautious because we want to make to see how each merchandising keep consumer was doing.
We as you are saying we are expanding the offering declared diesel in fact, our great offer and he's already a bulk of it level.
Great. Thank you.
Our next question comes from.
And with Barclays.
Great.
Hey, guys. Thanks for taking the question better I realize that you don't want to provide guidance, but can you provide some additional color on what you're seeing in July and August on the E Commerce and Fintech business. Obviously these are volatile times, but it seems like E. Commerce stayed strong through July in many markets, but can you talk about what you're seeing.
And then the second question on Npos, you mentioned that it's close to breed Colbert levels already what type of business on driving direct gallery at this time and can you talk a little bit about you know how much of the margins that you had in 2019 are likely lost permanently in this business. Thank you.
So I think very quickly we mentioned in the prepared remarks that we exited the quarter and entered the July period across most markets in a stronger fashion than we did in the beginning of the quarter, which was already.
Quite strong as a consequence of consumers moving online.
But I think theres still a lot that we need to wait and see what happens on a macro level.
So we will give you an update when we report the next quarter, but certainly we have gone from strength to strength.
With regard to Mpls as we mentioned in the prepared remarks, we did see an acceleration in the number of active merchants, we have 3 million active merchant.
I would say is related to the two facts on that on the one had we as people refer to stay away from past have seen and includes the bundle of devices on the last time, we sold of over 1 million devices in the quarter.
What type of merchant, mostly is more merchant.
Nonetheless, we have been able to move up the merchant base.
We're starting to move up the vertebrae wasn't Argentina, Brazil will launch in the prior quarter, we'll have launched at the Npos Pearl in Brazil, I will launch and Npos last in Argentina, which are others to these higher merchant base.
Something that's worth mentioning.
Well, it's a little cardio as volatility that country by country basis.
More seem more it most of our market them lemon bustos using RMP offices.
In Brazil is mostly.
Smaller individual us on.
Norton.
Additionally, a driver behind increasing volume to the quarter has been that government aid both in Argentina, Brazil, which is both through the bank accounts or special car and these are we have been able to launch the cost of living concept is card growth in Argentina, Brazil. These have driven.
Debit card volume in both countries.
[music].
Thank you. Our next question comes from Jamie Friedman with Susquehanna.
Hi.
Yes for taking my questions I'll, just as the two upfront so it's it sounds like as we've seen.
Elsewhere the.
Payments business.
Is clearly benefiting from the E commerce business.
I was wondering if you would say the opposite is true is the E. Commerce business also benefiting from the payments business, maybe you could referenced some examples.
Because it seemed like there was a big boost in Mercado Pago.
Net new actives or accounts on file in their usage.
So that's the first question and then.
Let's see.
Oh about this CPG mix.
You know, we recognize it's a great opportunity and it seems like you've.
Monetize that opportunity, but where are we in that journey went when do you see it.
Like being.
More material than just mid to high single digits.
Thank you.
So let me take a stab at both.
Complement.
Clearly we have unique platform approach to our business, where we combine commerce in payments in as synergistic of fashion as we can so all these users that are onboarding the digital wallet in coming into payments eventually through the loyalty program through cross sell but I would say the lawyer.
The program is the big bet, there, we should be able to convert those two commerce users as well I would characterize that as more opportunity than actually mediate the happening because a lot of these users will first come onto the payments wallet begin to use the systems and then we have two with time.
Be able to cross sell to them.
On the CPG makes I think there is still a lot to come we will continue to expand our CPG offering in or supermarket offerings. We will continue to invest in the technology in the front ends to make purchases more verticalized within those categories. We will combine this with more and more one P mix.
So I would say this is in the very early innings, it's gotten to mid to high single digits faster than we thought because of cobot, but there is still a lot to grow and when we look at share of wallet in overall consumer spend in the region. This is obviously one of the very big categories that we still under index. So I think the upside.
There is quite significant as we continue to build user experiences.
Around that that category.
The only thing I would add is that that we already seen.
You mentioned that both local borrowings as Google searches on Mcauley vice versa for the quarter, we had in totaled 52 wheel Bailey.
If we work to look at each of the of the multi dose study while meals were on platform 30 million platform. So there was a 9 million over last couple of doing both on and off level actions during the quarter and what we're seeing is increased number of contractual payments per quarter.
We believe this accessibility will result in in Ics are driving both verticals.
Thank you Pedro Thank you as well.
Our next question comes from Marvin.
Yeah actually.
Great. Thank you very much for taking the China. That's my question to.
Just one quick one on on the New commission structure in certain countries.
Could you just help us understand that we should assume that.
The overall take rate will stick.
Prior history or would it one way or any other up or down as a result to changes and then second one press rose volatile.
The new.
Yes initiative that should be coming into play in Brazil.
Starting November just curious whats your thoughts on that or do you feel as a major catalyst for new user adoption of digital wallets.
In general Thank you.
So on the changes in take rates.
Again just to.
Level set we are.
Rising take rates on categories, where merchants typically have higher margins and we are lowering take rates in categories, where emergent typically have lower margins and we are trying to accomplish this in the take rate neutrals fashion.
Consolidated take rate for Meli should continue to consistently grow as consumers and merchants adopt more and more of our services and were able to better monetize our user base from this incremental adoption of services at the specific marketplace pricing, we are trying to carry the.
This out in the take rate neutral fashion, we've been successful in doing that in Colombia, and so far in Mexico in Chile, Likewise, but it isn't a moving target.
And with regard to two big we're very excited with the initiative.
We believe we have lots of FX, but what to think about wanting each of the online and offline online. We are excited mostly because up until now it was very difficult to accept debit cards and Westfield. So most of the common wisdom only we would credit card, we believe that big will enable millions and millions of.
Those who did not hub.
Either a takeout, although we don't have available, but a volatile in the pickup to do more dissection Solange.
And then it with regard to offline and we believe that will drive us erosion of the acceptance of QR codes in Brazil, and I think that there will be we are preparing to workday in increasing the number of.
The stores and our sales force to reach out to these stores. We believe that you are in big combined with the ability to process. They clearly Carter sections, which we already had will also enable the two to accelerate the deployment of telco payments in the country. So we're working on that.
Great. Thank you again.
Yes.
Our next question comes from Marcellus, That's also should be Morgan.
Hi, Thanks for taking my question I wanted to ask.
You are long term strategy for logistics, especially Brazil, where we see some off your marketplace competitors operating some sort of omni channel using their natural cost stores that fast venturing locations.
Do you think this could create a disadvantage the long term.
It would be able to provide weaker deliveries given that they would have been Vince we closed the consumer.
What's your.
On that.
Let's see first of all I think we've always said that we believe that long term as consumers get more demanding as they do in developed markets home delivery beats pickups.
So our approach is to build out the number of FCS we have to get inventory closer to consumers, but continue to deliver to your doors to your doorstep not have you have to drive to the retail location to get the product, which at the end of the day is the same thing is an offline.
Purchase to your doorstep also allows us to get things to you quicker.
Having said that we also have initiatives that look to replicate some of those.
Elements of having a physical stores footprint. So we are rapidly growing our pickup and drop off points throughout most of our network to be able to have greater nodes for merchants to drop things off which would be the equivalent of what some competitors could try to do with the stores.
But but clearly our network design does not try to turn a physical store, which we don't have into a highly optimized E commerce.
Fulfillment center or or cross docking or service center, but rather we focus entirely on building out capabilities to get things to your doorstep faster and cheaper than anyone else.
Okay. Thank you very much.
Our next question comes from cannot month car with Deutsche Bank.
Hi, Thanks for taking my question I wanted to understand the competitive landscape not only.
And then we're going online, but also good offline.
In terms off well you know you just mentioned our competitors using.
Their stores us fulfillment centers or.
But as part of the logistics network. So what do you see it builds up them kind of wanting more and more online.
In Brazil, as little as a niche.
Thank you.
So look I think we really continue to focus on our users and building out our capabilities.
If we do that I think history has shown that we are in a unique position because of the platform. We have the capabilities. We have the brand. We have continued to gain share over long periods of time and to be the market leader in this rapidly expanding space. So.
Really our focus is how do we continue to execute the way we had been executing continue to launch another project to get into more categories and that is how we believe we will build competitive advantages.
And continue to be successful in the competitive.
Scenario, obviously, the the region is competitive consumers sorry competitors also have their initiatives, but we stay focused on ourselves in our consumers. We trust that we will continue to lead and gain share as this market expense.
Thank you. Our next question comes from John Cloggie richer.
Thanks for taking my question.
It sounds like you made a lot of progress in supermarkets GPG during may during the quarter can you discuss what initiatives you have in place to help retain CPG sellers want the pandemic is is over.
Also can you talk about any key changes and purchasing frequency in retention, but you've observed in other categories that you directly attribute to the expansion of your CPG up offerings. Thank you.
Thanks, Great questions.
So there is a lot work on front ends and product initiatives, we launched our supermarket navigation in more markets now.
We've continued to to try to optimize pricing for CPG, eliminating flat season, offering more free shipping even on lower ASP items in some countries. So that should move volume and merchants will go and remain where volume is mood for you.
We've also began to complement with one purchasing which deepens our relationship with a lot of the CPG brands. Because we are now both buying from them and also helping them with marketplace.
We have began to build deeper advertising relationships with these CPG companies, where there is co marketing and co spending occurring so we offer them consumer insights consumer data and ability to also market there CPG lines on the marketplace. In addition to it being highly transaction.
And they can even go direct to consumer.
And we are seeing interesting evidence that consumers who purchase in CPG are more engaged across other categories again, the CPG categories still small we need to see how well. This data holds up but the initial data is very encouraging in terms of.
CPG purchasing cohorts.
Showing very good behavior across other categories posterior having purchased CPG. So that's also encouraging for us.
Great. Thank you.
And ladies and gentlemen, let's conclude the 200 portion of today's conference I'd like turn the call back over to our host.
Great. Thanks, everyone. We are incredibly encouraged by the last four months, we're incredibly proud of the work of our teams in a difficult time.
But we still have a lot of work to do so we will get back to that and look forward to reporting again to you.
A few months time, thank you very much.
Ladies and gentlemen, does conclude todays presentation. You may now disconnect have a wonderful day.