Q4 2020 Mercadolibre Inc Earnings Call
Hello, everyone and welcome to the medical and leave the earnings conference call for the quarter ended December 31st 2020, I M. Federico Sandler Investor Relations Officer for Macau, The Liberty our senior.
Your manager presenting today, the spectral arent Chief financial Officer. Additionally, as well of humanity CEO of Mercado Pago will be available during today's Q&A session.
I remind you that management may make forward looking statements relating to such matters as continued growth prospects for the company industry trends and product and technology initiatives. These statements are based on currently available information on our current assumptions expectations and projections about future events, while we believe that our assumptions.
Expectations and projections are reasonable in view of the currently available information you are cautioned not to place undue reliance on these forward looking statements.
Our actual results may differ materially from those including in this conference call for a variety of reasons, including those described in the forward looking statements and risk factors sections of our form 10-K for the year ended December 31st 2020, and on any of my colleagues, but it's inks other applicable filings with the Securities and Exchange Commission, which are available in our Investor Relations web.
Right.
Now, let me turn the call over to pay the bill.
Hello, everyone and welcome to our fourth quarter 2020 earnings Conference call.
Our strong performance during the quarter further established our leadership position throughout Latin America.
Which is the world's fastest growing region for ecommerce according to E marketer.
These positive market dynamics combined with our strong execution and focus are reflected in our quarterly performance where growth continued accelerating despite the gradual reopening of physical retail during the period.
I'll begin by addressing our commerce business, where items sold grew by triple digits in all major markets, while transactions per buyer also hit record levels in major countries.
During the fourth quarter consolidated gross merchandize volume grew 110% year over year on an FX neutral basis.
Okay.
At the country level, Brazil was one of the highlights during the quarter with the FX neutral gross merchandise volume growth accelerating to 84% year over year, while items sold doubled annually.
Additionally, other geographies experienced robust triple digit growth rates.
While we encountered slight sequential deceleration in growth rates as retailers began reopening this was less pronounced than expected.
We had particularly strong performance in Mexico, whose contribution in unit sold surpassed Argentina, becoming our second largest geography in terms of sold items a sign that we are consolidating market share in that country.
Moreover for the first time in our history, Mexico surpassed the billion dollar Mark in quarterly gross merchandise volume.
Consumer trends towards online consumption remained favorable signaling positive prospects for future growth.
The number of buyers during the quarter reached a record high resulting in almost 37 million unique buyers during the quarter and surpassing 60 million unique buyers for the full year 'twenty 'twenty.
The product breadth and increased convenience continues to attract new buyers at an accelerated pace when compared to pre pandemic levels.
In line with this we've continued broadening our assortment, resulting in over 275 million live listings this quarter.
And we remain a partner of choice for local and foreign merchants throughout Latin America.
Our first party offering continues to grow reaching almost $200 million of total gross merchandise volume on a consolidated basis and representing high single digits of penetration during certain special promotional dates throughout the quarter.
Yeah.
Let me now provide some additional detail on Brazil's performance on an FX neutral basis, which resulted in sequential G. M V acceleration of 10 percentage points and was the highlight for us during the quarter.
Categories, such as consumer electronics, where we lagged at the beginning of 2020 grew north of 15 percentage points sequentially quarter on quarter, driven by our renewed commercial and technological focus.
During 2020, our more deliberate focus on black Friday sales generated impressive topline results.
We made a concentrated effort to increase both investments and collaboration across our business units to maximize this peak promotional season.
This included rebates and marketing campaigns, which leveraged our unique ecosystem of solution within the advertising credit Mercado shops, and Mercado and videos.
Unlike other years, we also increased our volume of promotional deals marked by the launch of our new user interface called promotion central while expanding our improving return flows capacity.
As a result, we doubled black Friday sales year over year, both in terms of share as well as sessions, resulting in our highest fourth quarter market share on record.
As we continue strengthening our Brazilian ecosystem, we are also attracting more global brands across multiple verticals.
Relating to consumer products, we've partnered with Heineken, Kimberly Clark Nestle Pepsico and Heinz.
In the electronics, we partner with brands, such as Samsung and in regards to home improvement, we are working with black and Decker and culture.
Significant progress in this regard yields important brand equity for Mercado Libre and deepens, our product breads advancing our goal of becoming a one stop destination for e-commerce across a growing number of product categories.
Let's now turn our focus to medical and videos, which continues to be of key value driver as we enhance our cross regional logistics capabilities.
Our managed network reached the penetration of almost 80% with Argentina, Brazil, and Mexico at 88%, 79% and 76% respectively.
On a consolidated basis fulfillment reached the penetration of over a third of all items bought on our platform led by Mexico at 60%, while in Brazil over a quarter of all items are being fulfilled by Mercado Libre already.
During the quarter, we shipped 214 million items of growth of 131% year on year and totaled almost 650 million deliveries for the full year.
We also significantly improved our average lead times per shipment, reducing fourth quarter average lead times by 30% sequentially versus the prior quarter.
Consequently deliveries in less than 48 hours improved by 12 percentage points quarter over quarter and by 20 percentage points year over year.
Within that we meaningfully improve the share of same day and next day deliveries as well.
These results are material in the context of significant volume growth during the peak quarterly period of late November and early December where lockdowns were still in place due to the COVID-19 pandemic.
Not only were we able to handle the excess volume without interruption, but we work faster and more efficiently under extraordinary circumstances.
As you can see the Mercado envy of team has been operating at on an outstanding level of pace and effectiveness and we have continued developing logistics capabilities at a quick pace.
During the quarter, we continued to open multiple cross docking stations and service centers, while doubling our places dropoff point footprint and successfully launched Meli are with a fleet of seven dedicated aircraft covering eight routes across Mexico, and Brazil to complement the U.
<unk> of our commercial airline capacity to continue driving down our delivery times.
We look forward to continuing to unlock value from this important and growing part of our business as we move into 'twenty 'twenty, one and beyond.
With that now let's move on to the Fintech side of the business. Another critical building block of our value proposition and our journey to democratizing money.
Consolidated Mercado Pago total payment volume reached almost $16 billion growing 134% year over year on an FX neutral basis.
Totaling 659 million transactions in the fourth quarter Rep.
Representing a growth of 131% year over year.
Our off platform payments businesses reached $9 $2 billion growing at a robust of 150% year over year on an FX neutral basis.
Additionally, during the quarter off platform total payment of number represented over 75% of all Mercado Pago transactions.
The trends towards Digitization of money continued through the quarter and are purely offline mobile point of sale offering point began showing signs of recovery throughout the period.
Online payments grew 143% year over year on an FX neutral basis and continued expanding its merchant base.
Within that growth, we saw sequential deceleration due to higher impact on long tail sellers amidst the easing of the COVID-19 restrictions.
In Brazil, Mercado Pago was among the first players in the market to launch picks as a means of payment.
Our picks offering is now available for sellers running checkout pro or any related products such as payment links our other branded checkout plug ins are.
Our speed and adaptation reflects the agility with which we acclimate to market development.
M. P. O S continued its recovery towards the pre COVID-19 levels of growth, reaching almost 90% year over year on an FX neutral basis with record activation rates.
And device sales, leading to an increase in active devices.
Additionally, the scale benefits of the sustained growth or improving unit economics across the region.
Devices sold once again surpassed 1 million on a consolidated basis, reaching over 6 million active merchants in the last 12 months.
Our mobile wallet the cornerstone of our digital account approach to Fintech reached $3 3 billion in total payment volume, representing a 247% year over year growth on an FX neutral basis.
We've successfully focused on increasing engagement of wallet usage with positive results in frequency of usage of number of users who engage in multiple wallet use case.
We continued building our two sided network during the quarter, resulting in over 14 million active payers and 6 million active collectors.
In store QR payments started to again gain share over total wallet usage, representing 20 percentage points of wallet T. P V.
The majority of wallet T. P V, primarily resulted from utilities and peer to peer transactions.
We've continued.
Continued to enhance our wallet value proposition by continuing to distribute cards tied to mercado Pago wallet balances and credit lines for consumers and merchants to fund their wallets across Latin America.
This is in addition to our ongoing overlay.
Of savings Tech and asset management products through Mercado fondo through which of approximately 15 million users have invested funds in their wallet accounts.
In Brazil, we've launched our own debit card issuing over $3 8 million proprietary cards, replacing all of our previously issued third party cards. Additionally.
Additionally, we launched the new overlay of Mercado Pago is insured tech product theft and damage insurance.
This is our first insurance product and is integrated into our digital account as the new financial services feature covering theft or damage of cell phones and point many users.
Before moving on to our financials I'll provide a quick update on Mercado credit dose quarterly performance.
The portfolio, which grew to $479 million more than doubled compared to the same period last year or.
Originations during the quarter almost quadrupled versus the fourth quarter of 2019, surpassing $500 million for the first time.
Not only did we drive accelerated growth of the business unit during the period, but we also maintained healthy M. P. L profiles, resulting in better profitability from our newer cohorts and lower a P. R's.
With those business comments, let me now move on to our financial progress report for the fourth quarter.
Starting with a review of our P&L.
Fourth quarter consolidated net revenues of $1 $3 billion increased year over year by 97% in U S dollars and 149% on an FX neutral basis, driven by record acceleration in commerce net revenues.
At the country level, Brazil, and Mexico revenues continued to accelerate reaching 120% and 155% year over year growth on an FX neutral basis for.
For the third consecutive quarter, Argentina revenue grew by over 200% year over year on an FX neutral basis.
Countries, such as Chile, and Colombia grew by almost 300 per cent and 150% year over year on an FX neutral basis.
Notably as we have previously shared we have made significant recent investments in Mexico.
The fourth quarter marked the first time that this segment surpassed Argentina, while using an adjusted Blue chip swap rate.
In terms of the percentage of our overall revenue that Mexico represents we believe this to be of milestone achievement.
Gross profit for the quarter was $489 million with the margin of 37% down from 46% during the fourth quarter of 2019.
The decrease in gross profit margin resulted from an increase in cost of goods sold from our one P business with aggressive holiday season, pure product margins and from shipping operation costs as we invested in excess capacity to ensure best in class service.
Levels on our managed network during the peak shopping season.
Operating expenses on the other hand increased by only 36% year over year in U S dollars to $514 million.
Despite the increase this generated operational leverage with the Opex as a percentage of revenues improving by 17 percentage points year over year from 56%.
To 39% this year.
Our Q for P&L management, Inc to strike a balance between continuing to deliver margin improvements from one year to the next while also igniting investment in both short and long term growth within the context of the gradual normalization of physical commerce and a competitor.
Of peak holiday season.
In the slides accompanying this presentation. We've included the more detailed breakdown of both of these items as we do every quarter.
Moving down the P&L, we incurred $31 $6 million in financial expenses. This quarter, mainly attributable to financial loans entered into 'twenty 'twenty, primarily in Brazil and Argentina.
We also incurred interest expenses from our trust related to the factoring of our credit card receivables in Argentina.
During the quarter. We also had of foreign exchange loss of $9 $9 million, mainly related to the difference of the Argentine official exchange rate and the blue chip swap rate at which we effectively exchanged retained earnings from our Argentine subsidiary.
Interest income was $22 $6 million, a 16% decrease year over year as a result of lower interest rates in our investments as a consequence of the pandemic, mainly offset by higher interest income in Argentina as our float grows.
As a result of this net loss for the quarter was $56 million.
Building on the precedent we established in 2020, we are very proud to announce that we will release in tandem with our annual report our second consecutive annual sustainability report.
Our commitment to sustainability has a strong connection with how we envision of our business serving all our stakeholders.
The report includes our sustainability metrics on key initiatives that include diversity, social inclusion labor practices energy consumption greenhouse gas emissions and waste management among other items.
Wrapping up the fourth quarter of 2020 was another great quarter, where the meli team really put their heart and soul into executing for the benefit of our whole community of users.
I'd like to reinforce on behalf of Mercado Libre, our immense gratitude and appreciation towards all of our employees and collaborators for their enormous effort to keep us safe during such a challenging year.
We're incredibly proud of what the team has achieved and the programs that has launched during the quarter we.
We believe these accomplishments underscore our compelling long term growth outlook.
We are steadfast in our conviction that we are making investments, which will unlock our full potential over the years to come.
The milestones we achieved in 2020 in the face of adversity demonstrate our ability to execute on multiple fronts.
And an indisputable commitment to growing commerce and Fintech throughout Latin America.
Elbow to elbow with our users and the broader community. We will continue to build our path towards financial inclusion and Democratic nation of commerce in the continent.
Thanks, everyone as always for joining the quarterly conference call and we look forward to keeping you updated on our progress next quarter and we can now start tabling questions. Thank you.
Thank you and ladies and gentlemen until asked the question Press Star one on your telephone keypad to withdraw your question press, the pound or cash King.
Please standby, while we compile the Q&A last day.
The first question is from Air My scars of Goldman Sachs. Your question. Please.
Yes, hi, Thank you very much for taking my question M P.
It'll M.
If you think about the rest of the year and do you think about them. How are you coming up against tougher comps suddenly inevitably at some point in time after the fantastic accuse me of pet in 2020, what are some of the Kpis that you're most focused on in in that journey that youre at where of G. M. B M.
And T P V to lesser extent of of course.
M may take as told from the from the tougher comps and and where do you of course to for US to look and then secondly.
On the digital wallet as you mentioned your focus on the increase in use cases to drive relevance of the stickiness with the wallet customers yet at the same time you I think you also mentioned the peer to peer and utilities.
That's still a very relevant portion of the of the of the transactions within the wallet what are some of the examples of what <unk> launched more recently in terms of use cases that you're most excited about thank you.
Thanks for the questions. So.
I don't believe you should alter the Kpis set you look at to follow our business.
I think we continue to focus on units sold on merchandise volume on total payment volume.
And the strategy remains unchanged, regardless of what happens with the comps there's a strong focus on continuing to deliver more free shipping with faster delivery and more reliable delivery and then in terms of year on year comps, albeit it's true that obviously the comps become more difficult I think also we've.
When looking at sequential growth in that two of certain degree helps us understand what potentially happens once the year on year data changes right we've been sequentially.
I think continue to show good week on week evolution.
And that is a way to look at something without the impact of pre.
And post Covid results. So continue to track the same kpis, we've always track the strategy remains unchanged.
And in terms of Pago of I'll leave that towards Vogtle.
I am so I'd say, we did add some use cases for example.
Transportation bulk transportation some of them.
The Zip is where we operate or tolls.
More of a size for example, our total studies, but mostly I would say the increased use of would have seen is more related to use of you've seen different flows of doing them more frequently and so and when you look at the engagement.
For example over the last year in Q4 last year used to have the.
Our novel aim.
Eight transactions per quarter per per user and now we are at 14.
I've seen is the significant increase in the number of transactions. This is sort of decided to do not because we have of out of the lot of a payment in the menu, but just the goes we had been better out of cross selling them.
That's great. Thank you.
Thank you our next.
Question comes from Bob Ford with Merrill Lynch. Your question. Please.
Hey, good to Cadena area of Purdue.
Congratulations on the quarter and thank you for taking my question.
Pedro what's the split between new and reactivation and your unique active user growth and given all of the improvements you've made in the marketplace across the region. How are you thinking about reactivating your your buyers and when it comes to the mobile wallet the growth rates you posted are fantastic.
Relative to the size of the ecosystem.
<unk> seen small how are you thinking about activating new mobile wallets.
Hi, Bob let me start with the <unk>.
Of the water Park.
Some of the metrics in terms of euphemism for through the price of the ecosystem. So one of the metrics of weak truck is oh.
It does the number of downloads for Mercado Libre on micro power compare on the installed base for Mercado Libre, Michael compare so what we're seeing on recently is our for example in Argentina, those or even the note.
You remember a couple of years ago, probably the rush the ratio was most of it bled into one in the fourth quarter. The number of downloads of Mercado Libre Merkel of Boeing were roughly the same we're still in close to two to one in Brazil.
The other half the one in Mexico, but in all of the cases, we see that the we are.
The increasing the number of the installed base of micro power faster than the flow.
The days of portfolio.
But I think that the theme.
We can do but we have been getting better on making sure that most of our use of use both of our platforms.
That's helpful. Thank you.
And give us and Bob I think we we don't typically disclose the breakout between reactivated buyers and.
The new buyers or existing buyers I think what we see in the fourth quarter is it was the record quarter historically, a number of buyers on the marketplace. So obviously the installed base is very large but we've also continued to add and reactivate buyers at a good pace and.
Never before had we had as many buyers during the quarter as we did in the fourth quarter of 2020, So Mercado Libre continues to increasingly be more and more ubiquitous.
Almost.
37 million unique buyers in the quarter.
That's great. Thank you.
Thank you. Our next question is on lifestyle of Santos with JP Morgan Your question. Please.
Hello, Thanks for taking the question I have true one is if you could comment any potential initiatives you would be doing on the food E. Commerce. So we saw some news in Brazil, and just wanted to know what youre thinking on that and the second one on.
The credit product and so you were advancing very quickly now.
Could you say something about a new product.
<unk> seen credit the dural some news regarding automotive crowded regarding insurance. So maybe you would be you would start offering other types of insurance the new they're not very clearly you would be the underwriter in OXXO.
If you could throw some light on on what initiatives you have on credit would be great as well.
Okay.
Great. So.
For now the focus.
Is still on consumer packaged goods not involved in fresh.
Or or chilled or perishables I do think we've said that we see that category as an important category in terms of frequency and it's a category that we're doing a lot of work with we think a combination of logistics capability plus top of mind and share of wallet potentially.
It allows us to be an important player. There. So I would say stay tuned and eventually if we launch something obviously, we'll communicate it but for now the focus in CPG continues to be around dry and that business is performing quite well and has a good stepping stone for any other for as we might choose to make in the general Super.
The market area.
And with regards to where the.
Let me start with what we have already done and then what we are starting to do now.
Really done on.
So does it go faster last year was related to well for a great not only on the America I'll leave the platform borrow on the Mako of BOE platform for example, the level at the debate utilities.
The small loan or to take personal loans.
Have been probably two of the large drivers behind the new.
New products, we launched in terms of what's coming we are already in the pilot tool for the credit card in Brazil. So it's more by the end.
Now, but we plan to screen debt during this year on in terms of insurance.
What we started offering.
Debt and damage in Europe on the here, we are not on the right, though we work with on the riders. So we are the the channel, but we will do.
The total move to sell on on also.
And use of it.
In the acclaimed.
Perfect. Thank you very much.
Thank you. Our next question comes from Stephen Ju with Credit Suisse. Your question. Please.
Okay. Thank you so much Pedro can you talk about the set of circumstances that got Mexico, 260% pro form of penetration.
And so what more work needs to be done in Brazil, and other bj's to get from 25% to 30%.
The fulfillment to theoretically 60 to 70.
Then Oswald, though a follow up question on the on the wallet if I may.
So can you talk about the users and the growth rate there. It doesn't seem like you grew user of sequentially from the third quarter.
Which I believe was also at $14 million or so.
So is this a matter of expanding the use cases like you talked about just now and then subsequently going out there to drive awareness.
<unk>.
Sure. So I think first of all Stephen just to put that in context. The overwriting objective is to deliver fast predictable and hopefully as much free shipping as possible and we can accomplish that as we do more and more deliveries on our own managed.
Work within that network fulfillment, obviously has a series of benefits, but even when we look at our cross docking initiatives, which in Brazil have made tremendous advances over the past year the speed at which we've migrated the overwhelming majority of volume to our own managed network and of <unk>.
Way from drop ship I think is one of the highlights of 2020, and we feel extremely well positioned in terms of our logistics capabilities. There with the combination of cross docking plus fulfillment and now moving sellers from cross docking towards fulfillment. We believe is a matter.
On the time.
And just as the sellers mature and grow more accustomed with our services moved them from cross docking, where we're doing pickups at their locations to getting them to send us more inventory upfront. So I think that's something that should continue to evolve.
As we open more and more distribution centers closer to more merchants that should also help and we believe that with time, we will get there.
Steven.
Let me address the the.
All of part of your question.
Say that when you look at the numbers sequentially.
Through the walls of growth, but not as steep as you have seen in the past I would say we have a huge acceleration between the second and third quarter driven in some part by by Auxilium and selling Brazil.
Now that that was fading out and the new fourth quarter debt, we maintain numbers in Brazil.
<unk> continued to accelerate nonetheless.
Nonetheless, when you look at year on year numbers, we were last year at 8 million maps on quarterly players.
Before we had $14 million.
They have into for the CSO.
The significant growth, but it is correct. The appointed was $13 seven in Q3 on protein on doing.
For the main reason for that day.
Zero emission zone.
Thank you.
Thank you. Our next question comes from Ravi Jain with HSBC. Your question. Please.
Hi, Thank you for taking my question, so Pedro on the E Commerce and.
Could you give us an update on your thoughts around the first party business you mentioned it was $200 million for the fourth quarter. How do you see that in the near to medium term any any thoughts on on that and and also on the marketing spend for the claims for the year growing 21 as things reopen.
And the follow on Fintech, I mean, you've clearly shown of meaningful acceleration of the credit business, maybe give us some color on what are the driving your confidence in turning the taps on and how do you plan to manage the credit risk as the broadest portfolio even higher than this thank you.
Okay.
So the one P business continues to be of business that we see as a tactical way too.
The help when there is certain inventory breakage within our marketplace seller base.
When we think that there are certain anchor products that we can sell more efficiently than merchant.
And if you look at our Q for market share results.
The relative strength, we had in black Friday, when compared to our own performance in other years. It goes to show how one P. M can be very useful for these peak promotional seasons. So I think that business should continue to grow share and volume.
It's also very helpful. When we're launching new categories to get us up and running very fast. So it's also instrumental in growing CPG, which has been a success story so far for ourselves. So it's not the core it continues to be tactical, but should grow and help us across those key tactical areas.
Mentioned.
Marketing spend I think what we said is as physical retail has began to reopen as competitors have begun to spend again and marketing. Obviously there has been of ramp up in spend when compared to the second quarter in the third quarter, which were sort of anomalies in that you had significant demand.
Serge with very little spending and so were once again investing in acquiring new customers and bringing customers onto our platform as we see improved net promoter scores and improved performance I also think that over time, we also aim to drive of certain them.
Out of operational leverage for marketing spend our marketing budgets in absolute terms are very large given the pace that revenues have grown and so it will be about finding that right equilibrium between continue to investing in growth.
And at the same time, making sure that we are also beginning to.
Manage those investments efficiently from a bottom line perspective.
On the call.
Regarding credit I would say the recent wins to be more aggressive on the origination front is the combination of two things on the.
On the one hand, I think we got more confidence on the scoring models on on experience of the the low quarters already we would call it around.
We weren't able to originate with healthy spreads and then also we have been working a lot on on improving and automating our collection tools. So I think that that also helps us be more aggressive originating because we know we have a better out of collecting.
Okay. That's helpful.
Thank you. Our next question comes from Gustavo Oliveira with UBS. Your question. Please.
Hello, everyone. Thank you for taking my question as to the likes of follow up on the one P M impact on your business our bedroom.
We see the six three per cent impact on margins, but obviously, we don't know.
We don't know the the magnitude of of the Martin on the level of debt, but the margins.
Ronnie now do you think you are already running an optimal level and what are the the the lessons learned from from the profitability standpoint that youre seeing the one P business I know, you're you're using it tactically, but as you said it will also grow in new became more sustainable on some of the cash.
<unk>. So if you could share some of your thoughts on the profitability of the business going forward.
The second question is also on the gross margin when you talk about the excess capacity you have invested in logistics for the managed network is there an expectation that you could see some cost dilution going forward.
Or more pressure in the named the very short term on debt on the on debt capacity and one last question if I may.
On your Macau, the credit business as you accelerate growth what are the implications for your funding strength because anything that needs to be adjusted there.
Great. Thanks, Gustavo So I would say that we are definitely not yet at what we think the long term steady state margin structure for one P. Can be we are still building out scale. We are there as a category.
The mix that is tilted to some lower margin categories like CPG as we build out more one P capabilities in higher margin categories that will also help but even if you look at our P. P M. As our product margins. They are still we believe lower than they will be as we gained more purchasing scale, we optimized <unk>.
The CS et cetera. So this is the business that we're investing in to build it out and like most businesses in the early stages, we invest aggressively because we trust going forward, we will be able to optimize the economics around that so so certainly the longer term story for one P should be of margin improvement versus <unk>.
Where it is today at a relatively low scale still.
On shipping very quickly I think what we intended to mean by excess capacity is leading into the peak holiday season, I think we tend to err on the side of making sure that we are we have enough excess capacity. So that people don't receive their holiday purchases after Christmas.
Yes.
And I think that drives up the unit cost per shipping a little bit.
When we overshoot, perhaps more than ideally once things normalize back in Q1, and Q2 and also as the business gets more and more efficient at both predicting.
Volumes, but also more flexible in being able to upsize and downsize capacity utilization, we should be able to better manage that going forward and I think we're already beginning to see improvements there.
Okay.
And with all of them with regards to credit we continue to increase our accelerations.
While we have been doing is increasing the funding available.
On balance we work with to the.
Of load part of those loans today, roughly we keep on our books of 70% of those loans on the we offload the on the 30% of broadly the.
Medium term, we will we plan to go more towards the 50, 50%. So does that in the way that's really on require lots of other on being on our balance sheet.
Thank you. Thank you very much.
Thank you.
Question comes from Ed White will not with Keybanc capital Your question for me.
Hey, good evening, thanks for taking the questions I guess first good to see you guys close some of the pricing gaps in places like Brazil, particularly in consumer electronics.
Is this just the move to be more price competitive in the holiday season, or do you think that youre going to kind of continue to keep the price gaps tight and then as a follow up interesting commentary on the growth in Mexico. It seems like other retailers are making the big moves there as well do you expect me to be able to maintain or grow share in that market given what looks like an increasingly competitive environment. Thank you.
Yeah.
Great.
So.
Part of the one P business, when we talk about tactical and I talked about anchor product.
Is the ability to especially for the anchor product be able to be more price competitive and that's very relevant in categories like consumer electronics. So this isn't escape lucidly, a fourth quarter strategy I think going forward.
We intend to use the <unk> business in part to be able to continue to close some of those pricing gaps.
And that.
Part of our ongoing strategy, we also need to find the right equilibrium between one P M rebates and coupons and managing the overall P&L, but no. This is not just the Q for initiative I think part of our ability to reignite growth in Brazil. When we look at the three quarters of 2020 has been.
Driven by our ability to identify those pricing gaps and close them and so this is something that we intend to continue to do going forward because it has been.
Part of our growth story.
Look our Mexico business continues to perform incredibly well.
That business has sustained very very high levels of growth now over multiple quarters.
And if you look at you know year on year evolution of.
Bottom line and margin structure, although we continue to lose money in Mexico, I think we're carrying out the stated plan of as we gain scale improving those margins.
And eventually through more scale and sustained growth have that business be profitable as our other businesses are so so far of Mexico. I think has been an extremely positive part of our of our story.
We're very pleased with the way that business has continued to grow top line and the share it's been able to hold in Mexico.
Thank you.
Thank you. Our next question is from Andrew Lu of bandwidth of Morgan Stanley. Your question. Please.
Hi, Thanks, very much for the question.
Couple of questions on take rate first on the category level pricing is there any update here should we be thinking about this as an ongoing initiative or was that more of a one time adjustment and then second on some incremental drivers any update you could provide on how you're thinking about monetizing either at the advertising.
Offering or fulfillment fees. Thank you.
So category pricing was I think a structural rejigging of how we price we used to have singled prices for all categories and now we determine fees in take rates on a per category basis.
And even a subcategory basis. So in general that gives us greater flexibility going forward to be to extract more or less monetization from different product categories over time, I don't think we're gonna be tinkering with with take rates on a constant basis, you want to give sellers predictability.
The overtime, but certainly it's the system that now has been rolled out to a growing number of markets and gives us greater flexibility and also aligns our pricing much better with the economics of merchants.
And we've been able to carry that out in most geos, which was the intention in either a take rate neutral or even slightly accretive fashion. So we've pulled that off so far successfully.
In terms of incremental drivers of monetization of the two you mentioned advertising certainly is one that we think is of more immediate driver of increased overall take rate.
There's a lot of innovation going on there and I think we're investing more in terms of technology on the advertising platform.
On the fulfillment front, we do have fees to incentivize merchants to send us the right type of inventory and to rotate inventory in an efficient manner. I don't think we're at a stage yet where monetizing fulfillment is an overwriting objective, it's still more about onboarding more and more inventory and can.
To just have the fastest and most widely available free or cheap shipping for our consumers. So monetization of fulfillment is probably something that's not on the cards anytime over.
Over the next few quarters advertising should drive incremental take rate.
Very helpful. Thank you.
Our next question is from Cornell not two car type.
Please go ahead.
Alright, thanks for taking the question.
A couple of if I could one on the on the 37 million unique buyers you mentioned the during the quarter. When you look across the the serviceable opportunity for all households, the good.
But the though with the the key geographies what percentage of those households, do you think of.
During the during the fourth quarter.
And then on the on the advertising side are you now in terms of like the the scoop for the take rate improvement and what have you to what extent do you think.
Would that be more of like promoted listings of wood that.
The you know maybe getting getting CPG is in the end the brands to kind of come in.
And advertise along with the product thank.
Thank you.
Yeah.
The first question I don't know the answer off the top of my head percentage of households that we've reached.
As we continue to grow number of unique buyers, obviously that number continues to expand and I think equally importantly, we still think this is a region that is in the early stages of e-commerce not only because there are still significantly more users that we can bring onto the platform, but <unk>.
More importantly, when you look at the average frequency and the average recency of our consumer base. We think that there is still significant room for growth. There. So e-commerce as a whole in the region continues to be in the single digits of retail even post pandemic.
And the overall frequency of usage.
Measured by by cohorts or items per buyer continues to improve consistently Q on Q.
Fourth quarter cohorts were once again better than Q3 across a lot of the frequency metrics and return metrics.
And equally important when compared to more developed e-commerce market.
Or even some of the key Asian markets. There is ample room to get our consumers to buy more from us and to use more and more of our services and that should drive significant growth going forward.
In terms of advertising, it's a bit of both things Theres still room for us to drive more investments in our promoted listings of our Mercado clicks platform from the existing merchant base, so pay for placement or of pay for conversion, which has a very good fit with.
Mid tail in the long tail merchants, but also a lot of the investments we're making is in working closer with not just CPG, but brands and branded retailers in general for them to be able to advertise more on our platforms, obviously categories like CPG as we get stronger there.
<unk> begins to allow for advertising partnerships with some of the largest advertisers globally and that's one of the reasons that we're optimistic about the growth.
Possibilities for the AD business, but but it's across both types of products advertising and also product placements and and conversion.
The advertising products on the platform.
That's the answer to your question now.
Yeah. Thank you so much.
Thank you.
The next question comes from Jamie Friedman with Susquehanna. Your question. Please.
Okay.
Hi, congratulations on the great results.
Let me just ask a couple of upfront so Pedro when you said that.
Mexico is now the second biggest the head of Argentina.
Were you referring to the e-commerce business for the payments business, who are both.
That's one question I know, it's not that easy to break them out, but that's the first of all of the second question is.
Any update on the Paypal agreement and how you're thinking about the framework for product rollout in 2021.
And then the last one is.
Apache grow and some others are moving around between moving upmarket Midmarket SMB market out of the long tail I'm just.
Wondering for you guys.
Is the long tails still the focus of Oswaldo or where is there any adjustment to how you define the market. So those are three questions, Mexico, and then Paypal on them.
S M b. Thank you.
Yeah, So just Mexico.
The clear answer there I think we were referring to in terms of units sold so that's clearly of commerce metric and then also looking at a.
Sales volumes.
On an FX adjusted basis using the.
The blue chip swap rate in Argentina. So it was the comment on the Commerce business I think on payment then I'll use that to transition over to as all of the Mexico has.
Significant opportunity, but it is certainly still smaller than Argentina.
With regards to you for the two questions. The first one.
Regarding the Paypal agreement on what are we doing net and remember the word REIT trucks of we're working on the right.
One of two are alive at the still work to do there, but the live already and those are.
Paypal merchants was the impediment for more cobo.
Bayer and vice versa.
All of the merchants or Mercado Libre felt the same payments from Paypal users total lives on the third one we're working on is remittances would assume from the U S into Mexico and that is what we're working on right now.
And then with regards to Smbs.
The defense.
Locked on on.
On the vertical.
The the one area, where we're working more towards the Smbs is in M. P O S.
In the NPL was business, we started with in the long tail and now we are addressing this market are significantly in Argentina already 50% of the PV. We're receiving are for Smbs. So we are very excited with the number.
And that is driven by the two new wells, we have launched in recent quarters such as are the.
On fluff.
Smart pass both of them.
And that's on the point from then on the online payment I would say there are core has been smbs and we are starting to work on no more with small.
Merchant individuals that's so far of course.
Okay.
Got it thank you both so much.
Thank you. Our next question comes from Marvin Fong with the B T. I G. Your question for me.
Great. Thank you for taking my questions on just two for me first.
If you could just you referenced picks the little bit in the prepared statements I was just wondering if there was anything.
Any significant impact that takes had on your on your T. P V in Brazil on the fourth quarter.
And if so if you could give us some way to quantify that but also if you could just talk about.
Any trends you're seeing in the market and so far on the first quarter and then my second question you guys, obviously made tremendous.
On a forward improvement in your managed network.
I'm just wondering if you could give us an idea of.
The improvement in demand that you see on our product is available you know on.
Two day shipping or less versus you know of longer time period that might be helpful. For us the no. Thank you.
Harvey let me start would be I'd say, the so far we have seen a significant shift in in net transfers the loss picks but is that mostly dark on debt transfers and also some volatile which are good good.
It's happening because those things so thanks for the <unk>.
In real time, and they work for the $4 seven so it gives us the.
Make it easier for us on the marketplace the structural shipping because we received payment throughout the weekend before with the collateral. It was all the work and doing the weekdays.
Also the infectious are faster and cheaper now when it comes to those are mostly on when it comes to the payment. So far the the impact has been margin on with all the we've seen some of our water use of Spain in pigs merchants on vice versa third parties.
On our network, but so far those have been marginal.
Yeah.
Great look on shipping we don't disclose lift on on improved times.
We continue to have as one of our most important objectives to increase the percentage of shipments. We do next day to increase the percentage of shipments we do same day, even as we push more and more same day.
So clearly we believe that that helps conversions it helps stickiness and it's one of the most important drivers of incremental volume, but we don't disclose any specific elasticities around improvements in delivery time and lift in G. M. B, but it is one of our important objectives and we've continued.
New to consistently over the last few quarters increased both the percentage of items delivered next day and also same day.
That's very helpful. Thanks, Pedro on Oswald Thank you.
Thank you. Our next question comes from God, the has the lowest of with Intel.
The question.
Hi, guys. Thanks for taking my question.
So a couple of months ago, you disclosed the few initiatives you believe could unlock significant value for Brazil searches the take rate virtualization. The one P. The buy box optimizing the installment of policy on.
And lowered the lowering the cost of shipping so could you provide details on the status of these initiatives and what you believe that contributed the most of the acceleration you've seen this year in the Brazilian operation.
I know we've gone over several questions on your lumpy operation, but it would be interesting to understand.
If you could provide some detail on how the $200 million from the strong word spread out between the countries in which you operate on.
And do you think that this operation is more strategic in any of the of.
The region and if so if you could provide some color on why that would be interesting as well. Thank you.
Great. So sort of look let me take the first one first.
Our E Commerce platform, obviously is the more the overall experience improves the more people buy the more people return, it's not always easy to parse out these different initiatives quantitatively to measure the specific impact of each one I think if you look at the rate Brazil.
It was growing in the first quarter and you look at the rate, Brazil is growing and even if you adjust for the pandemic by looking at market share within Brazil, We've made significant strides over 2020, and we exit 2020, I would say in a very strong position with very very strong market share and we had started.
The core of the year I think in a position of relative weakness so very pleased with Brazilian results.
We believe shipping has been a very very important part of that story both of the ability to manage the surge in demand that occurred without sacrificing service levels, but actually improving service levels over the year and also a free shipping program that is increasingly more and more widespread and obviously resonates.
Well with consumers.
One P has contributed.
I would say there are other geographies, where one P is ahead of Brazil. So it's a part of the story, but it's not a key part of the story.
And then category take rate, obviously has allowed us to improve supply and to bring more and more branded merchants onto the platform, which has been very helpful. In categories like consumer electronics, which is one of the focus areas in terms of acceleration of growth in Brazil.
The one that maybe we haven't made as many advances is on the optimization of the credit and promotional credit on the platform not to say that the credit books on the availability of credit haven't increased significantly, but we haven't rolled out too many initiatives to have greater intelligence.
<unk> and greater targeted credit offerings, that's something that we still have in the books, but I would say shipping probably first and then buy box category specific take rate and one P M difficult.
Difficult to parse those out but those have also been helpful. And then we don't disclose the one P business yet by geography.
It's a business that we are executing across most geos and should continue to grow and perform well there across many different markets.
Alright, thank you.
Thank you. Our next question comes from John call on Forney with Jefferies. Your question. Please.
Thanks for taking my questions Mercado Libre continues to generate impressive growth outside of the three largest geographies.
Maybe you can help us better understand how nascent the opportunity is in those markets through the lens of how they compare to your largest markets in terms of strategic priorities stage of building out keep of the capabilities like logistics and any notable competitive dynamics, we should be aware of and then my second question is on the credit business can you.
Help disaggregate, how much of the growth in your portfolio. During Q4 was driven by expanding within existing users versus loaning to new users. Thank you.
Great.
Both Chile, and Colombia have been.
Highlights of the year, Chile, right now is by far the fastest growing market.
The Columbia is is.
Second.
In terms of rate of growth.
And despite the fact that we still don't have the full platforms rolled out in those markets in terms of.
The the the offering of our fulfillment centers.
Penetration of of the N V as in general and the same goes for Pago and many of the Pago offerings, both on platform, but more importantly off platform. So as we continue to roll out more and more of the features that are already existent in the big three markets.
We believe that those solid growth rates.
We potentially could maintain those and those should be incremental contributors to our overall metrics going forward. When you look at the relative size of the Chilean or the Colombian economies, we as the company have typically under index that somewhat and I think with these rapid growth rates of these countries in a way of.
We're beginning to grow more into fair share so.
It's been good to see Chile, and Colombia accelerate the way they have accelerated over the past few quarters.
The demand.
Yeah.
John.
Usually we don't disclose the.
How many of the.
Credit loans were to new users versus <unk> versus all user of doing more grades I think.
But usually.
For a variety that the number the growth in number of users who originated credit.
Those grew by 118% year on year, we originated $4 2 million credit.
During the quarter.
For 2 million users.
The the least one credit during the quarter.
Thank you.
Thank you and our last question.
On the traveler young with Barclays. Your question for me.
Hi, Thanks for letting me sneak something in here just touch on on Mexico again can you like rank order or help us understand what's really helping you consolidate share.
And whether you can apply those learnings for some of the other regions is it the strong fulfillment mix, that's driving like better and faster delivery for consumers and then the second one just on that insurance product that you mentioned covering like assessing the damage for phones and other electronics, how the attach rate has been and do customers get offered that product at checkout when buying certain electronics and is this just table.
Thanks for that of differentiator for you. Thanks.
Sorry can you repeat the second question, we didn't quite catch it fully.
For sure just on the insurance product for electronics, how of the attach rates on and do customers get off of that at checkout.
Great So look.
Obviously.
We port learnings across our different geographies and the things that have worked for us in Mexico, we've already been deploying in other markets Mexico was the first market, where we saw the power of fast and free shipping. It has led the way in terms of fulfillment of adoption and all of those on the law.
<unk> network are things that we are rapidly have already been replicating to the other markets for quite some time now and Brazil I would say in 2020 has been a market where we've made tremendous advances in terms of our network capabilities Mexico.
One of the largest markets in terms of cross border trade and that's something that we're beginning to focus on rolling out to Brazil, as well and how we can make that work more effectively in Brazil. So that's another Mexican learning that's been part of it over.
But in general I would say our strategies are similar across markets and we try to.
Cross pollinate whatever's working in one market into other markets and I think that's part of the reason it's been more about do we have the resources to be able to deploy.
What we've learned in one market across others and going back a little bit to Chile, and Colombia part of what's happening is the consequence of our scale is that also we have more and more engineers and we're able to have more resources available not only for some of the smaller business units like advertising, but also for some of the newer geography.
Pleased to be able to put them on equal footing overtime with the platforms that we have in Brazil and Mexico.
And with regards to insurance up until recently the only other we used tool for where extended warranties and those were only offered on the Mercado Libre app at the time of the checkout. Okay. Now we will launch the theft on damage and we offered those two on the on the Mcdonald.
Follow up on those can be done on that at any point.
During the tickled, but afterwards and also on.
As opposed to the kind of the warranty desire of subscriptions the settlement subscriptions wave. So why don't we get to your sales too.
New buy them, we keep charging them as long as they want to continue on having the protection.
We have not disclosed so far that's been right, but I think that the.
We believe that we have plenty of opportunity to increase those.
Great. Thank you.
Thank you and Sir I'm not showing any part of your question and they can't you may continue with you'll find the remarks.
Great. So thank you everyone for your interest thanks for the questions. We get back to work plenty to build 20 to continue to deploy and we will look forward to giving you updates on Q1 in a few months. Thank you very much.
And with that ladies and gentlemen, thank you for your participation in today's program.
All of disconnect.
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Yeah.
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