Q1 2021 Mercadolibre Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to Mercado Libre is first quarter 2021 earnings call.
At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
The question during the session you will need the press star one on your telephone.
If you require any further assistance please press star zero.
It is now my pleasure to introduce Investor Relations Officer, Lisa shares.
Yeah.
Hello, everyone and welcome to the net earnings.
Earnings Conference call for the quarter ended March 31, 2021.
Mr Stern Investor Relations officer from the current EBITDA.
The Chief Financial Officer, Andrew the Orange will be leading today's prepared remarks.
Joining him on the line as Chief Executive Officer of Mercado Pago cause of the other he minutes will be available during today's Q&A session.
I remind you of 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 and 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 included 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 31 2020.
Item one a risk factors in part two of our form 10-Q for the quarter ended March 31st 2021, and any of my cousin of the inks other applicable filings with the security and Exchange Commission, which are available on our Investor Relations website.
Now, let me turn the call over to Pedro.
Hi, everyone and welcome to our first quarter 2021 earnings call.
Our financial results were once again marked by accelerating growth due to strong demand for E Commerce, and Fintech services within an improving but still challenging environment.
While some key markets begin to gradually open physical retail and others Lockdowns were enforced in major cities towards the end of the quarter.
Online consumption throughout remains strong and we experienced favorable consumer trends as digital services share of wallet continue to growth.
Our solid quarterly performance illustrates our commitment to executing our long term strategic priorities.
As we remain focused on our purpose of democratizing access to commerce and money in Latin America <unk>.
Recognizing the important economic role we play in the countries, where we operate.
Let me start us off with the results from our commerce business in Q1.
We generated triple digit growth in items sold and maintained the record levels of transactions per buyer quarter on quarter.
This constituted a formidable level of engagement given seasonal differences between Q4 and Q1.
Volume wise consolidated gross merchandize volume grew 114% year over year on an FX neutral basis.
Across our geographies all countries, either maintained or posted higher growth rates compared to the fourth quarter of 2020.
In Brazil, our largest market, we doubled items sold and nearly doubled G M D versus the prior year.
In Mexico, we continue to accelerate our sequential growth in items sold and G. M D.
All other geographies showed positive trends in GMB growth as well with Chile in particular, increasing its share in our business substantially.
Product diversification is becoming an increasingly important driver of growth to overlay on to our ever improving delivery service levels and highly competitive pricing.
To achieve this we are focusing on both category and merchant type expansion.
For example, <unk>.
During Q1, we made significant strides in amplifying our experience in consumer packaged goods.
We established initial partnerships with traditional large food retailers in Mexico, and Brazil, and reached new record levels of inventory depth across categories.
User experience in CPG is also benefiting from our logistics footprint.
In Brazil over half of CPG items are already being shipped from our own fulfillment centers.
Hoping us improved user experience and deliver consumer expectations.
On the merchant front as you know our marketplace is composed of a mix of small sellers and big brands and we have been attracting more global and local household name brands across multiple verticals as we continue to strengthen our e-commerce ecosystem.
In consumer Electronics for example, we have added partnerships with Panasonic Aces and Intel of brass.
While our CPG portfolio now includes stores by short term of Cebu and non delays.
As a result, approximately 20% of our marketplace sales are already coming from official stores.
An increase of seven percentage points over the same quarter last year.
Overall product depth also continues to improve.
As live listings have reached almost 300 million listings this quarter increasing.
Increasing versus the fourth quarter in all major geographies.
Part of this increase was driven by the growth of unique sellers in our marketplace with almost 1 million total sellers with successful sales during the quarter.
We will continue to grow our already ample seller base, adding almost 200000, new sellers to our marketplace this quarter.
Before moving on to logistics, let me briefly address our growing loyalty program.
We continue to expand our content offering while delivering great value in terms of new subscribers for our initial content partners Disney plus teaser and HBO.
More importantly, we are seeing strong signs of incremental engagement from user cohorts the purchase content through our loyalty program.
Building on this initial success will be a growing focus for us.
Let's now move on to developments relating to Mercado Envos of primary contributor to our commerce business.
During Q1, our logistics capabilities, where our focal point of our operating strategy.
A new company records in terms of breach speed scale and cost.
Our managed network reached the penetration of 80% on a consolidated basis, with Argentina, Brazil, and Mexico at 87% 83 per cent and 79% respectively.
Our expansion in Brazil was particularly notable and we are also pleased with our progress in Colombia, and Chile, which demonstrate our speed and execution.
We have now reached 63% and 53% penetration of items shipped through our managed network in those markets respectively.
We view this as a remarkable progress considering we began implementing our managed network operation in Colombia, and Chile, only a little over a year ago at.
At the height of the COVID-19 pandemic outbreak.
Regarding our fulfillment operations on a consolidated basis, we now have over 32% of all items sold on our platform originating in our fulfillment centers.
This is driven mainly by expansions in Brazil, Argentina, and other countries in the Andean region.
While Mexico maintained the leading position with 60% of items being fulfilled by Mercado libre, but stable in penetration sequentially.
During Q1, we shipped over 208 million items and for the third consecutive quarter registered a year over year growth above the 130% and shipments.
Our lead times per shipment set of new record for speed.
We significantly improve the share of same day and next day delivery in every single country, even while sustaining high levels of growth in total items shipped.
Overall, 74% of all volume was delivered in less than 48 hours of notable 21 percentage point improvement versus a year ago.
These results were driven by the sustained expansion of our logistics network.
We recently started operating two new fulfillment centers, one in Santa Catarina, Brazil, and another near Monterrey in Mexico.
New service centers were also added to our network in Brazil.
Simultaneously, our same day logistics solution gained greater participation in Brazil, Colombia and Chile.
This advances our objective of increasing fast deliveries within the major urban centers and we are now operating deliveries during weekends as well.
As you can see the Mercado N V. S team is operating debt outstanding pace, while unlocking greater levels of efficiency within our network.
Additionally, recognizing that free shipping is an attractive value proposition for our customers in March we reduced our free shipping threshold to 79 Reais in Brazil.
This delivers several benefits for.
We now have an even more comprehensive free shipping program for buyers in the region.
The key differentiating factor for Mercado Libre day.
Second we expect to cover a greater portion of our GMB and items that ship for free.
We strongly believe that these developments within our logistics of services will be drivers of sustained improvements in customer satisfaction and experience.
Finally on a related matter. We are also proud of our ecological conservation initiative for the Haneda America. Following the issuance of our sustainability bond earlier this year.
Integrating sustainable practices that complement our logistics operations and get us closer to carbon neutrality is a growing part of our strategy to positively contribute towards stopping climate change overtime.
With that I'll now address the Fintech side of the business of critical lever within our ecosystem to democratize money and access to financial services.
For the first quarter Mercado Pago total payment volume reached $14 $7 billion on a consolidated basis growing almost of 130% year over year on an FX neutral basis.
This represented a total of 630 million transactions for Q1 at a growth rate of 117% compared to the same quarter last year.
On platform payments volume grew by 119% on the consolidated basis, largely driven by the strong performance of the commerce business in Brazil.
For our off platform payments TPB grew by 136% compared to Q1 'twenty.
We are continuing to successfully build our network of active collectors and payors.
On the collector side, we have over 11 million of platform merchants on a consolidated basis with almost $7 million in Brazil alone.
Additionally, during Q1, we reached almost $35 million off platform unique payers during the quarter.
I'll now detail the various segments of our off platform payments business, starting with point or point of sale offering.
Point was resilient throughout the lockdown despite.
Despite reduced physical retail volume point payment volume grew 90% on an FX neutral basis, setting new volume records in Brazil, Mexico and Argentina.
New device sales reached almost 1 million units with strong growth in Mexico.
POS sales in Mexico benefited from the launch of our top of the line device geared towards the larger merchants, where we improved our value proposition by distributing debit cards to point device holders as well.
On the flipside Pos sales in Brazil were challenged by increased restrictions on mobility as well as seasonality, resulting in 650000, new merchant Pos sales this quarter of.
A very solid number but down from previous quarters. Despite the record high volume processed through Pos is in Brazil.
Online payments grew 139% year over year on an FX neutral basis.
Underlying this growth our two opposing trends on one hand, we continue expanding our services to online merchant and Smes, establishing ourselves as a payments solution of choice for many new online businesses.
During the quarter, we maintained our small mid and larger sized merchant acquisition productivity with no indication of volatility and seller churn.
On the other hand long tail sellers that boosted activity during the peak of Lockdowns in the region have decreased in volume as the economies open and also driven by seasonality.
To complete the review of our portfolio of financial services, Let me address the growing number of financial solutions for payers offered through our digital wallet.
Total payment volume associated with the wallet on a consolidated basis was $2 $9 billion.
This represents a deceleration to 192% year over year on an FX neutral basis.
The slowdown was driven by Brazil, and Argentina were diminished government financial aid this quarter negatively impacted growth in total payors on the wallet wildly.
While less marketing spend as a percentage of wallet TPB reduced user growth, but improved profitability.
Although we are pleased to see nearly three ex FX neutral growth in the wallet payments volume.
Our ultimate goal is more ambitious than primarily payments.
Our strategy is to transition from being primarily of digital payments platform to a principal financial services provider.
To accomplish this we are beginning to better balance of the investment required for growing the number of payers in our ecosystem.
With investments in driving higher levels of adoption of our multiple financial services.
Thus setting the foundation for our product diversification towards a more balanced and sustainable revenue and profit mix between payment credit insurance and savings Tech offerings.
To advance this objective of broadening our service offerings within the wallet, we made important product development steps during Q1.
On the insurance front.
We saw consistent acceleration in our extended warranty product in Brazil, Argentina and Mexico.
Solid multi quarter of sequential improvement in sales of attach rates.
We also expanded the rollout of theft and damage insurance in Brazil for cell phones. The service that we can cross sell within our marketplace.
Regarding our proprietary cards, we issued $3 8 million more cards this quarter $2 6 million of those in Brazil.
The advantage of these recently rolled out cards is that they can be enabled as hybrid debit and credit cards and they will be our platform to grow our revolving credit product in the coming months.
Our asset management services within the wallet are another example of growth and added financial services, having added over 770000, new users with invested funds in their wallet accounts during Q1 for a total of over $15 million investment.
Accounts with positive balances.
Finally incoming deposits into our digital accounts have increased such that payers with the account money have doubled compared to Q1 of last year potentially confirming the increased intention to engage with the financial services provided in our wallet beyond <unk>.
Mainly payments.
Consequently, we reached 14 million active wallet users during Q1 similar in number to Q4.
While seeing growth in per user engagement as payers are increasing the frequency and the value of transactions consistently over time.
As well as solid growth in adoption of incremental financial services in the wallet as I have just described above service by service.
We are still in the early days of our journey of becoming a principal provider of financial services through the wallet and the initial results are very encouraging.
Finally, I'll provide a performance update from Medicare a little crazy.
In Q1, our portfolio surpassed $575 million more than doubling our volume versus the same quarter the previous year.
During the quarter, we originated over $582 million and our consumer credit portfolio continues to drive growth in all geographies.
This growth has come with increases in Npls.
Specifically, we've seen Npls increase among the particular segment of users who have found it difficult to service small loans once government financial aid subsidies were removed.
Upon observing this at the beginning of the year, we incorporated these new conditions into our credit scoring models in a timely manner.
Thus exiting the quarter with improving performance on Npls.
Consequently, notwithstanding this quarterly increase in bad debt and the Brazilian consumer credit books, we remain confident that we will be able to continuing growing credit originations with sustained profitability going forward.
Let me now move on to a review of our financial progress for the first quarter.
I'll begin with consolidated net revenues.
We began 2021 booking the highest net revenue growth rate over the last five quarters.
Having reached almost one $4 billion in revenue, we grew 111% in U S dollars and 158% on an FX neutral basis.
At the country level on an FX neutral basis, Argentina, once again grew above the 200% Mark.
Mexico newly grew 150%.
We were encouraged by our Q1 net revenue growth in Brazil of of 139%, surpassing the growth rates of previous quarters.
Gross profit in Q1 was $591 million at a margin of 43% decreasing from the 48% recorded in Q1 of 2020.
But increasing six percentage points sequentially.
This trend is explained by our growth and expansion of investments, which support our long term strategy.
Over the past 12 months, we've expanded our one P business booking product costs in our Cogs line.
In addition, as we continue to rollout our own shipping network and have built more fulfillment centers shipping operation costs have increased as the proportion of cost over net revenues.
For greater detail and as we do every quarter. We have included a detailed breakdown of these margin effects in the slides accompanying this presentation, along with the Opex margin evolution as well.
We see efficiencies and scale reflected in our operating expenses compared to last year.
Operating expenses were $500 million in Q1, and we have sustained improved operating leverage.
Opex as a percentage of revenues improved 17 percentage points year over year.
Creasing from 53% to 36% this year.
Between our new sustained net revenue growth and continued investments in developing our brand user base and logistics capabilities. We reached Q1 of 2021 with positive EBIT dollars compared to a loss in Q1 of last year.
Moving down the P&L the company incurred 91 million in financial expenses this quarter, turning of very strong EBIT quarter into the red.
However, the main driver of this is nonrecurring.
We recorded a $49 million charge related to our convertible debt repurchase transaction.
We also increased year over year tax payments from increased earnings in multiple geographies.
This quarter. We also have of foreign exchange loss of a little over $15 million, primarily from share repurchases carryforward in Argentina at the Blue chip swap rate.
Interest income was $25 million of 32% decrease year over year, resulting from lower interest rates on investments versus the first quarter of 2020.
Ultimately Q1 closed with the net loss of $34 million after tax yet with an improved net income margin of almost one percentage point compared to last year and more importantly, a return to profitability if excluding one off charges.
To wrap up I'll note that we've gotten off to a great start to 2021.
Our top line growth is very solid and we have successfully executed our plans to drive incremental EBIT through our financial model.
We are still facing trying times in Latin America as the COVID-19 pandemic remains present.
We remain immensely grateful to our almost 19000 employees and collaborators for their continuous commitment to provide financial inclusion and Democratic nation of commerce, while keeping us safe and thriving.
As has been the case over the past 12 months, we will keep building towards our goals.
Elbow to elbow with our community of users throughout Latin America.
Thanks, everyone for joining this quarterly conference call and we look forward to keeping you updated on our progress in a few months.
With that we can now take your questions.
Thank you as the.
A reminder to ask a question you will need to press star one on your telephone.
To withdraw your question first of the balance sheet.
Our first question comes from the line of Andrew Ruben with Morgan Stanley.
Hi, Thanks, very much for taking the question and congratulations on the results. So my question is on a wallet. So the color is very helpful. On the strategy is clear and it seems like some less focus on PPV and active payers as the markers of progress. So my question is what metrics are you look.
King at internally and what would you suggest investors look at the judge the success and traction of the wallet initiatives more broadly.
Okay.
Hi, Andrew how are you thanks for that question.
We continue to look at TPB net.
The domestic.
<unk> is the.
A close look at what has happened I would say in the last two quarters based on the Wuhan the.
Laura on page.
The last year is the fun.
Actually in growth slowed down or disappeared, mostly in both Brazil and Argentina.
And then on the other hand, the also so debt.
The were low balances gorilla because of who we operated we decided to invest aggressively from the market and decided to acquire new users.
I decided to save those marketing dollars for later in the year, but we hope.
The countries will be will be open on.
The other hand, okay more on more we are looking beyond just the wall it towards becoming a day.
Local prehensile financial services platform. So we have been also focusing more on for example, debit card in Brazil, and now we have just launched credit cuts in Brazil for that too.
The more significant share in total marketing.
Financial spend of our users and that has been the focus.
Recently.
Thank you.
And our next question comes from the line of Bob Ford with Bank of America.
Hey, Thank you and Inc.
And again congratulations on the on the quarter can you just a couple of questions.
How are you thinking about your dual app structure these days and with combining the two help drive greater wallet at the visit activation frequency and more efficient wallet funding or is the cost and speed and size too high of price to pay in the technology base of the consumer has and then.
Call you beginning to accept bitcoin some time ago on the marketplace and now the treasury move in facilitating real estate transactions in bitcoin.
Can you put the point with the Rs.
And how are you thinking about the use of bitcoin both in general terms and as possibly the store of value for your while the users.
Great. Thanks.
So first of all on the App structure.
Going back to the previous question and to the increased focus on widespread financial services distribution. If you think about that is the ultimate goal and how do we move towards Principality in financial services for our users implied in that is that a lot of the payments for.
<unk> should expand and I think theres a lot in the pipeline in terms of incremental financial services features and products. So trying to cram all of that in into a single UX is not the direction, we're going and having said that if you look at the numbers we have around.
60.
60 million users on the commerce side.
We increasingly cross sell.
And try to get them to also download the financial services Pago App, so their bare bone payments functionalities and the yellow commerce App and increasingly we will try to drive those users over to the financial services App to cross linkages through promotions and Thats, where we are.
Aggressively focused on expanding the amount of financial services that they use from us at the end of the day. If you look at long term.
The real potential in Fintech goes way beyond payments and into the distribution of the other forms of financial services credit insurance asset management savings.
All of the products, we have and we're now focused on growing.
Understood. The crypto question is an interesting one.
The crypto positions that our treasury has been purchasing our non usage of ours. This is U S dollars that we are purchasing crypto with.
I think this has multiple objectives one of them is we've always been long term thinkers and we believe this is.
A good use of long term store of value for our treasury at the right amount to net the prudent amounts, but it's also us making sure that we are quickly moving up the learning curve in terms of understanding crypto and making sure that.
Opportunities that we are sure will arise we are able to move into them.
Good understanding of what's going on but this is not a.
The way too.
Purchase or store value of the Argentine currency, that's not what we're doing here.
And I think as the company. We are excited with opportunities that probably will emerge in the fintech world around crypto and we wanted to make sure that we are learning and well versed or as much as we can and Thats I think one of the reasons. We're doing this from Treasury and also other parts of the company.
Great. Thank you very much.
Thank you and our next question comes from the line of or more scars with Goldman Sachs.
Yes, hi, good evening.
In your marketing expense line.
You had an increase of up to a couple of quarters of sort of having a relatively flat lined expenses given the environment what campaigns channels and geographies would you just called out and and was it more commerce.
So then the fintech it sounded like it from your prepared remarks, but just wanted to follow up and get it a little bit more detail and connected to that and the products and develop the technology expense line.
You from I'll be the altogether, we're seeing a lot of leveraging of expenses, but but that expense line was also up quite strongly in the first quarter and to a lesser extent now when you think about the breakdown of your products.
And technology development expenses now for 2021 compared to let's say 2018 2019, whereas the main shifts taking place. Thank you.
Great.
So on on sales and marketing.
If you look at the sequential evolution.
Is actually seasonally up Q4 to Q3, and then it's up Q1 to Q4 again.
The increase is not driven by actual customer acquisition.
Brand of programmatic couponing, but it's driven by two other elements within that one of them is the buyer protection program. So as <unk> grows and also as we have more and more fulfillment blueprint items fulfilled by US we have of larger coverage and guaranteed <unk>.
And those numbers are up about.
That's the biggest driver of the sequential increase and then the other one as is disclosed in the financial statements in greater detail is incremental bad debt on the credit book, but that's also because revenues and originations are growing extremely well. So there is a matching revenue growth from that increase.
<unk> in bad debt, which are the loan loss provisions on the credit book, the actual underlying branding and customer acquisition costs are down sequentially as one would expect from seasonality.
Product development I think continues to be in the area of strong investment for us in absolute dollars.
It continues to scale year over year.
From a margin perspective, and the single biggest line item. There obviously is head count.
We have a lot of development in a lot of product features on our roadmap and so we're aggressively trying to ramp up our engineering team.
Looking to almost more than double actually our engineering teams over.
Last year.
We're convinced that that's the right place to be investing long term.
And so I think the combination of significant growth in absolute terms, but still scaling from a margin perspective is a good combination for a tech company. We can continue to invest aggressively in growing the engineering talent pool still deliver margin expansion.
Great. Thank you.
Thank you and our next question comes from the line of Ravi Jain with HSBC.
Hi, good afternoon.
Just quick two questions first I think on e-commerce sort of.
Maybe some color.
Around no purchase frequency and retention rates, particularly about the cohort that came onto your platform on the last two three quarters I mean, I'm trying to figure out how do we look at a normalization of growth.
Once the start Comping the tougher one thanks for the quarters.
And the second one probably a little bit more on the Fintech just following up on the on the couple of previous questions and you mentioned that you have Noah the marketing spend.
And the incremental financial services, what is going on price. So maybe some color on what are the important features that you think will drive Inc.
The adoption from what was taken from 14 million users.
A couple of points on that.
We've seen at least from salary portability of the dad does the credit some color on what you think will drive on option would be super helpful.
Thank you.
Okay, Great. So let me start with the first one I think on the cohort number I don't have it off the top of my head, obviously theres a seasonal.
Uh huh.
Adaptation, if we look at Q4 to Q1 cohorts, but nothing worrying in the cohort analysis I think if anything when we look at the growth of our business is once we started comping with the.
The COVID-19.
Last year quarter over the last few weeks.
Obviously, we will see a deceleration in the headline growth rate, but sequential evolution continues to be pretty solid across most markets.
And so we need to continue to closely monitor this I think as we rolled into May and June.
In some markets the comps get progression the sibley more difficult, but so far when we look at the sequential evolution of growth.
On week and month on month.
Certainly seems to be a good amount of purchases that have moved online throughout the pandemic and that are staying on line now bear in mind also that a lot of our geographies have gone back into lockdown and so that also I think affect demand patterns.
We might have to look at this over a longer period into Q2 and Q3, but so far I would say encouraging results in terms of how much online purchasing has remained on line.
Going to the finish the question Robby I'd say that there are several features that we have been building.
We are building to increase.
The engagement with our wallet.
Some of them are.
Sure Ken.
Use of Markel above the base in new ways for example.
Launch of couple of quarters ago are David got on each of the thing about the debit card is that any merkel of both use of in Brazil.
The digital debit cash so whenever they have funds.
They are able to generate growth number and use that debate on line anywhere and if they want they can ask for of plastic.
You cannot paint on land.
So we will continue to.
The amount of credit lines, we work for those users for them to go on extra recent the chose us to drive the credit issues.
Combining those two things, we just launched our credit card in Brazil. So the.
The country, we had loans previously David once he retired and we can add value.
So that is the on top of the dose and we have started to do that in April.
So whenever we get on users who has both a debit card already with them and also a good score we'd ask we got where we will be able to offer them.
The credit line on the strip.
For the same classic.
We are working on expanding our.
Savings and investment products, so far the only product we offer is the money market.
In Brazil, Argentina, and Mexico, and the plan for the CRE is to expand the investment offerings that we have in Brazil.
Then we will continue to grow our insurance products so far.
It kind of guarantee.
On the image added two clubs, we have a level of the second one only in Brazil.
We are finding new ways to increase adoption of both for Tim.
So there are a few other things that are coming that we have not yet disclosed the bad.
Basically the idea.
Here is to increase the cross sell more products and to increase the engagement.
Mentioned.
The seller portability on what type of integration of those two things that we have pulled out recently still too early to have results of those bad debt.
But we want to of Tvs to gain visibility in the use of the Mokobo accounts.
Thank you so much of its helpful.
Thank you.
Next question comes from the line of Marcelo Santos with JP Morgan.
Hello, Thanks for taking my questions I have two the first is on margins I wanted to touch a bit on on the question that the EMA did.
I wanted to understand a little bit better.
So a big improvement the margin year over year because of low.
Our marketing.
And you also mentioned that you saved a bit on marketing dollars in the Fintech because there was locked down so we didn't want to spend the money now. So we saw just very high margin.
The margin debt, it's kind of a little bit boosted it for.
Lastly, the marketing and we should see of normalization of marketing argues as could be seen as a normal level that you were having I. Just that's the first question on the second question. My perception was that the revenue was very strong like the monetization was very strong could you. Please comment if there was anything positively impacting monetization either on fintech.
Or on the commerce. Thank you.
Great. So.
Look I think the margin improvement sequentially.
Driven by.
More factors than only marketing.
But marketing is of significant one.
Marketing tends to have somewhat of the seasonal.
Outlay, so obviously towards the end of the year shopping season, the margin compresses somewhat.
In Q1, I think this year as we said was one of the marketing pullback. So I don't think you should expect this kind of margin leverage.
But I don't think you should assume number similar to Q4 of last year, either I think we do look to drive year on year leverage off of the marketing expenses and given how fast our revenue base is growing we can do that while at the same time being extremely competitive in the absolute number of dollars that we're deploying.
Versus the prior year.
There were also improvements and this is bleeding over to your second question.
There were a lot of operational efficiencies on shipping costs. Some of those are Cogs, but also some of those are more efficient contra revenues I remind you that some of our transportation costs are contra revenue and as that got more efficient into Q1, that's helped revenue growth.
When we look at cost per shipment those have been coming down sequentially across the board in almost all geographies and Thats also I think of consequence of good operational efficiency from the logistics team and also the benefits of scale.
And then we've also seen.
A return to more mix shift on payments of credit card over debit debit was very prevalent throughout a lot of the government aid usage and credit has better monetization of debit and so that's reverted back to levels closer to where we are we're a priority queue.
Three and that's also helped improved take rate.
Perfect. Thank you thanks a lot.
Thank you. Our next question comes from the line of Stephen Ju with Credit Suisse.
Alright, Thank you so Pedro.
<unk> been looking to add CPG is a more meaningful part of the consumer offering for some time now so.
Is there anything you can add there in terms of what the increase in this percentage has done for the hopefully greater velocity of purchase and hence as an output maybe customer lifetime value.
And second.
I think you've been looking to onboard some lower ASP items from sellers in Asia.
Perhaps with a faster delivery and service offering versus the competition. So can you give us an update on how that initiative is going.
Hugh.
Okay.
Great. So CPG there is some initial data that points to better engagement and performance across non CPG categories from users that purchased CPG. So we are beginning to see data that proves out.
Think the thesis of getting involved in high frequency CPG categories that it does help lifetime values across other categories now bear in mind debt and especially in the in the early years of the rollout of the CPG product that obviously does come out of cost right. So even though the life.
On values are improving the incrementals CPG sales are done at a much lower margin than other categories until that business reaches scale.
And becomes a much better margin business, but I think we continue to focus on growing that and expanding that and you will see a lot of innovation on our CPG and supermarket front like you have over the past few quarters, we've already announced a couple of high profile deals with the very large retail.
<unk> the across the region to help them move more sales through our CPG channels.
Supermarkets and so this is obviously a very large tam category with very high frequency and one that the data. We are seeing I think is leading us in the direction of continuing to build this out.
Going forward.
CVT.
Solid.
Growth very consistent we continue to.
Build out more and more sourcing capabilities in Asia.
We now have feet on the ground there, we're seeing very strong impact of that in Mexico for example, where it's relevant.
We're also beginning to now focus on sourcing more and more.
North American merchants.
We're seeing good results as we improved products and features and users are better able to find cross border listings and offerings are.
On our site.
So again I think thats another part of our long term vision is to turn global supply local for our consumers across Latin America, and we will do that by continuing to expand our sourcing efforts both in Asia, but also in North America.
Thank you.
Thank you.
The next question comes from the line of Chicago, Mark crews with the I T E U.
Hi, guys.
Well, we continue to share our massive user growth.
The human above competition, even though you're of the market leader by a mile.
I was wondering if you had for them is the mother of importance.
The three important factors supporting the growth what would you list what would you say thank you.
Sorry, we just wanted to make sure. We got your question it cut off a little bit I can you repeat the back end of the question. Please.
Absolutely.
I was just wondering if perhaps the least the most important factors that are supporting your ex user growth in Brazil, endogenous one what would it be.
Sure. So first of all I think clearly on the commerce side, there has been significant uplift in consumers purchasing online and engaging with our platform initially driven by the pandemic.
I think for Meli.
The fact that so many users were driven to our platform in the early days of the pandemic and realize that the logistics capabilities, we have built out over the previous years.
Really we're incredibly efficient both in terms of the Expansiveness of free shipping, but also service levels.
Were fantastic for US I think had this happened two or three years earlier, where our logistics build out had not been where it was we would have had a very different capability to retain a lot of these new cohorts of users. So I think clearly pandemic driven initial trial or users.
Had lapsed and then return to the platform and realize that the overall user experience was dramatically different from either of what they anticipated or what they had experienced in the past has been a very very important driver of growth and we see that also with the evolution of net promoter scores and the fact that despite the huge surge.
<unk> volume, our our delivery times have consistently improved sequentially quarter on quarter and the amount of free shipping has expanded you might've realized in Q1, we lowered the threshold for free shipping in Brazil to 79, Reais. So really mentally has by far the most expensive for.
Shipping program I think of online retailers in Brazil.
The date on the on the Fintech side of the Brazil, I'd say the diverse have been a little bit different in each of the verticals.
Basically if you want all the payments have been sort of in sync with the marketplace for the shift towards ecommerce has benefited the.
On the merchant services.
Then the.
So how countries have you guys had been NPL with but we saw a little bit of a slowdown when the worthless the traffic to stores. Nonetheless, I would say that our sheet of market.
The other two we accelerated growth in the last couple of quarters.
That has been a significant in terms of the CPB.
I think we have already discussed the wallet.
Thanks, guys. Thank you very much.
Thank you and our next question comes from the line of Sumit Datta with New Street research.
Hi, guys.
Two quick questions. Please one on commerce and one on the Fintech just on the commerce side.
Do you mind, giving us please on update on what Youre seeing.
Specifically on the competitive take sides from sharpie the.
It's been quite of bit of noise about the presence in the Brazilian market.
The potential to expand into Mexico.
Well I just wondered I mean, the kind of seem to coincide with the drop in free.
Free shipping to the 79 by I saw one of the booths that responds to the to the competition of is that just part of the the ongoing business.
The kind of thinking.
And then next please just on Fintech, sorry to go back to the.
The wallet again.
Wanted to double check my sort of sense as always.
I'm gonna get usability on the wallet.
When you use the wallet to them.
Layer on financial services is should we now be thinking out of Chile, that's the model shifted slightly and actually yes, we will look to sell of financial services, but maybe it'll be more focused outside of the wallet going forward. Thank you.
Okay.
Great.
We don't comment on specific competitors I think as a whole given the size of the opportunity of commerce and Fintech in Latin America, the fastest growing E Commerce region in the World right now obviously, there will be competitors.
We've always tried to observe and learn from our competitors and if things that they are doing better we can replicate we will replicate.
But no we didn't lower free shipping as a response to a specific competitor we've done that across the board in different geographies. We have been doing that consistently over time and the vision has always been debt as we gain efficiencies from scale and from operational efficiency, we will allow some of those improvements.
The drop to the bottom line and we will return some of those to our consumers in the form of more free shipping, which generates a tremendous flywheel and I think the combination of logistics efficiency and free shipping that we have today across the region is really unrivaled.
At the regional level.
Continuing to add wallet users is a very important part of the strategy. We're not trying to say that that's not the case and the wallet continues to be of fundamental distribution channel.
Our payments to attract users to then cross sell other financial services I think what we're trying to say here is that.
Massively acquiring wallet users. If then you were not also investing and focusing in cross selling other financial services.
Is not really the long term strategic blueprint that we've set for ourselves. So we need to increasingly find the balance between yes, acquiring as many users as we can as fast as we can but also making sure that those users. We are requiring are interested and we are able to cross.
Ross sell other services to us So I think Andrew's question at the beginning in a way encapsulates the way, we're managing the business, which is number of payers as of Kpis is probably still very important. If we can also deliver on number of users of asset management number of.
The users of credit number of users of insure tech and the other products that are obviously, the higher margin products and the more interesting from the long run. So wallet users is still core to our strategy, but increasingly more balanced with also.
Consistent cross selling into that user base of the other better margin financial product.
That's very clear thank you.
Thank you and our next question comes from the line of Deepak Matthew Women with Wolfe Research.
Hey, guys. Thanks for taking the questions just a couple of quick one sorry, if they were asked already be now jumping around a couple of calls so Pedro can you talk about how big the first party business was on E. Commerce during the <unk> and then where do you expect it to reach for the rest of the year is the <unk>.
Margin profile of won't be cash.
And of other plays where you wanted to be on raw is there opportunities to improve that as well and then the second question can you provide some color on April trends on E. Commerce, obviously of the COVID-19 situation in the Latam is very volatile, but what are you seeing in terms of kind of relative consumer behavior, maybe in countries where of vaccination rates are you know oh.
Over index thing with respect of the average thank you.
Yeah.
Hi, Deepak thanks.
Look so we've improved disclosure on one peak and you now have one P revenue is broken out in the P&L as the revenue line. It was slightly below $150 million, but youll have that now consistently as the rule requires.
Margin wise, there is ample room for margin improvement in the <unk> business going forward. This is still a relatively small business, where there are improvements in pure product margins as we drive more purchasing scale and also significant improvements as we become more efficient.
In the operation overall, so I would say that we are investing in this business now and that the margin structure of the way. It looks today is not at all where we envision and are confident we can get it to look.
On into next year and beyond.
Very quickly I touched upon this already but I think in general we still need to be cautious and wait the comps get progressively more difficult in some markets into may and June but so far in general I think the trends we've seen for most markets are encouraging.
We continue to see sequential growth in our business in line with what we had been seeing at the beginning of the year. So even if the year on year growth rates decline the sequential increases which is really what you should be looking at have not indicated in any way that consumers are massively moving back offline as soon as they can.
I think we've offered enough of a compelling value proposition that a lot of that demand seems to be sticking and like I said before also bear in mind that lockdowns have been extended or reinstated and many of our markets. So that also is still impacting demand patterns.
Sure.
Got it that's very helpful. Thanks Pedro.
Thank you and of our next question comes from the line of Jamie Friedman with Susquehanna.
Yes, Pedro the swell, though Pedro in your prepared remarks, you I thought you had said something to the effect that you had seen of.
A slowdown in some volumes on the long tail sellers as the economies reopened.
I may have misheard you, but if that's the case could you elaborate on that one and then I'll just ask the other one upfront.
In the previous answer of Pedro you mentioned sourcing more north American merchants and I'm just wondering is that.
Where paypal comes in or am I thinking about the the wrong way.
Hi, Jamie with regard to long tail of what do we have till last year was that mainly for many low down many more retailers they were using payment linked mostly related to deliveries.
And as the let's say greater opening of the economy of Latin America some of that volume.
Slowed down but beyond that we continue to see very strong growth in low daily deal with so it was more.
The online payment with the.
Related to primarily because of the room.
Okay.
My remarks on sourcing North American merchants is not related to Paypal.
We have seen.
Better results and good product development and user experience in our cross border efforts. Those efforts. So far had primarily focused on sourcing product from Asian merchant. We believe that there is significant inventory in North America, that's attractive to users throughout Latin America.
And not necessarily available.
So we're moving into that second pocket of global inventory that we think is interesting for our user base throughout Latin America by sourcing directly ourselves and having feet on the street in the U S and Canada, but know this doesn't refer to any specific initiative with Paypal.
Got it thank you I'll drop back in the queue.
Okay.
Thank you.
Your next question comes from the line of Marvin Fong with <unk>.
Yes, hi, Thanks for taking my questions just two quick ones on Fintech I just wanted to follow up on the 11 million collect their number of.
I was just reviewing the notes from last quarter and I think you guys said it was it was $6 million in the fourth quarter. So just the just wanted to check to see if that was correct and if so what explains the pretty dramatic increase.
<unk> and collectors, but just potentially in general could just comment on the on how your trends are going in terms of adding collectors to the ecosystem and then my next question just on the.
The credit portfolio of the of the amount outstanding.
Didn't seem to increase as much.
At quarter end as we saw last quarter, even though originations was actually greater still about $500 million. So the.
The question is you know are you seeing any change in sort of the the dynamics with borrowers paying back anything to call out there.
That would be great to provide some insight there. Thank you.
Okay, great. So on collectors, let me just briefly recap the sequencing for you.
$11 million is the number of collectors off of the Meli marketplace right. So we exclude meli merchant to give you a number of users that are merchants receiving payments through us.
Or P to P people receiving payments.
That number is up about 77% year on year.
But if we look at Q4, which is seasonally very strong it was actually higher than 11 million it was closer to slightly below $12 million.
So again, nearly 80% growth year on year, but sequentially as expected due to seasonality down so I'm not sure what the $6 million number could be maybe it's another data point.
Then with regards to the credit portfolio.
What's the right of use the relation between the growth in terms of originations in terms of growth.
Our credit portfolio.
In Asia grew in the quarter, 10% sequentially quarter on quarter, the work for heading into the sort of medium.
The last quarter on the for Henry.
This quarter and then the real credit portfolio grew 16% from from 452 by $26 million.
But.
In general the duration of our portfolio is pretty short, mostly because the big part of that is the consumer loans. The typically typically are for four months. So.
The growth of the.
Quarter on quarter of origination is pretty much the.
Aligned with the with the growth in the <unk>.
Okay.
Great. Thank you for clarifying that the both of you I appreciate it.
Yeah.
Thank you.
This concludes today's earnings call.
Thank you for participating and you may now disconnect.
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