Q4 2022 MercadoLibre Inc Earnings Call
Hello, everyone and welcome to the Mocatta Debrief earnings conference call for the quarter ended December 31st 2020.
Thank you for joining us I'm, Richard <unk> Investor Relations Officer, Michael at any rate today, we will share our quarterly highlights home video after which we'll begin a live Q&A session with our Chief Financial Officer, Patrick <unk>.
The president of our Fintech business.
A few minutes.
Where we go on to discuss our results for the fourth quarter of 2022, I remind you that management may make in this presentation may contain forward looking statements. So please refer to the disclaimer on screen, which will also be available in our earnings materials on our Investor Relations website.
Form 10-K for the year ended 2022.
With that let's begin with a summary of our results.
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Hi, everyone.
I'm happy to share the key messages about Mercado Libre performance during the fourth quarter of 2022 and the year as a whole.
We're particularly pleased to have been able to deliver an attractive combination of growth and profitability throughout the year.
Alongside strong operational kpis and market share gains.
All while sustaining a high level of investment in products and technologies.
We successfully navigated a challenging environment and we've reached new records across the business. Despite uncertainty around consumer spending interest rates and inflation with a strong fourth quarter. We ended 2022 with record results and GMP TPP items.
And net revenue as well as EBIT.
Revenues for example for the first time ever surpassing the $10 billion Mark for the year quite a milestone for our company.
Ebay also came in at a new landmark revenue, surpassing $1 billion, while delivering margin expansion.
And perhaps even more unique is the combination of record EBIT and margin expansion, while still growing revenues at roughly 50% year on year.
During 2022 Mercado Libre strengthened its leadership of the E Commerce market in Latin America.
As our data indicates that we achieve the market share gains across the entire region with Brazil, and Mexico standing out.
These market share gains are grounded in our consistent investment in execution around all aspects of our commerce value prop and also over an extended period of time.
Our ability to offer a very broad product assortment from sellers of all sizes at competitive prices and with fast deliveries continues to be a key differentiator for the company.
The profitability of our Commerce business also improved substantially year on year during the fourth quarter helped by the expansion of Mercado adds revenues better management of promotional budgets are healthier margin on one P merchandise sales.
The continued overall scaling of our business.
Development of technology for Mercado ads has been a major focus during 2022.
Increasing presence of ads and their monetization as well.
<unk> penetration for example grew another 10 basis points in the fourth quarter, despite strong growth of GMP, while maintaining its attractive EBIT margins.
We still see plenty of opportunities for ads growth ahead of us as we continue to improve the technology to better serve our advertising.
2022 was also a fantastic year for Mercado Pago with TPG growth exceeding our expectations, while delivering take rate expansion.
On the acquiring business first of all we maintained our strong growth and margin performance.
Given by QR payments, and our Pos business in Brazil, Mexico, and Chile on.
On the other side of cargo the digital accounts business, both take payments and cards <unk> continued to grow at triple digits in 2022, highlighting the traction and becoming a digital account of choice for many of our users.
Ricardo Credito performed well in the fourth quarter once again and in the year as a whole positively contributing to our profit growth despite tougher economic conditions throughout.
Throughout the year, we were able to manage the performance of our book closely and adjust to the changing realities. These effective risk controls resulted in record profits.
We remain optimistic about the positive ecosystem make effective mercado creditors as well going forward.
Okay.
In 2022 has been a year of adjustments on the other hand for the credit card product.
But with improvements to the underwriting models, we've seen a much improved performance from the most recent cohorts upon the credit cards.
That leaves us encouraged by the performance of that project, which will remain a key element of the wider mercado pago value proposition and strategy going forward.
All of these credit products complement our wider Mercado Pago offering for which 2022 has been an important years in terms of broadening the scope of financial services, we're able to offer.
We think we now have a product stack in place that is sufficient to meet our users core day to day needs.
Which will enable us to accelerate our efforts to achieve principality within that user base.
All of these strong results have been made possible by topnotch execution from the team and discipline and leveraging our scale to deliver continued cost dilution.
You have a much more detailed review of all of these fourth quarter operational and financial results made available to you both in our shareholder letter and also presentation, which are published on our Investor Relations website.
Yes.
With that but before turning to the live Q&A section I would like to hand, it back to Richard to go through some of the latest business and product updates of the quarter in a year.
Thank you.
2022 is another important year for investments in technology, App economy, right and today you want to share some of the key impacts of these investments have delivered to our ecosystem as we continue on our mission to democratize Commerce and financial services in Latin America.
We're now able to offer a full stack of day to day financial services and products to our millions of Mercado Pago users. After 18 months of intense technology deployment that we.
We are leveraging our data in order to cross sell new products and services to our users.
Users of our digital account have access to debit and credit cards, along with QR code payments and online transfer.
Mercado Pago more useful for that day to day needs.
This is an important step in building towards achieving principality.
Our counterpart <unk> also offers savings buckets dedicated to our users specific objectives.
They are able to choose from different risk profiles with a minimum investment of just one real in Brazil.
Users can now also make investments in a quick and simple price satisfy the Mercado Pago.
This includes banking deposits certificates from our financial institution with a fixed rate and more recently users in Brazil have access to three simple investment upfront.
Mercado Pago also often different insurance options to suit all users' needs with life personal accident and online transactions insurance.
Office protection against the uncertainties to many of our customers may face in their daily lives.
Now with a complete product stack Mercado Pago is well positioned to become a leading financial services provider in the region, enabling us to foster financially in Q inclusion across the region.
Our commerce platform currently serves millions of buyers and sellers by offering a world class experience, we surpassed the mark of $1 1 billion items sold in 2022.
We are investing in technology to continue to improve the online shopping experience of our users as we believe this will drive more retail spend online, particularly in categories, where our e-commerce penetration is low.
We deployed improvements to several categories in 2022, including home and deck of fashion and beauty and old Tech policy for example, and the Altair cloth category, we have simplified the search and filters in order to create a more specialist experience.
Often the human Deco capped a great. We further developed our discovery lab navigation experience.
Yes.
New features have enabled sellers to promote their products and different formats short. It is recorded by sellers to promote their products have reached millions of monthly views and improvements in our advertising platform have increased the presence of apps and product pages.
Makoto Libre continues to have the fastest delivery times and all of our key geographies.
We're also investing in technology to improve the efficiency of our logistics network and in 2022, we were able to deliver significant improvement in the productivity of our fulfillment centers, which means that even with a higher penetration of fulfillment deliveries.
Overall net shipping costs as a percentage of GMP remained broadly flat year on year.
Many places network grew to over 7000 locations with over half of the return.
Already done for replacements. These.
These returns have a higher mcf than other options such as the local practice.
For buyers that choose to pick their items up from the many places network NPS is the same.
Delivery is made to the buyer is higher.
We also delivered improvements in lead times with the melee air operations, producing over one day and lead times as well as optimizing cost.
We ended 2022 with a stronger ecosystem and great opportunities ahead of us and we are as confident as ever that the best is yet to come.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
And we do ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to one question and one follow up.
One moment for our first question.
And our first question comes from Andrew Ruben from Morgan Stanley . Your line is now open.
Hi, Thanks, very much for the question and the detail you made a comment in the release about operating in a fast changing competitive landscape in Brazil, I'm curious if you could elaborate and specifically in that type of competitive environment. As you run your business, what what change is that in.
Thank you.
Hi, Andrew.
Good morning.
Okay.
So.
In general I think.
The area, we operate in both consumer Commerce and Fintech.
And specifically the technology areas.
Our low barrier of entry highly competitive markets, which generate extremely dynamic market situations and structures.
And I think one of our characteristics over the last 20 years has been speed to adapt and speed to change course, while at the same time, having a very clearly defined long term focused strategy.
And that's what we consistently referred to when we talk about how dynamic. This segment is our long term vision for what we're building is very consistent.
The areas, we focus on our consumers our merchants the quality of our products and our technology has remained incredibly consistent overtime and tactically we try to adapt very quickly to changing market dynamics to changing technological dynamics and consumer habits, and we think that we've served.
Our consumers and shareholders well because of that speed of adaptation that we built into our culture and how we operate.
Okay.
Great.
Thank you and if I could just follow up quickly in terms of how youre thinking about though one P business I know it was an area that slowed down a bit in the past year, but you've talked about a greater opportunity overtime any updated thoughts about how you're feeling about that business add the economics et cetera. Thank you.
So we've continued to see improvement first.
First and foremost and capabilities, how we operate the technology that we built in house to run that business in terms of pricing.
Buying of promoting.
And a consequence of those improvements and capabilities has been improved P. P EMS and better economics coming out of the <unk> business.
So that bodes well in terms of our expectations going forward for the <unk> business in that we feel will get closer and closer to the point, where the combination of capabilities and also what those P&L look like allow us to reaccelerate that business again some.
Time over the next few quarters.
Very helpful. Thank you.
And thank you.
And one moment our next question.
And our next question comes from Irma Scars from Goldman Sachs. Your line is now open.
Yes. Thanks.
<unk> for the opportunity.
The capex for the year came in just a bit lower actually quite a bit lower than we had maybe you mentioned at the outset of the year.
And obviously.
No negative impact to the overall results here, but I was just trying to think a little bit about how you.
How you would characterize maybe the possible capex going forward just in terms of what you still have to deploy.
Is it really on the fulfillment of the technology side within those closing fulfillment centers and automation.
<unk> et cetera.
As you take your logistics networks to the next level and then <unk>.
Shifting to payments in the release you pointed to share gains that you've been driving in the impulse business in Brazil, as you've been shifting a little bit more up market can you talk about.
What how your offering is different from your competitors and how crowded you see that space and as a function of that sort of how you see how are you thinking about greenfield pricing adjustments until you expect churn to develop thank you.
And one moment please.
Sorry.
Hi, Irma.
So let me take the Capex one first.
If you look at the cash profile there.
We delivered both in the fourth quarter and full year 2022, I think 22 was a stellar year in many aspects cash generation was one of them both from an operational cash flow, but also some of the disclosures we offer in the Powerpoint around available cash and change in free cash generation.
Part of that cash generation was because we are operating close to peak utilization in some of our geographies in terms of our logistics and Capex the logistics.
Fulfillment centers and sortation centers.
So we do anticipate some incremental investments when we look at 'twenty three versus 22 in terms of Capex, primarily on the logistics front as we build incremental.
Capacity that we are needing in some markets primarily in Mexico.
In terms of the other big Capex item, which is developers.
And capitalized product development I think what youre seeing going forward is a bit of a slowdown in the pace of net new adds of developers I think we're still going against most others and that we continue to hire.
But probably at a somewhat more measured pace than we had been adding engineers over the past few years.
So that will also in a way generate a lower cadence of capitalized R&D. When we look into the future years, but net net 23 should come in higher than 22 did in terms of capex at least as we see it right now.
Okay. Thank you.
With regards to the payments question, we got in.
Box's Center move upmarket in Brazil, and Brazil that none of the region is something we are very excited about when we look at how we have been able to grow TBD.
Not because we are selling a whole lot more devices than we were a year ago, but rather because we have been able to significantly increase the PPV for device and this growth has been driven by by rolling out.
A bit blown and larger we'll announce if withdrawn one of them. We believe are more more robust that have better connectivity with better approval rates are better NPS.
Then we had in the past and values recognized by by some of our users and so what we're seeing is significantly increasing in these.
CPE per device and also we are deploying a larger sales force than within the past most of it is a third party.
Sensors is not our own but nonetheless, CRE enabled us to scale in the SMB segment.
Yes.
Thank you.
And thank you.
And one moment our next question.
And our next question comes from Marcelo Santos from JP Morgan. Your line is now open.
Hi, Good evening. Thanks for taking my question I Hope you can hear me.
The question is about the provisioning on the credit business I think in the presentation. You mentioned that the provisioning went down partially because of better credit quality with the green that you reduce the amount of the provision.
Uh huh.
In terms of like.
Uh huh.
Late late two payments, so I think in the previous quarter issue.
A range of how much your provision for.
For cohort two.
Did that change because we improve the quality.
<unk> been changed thank you.
Yes.
Hi, Marcelo I think let me describe in more detail about what has happened over the last few quarters as you'll recall during.
During the second cohort quarter towards the end of the second quarter as we saw that market conditions were worsening, we decided to be more restrictive and to lower our exposure to higher risk segments.
That has been the case throughout the third and fourth quarter.
In each of the countries that in each of the businesses.
Lower our exposure to the higher risk segments as a consequence of that we had lower npls.
And that reduction in Npls drove.
A reduction in provisions, but nonetheless.
We are originating loans that are less risky if your provisions have slowed down proportionately.
Nonetheless, they accurately reflect our best estimate of what the risky. So we are comfortable with the level of provisions we have adjusted reflecting an.
An improvement in the risk we're taking.
Okay.
And staying in Q.
And one moment for our next question.
And our next question comes from Robert Ford from Bank of America. Your line is now open.
Thank you very much a pedal as Bob Richard Congratulations on quarter and thanks for taking my question.
Pedro how are you thinking about the disruption to to mechanics.
Relative competitive advantage in and near term market share opportunities and just that dislocation, having any impact on the promotional support from suppliers and lumpy categories.
Hi, Bob Thanks.
So in a way it's a continuation of the answer to Andrew's question at the beginning.
Our strategy has never been driven by what competitors are doing or not doing but much more focused on what we're doing in our consumers on a tactical level I think if there are market share opportunities that become available.
Then without changing strategy, we will see how we can potentially lean into those and try to take advantage and gain some of those shares.
Or gain some of those share gains that are being lost potentially by other competitors.
So we are seeing the market being disrupted in some ways positive in some ways negative.
And we do have short term tactical plans to see how we can potentially take advantage of that but again I think much more importantly from a strategy perspective from the business lines that we're trying to develop nothing changes as a consequence of what might or might not happen going forward with a medical.
On this.
No that makes sense and in terms of the AD business can you provide a little bit more color in terms of the incremental functionality on the AD server and the demand side platform as well as any expected timing of improvements.
Yeah, So I think over the last probably two or three quarters, we've been very consistent about talking about the new product deployment and how we've accelerated our focus and investments on technology and AD Tech.
Business.
We've doubled the engineering head count there.
Probably half a year.
We also I think have been very consistent in saying that between the product launches and the technology improvements and when we actually see the results coming in there is a lag and it's hard for us to predict how long that lag might take and so we'll need to see how that plays out throughout most of this year.
We've continued to push significant product enhancements in India advertising business.
In Q4 and into the beginning of 'twenty three and so we remain optimistic about eventually being able to reap the returns of those improved.
Investments in the AD stack and hopefully we'll be able to report something over the next few quarters, we continue to see consistent.
Penetration gains from advertising revenues as a percentage of G. M B and that continues to be one of the most attractive revenue streams. When we look at the margin structure. There. So I guess, we all are very focused on this and let's.
Keep you posted as we go forward into the year and how the results begin to flow in.
Now I will look forward to it thank you very much.
And thank you.
And one moment our next question.
And our next question comes from Diego more crews from <unk>. Your line is now open.
Hi, guys first congratulations on the quarter two questions from us.
First regarding the make up a good idea to business I think that achieving a lower cost of funding scheme.
I just want to understand if that is entirely dependent on the E wallet, reaching further usually getting principality or if theres another avenue to that energy and a follow up on the on the ads question just a few minutes ago.
Is it fair to say that technology is not a restriction for the marginal growth of the business and rather generating further demand by eventually show people. The economics of what you guys are offering from the seller's standpoint. Those are my two questions. Thank you.
Yes.
Hi, Thiago.
I would say.
We have started to grow.
<unk>, we offer two to users.
We in the past used to do this through third parties and it's something that we would have gone more and more throughout the throughout the US we launched during the fourth quarter steel.
I don't think I have it.
Yet relevant impact in the overall cost of funding because we are paid and you can see is we are promoting the growth of <unk> at Markel file.
With golf, we have is similar to the one were getting from third parties, but as we expanded this could be relevant in the future.
So far I think it's still early days of our funding with the CDB.
Right.
And thank you.
And one moment by our next question right.
Alright, sorry, one second.
There was a second part to the previous question on.
On the ads piece Thiago.
If I understood. The question correctly, we do think that technology is not just a nice to have or an additional benefit. It is a core necessity of being able to scale out the.
The advertising business and have it reach the long term size that we would like to reach.
So the improvements we've made in terms of incremental positions and inventory for advertising the improvements in the AD server technology that delivers display advertising throughout the platform the launch of a self service DSP.
Platform for AD displays the improvements in self service reporting for advertisers to be able to.
See their results in near real time and react to that quickly.
And equally important the ability to better target audiences with mainly.
So all of the focus in terms of technology for the <unk> over the last few quarters.
Probably begins to put us on equal footing with some of the largest and most successful technology platforms, whereas before we simply werent there.
So this really is I would say a necessity to have launched this technology and get it right. We're very encouraged by the fact that its now out there and hopefully we'll see over the next few years adoption of all of these different pieces of the stack deliver the kind of results that we did.
Yes.
Thanks, guys.
And thank you.
And one moment our next question.
And our next question comes from Geoffrey Elliott from Autonomous Your line is now open.
Oh, Hello, Thanks, very much for taking the question the release talks about the sequential increase in fulfillment penetration looks like in Brazil, Mexico and Chile.
Across the board.
Can you give us a bit more detail on that and an update on where we stand on charging for fulfillment. Thank you.
So in terms of the model we charge for Boe.
Both rental space and we charge for inventory that doesn't rotate.
Quickly enough and generates inefficiencies in terms of floor space, what we've been saying over the last few quarters is that we have dual objectives of introducing monetization behind fulfillment yet at the same time still push adoption and usage.
You have that service.
Primarily outside of Mexico.
To Mexico Lake levels are in the direction of Mexico like levels and in a way those two levers are opposing levers and so we've introduced the full model, but we've kept pricing relatively low if you look at the fourth quarter results.
Monetization.
In the logistics operation in recurrent deals was actually higher so we have gradually been dialing up monetization around percentage of logistics services.
In part to offset cost increases and also in part to better reflect the services, we're offering but its still being done so at a very gradual pace.
Again, repeating myself bearing in mind that we still need to drive significant penetration growth in fulfillment, primarily in Brazil, Chile, Colombia, and Argentina that are still 20, plus percentage points behind Mexico in terms of adoption.
So it already a very high level.
Gradual and steady process.
It will be a gradual and consistent process over the next many years.
But I wouldn't expect any significant step functions in terms of monetization not anytime in the near future at least.
Great. Thank you.
And thank you.
And one moment our next question.
And our next question comes from Jamie Freedman from Squander International Group. Your line is now open.
Hi.
Thank you for taking my questions.
So for Pedro or small though.
Two questions. So just ask upfront.
How should we be thinking about the <unk>.
Journey in the T P V between.
And off platform.
Would it I mean, obviously off platform numbers, great what would it take to get even more ubiquitous acceptance off.
That's the first one linked the journey on especially off platform and then in terms of the.
<unk>.
What is the current messaging and strategy of the company previously Frucher detail I thought the goal was to syndicate more and more of the credit.
Is that still the approach or.
Would you be comfortable if credit quality improved profitability was great today.
Taken some more on balance sheet.
These are my two questions. Thank you.
Okay.
Hi, Jamie let me start with the first one regarding PPV I think that we are very happy with our PPV off platform has been evolving to be real thoughtful on platform basically now already drugs.
Gross merchandise volume, we do on the marketplace, we already at a 100% that we had a 100% for for a long time, so that drag.
E Commerce marketplace growth in regards to CTV off platform I think.
Several avenues for growth were broadly the one data we have seen grow the most over the last few year fees in Mexico, and Brazil is.
<unk> volume.
Which is growing nicely and Argentina has been more related to the enrollment which is also growing very strongly and is also online payment, but online payment then is growing at a lower base that that off that in store basically because we already have a larger.
Their online and we have any store and because steel in Latin America and E Commerce online payment fees.
A relatively small fraction of total out of retail.
Yes.
The.
Second one.
I'm not sure I got it right. If you can repeat that would be great with regarding the funding for from a calculator.
So my understanding floor <unk> shine a dollar of originations 60.
They go in May mess. This up on site goes through the syndication of the fatigue and then 50 51st00 you own. The next hundred gets syndicated out my understanding was you were trying to push more through the <unk> when credit was deteriorating, but no credit looks like it's improving so I'm just trying to figure out what your balance sheet more.
Or of the detail.
There is another.
So note that the strategy remains unchanged.
We continue given the potential size of our credit books to increase the amount of <unk>. So that we can off balance sheet.
The incremental growth that should come through while still retaining a subordinate tranche, which has been very profitable for us so far.
The additional funding source that is becoming potentially more relevant going forward are the CD b's that as Bob mentioned in a previous question.
So when we think of the capital structure around the credit.
Business, there will be our own equity investment the <unk> or the warehouses that should be growing with relationship to the equity piece and then the third piece is taking advantage of the <unk> that we can now distribute ourselves in our own digital wallets in addition to <unk>.
Doing so through banking partnerships as we had been in the past.
As the third very relevant window in terms of capital structure for the credit business.
The CDB is in a way start to emulate not from a regulatory perspective.
But from a business perspective, what a savings account potentially looks like although at a higher cost, but its essentially allowing our own users to have a savings savings product that CDB and then at the same time is an efficient funding source for us.
Perfect. Thank you both.
And thank you.
And one moment for our next question.
Yeah.
And our next question comes from Marvin Fong from <unk>. Your line is now open.
Okay.
Good evening, Thanks for taking my questions and congratulations also on the quarter two questions for me so.
First one on the crude detail just at a high level, obviously the profitability is.
Become very strong in June .
Got more conservative with your underwriting.
Just curious on how you're thinking about the extension of credit and growing returning to growing the book a little bit more aggressively.
In other words argue.
Waiting for the macro environment to get a little more favorable or are do you believe that.
Credo isn't such a strong position that maybe you can start.
I'm kind of leveraging that strength to extend credit a little more aggressively and then second question I had.
Paul on the ecommerce side.
You partnered with car for.
We're delivering groceries, just curious that you could kind of expand a little bit more on on your strategy with grocery.
Should we take this as a sign that you made a definitive decision too.
Placebo grocery and partnerships and here youre not interested in handling that on a one P basis.
Thank you.
Hi, Marvin let me start with the first one.
And with regards to the outlook for credit.
Say that as we.
As you mentioned over the last couple of quarters as we saw market conditions worsen, we decided to be more cautious on the risk we are willing to take and also we decided to price.
Lines more extensively to make sure we had it.
Better spread to be on the safe side, what ended up happening where that collections were better than we expected and we ended up with very healthy spreads.
Now.
We'll see when we deem that market conditions are improving and what that is the case proceeds it will there will be again more aggressive.
As we become more aggressive probably we will allow for some compression in spreads, but we will be very dynamic on these and flexible regarding how we see it.
The market evolving.
Could you. Please repeat the second part of the question I think I lost you.
I believe you guys had.
<unk> entered into a distribution partnership on grocery with car floor in Brazil.
I was just wondering if you could kind of expand on that end.
<unk>.
How youre thinking about grocery right now.
Yeah.
Great. So we have a <unk> partnership with Catholic food.
Meaning that they will be a merchant on our platform I think they can bring very necessary and welcome head assortment to.
To the CPG and supermarket category for us.
Ideally they are a key partner in terms of groceries as we experiment with that part of the supermarket offering which is always one of the most challenging ones.
And the model is one where their inventory will be sent to our fulfillment centers and we will be able to deliver that through fulfilled by melly, which has always got that from a consumer perspective, the best user experience. The one where we have greatest control over logistics and the entire end to end.
Purchasing process, so it's within the context of our continuous.
This experimentation within supermarket.
We again I think we've we've continued to see improving economics within that subcategory still a challenging category from a P&L perspective. It has huge potential in terms of repeat purchase behavior and loyalty of users, but on the <unk>.
<unk> side I think for everyone. It's a challenging one from an economic perspective, and so theres a lot of experimentation and innovation going on there as we try to figure out what is the most appropriate model for our region.
And which with which partners it would make the most sense to do that.
Great. Thanks, so much guys.
Okay.
And thank you.
And one moment for our next question.
Okay.
And our next question comes from Joel <unk> from Citi. Your line is now open.
Thank you just a.
Very quick one on my side and I was just hoping to get you on.
Margins overwhelmed in 2022 was clearly a very briskly deals in terms of the mortgage patients sneaker this fourth quarter.
<unk>.
So as we go into 'twenty, two and three and hear a lot of moving parts you are advancing on the AD business, which is clearly.
It's a very robust margins and also.
But at the same time, you're talking about re accelerating the <unk> business, which even though has apparently better economics.
Do you believe that.
It was a bit of a margin drag. So I was just hoping to get your overall view in terms of how should we think about margins for 2023. Thank you.
Sure. So as you know, we don't guide, but I still think it's a valid question. So directionally.
We remain very consistent in saying that we try to manage the financial model.
Sure.
<unk> sequential annual increase in EBIT dollars.
<unk> also modest but consistent margin expansion that depends a little bit on what happens in terms of mix shift, but we do try to manage the different businesses and the different sub business units to deliver margin expansion year on year on year going forward.
Yet at the same time, we still continue to see ourselves as a company that wants to deliver market share gains continue consolidating its leadership position and as you mentioned in your question have a lot of bets on many different future growth engine that today.
Or in many cases negative EBIT businesses that we continue to seed and we are committed to.
So.
As always I think it's consistent sequential increase in EBIT dollars ideally margin expansion, but don't necessarily assume that the kind of leverage we delivering one year you can linearly extrapolate to the next year I think if we do deliver on this consistency when we look out three.
To five years, we have a very very healthy P&L in our hands, primarily if many of these bets that today lose money begin to through scale and operational efficiencies become profitable businesses and then.
The mix in our portfolio between those that are early batch and don't have attractive.
EBIT generation capacity and those that do gets increasingly skewed more and more towards more consolidated scaled out positive margin businesses.
That's clear thank you.
And thank you.
And one moment please for our next question.
And our next question comes from Kyle <unk> from UBS. Your line is now open.
Hello, everyone. Thank you for that.
Two questions I have one question about the medical community as well.
On the <unk> business.
I know that you both numbers, but if you could please share.
Paul.
Okay.
This segment will be a courtyard.
Walter.
Yes.
Mark.
<unk>.
Yes.
Finally.
Patients rolling full.
With Nevada.
Yes.
Yes.
Sure. So on a consolidated basis and again these are not reporting segments. So this is to give you directional understanding of the business is on a consolidated basis.
The credits portion within Fintech, we disclose.
Interest margin Baxter lawsuit.
And I think we've discussed that the operational expenses there are relatively low given that there are low spend in customer acquisition a lot of the distribution has done to our existing either mercado pago or Mercado Libre users. So the credit business is a very profitable business.
The online payments business.
Which is the merchant acquisition business is also a profitable business with expanding and fairly attractive margin still.
Very directionally.
Wondered 50 basis points at TPB.
The Mpls business, which is also a merchant acquisition business is a profitable business with slightly lower margins than online payments, but still positive.
And a strong contributor of overall EBIT.
And then when we look at the franchise, we're trying to build in terms of the consumer financial services business. So the digital wallet the core digital banks some of the savings tax product the.
The consumer credit cards, those continue to be areas that do not have positive EBIT, yet, but are very significant bets for the future and that have shown very consistent improvements on the economics over the last few years.
And then the final overlay on top of that which is still fairly small in terms of volume with very attractive from a margin perspective is the insured tech business that continues to grow and he's already on pace to deliver tens of millions of dollars of annualized EBIT.
Okay. Thank you.
And thank you.
And one moment our next question.
And our next question comes from Neon will Wallis from HSBC. Your line is now open.
Hi, Thank you for taking my question.
Question on your E Commerce business, which showed very strong trends due to a breakthrough with a strong market share gains on some of the markets.
What should we Directionally expect in great 'twenty three.
Any headwinds in the e-commerce business that we should be aware of or should be mindful of.
In any of the markets.
And my second question is on.
Credit book, So the credit book growth has almost gone for the last two quarters.
Are you seeing improved or stable asset quality at the beginning of green tea, which could encourage you to start picking up originations in the garage of second quarter of this year or are you still going to be in a conservative mode.
Brian you are being conservative in the unsecured lending products are there any new products that you are thinking about.
To grow better growth in the current environment. Thank you so much.
So let me take the first one.
I think in terms of.
Significant headwinds that we anticipate for the commerce business.
With the exception of whatever happens at a macro level and that's information that's available to everyone. I don't think we're honing in on anything we've seen some consistent take rate improvements in the fourth quarter, a lot of that driven by advertising revenues and the incremental money.
<unk> nation on shipping and logistics that I referred to earlier.
And those are levers that if we execute accordingly should continue to be present.
We did see some drag on take rate from reduced <unk> sales in the fourth quarter of this year versus last year, and if anything I signaled that we feel we've hit a turning point in terms of the <unk> business and we can cautiously reaccelerate that again and so.
That should also be incremental in terms of take rates.
And as we aspire to continue gaining share that should if we execute well again maintain us on pace to continue to deliver strong <unk> trends as well.
Okay.
With regards to the credit book.
Yes, we have.
We have seen good results in the last quarters, but again, we will wait until we see market conditions, improving before we decided to be more aggressive again with regards to risk taking and to grow the portfolio.
We don't guide on it's difficult to foresee exactly when that will happen when we see that happening, but we'll be more aggressive.
And in terms of new product. The one product we are pilot testing by now.
Carlos.
Very very very small we're just piloted it in Brazil, we believe that is a relevant interesting because he has a strong synergy with our marketplace.
The one thing that maybe I would highlight here is I recall, when we entered the credit business one of the understandable concerns that existed was how would we deal as a growth company, where most businesses are focused on growth with something like credit where.
Risk management and caution many times are necessary and if I look back at 22, and we need to reprove ourselves constantly in terms of our risk management capabilities, but I do think it's been very interesting in that the backdrop for credit has been extremely negative and when you look at how.
We managed at the timing with which we slow down originations and focused on higher quality segments and the kind of results that you've seen I think really gives that team.
A very strong grade in terms of how they manage risk within very tough macro I think we've been through both the pandemic and now extremely challenging consumer credit environment, primarily in Brazil, and both of those have been managed from a risk perspective, and a focus on profitability perspective.
Very very successfully.
And that's the way, we'd like to continue to manage that going forward.
And thank you.
And one moment our next question.
And our next question comes from Deepak <unk> from Wolfe Research. Your line is now.
Open.
Great. Thanks for taking the questions better of many companies here in the U S are very focused on improving efficiencies. This year, how do you feel about the productivity at the company level.
Currently Bryan and then how should we think about headcount additions for this year in your plants and then second question on the competitive landscape in Brazil currently with all the recent development should we think about any strategy shifts on your side, particularly with our <unk> business given all of these developments. Thank you so much.
Okay.
Sure. So I'll answer in reverse order our strategy does not change based on what is happening with competitors I think our tactics do adopt at the margin and as we mentioned earlier, we will lean into specific opportunities that may arise.
If market share becomes available given changes in market structure and competitive dynamics, but I wouldn't say our strategy changes one baked.
On your first point I think we've had a lot of conversations internally about this and that Maui in a way is.
And an island within the Tech World and that no layoffs. If anything we've said we will continue to increase the size of our engineering teams, we see that as a key competitive advantage and one where because we were disciplined throughout the pandemic I don't think we over hired.
Or we over spent on capacity by and large and so that puts us in a unique position now where we can continue to hire.
But having said that I think the rate of hiring will slow down.
Versus what it was over the last few years, but we will continue to grow the engineering team and in terms of head count across business and staff positions again, there no no no downsizing necessary because we remain disciplined over the past few years, but the speed of Incrementals.
INTL hires will probably decelerate, even more so than the engineering talent.
And then logistics and customer service are much more variable costs and those are input output driven so the growth there will reflect the growth in transactions and <unk>.
That are really the kpis and determining how fast those organizations need to grow.
Thanks, Matt.
Thank you.
And one moment our next question.
Okay and our next question comes from Stephen Ju from Credit Suisse. Your line is now open.
Thank you so much so pedro.
Kind of building on one of the comments you made earlier.
Can you talk about the adoption levels for your fulfillment services in Mexico and why it has charged ahead there relative to the other markets. There is the profile of the seller.
Different or other are there other factors or products at play.
And conceptually are there any impediments for Brazil, and some of your other markets to get to Mexico's level. Thank you.
So Mexico for the fourth quarter actually crossed the 70% Mark.
For the first time ever in terms of.
The.
Service mix within the different shipping types that we offer so 70% of shipments in.
In Mexico actually initiate in one of our fulfillment centers.
I think there's a combination of market dynamics merchant profiles and execution is always that has led Mexico to be so far ahead of the other markets.
<unk>, if I can round finally hit the 40% Mark so it has been growing.
Over the past four quarters.
At a slower pace, but continuing to grow and trend in the right direction, Chile is over 30%.
In Argentina, and Colombia also continue to grow.
So I don't think there are structural impediments to getting to Mexico levels or at least to continue to grow significantly the pace at which we are able to grow that fulfillment.
Service and the other markets clearly varies from Geo to Geo if you consider that Chile was launched Cigna.
Significantly after Brazil and is on its way to catch up to Brazil. I think is further indication of that but no. We don't see any structural impediments to continue pushing the adoption of fulfillment and the reason that that is a desired outcome is because it delivers faster delivery times.
Greater control over the experience higher net promoter scores.
Thank you.
And thank you.
And one moment for our next question.
And our next question comes from John Cooler Tony from Jefferies. Your line is now open.
Great. Thanks for taking my questions.
So as you get closer to clean comparison periods can you give us your perspective on the runway for e-commerce adoption across your key geographies certainly the pandemic help close the gap to other region. So I'm curious if recent trends in customer adoption and trial still point to a long runway for adoption.
And then secondly, sticking with customer behavior can you just talk a little bit about how engagement and repeat rates of cohorts acquired in recent quarters.
Compares to pre pandemic cohorts.
So Latin America has been interesting in that.
It doesn't seem to have had the effect as physical retail reopened.
A.
Return.
Two.
Physical retail to a point where the.
The market began to shrink the market has continued to grow obviously it slowed down significant from pandemic type growth, but I think even if you will go to Mexico, or Brazil, which are the most advanced markets, we still expect market growth to be somewhere in the mid to high <unk>.
<unk>.
We do strive as always to gain share on top of that.
So we still feel it's early days in terms of the shift from offline to online retail we think the pandemic accelerated that shift and we also think that consumers have found in their online purchasing a compelling enough value proposition that a lot of that gained considerable.
Tumor.
Consumption has stayed online and so we continue to be optimistic about the long term prospects of e-commerce throughout the region in.
In terms of cohorts retention cohorts are certainly much higher than they were pre pandemic.
And.
Frequency, sorry, not frequency and and average usage.
Uh huh.
Has been flattish over the last.
Year, or so which means that it remains in line overall.
With where.
It went to throughout the pandemic. So we haven't been able to continue to grow unit usage since the pandemic, but we have been able to maintain it relatively in line with much better retention per user and higher engagement than pre pandemic numbers.
Very helpful. Thank you very much.
And thank you.
And now I would like to turn the call back over to Pedro Mccargo, Lee <unk>, Chief Financial Officer for closing remarks.
Great. So thank you everyone I think we've concluded a.
Phenomenal 2022, with a very strong fourth quarter. It was a year, where we hit.
110, one.
Over $100 billion of payments processed.
Over $10 billion of revenue and over $1 billion of EBIT. So congratulations to all of the Mercado Libre team for the phenomenal work.
And to our shareholders and stakeholders rest assured that we're already back at work to ideally be able to deliver an equally successful 2023 on behalf of our consumers and our shareholders. Thank.
Thank you and we look forward to updating you on things.
Once the first quarter is over.
This quarter.
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