MercadoLibre Inc. Q1 2023 Earnings Call

Speaker 1: You.

Speaker 1: And.

Speaker 2: Good day and thank you for standing by. Welcome to the Mecalo Libet Earning Conference call. At this time, all participants are in a listen-only mode. Due to some technical issues, we will begin this call with the Q&A segment. After the Q&A, we will have the video available to play on this call. Thank you for your understanding.

Speaker 2: So at this time, we will conduct the question and answer session, as I mentioned, please limit your question to one per person. As a reminder to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced.

Speaker 3: Our first question comes from the line of Andrew Rubin from Morgan Stanley . Your line is now open. Hey, great. Thanks very much for the question. I'm interested on the commerce take rate. It was a strong quarter. We see the increase of about 50 bits for the seller final value fees, about 60 bits on the shipping fees. I'm curious if you could dig in a bit further on both of those items. Was there any change in your pricing policy? Was it mixed? Anything maybe on the Contra revenue line? Just trying to understand what drove the...

Speaker 2: Yes, Pedro, we can hear you now.

Speaker 4: Can you hear me now? Yes, you can. Sorry. So we were just encouraging everyone to please take a look at the video after we're done with Q&A and apologize for the technical difficulty. Andrew, it's a little bit of...

Speaker 4: the three things you mentioned. So we have began or continued to selectively change shipping prices on select routes and zones in different markets and so the net revenue from shipping

Speaker 4: Mix has been a driver of improving final value fees as there's some mixed shift towards higher take rate categories and typically at the beginning of the year in the first quarter we also carry out selective pricing on seller fees across different geos in the marketplace. Great and as a quick follow up you mentioned the pricing on select routes and zones in different markets is that more the core logistics.

Speaker 3: And see is there any change in how you've implemented some of the tests for fulfillment and warehousing specifically? Thanks again.

Speaker 4: We've seen some really solid pickup of fulfillment adoption throughout the first quarter, primarily in Brazil, exiting on a high note in terms of a historical high for Brazilian fulfillment penetration. So we continue to accomplish that first sequential goal. The ramp-up in monetization, we always said, is probably the second one sequentially once we've reached more Mexico-like levels of fulfillment in the other markets. So the monetization improvements on logistics...

Speaker 4: are not driven by incremental monetization on fulfillment services, but much more by price increases on transportation costs.

Speaker 2: Thank you. One moment while we prepare the next question. Our next question comes from Edva Skurz from Goldman Sachs. Your line is now open. Hi, thanks for taking my question. The continued rising in your product and technology development expenses leave relatively little bit out about your commitment to investment in innovation. But my question is other than Edtech, are there any other specific new areas to which you're incrementally?

Speaker 5: show.

Speaker 4: On product development, a couple of important, I think, clarifications.

Speaker 4: Yes, it continues to be the most significant line in terms of...

Speaker 4: de-leveraging, I think on super solid top line when we look at margin expansion. We've been able to generate incremental margin across most of our cost lines.

Speaker 4: The two that haven't on a year-on-year basis are certain sales taxes, primarily in Brazil, and then 220 basis points from product development.

Speaker 4: Bear in mind that the rate of incremental hiring has come down from about 4,000 engineers to 2,000. And so a significant portion of those 220 basis points are a consequence of the annualization of all the engineers that we hired.

Speaker 4: last year and not a continued acceleration in rate of engineers' hiring. So for next year we should begin to see a slowdown in the level of delirving from product development unless we significantly ramp up high rings again which is currently not on the plans.

Speaker 4: In terms of areas of investment, it really is across the board. We see our product and our technology as a competitive advantage, and those engineers are really split across the multiple different products and services that we are either building out or improving constantly.

Speaker 4: So they're fairly evenly distributed among the existing businesses you're well aware of.

Speaker 4: In terms of AI, I think as most companies, we do see some very relevant short to midterm positive impact in terms of engineering productivity.

Speaker 4: And we are also increasing the amount of work being done on what elements of the consumer facing.

Speaker 4: Experiences we can deploy AI on. I think the focus right now is on some of the more obvious use cases, improving in streamlining customer service and interactions with reps, improving workflows for reps through AI assisted workflow tools and then deploying AI.

Speaker 4: to help better search and discovery in terms of better finding products on our website and better understanding specific.

Speaker 4: specifications of products where existing LLMs are quite efficient. And then beyond that, I think there's a lot of work going on and we hope to come up with other innovative forms of AI that we can place into the consumer facing experience, but the ones I just mentioned are the ones that we're currently working on the most.

Speaker 2: Great, thanks very much.

Speaker 2: Thank you. Please stand by while we prepare the next question.

Speaker 2: Our next question comes from Marcelo Santos from JP Morgan. Your line is now open.

Speaker 6: Hi, good evening. Thanks for taking my question. I wanted to ask about the improved logistic economics you mentioned in the release. Is this mostly because of pricing that you pass to or are you experiencing also benefits of scale, more efficiency, like cost-based improved economics? Thank you.

Speaker 4: increase. We continue to see improvements.

Speaker 4: in terms of

Speaker 4: in terms of productivity.

Speaker 4: across different portions of our network.

Speaker 4: different portions of our network.

Speaker 4: So, it's a combination of pricing and scale increases and scale benefits.

Speaker 2: Perfect. Thank you. Thank you. One moment please when we prepare our next question. Great. Our next question is from Thiago MacRuth.

Speaker 7: from Ethal BBA. Your line is now open.

Speaker 6: Thanks guys and thank you for taking my question and congrats on a great quarter. You've mentioned that the 1P operation has reached a turning point in this Q1. Can you shed some light on the main differences that you're seeing in the economics of the business today? And also, you're generating plenty of cash.

Speaker 6: Would it make sense to invest a tad more and accelerate the consolidation of the market chiefly in Brazil, where we now see a somewhat softer competitive environment? Thank you guys.

Speaker 4: Great. So I think as we signaled

Speaker 4: Over the past few quarters, we had slowed down the first party business.

Speaker 4: in large part because we had grown it initially very fast and there was a significant amount of internal operations that we wanted to be able to fix.

Speaker 4: which would allow us to then reaccelerate that business with a healthy margin structure and much better internal operations. What you're beginning to see now are the initial phases of that turnaround. So we feel a lot more confident in how that business is being run. We're beginning to see margin improvements across different product lines in one.

Speaker 4: an important competitive factor.

Speaker 4: investing even more aggressively to consolidate market share. I think if you look at our 1P results and you look at certain things like marketing spend, certain couponing efforts, investment behind the logistics network.

Speaker 4: you will see that we did lean into the market, especially in Brazil, where there is more market share up for grabs short term. The return on those investments was a very strong acceleration in top line.

Speaker 4: which actually meant that margin wise it was contributed from a dollar perspective. So we do feel that we are investing more aggressively to try to more rapidly.

Speaker 4: strengthen our leadership position and we do see that reflected in market share numbers.

Speaker 4: Investing even more probably gets us into areas where the return on those incremental investments don't make as much sense, thinking long term. And so I think we continue to manage the P&L in an aggressive way, striving first and foremost for market share gains and above market growth, but at the same time understanding that at the scale we have.

Speaker 4: We want that incremental market share to come in a way that's profitable. And that continues to be the way that we're managing those incremental investments across different markets.

Speaker 8: Thanks, Mr. Speaker. Thank you very much.

Speaker 7: Thank you. One moment please, will we compile our next question?

Speaker 7: Our next question is from Pedro Pinto from BBI. Your line is now open.

Speaker 8: Thank you, bye for a quick question. I would like to hear from you, the ambition on commerce business across the region. As long as market share gains in Mexico and the US seems to be in good shape, do you think time to increase focus in all the regions such as?

Speaker 8: So basically, I would like to know what are the things that timing and may deliver those in this front. Great question. I think we continue to see.

Speaker 4: a very attractive midterm opportunity in the Indian markets, Chile, Colombia, Peru. Chile has some very tough comps.

Speaker 4: based on macro issues in the previous years. A lot of money was put into consumer pockets that went in large into consumption. And so that means that the rate of acceleration in Chile has been significantly down and even negative over the last few quarters.

Speaker 4: and we're beginning to see that, beginning to turn around. GMV growth was already slightly positive this quarter and revenue growth rebounded and was much more positive than in previous quarters. So we're confident that China should continue that turnaround and that improvement.

Speaker 4: Chile not so long ago was one of our fastest growing markets throughout the pandemic And so we think that once the Comfish Shoes are behind us, there's a lot of potential from that market

Speaker 4: Peru is still quite small for us. We are increasing our customer acquisition and marketing spend there this year versus prior years. Nothing that dramatically impacts the consolidated P&L, but for the size of that market that is a significant ramp up in marketing spend over last year.

and hopefully we see enough returns on that, that then we can continue to double down on Peru.

And Colombia is potentially the market that's been most challenging for us. I think in general that's true for all of e-commerce, but we still see that as an attractive market and eventually I think we will try to figure that out. I don't think it's a matter at this point of investing more.

We actually have a P&L in Columbia that is not profitable and that receives the right amount of investment. It's more a matter of waiting for the market to mature a little bit and for us to continue to improve on execution and product rollouts so that we can see better results coming out of that market. Perfect. Thank you.

On the credit side, it looks like the IMAL is down quite a bit sequentially. And I know in the slides you mention an element of seasonality around bad debts, but if we look at the bad debt.

provision, they're a bit higher than 4Q, but quite a bit lower than 2Q and 3Q when the IMAL was higher. So can you help us understand a bit better what's going on there, or that's a mixed shift, is pricing changed, is about funding cost. What's going on there?

what's driven that down and how should we think about it going forward. Thank you. Hi Jeffrey, yes, I'm always down from what I think was an exceptional high fourth quarter Still 39% for the quarter. I think it was came down for a combination of things

On the one hand, we had slightly lower revenue. You know, the fourth quarter typically is a quarter where we see a higher participation of merchant credits and it usually comes down to the first quarter. Also in the first quarter we increased the issuing of credit cards which initially, you book the losses initially but then most of the volume does not generate revenues because it gets paid in full. As for our previous Q&A, Amy

and that brings down a little bit IMAILs also. As you book the losses initially, that also increases the bad lead. And finally, as the portfolio grows in the quarter, the third thing that impacts, the change in the portfolio impacts IMAIL. That's why it came down. We're still comfortable with the 39% volume.

And you mentioned accelerating in credit cards. What have you seen that's given you confidence to do that and how much more potential is there to continue to ramp up growth in cards? We felt confident we were always looking at cohorts and at role rates.

with the raw wood we're seeing and with the latest segments of cars we have issued.

Great, thanks very much. Thank you.

We just want to do a really quick reminder before our next question. You can ask a question by pressing star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. So at this time, I'm going to prepare the next question. You can ask a question by pressing star 11 again.

And Jamie Friedman from Susquehanna International Group, your line is now open.

Hi, Jamie Friedman from Swiss Guajana International Group. Your line is now open.

One moment, please.

All right. Thank you for your patience. We will be queuing our next question.

Deepak Medabinan, your call is now open from Wolf Research.

Great. Thanks for taking the questions. Pair of first question, ads penetration gains for a little bit lower than we expected. I understand there is some lumpiness to it, but can you talk about the product roadmap in 2023 and kind of the efforts to accelerate the penetration? And then second question, can you talk about the drivers of the credit book growth, particularly on the consumer side?

What signals are you seeing in the market to enabling, you know, growing the book? And is there kind of like a level for IMAL margins that we can expect you to hold as you sort of, you know, lean in and grow the book again? Thank you so much. Great. So, on advertising.

The business continues to grow very nicely. It grew at 62% year on year, which is very much in line with the growth rate over the past three quarters. This is dollar growth. So momentum is still quite strong.

GMV did accelerate this quarter versus prior quarter, so that makes it a tougher comp for the ad business given that we're dividing revenue by GMV on the penetration metric.

If GMV growth had been similar to prior quarter, we would have had a 10 basis point increase Q on Q in advertising penetration or something along those lines.

And then potentially, bear in mind that Q1 is also seasonally less of a...

season for advertisers to invest as aggressively as in Q4. So the rollover on a sequential basis from a Q4 to a Q1 is not necessarily one where we should see significant penetration gains. And then finally...

A lot of the technology that's being launched over the last few quarters, as we've been saying, potentially takes some time before it gets fully adopted by advertisers. And so, the next few quarters, we would expect to see...

increases once again in penetration given that we'd like to see advertising revenues outpacing GMB growth.

Finally, if you look at the year-on-year penetration gains to strip out seasonality, those continue to be quite encouraging. Deepak, with regards to credit, we felt comfortable increasing our regionation mostly in Argentina and the time round.

of consumers were reaching out to in Mexico and Argentina and we did so. In the case of Brazil, it was mostly the increasing origination was in the credit card business towards the second half of the quarter. In terms of merchant trades, it has remained stable from the prior quarter mostly. And you had a far-acoustic regarding in mile, I'm not sure I got that one.

growing number of credit products out there that could affect credit. So I think we're not giving any kind of directionality on where we think the interest margin after losses might trend. We'll report those back to you guys on a quarter per quarter basis.

Also, because as we begin to see, as Osvaldo was just saying, an improvement in credit conditions and the credit cycle, that potentially encourages us to start opening the spigot again on originations. And even within customer segments, we could see lower margin segments that when you risk a jig screen, keeps just

are actually very attractive to move into and will generate incremental dollars from credit but won't necessarily be incremental in terms of IMO. So we'll keep you guys posted as this moves forward. I think the books are still very, very young and you could see potential volatility in margin structures because of segment and product mix shifts that might occur going forward.

Thank you so much, Berold. Thank you. One moment while we prepare the next question. Our next question comes from Steven from Credit Lease.

Your line is now open. Okay, thank you. Hi Pedro. So the Argentina unit growth has reverted back positive, but it's still a little bit unusual to see that number in the single digits. So, you know, I get that we can't grow.

high double digits forever, but can we talk about what you may be seeing from either cyclical or a secular perspective that might be moving that growth around? And second, you know, on that order, you've probably seen the, you know, one of the mobile operating system owners release a savings account product.

product development for you. Thanks.

development for you. Thanks. Steven, thanks.

Argentina, I would attribute the weakness in that business.

primarily to very volatile macro conditions. You're correct, I think it's a business that we've historically seen it perform well, even in weaker macro, as generally is the case for MELI. I think over the past few quarters, currency restrictions have made it difficult to import goods. So I don't see anything structural there.

Argentina still has a level of e-commerce penetration of retail that is lower than Brazil, for example. It's a market where we have probably the strongest market share and is far from saturation. So that should be an attractive market for us mid and long term.

and we will just have to navigate through the short-term volatility. Bear in mind that also because structurally it's a less competitive market, it's also a market where we are more focused on profitability than growth. And if you look at the bottom line results coming out of Argentina, those are still...

extremely, extremely strong. And then with regards to how to call it to the visual account that offers a return, I'd say it's very similar.

to what we have been offering for the last four or five years in all of our top three markets. And what has happened recently is with interest rates going up, there's clearly an incentive to move money out of savings accounts from banks which usually pay zero and into money market accounts.

and the ones we offer in each of the markets have the advantage that they have instant availability. And returns vary with local interest rates, but in Brazil it's in the order of 13%. In Argentina given the incredibly high rates it's in the order of 69%.

and in Mexico it's in line with, it's not a six or five percent. So what we have seen is a significant increase in asset under management, which is growing over 100% year over year, and we believe that this flow is likely to continue.

So I believe that this is a product, the one they launched and the one we have, that has a huge opportunity given that banks continue to pay zero or very close to zero in most cases in Latin America in saving accounts.

Thank you. Thank you. One moment please before we prepare our next question.

Our next question comes from Neha Agarwalala from HSBC. Your line is now open.

Hi, thank you for taking my question. I gather that you are more open to accelerating gradually the pace of 1P. What impact should we see coming from that in terms of margin costs, pay grade? Anything that you can express about that, that would be very helpful.

or would you still remain vigilant and kind of maintain originations and grow selectively for the rest of the year? Thank you so much.

So on 1P, the 1P business has been improving its margin structure across pretty much all categories.

but continues to have a lower margin than the rest of our businesses. To be more precise, it continues to be negative in terms of EBIT margin. So a growth in the 1P business now should be instrumental in strengthening categories where we under index.

in having a better selection for our consumers.

which are all long-term positive. It should help us continue to gain scale within 1P purchasing and logistics which should continue to improve the margins within 1P until eventually turning positive but short-term their detrimental on margins.

In terms of take rate, it's the opposite story. Obviously, there we book the full revenue base, and so it's a catalyst of accelerating revenue and improving take rates.

But again, all in, we believe 1P is going to be critical for long-term success in certain specific categories. And so we think that it's very positive news that we're beginning to pick that business up again in terms of growth rates.

given that we feel more comfortable about the user experience and the margin trajectory that we will be able to deliver going forward in our 1P operation.

In terms of credit originations, I would say that our credit models, one of the most important things they do is to sort users in terms of increased risk. And so, these models are very well calibrated, and so whenever in a given cohort we are seeing that we have good results, we are willing to go to the next one.

But beyond that, what we have been doing is keep control groups whenever we want to start giving loans to a segment we are not giving loans in the past. And whenever we see there's profitability in that group, we are willing to expand that segment. That has happened already and is going on now with Argentina and Mexico. It is not yet the case in Brazil.

whenever we see that profitability starts to improve in those control groups, we'll be more willing to originate trade faster in Brazil.

Thank you so much. Thank you. One moment while we prepare our next question. Our next question comes from Robert Ford from Bank of America. Your line is now open.

category trial and GMV growth versus areas without those return services.

Thank you. Bob, Items per order has had a very gradual trend up as fulfillment penetration continues to grow.

Hopefully that allows to drive that number up. We're also going to be innovating significantly on network design, on certain options for consumers that check out, that will allow them to bundle purchases into single deliveries or bundle greater numbers of delivery slots, which should also help us drive up items for order, lower cost.

and to be able to give some of those cost improvements back to the consumers who select that slower option. In terms of greater category trial as a consequence of offering better return options, I'll need to be in debt with you on the answer to that.

No worries, thanks again and congratulations on the course. Thank you. One moment please while we prepare our next question.

Okay, great. Just first one, dovetailing on that last one, innovating on the network design and so forth. It looks like CapEx is down Q-on-Q and it's below trend in recent quarters. Was there anything like timing related there and should we expect that to rebound later in the year as maybe make some of those investments and innovating on the network design? And then second question, on market share gains in Brazil, did that come from certain categories where competitors are maybe seeding some share or was it more broad base than that?

And just first one, Doug Tayloring on that last one, innovating on the network design and so forth. It looks like CapEx is down Q on Q and it's below trend in recent quarters. Was there anything like timing related there and should we expect that to rebound later in the year as maybe make some of those investments in innovating on the network design? And then second question, on market share gains in Brazil. Did that come from certain categories where competitors are maybe seeding some share or was it more broad base than that? Thank you.

Yeah, so the CapEx improvements do have an element of phasing. There were certain investments in logistics that we initially had budgeted for the first quarter that had been pushed back into second, third, and fourth quarter. So there is an element of phasing to that slowdown in CapEx. Our CapEx trajectory also will be somewhat volatile as...

new warehouses and new nodes come into play in different markets at different times, depending on the specific network rollouts across the multiple geographies where we're scaling out melee logistics. But specifically Q1 did have phasing elements.

and the shipping-related capex came in quite low, below $50 million for the quarter. On market share gains, let me review some of these decisions that are intended.

They've been consistent across multiple categories. I do think that, as we said, those share gains in part are because we leaned into the specific change in market structure and the relative balance sheet weakness of certain market participants.

So a lot of that is coming from share that's being given up by other players, but it was fairly distributed across all categories. So when we look at category per category market share, we're seeing ourselves as market share gainers across most categories.

That's very helpful. Thanks. Thank you. One moment for our last question. All right. Our last question comes from Jamie Friedman from Susquehanna International Group. Your line is now open.

think about IML, I know you don't give guidance, but how to think about IML typical seasonality saying the Q2.

Hi, Jamie. I would say that probably there is more functionality in the fourth quarter given that we usually give more loans to merchants the fourth quarter. And I would say there is any specific functionality in general going from quarter to quarter. I think it will be, as we mentioned before, more related to what happens to the portfolio, as we decide to grow.

in each of the segments and each of the markets, and then obviously at how delinquencies evolve. Okay, thanks for that. And then if I could just ask a high-level question about the regulatory environment, especially in Brazil, especially Afropol of...

How would you describe it? Is it benign? Is the coast clear? Historically, the government's been very supportive, I think.

How would you describe it? Is it benign? Is the coast clear? Historically, the government's been very supportive, I think, incubating fintechs.

Has that changed or how would you overall characterize the regulatory environment in Brazil relative to fintech?

I would say that in general, Brazil has been the one country where the central bank and the government has been the most pro-competition and really, I would say,

We encourage both banks and FinTech to compete on NICWA footing. And so, most of the regulations we have seen in the past has been around that. PIX has been probably the most successful example, but there have been more recent impacts such as the...

the caps on interchange fees lately on prepaid cards. So I would say it has always been pro-consumer and pro-competition. And I think that...

They have been very pragmatic and practical whenever we have been, if we have pointed out that some of the things we were proposing were not practical, I think at least we have heard.

Okay, perfect. Thank you for the context. Thank you. As I mentioned, that was our last question. As we prepare to play a video, which you can access on the company IR website, I would now like to turn it back to Pedro Arndt.

Mercado Libra's Chief Financial Officer for closing remarks. Thank you everyone. So incredibly strong start to the year. Top line ahead of our expectations. Very strong margin evolution.

We're really pleased with how the business has gotten off to the start of the year. We're going to continue to invest throughout the remaining quarters in the year to continue to gain customer preference, expand market share if we execute well, and hopefully we'll see the kind of response from our users and consumers.

the target of a lot of the questions on how we're improving the stack. So that should be up and available for you to take a look at and we do encourage you to do so. And we look forward to speaking with you again when we report the next quarter. We will now play that. Hello everyone and welcome to the next session.

as Mercado Bargo as well as him in it. Before we go on to discuss our results for the first quarter of 2023, I remind you that management may make and this presentation may contain forward-looking statements. So please refer to the disclaimer on screen, which will also be available in our earnings materials.

Hello everyone. I'm pleased to share the key messages around Mercado Libre's performance during the first quarter of 2023. Our businesses continue to deliver strong growth with solid momentum in GMV and TPV. This quarter, we also hit...

acceleration of items sold and of FX neutral GMB growth in our three largest geographies and also on a consolidated basis. Moreover, this acceleration translated into market share gains, particularly in Brazil, our largest market. Commerce revenues continue to grow rapidly on the back of faster-

and minor price increases we carried out to offset rising costs.

On the fintech business, strong results were also delivered once again, especially driven by off-platform TPV growth that more than doubled versus the prior year on an FX neutral basis. We see similar trends as in 2022 in both the digital and the digital world.

was similar to the prior quarter and still focused on lower risk cohorts. Non-performing loans are at comfortable levels therefore and as a result the business has maintained a high margin. Consequently these trends in the fintech business line led to another quarter of rapid revenue growth there albeit at a somewhat slower rate.

well ahead of the first quarter of last year. During Q1, we've reached quarterly income from operations, accompanied by strong generation of cash flow from operations. This shows our commitment to delivering operational efficiency as our businesses grow at above market rates and economic activity.

to invest heavily in technology as we look to build our competitive advantages for the years to come. In summary, we've gotten off to a great start to the year. We've even been able to surpass our targeted levels for combined growth and profitability. Richard will now share some more detailed business news with you.

launched several new products and services over the last two years to position Recaldupago as a provider of a full suite of financial services to our users. During the first quarter of 2023, we took another important step by launching a marketing campaign in Brazil to raise awareness of this value proposition.

and Mercado Pago's ability to serve all of our users' day-to-day financial needs. The campaign highlights the direct connection between Mercado Libre and Mercado Pago and leverages the awareness of and trust in our yellow world to promote our blue world fintech business. These campaigns reach millions of users both offline and online and they show the strength and synergy of our users.

Mercado de Brets served millions of unique buyers in the first quarter of 2023, with 7 out of 10 searches being unbranded. This gives our advertisers an opportunity to position their brands, promote their products, and increase their sales with our proprietary solutions. Mercado Ads currently offers solutions to all of our customers.

generating awareness and creating brand value.

In the last few months we completely rebuilt our display solution. Now our advertisers can influence the entire customer journey, including high impact placements, especially for the consideration stage.

In Q1 2023 we launched our programmatic platform. Brands and agencies now have an automated display buying platform that leverages one of our main assets, our unparalleled first-party data. The depth and granularity of our data let us build unique targeting capabilities, accurate real-time bidding models, live...

algorithms which takes into consideration the price the seller is willing to pay per click and also the ads relevance. This enables us to guarantee a good experience to both the buyer and the seller and accomplishes the value proposition of increasing the chance of converting a click into a sale. With product ads sellers can boost their products into the top positions in the search results.

and also on the product page details in carousels. More placements of carousels are being released, such as the new carousel with products only based on top of my brand.

This shows how we continue to innovate even in our most advanced ads products. As part of the search advertising products, we are now developing a new product called Brand Ads, which is being tested with specific brands. This product focuses on the consideration stage of the funnel to help users discover new products and the format is based on keyword targeting.

It also provides context to a brand to present its storytelling of a category with a group of products in the top position of the search results.

Our priority is always to find the best balance between return on investment for the seller, product relevance for the buyer, and monetization for Mercado Libre. Behind all of these products, there is a robust tech stack that enables a seamless experience for consumers and advertisers.

This is where a lot of work has been done behind the scenes over the last 12 months. We offer our sellers an ad console where they can create, manage and optimize their campaigns for each of Mercado ad's products and stages of funnel while analysing real-time reports to track results and improve campaigns.

Behind the scenes, our ad server works to target ads to the right audience, optimise pricing and determine the placement of each listing. This is done considering several factors including the quality and price of the product, the seller's reputation and the budget and expected return of those sellers willing to advertise their products. Within seconds this process creates a...

to roam up ahead to improve the info given to our advertisers. With the development of these products and technologies, we have the first version of a complete out-tech set that strengthens our ability to develop our business and offer a world-class experience to advertising agencies, brands, and other sellers on Latin America's largest e-commerce platform.

We still have more work to do as much of the technology has been recently launched, so we're engaging with brands and advertising agencies to understand their feedback and incorporate it into the technology. We continue to accelerate investment in ads technology and this leaves us optimistic about the business's long term potential to drive growth and profitability.