Q2 2023 MercadoLibre Inc Earnings Call
Hello welcome.
Welcome to them.
Conference call.
2023, thank you for joining.
I'm Richard.
Relations officer.
The highlights.
Sure.
Chief Financial Officer.
President.
A few minutes.
T V P.
Before going on to discuss the results of the second quarter.
2023.
Management may make this presentation.
Forward looking statement.
So please refer to the display screen, which will also be available materials.
Materials.
This website.
Before 12 o'clock the results.
But.
Relations website.
And your resources such as videos.
Frequently asked questions.
Stopped all business.
Navigation around making.
Making it easier to find things.
[noise] documents.
Let's begin with a summary of ours.
[noise] Hello, everyone.
Police to share with you.
Quatre Libra continues to sustain it strong momentum over the last few.
Q2 twenty-three was once again.
Very solid.
Rapid top line growth.
[noise] expansion more broad based across geographies and business.
Showing the strengths of our business.
The potential of our financial model.
<unk>.
Let me begin with the financial highlights.
Our revenue growth remains high despite our site.
This.
With operational efficiency scale.
To a big step up in our income from operations March.
Income from operations more than doubled.
Reaching a new.
This quarterly result is a testament to the potential for solid margin expansion.
Lined with above market rates of growth inherent in our performance.
In the short run not every quarter will look like.
There are still multiple growth factors for us to invest.
But it certainly points to the longterm margin and cash upside we believe we can do.
Turning to the K P eyes of our commerce.
You too.
G M V surpassed 10 billion Mark for the first time.
This growth was driven mainly by Brazil, and Mexico, which overtook Argentina to become our second largest commerce geography for the first time.
Brazil, and Mexico, both delivered an acceleration of successful items growth.
Care to the previous quarter.
We continue to bolster mercado the bread value proposition.
Leadership position in the region has been going from strength.
Other highlights and commerce include fulfillment penetration in Brazil, which is accelerating and reached a new high.
It also a further pick up in growth of our first party business, which grew well ahead of overall G. M V. During cute.
You too.
Top of that momentum.
Advertising business also remains strong.
With revenue, reaching the equivalent of 1.6% of G. M V driven by higher engagement with product.
T P D growth remains strong as well.
Wiring business delivered higher T P V for device.
Move upmarket to larger S. M. B's continues to deliver results, both Brazil and Mexico.
On the digital account Frank G P V and engagement with our more complete stack of products.
Also improve.
A P i's indicate.
Sure.
Management.
Smaller businesses are also gaining traction as these products scaled and we improve the experience.
Offering to our consumers.
Turning to credit.
Nemo continued to expand on the back of healthy spreads Mexico, a good performance from the credit card in Brazil.
Overall broadly stable delinquent.
We are once again, please to share Mercado labret strong results with our shareholders.
Will continue to develop our value proposition.
[noise] aggressively yet with discipline and always focusing on longterm value creation.
Just before we go into the Q&A Richard will share some more detailed business news with Ya.
Thank you and I look forward to.
Back to you.
Sure I'm all details you have often tech operations in Mexico.
For work out a burger.
Represents an exciting opportunity.
Country with a large population currently has a lower adoption of financial services.
[noise] markets in Latin America, such as Brazil.
Over the last few quarters, we have been rolling out often tech product stuck in Mexico.
<unk> is one of the leaders in the development of the market for digital payments on other financial services.
Strategies.
Unmatched shows focusing on us that's all ready within our ecosystem as we do.
We built on the trust of Mccarley break Brown.
<unk> on the use of relationships and knowledge from the comments business.
Often.
What part are you in Mexico can open that digital account within minutes for free.
The money stored in the account generates interest in a benchmark riding for a partner and can be used at anytime at all free debit card money transfers and all my payments to.
To get money into the account uses can transfer from other banks or use our money installation of physical stores.
Feature in an economy wrecked cash is still dominant.
Another important characteristic of the Mexican market is remittances.
He seized by millions of Mexicans every month.
This represents an opportunity to encourage the digitalization of cashed it transferred directly into the digits account.
Part of the offense these transfers through partnership.
With two established on right now and players recently launched a fed partnership with an exciting startup Phoenix bargains.
Okay. So you have a credit solutions are popular in Mexico and continues to perform well with all by now pay later product having higher penetration on the market placed on all other geographies.
Highlights the synergies of our ecosystem market place and all these helping the underwriting of credit.
We also offer can see my loan money deposited into the use his account to fulfil day today financial needs. They.
The consumer credit broke have increased in five significantly in the last 12 months and continues to perform well with strong profitability unstable M. P. LS.
The first half of 2023.
Credit card in Mexico to compliment all consumer credit off.
This is an important product for the development of the market in Mexico.
Engagement Principality.
A lot of cash.
This product is still a small scale, but we expect it to be a key piece of the park our value proposition in Mexico in a long time.
On top of that this year, we have expanded our insurance solutions another important product of alert penetration in Mexico.
Like in other geographies, we began offering extended warranty for I tunes on my couple of deepening followed by insurance for life cell phones.
Into the account cover.
A complete product stock for consumers corny, its and Q2, we expanded the extended warranty product to cross border purchase it for the first time.
And then on the banks country like Mexico strategy has been to save them develop both sides of the market.
Mentioned to drive market development.
Bringing them all consumers to digital finance.
Drive adoption among merchants in the country.
Framework kind of part of off a complete payment solution see they've mentioned combine but the fastest payments supplement in the market.
Receivables discount right.
During 2023, we increased our focus on a small P O S in Mexico things at large imagine that generate higher T. P V.
And it's also have access to all my payment tools and are able to offer payments in installments of a bias on top of these products matches can access credit lines through Mark up a fargo. Many for the first time ever to grow and develop that businesses.
Mexico is a market that's still at an early stage of development.
Sizable opportunities for Mark how to Fargo Coupla leave it.
With a robust products offer we firmly believe in the potential of our value proposition to Mexican individuals I imagine.
Continue to work to tell you the raw services to that.
I was always the best if you have to come.
Thank you we will know conduct a question and answer session.
Minder to ask a question please press.
Dar one one on your telephone and wait for your name to be announced.
Dry your question please.
One one again please.
Compile the Q&A roster.
Our first question comes on the line.
[noise] cigars.
<unk>. Please proceed with your question.
Yes, hi, Thanks for taking my question in your remarks, you state that you intend to use some of the headroom created by operating leverage to lean into certain areas of the business.
Second half of this year can you just lay out for us which areas are a priority for the for the shortened immediate near term and I would imagine that credit cards and one P. As you've previously noted are a top priorities here, but I'm curious, where you are and where you're at and regarding the lower value items.
Although the items below the free shipping threshold is specific in light of the ongoing cross board of discussion and somewhat related to this in Mexico, you have a more sides of across the board operation compared to other markets is this an operation that is margin accretive overall or for the Mexican market and if so can the same model be applied in Brazil. Thank you.
Okay.
I am thank you.
So.
In general we continue to see multiple opportunities for us to invest behind our users and growth.
We've been extremely pleased with the market share gains we've been delivering across the board.
Over the last few quarters and so it's important for us that we continue to carry out that balancing act between short term margin expansion and longterm scale and overall size of the business. So I'm not skirting the answer but it really is there are multiple growth sectors in multiple areas.
That we can choose to lean into in quarters, where we feel we're we're coming in very strong on bottom line and have opportunity to accelerate growth. Even more you mentioned some of them, but there are multiple others. We've recently launched a new loyalty program, we continue to invest heavily in technology for.
Advertising business and really there are multiple vectors of growth and that's what we're trying to continue to be very consistent on which is taking a long term view and trying to capture as many opportunities as we can and continuing to maximize market share while delivering operational leverage over longer.
Periods of time.
The CBT business in Mexico is performing very well I think it's a very good example of how when we focus on cross border trade and we build out the product. We can deliver strong results cross border G. M V. In Mexico has been growing at about two X.
Growth of non cross border G M D and it is a profitable business.
Thank you.
Thank you please stand by for our next question.
Our next question comes on the line at Bob Florida Bank of America. Please proceed with your question.
Congratulations on a corner and and thanks for taking my questions.
Talk about advertising in the operating leverage in Mexico, specifically, there were some big gains their it in the context of building that credit book, we thought the performance was all the more impressive.
And then the last week, you've changed landing page for the cross border business in Brazil, you've added new categories and I've gotten up to about 4.2 million listings. How are you thinking about cross border in the relevant to the value proposition following the medical Department.
And how long will the <unk> compliant certification process taken your view and.
And then lastly can you talk a little bit about Cuddled play yeah, how many titles you're launching with how do the economics of the model work.
You know what hit the initial changes in engagement being so far.
From the users.
In the early stages, both in terms of the marketplace as well as <unk>.
Hi, bubble Uh-huh Arielle here, let me start with the <unk>, <unk>, which which have been generating some discussion.
And the last few weeks, so we've been competing against Asian player a field for several years now on Moreover, the old scheme.
The way it's implemented created some loopholes for companies who were supposedly in board of being B two C items at the Seattle input tax rate in the country. So we would think about it if anything the new scheme will actually increase taxes.
[noise] one.
I guess time will tell if the speed improvements that will be generated with the new model would actually increase demand or not but we still think that the best case scenario in terms of lead times will will still be fodder for awhile with same day and mixed the value proposition.
We are currently offering in Brazil, but simultaneously.
<unk> team reflect on your opportunity for Monica.
Sure he'd be the basement in the country is almost non existent. So we think that we can actually build unscathed.
And robust growth.
Business, taking advantage of our own strength.
Our topic the trust you know our brands our payments infrastructure, our local logistics.
ZIP it up a federal thing before.
Their business in Mexico, he's growing twice as much as our website, but if you look at what we're doing.
Chile on Colombia, where we also put some focus is growing triple digits in each of those countries. So whipping, we could build something around cross border with the new scheme will probably be putting some airport, indiana whenever I want to reset resources allow us to do so and that's the way I guess.
It will play out regarding medical play and I think it's too early we have just deploying our version of the prozac increasing the gap.
So not much to be said on that one of many numbers to share.
Either.
<unk> Yeah <unk>.
<unk>, New Mexico, Yeah. So.
The Mexican.
Expansion in margin and this applies.
Two Brazil, as well, Brazil, and Mexico, both drove.
The lion's share of.
The growth in EBIT margin expansion and it's been remarkably consistent across multiple products, both in commerce and Fintech.
So with the exception of the one P margin that contracted slightly.
Much all other revenue streams are coming in with very solid cost management and strong growth in revenue. So this wasn't driven solely by credit in Mexico, nor in Brazil, I mean I think.
That's important to point out.
No I think it's very important.
Go ahead.
I just want to follow up if I could and that is.
How long do you think the <unk> component of compliance certification process is gonna take.
I think it depends more on the government none on our herself. So it's got to answer that question.
Ready on eager.
To engage in such a scheme with thing that as I was saying before that <unk> present, an opportunity for us, but timing from a government perspective to adjust processes customs et cetera et cetera.
To predict.
Understood. Thank you so much.
Just one more thing I think it's important you ask on the model around play the financial model I think it's important to point out that the upfront outlay on content is extremely controlled most of the contracts are structured primarily with a revenue share remember this is a advertising.
[noise] video on demand platform and so we really are trying to build out Charlie's technology product learn but the outlays in terms of commitments on content or efficiently managed.
And most of the economic motto will.
Work around rideshare with the content owners.
Super helpful. Thank you so much greater.
Please stand by for our next question.
Our next question comes from the line of Andrew Reuben at Morgan Stanley . Your line is now open.
Hi, Thanks for the question a couple of items on logistics here, we saw that 40 basis point increase in Brazil fulfillment penetration curious what drove the step change and what the bottlenecks are for increasing that figure further and then when looking at the quarter, we see about 80 basis.
Increase for shipping fees within the take rate curious what is what's driving that how you were thinking about that fee structure. Thank you.
Yeah.
Regarding the first one on fulfillment I see a stronger demand from sellers in trying to engage with our fulfillment program. I think we have also improved our technology umbrella to streamline new cell at a morning black.
Existing feller farming. So we have the technology and tools to tell the seller for exactly what we think will sell in fulfillment on two grilled them drive more inventory into our warehouses. So the combination of the two equally the key explanation behind the increase in fulfillment administration that was the first part.
Difficult one Andrew can you remind me.
Yeah, just around the impact in the quarter, we're seeing increasing.
Increase in shipping fees curious, what's driving it thank you.
When you look at the.
Market shipping.
Right you should bear in mind that that's a combination of two things on the one can it's how much we charge our buyer and seller for logistics that'd be six but on the <unk> you have gone through our revenues include contract Cox, including their mainly distribution to call. So the 70 basis point improvement.
That you see in shipping big race or a combination of both so we have always been disciplined an explicit in saying that we will try to trust.
The logistics inflation.
Well, our buyers or sellers whenever it makes sense on the second and we have been also very effective in trying to get the productivity improvements from our distribution.
The operation is worth it so the combination of the two is is basically what explained to 70 basis points. If you see.
There.
Great. Thanks for the color and nice to have you on the caller I'd.
Thanks.
We stand by our next question.
Our next question comes on the line of Marcello Santos of J P. Morgan. Please proceed with your question.
Hi, good evening to all thanks for taking my questions I have to the first I wanted to ask about the Argentina and peers, who exercise that you did the simulation that you put in the release.
To understand how you dealt with a cross that might be denominated in pesos, but are effectively are driven by U S. Dollar for example, I I don't know I'm I'm.
Imagine developers, probably they they earn money and pistols, but their salaries somehow linked to the U S dollar.
Did you just gotta crossing paths or whatever they were and converted ended the exercise or did you use some discretion to to to try to address this issue that may be discussed increase if there was a devaluation. That's the first question. The second question is about the credit card in Brazil.
Alrighty producing positive Nemo.
Thank you.
Okay.
Let me take the first one.
First of all important to note the spirit of the disclosure and we can get into more detail if necessary is to clarify that when quantifying the impact of a devaluation in Argentina, it's not as simple as linearly devaluing revenues and costs from Argentina, because there are also.
Argentine denominated costs that don't appear in the Argentine segment, but appear in the other segments, because we export a lot of services from Argentina, and that obviously has a positive impact on margins in other countries segment because the revenues there are not Argentine peso.
<unk>.
Your question about Argentine peso denominated costs, but that could potentially have an underlying ty.
Ty T U S dollars I think that that's a third derivatives that the model doesn't take into account, but I I would I would disagree that this is a linear pass through.
Salaries in Argentina are in Argentine basis, obviously, Argentina is a high inflationary country because of the consistent devaluation of its currency, but Ah devaluation, probably actually generates a benefit in terms of I T.
Cost at least in the mid term.
Hello, with regards to the credit card in Brazil, and I'd say that as you recall during the second half of the of last year, we were more conservative in terms of efficient grades give.
Given the macro environment and we made good use of the time to rebuild our business models and we're very happy with how they have been evolving and therefore I would save from the last quarter of last year until now we nearly tripled more than triple the number of cards were issued in a given quarter.
Excited about the results we have seen it is marginally needed you cohorts are are a great deal, but it's still very early on in the game.
To continue to continue growing.
Just to understand.
March Mukherjee that means that they're generating positive habits, just want to understand if the contribution is positive or negative.
Instead of let's say modular country music contribution.
Paucity of Glasgow horse have issued.
This is small number.
Perfect. Thank you very much.
Thank you all.
One moment for our next question.
Our next question comes from the lineup Deepak <unk> Research. Please proceed with your question.
Great. Thanks. This is zack on for Deepak Uhm just to follow up on the last line question just.
Specifically on that Argentina macro obviously, it's very challenging the unit growth is holding up relatively well just be celebrated lately, but just curious about how you think about kind of going for the <unk>.
This country at <unk> in this area and and had to think about it kind of staffing levels is this an area, where you're thinking you're reevaluating kind of the investment and staffing levels currently or you kind of happy with where things stand and then also just touching based on.
Inflationary trend specifically on the logistics side in Brazil.
Noted that you're passing through some of these costs on to consumers is.
Is that inflation pressured primarily on the labor or the partner center or both perhaps and how do we think about the kind of piece of inflation kind of into the back half of the year and can accelerate in disarming or is it kind of relatively stable.
And kind of expect that kind of past years to kind of continue going forward. Thanks [noise].
Let me take the last one first I think you're better off asking a macroeconomist an inflationary expectations for the back half of the year.
Argentina, we continue to see tremendous potential in that market. If you look at what we've built in Pago. It's phenomenal are commerce position from a competitive position is extremely strong.
And if anything there is a greater.
Possibility now then maybe two or three years ago that Argentina midterm might course, correct. So we are definitely not considering anything like scaling down our commitment to the country. We're pulling out if anything we have a sense that that might be one of the areas, where we can lean into it a little bit more in the back half of the year.
And accelerate unit growth, even more I think unit growth if you compared to historical levels in Argentina has actually been anemic, Mexico, Brazil.
Chile had been outperforming Argentina.
Might be an opportunity there to Reaccelerate unit growth on the commerce side on the Fintech side, it's been absolutely firing on all cylinders.
The first part of your second question I would say inflation is coming from both it's under one coming from from salaries from operation, but it's also diesel on distribution inflation. So he began across every country, let them, we see logistics inflation being higher than average inflation in the <unk>.
Entry and that has been the case.
Half of the year.
Got it thank you.
Please stand by for our next question.
Our next question comes from the line of <unk> of Credit Suisse. Your line is now open.
Great. Thank you so much so it's really nice to see this meaningful jump in your first party G. M. B here, even though the sequential basis. So can you talk about the Halo effect that you may hopefully be seeing in terms of the shopping behavior and the consumer.
And secondarily I mean today consumer electronics, but no where else can you look to plug in some of the assortment gaps that you might have right now and.
She can also talk about how has your thinking evolved in terms of greater or lower willingness to expand his business given the competitive environment. Thank you.
Hey, Steven are you'll hear.
So yeah, we definitely see this acceleration ethical sequence of all the investments that we have been putting into the business for several years. So our logistics improvement they use it expedience on our investments in technology.
Assortment on selection expansion, our retail business, our efforts to assure insure price competitiveness, so I guess.
The 11th combine.
Driving and you sort of behavior on multiple infections or platform, which linked to who the brand for months on the way, we think our customers love medical delivery.
Definitely generating the numbers that you see in terms of assortment experience I guess, we will continue to in trying to build the biggest available selection in the market.
While we're <unk> and we will continue doing so in the near future.
Thank you.
One moment our next question.
Our next question comes from the lineup Maria Clara and Tony.
BBA. Please proceed with your question.
Hello.
Thanks for taking my <unk>, <unk> <unk> <unk> <unk> <unk> <unk> <unk> <unk>, so I'd like to check.
Ketchup please elaborate.
It was about.
And you can prove mentally.
<unk> tried that went to your information and also it.
They like to hear Yeah, <unk> brand new in new Mexico. Thank you.
[noise], Okay. So on margins structure, one P has actually been playing out very much in line with the way we had.
Anticipated in that as we gain scale as we improve operational efficiencies and build out our organization, we actually see very significant margin improvement year over year.
And even sequentially, it's still nonprofitable and that's a function of the fact that it's still subscale vs. Some of our competitors and so we need to continue to invest behind growing the business and the natural operational leverage will continue to kick in.
When we can turn that business positive is probably not over the next few quarters. It's more of a mid term objective of ours, but again very pleased with the results this quarter not only from a top line perspective, but also how margins are improving as the business grows.
Competition I can hand, it over to our.
So.
I I think Latin America has become one of the most intense competitive scenarios.
Royal broadly we have.
The Big American player investing heavily in the region whichever Asian players, who have local players to defend their position. So I guess, we're all trying to serve the customers in different ways.
Luckily for US I think our strategy have played well if you were to look at the pump the day that it seems that the case that we have been gaining market share both in Mexico and in Brazil, even in this.
Vitamin.
We hope to continue doing so investing behind the business I'm trying to make the maximum out of the <unk>.
Betterment that we have been putting together over the last few years.
Perfect. Thank you so much.
One moment for our next question.
Our next question comes on the line at Kyle Plateau of UBS. Please proceed with your question.
Good evening, Thank it's sort of <unk> I have two on my side.
The first even the neck and just muggy after losses.
So <unk>, you'll get you'll get an.
Email.
Cough.
Can see that even including this let me go out.
Hi, Betty.
<unk>.
<unk> you have more of like 51%.
Email it was pretty 70 cents a cheaper cost.
Hi, So just you would like to understand <unk>.
So let me pull up <unk>.
Books, or just one of them and how could that be <unk>, and then I'll pull up with no success.
Sure ISO the funding cost is the blended average.
Of the underlying cost on the credit books. So it's the cost of the <unk> and.
And it's the cost of the dead.
That that we take on to fund that and our equity participation.
Okay. Thank you for these include the <unk> and then that does it.
Yeah. It includes the costs of third party funding as well indeed.
Okay. Okay. Thank you and the type of questions grades.
Yeah, so excluding the <unk> the big Red headed a reduction of <unk> <unk>.
<unk>.
But in a quarter of a <unk>.
Make a change.
So this would you like to understand what's the name of <unk>.
He was related to lower prices as well and what can we expect to go forwards, especially in light of <unk>.
<unk>.
Yeah. So a couple of the key drivers on the compression of the Fintech take right.
There and they are fairly even distributed among these three drivers. So there is compression on Argentine financing revenues.
Where we've had less financed TPB.
As a percentage of overall revenues.
And as the reference rates in Argentina have been going up that's also tightened some of the profitability an Argentine financing.
In Argentina.
The wallet business, which continues to perform incredibly well.
But also saw some decrease intake right.
Through mix shift and the different monetizations on Q R and the other transactional fees that we have in Argentina.
And then the M. P O S business in Brazil also drove roughly a third of the take rate compression in Fintech. That's a primarily less devices sold as we move more and more.
Get into larger merchant.
We have merchants with higher TPB per merchant, but obviously, they purchase less machines and so the revenues on the sales of machines as net new machine sales Decelerates is the third driver of compression on the Fintech take right.
And like I said roughly each one of these three drivers have a similar.
Magnitude on the Fintech compression and very Banco that for the last point Federal mentioned these machines are always.
Sold at a loss so lower revenues, but also lower cost.
Okay. Thank you very much.
As a reminder to ask a question please press.
One one on your telephone and wait for your name to be announced it was dry your question. Please press star one one again.
One moment for our next question.
Our next question comes from the line of Jeffrey Elliot of autonomy. Your line is now open.
Oh, Hello, Thanks, very much for taking the question could we talk a bit more about credit in Mexico, clearly a very different market from Brazil in terms of the <unk>.
Credit penetration of the consumer the amounts of existing credit relationships that likely to have how does that fit into the underground thing that you do what opportunities does that create and what are the what are the potential pitfalls of lending to people who've got less <unk>.
Spirits of taking credit before thank you.
Hi, Jeffrey so they're fiddly as you say, we see a huge opportunity in Mexico.
Start with.
Or by not be leather problems within our platform Mexico is a one country.
Are the highest penetration and beyond that overall and consuming originations Mexico's with a higher than the rest of the country. This time for the first time ever.
Mexico higher than other countries for the first time ever.
Largest consumer Duke Florida.
Rowe.
Seems to be the largest portfolio. So we're very excited over over the opportunity.
<unk> continued to be very good then continue to two degrees and when we see an opportunity.
Beyond transactions and we're going to leave and go somewhere grades. That's why we got into credit card will launch are good.
Friends or family earlier this year that within its expanded is still very small, but we believe that the huge opportunity and that we can leverage our ecosystem.
Many of our users who.
Posed to other countries in general.
<unk>.
Some of them are not.
In.
Including scores grasp and therefore, we believe we have an opportunity to serve them very well.
Thank you and any pitfalls with lending to people, who just don't have as much of a credit history, because credit is not being available to them before.
Yeah.
Will it will have that opportunity is you know.
Loans are typically very small to start with then we have the information of sexual as they have done a marco lira. So I think that working very well since we started and we are.
To continue growing.
Thank you.
One moment our next question.
Our next question comes from the line of Marvin Pong, a B T. I G. Please proceed with your question.
Great. Good evening. Thank you for taking my questions two questions for me So I think.
Just begun that Brazil is in the process of of a debt renegotiation program.
Alrighty.
Relieve some encouraging statistics.
My question is what sort of your view about this program do you think it could.
Unlock new opportunities for credit and.
Extending credit to more people and do you have any specific plans to target.
Prospective borrowers as as as this program evolves and a second question. You mentioned you you have lots of new loyalty program. I was just curious you know what <unk> what are some of the.
New features of the program and can you share any.
Metrics about how more productive people in a loyalty program versus users that are not in the loyalty program. Thank you.
Great. So on on the Brazilian program to ease the burden of credit on consumers I think we began to see the first flow through to our own user base, it's probably early to tell.
Whether through open banking initiatives and other areas will be able to target. Those users are not in general the conceptual answer is if it helps deleverage consumers in general it probably generates a healthier consumer lending backdrop in a hole, but not too many deep insights to share with you at.
At this point.
Loyalty so.
Looking to announce changes to the program simplified understanding of how the program works continuous efforts to improve content that we can offer and to continue to sign more partnerships that give access to mercado liberal lawyer.
<unk> users more and more benefits, we think that the fact that we straddle both your financial life in your commercial life gives us a unique opportunity to build a very differentiated.
Loyalty program, we have some really strong content partnerships and content overlays that now have gotten complemented with melly play.
And so we are continuing to focus on building out the loyalty program. The numbers of paid loyal users. So users who haven't necessarily been earning their way into the loyalty program.
Actually willing to pay for the program so that they can gain those benefits.
Has been growing consistently quarter on quarter, which we think validates that we're building a very compelling user proposition.
And the data around the lift that we get in our users after they sign up for the program continues to be positive we've shared some of those and previous calls so stay.
Stay tuned you'll see a relaunch of the loyalty program soon and it's a continuous effort to really turn that into a competitive advantage.
Great. Thanks Pedro.
One moment for our next question.
Our next question comes from the line of Nihon Agarawala of HSBC. Please proceed with your question.
Alright. Thank you for taking my question Uhm. My first question is regarding the <unk> strong.
<unk>.
Can you to remain strong so what does it mean drivers behind that do you continue to see some market checking often America announced.
In General do you think your value proposition 90 assortment is benefiting the D. M V. Good and and helping you to gain marketshare. So that's my first question. The second question is regarding the average.
If we do not consider Depuration <unk> on your loan book that went out plan and my calculation, 70% in last quarter.
276%.
And this is despite the strong growth that we've seen in credit card <unk> <unk> to the to the short term interest income.
What has led to this increase in the ear.
Has been <unk>.
<unk> that has led to this increase the need.
If you could elaborate a bit of that and my last question is customer deposits.
Have you I already taken customer deposits in Brazil, and Mexico or what is the strategy that is that something that you think a good you would like to do in the future. Thank you so much.
Okay.
Mania ordeal here. So today is a medical you would've 24th birthday, and I'd like to think that the market share gains on.
Acceleration and growth that we're seeing in the business today is basically a sequence of everything we've been doing over this last 24 years. So we think we'd like to think that we have the best value proposition on customer experience available in the market and we will continue putting our efforts behind building so.
In the near future.
Great Happy birthday medical delivery. It is 24 years since <unk>.
Marco started it in a garage as everyone knows.
On yields we have two things I think you're you're kind of hit on it. So we've continued to be.
Fairly selective on who were extending credit to we haven't.
Expanded into higher risk segments, but we have slightly started to move into mid risk segments. We've also seen some upward pressures in terms of funding costs and some of our markets and so that's also led to a higher apr's.
The combination of those yield improvements and significant improvements in bad debt is is what has been driving the improvement in nemo's on a sequential basis.
And with regards to to take in the process. We do offer accounts, which are raymond oriented and each of the three main markets in Brazil, and Mexico and Argentina.
What do we pay users typically while we were able to get from those funds. So for example in Brazil is close to to see the attic, which is close to 14% in Brazil, and Mexico in Europe , 10% and <unk> at this point, 80% and this compares in many cases to savings accounts from back.
Which <unk>.
A consequence of that.
Posits assets under management had been growing a lot in the last year the growth for Brazil has been very high single digits.
Sorry, but he had double digit not the religion, but very high double digits in the case in Argentina is willing to the triple digits part of that is inflation, but even if you think inflation out of the equation of the question. We have seen growth of 80% in terms of number of users.
Or anything that comes in Argentina.
And in Mexico is also a very good and very competitive approach to think we are paying the higher rates in the market that is.
Still rather fairly new as compared to the one in Brazil, Argentina.
Another side, but we do take deposits in all the countries.
Different format, depending on what grade religion permits in the case of Argentina for example, in the case of Mexico.
Plus it's R. And then at a money market fund run by a third party.
Okay, and how much would.
Would you say is now backed by customer deposits.
<unk>.
The only country, where we can use the posted to back credits in Brazil.
Something that we do marginally and we did marginally because we have this tragedy and at this stage to do too.
Grow the assets under management and therefore, we're passing through most of the.
Nearly all of the returns we get from from those deposit so on Saturdays digits marginal.
And only do it when we think Cbb's, which is are you willing to see these in it but.
Okay. Thank you so much.
One moment our next question.
Our next question comes from the line of John Collins Vallone. Jeffrey. Please proceed with your question.
Hi, This is Chris on to John Thanks for taking your question can you give us some more color on how the credit book.
By raising the second quarter G. C. C terms with your plans to expand it are you still doing those will be expanding primarily in Mexico, and Argentina or have you seen any green shoots in Brazil.
Comfortable with extended beyond the credit card product Sir Thank you.
Hi, John So I think that the books continues to perform very well across the board.
We have we continued to see.
<unk> <unk> <unk>.
<unk> I think that we raise rates and expectation of higher default rates on these were lower so we have already a regular highest demos.
And we have been able to grow the volume road as you mentioned, both in in Argentina, and Mexico in Brazil, where seal.
Below a year ago, which was earlier, our big origination second quarter of last year, but we have been growing sequentially our portfolio for the last several quarters and default rates continue could come down. So I think we are excited will result in willing to to continue growing.
The volume.
Look at the percentage of our portfolio has come down for the last 12345 quarters in a row. So.
The second quarter of last year for less 55 quarters, we have been reducing the depth.
And the last quarters increase in defense of the portfolio, although as I mentioned in the case of Brazil is still below what it will say Diego.
Great. Thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
I am showing no further questions at this time, so I'd like to turn the conference back to Pedro aren't Mocatta liberate Chief Finance.
Officer for closing remark.
Thanks, everyone.
Great started a year phenomenon first have continued to gain share showing the power of our operational motto and to top it all off.
24 years of working clearly paying off so thanks for the interest and we look forward to updating you and a quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Mmm.
[music].