Q1 2024 MercadoLibre Inc Earnings Call
Operator: Hello everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended March 31st, 2024. Thank you for joining us.
Hello, everyone and welcome to the White collar.
Operator: Earnings Conference call for the quarter ended March 31st 2024. Thank you for joining us I'm, Richard Cathcart caught any breaks Investor Relations officer.
Richard Cathcart: I'm Richard Cathcart, MercadoLibre's Investor Relations Officer. Today we will share our quarterly highlights on video, after which we will begin our live Q&A session with our management team. Before we go on to discuss our results for the first quarter of 2024, I remind you that management may make or refer to, and this presentation may contain, forward-looking statements and non-GAAP measures. So, please refer to the disclaimer on screen, which will also be available in our earnings materials on our Investor Relations website. With that in mind, let's begin with a summary of our results.
Richard Cathcart: Today, we will share our quarterly highlights home video after which we will begin a live Q&A session with our management team.
Richard Cathcart: Before we go on to discuss our results for the first quarter of 2024, I remind you that management may make or refer to in this presentation may contain forward looking statements and non-GAAP measures.
Richard Cathcart: Please refer to the disclaimer on the screen, which will also be available in our earnings materials.
Richard Cathcart: The relations website.
Richard Cathcart: Let's begin with a summary of our results.
Richard Cathcart: Okay.
Richard Cathcart: Okay.
Richard Cathcart: Yeah.
Richard Cathcart: Okay.
Unknown Executive: Hello everyone, I'm pleased to report another quarter of solid results with excellent operational and financial performance in Brazil and Mexico. Both countries posted GMB growth of approximately 30% year-on-year as we carry over strong momentum from Q4. This above-market growth is being driven by several factors, including improvements in user experience with many mice as a highlight, and strategic investment in cheap infrastructure, which is driving faster growth in specific target regions, and a well-executed marketing campaign that is leveraging on the awareness we generated in Q4 around peak season. In addition, our advertising business continues to grow nicely and reach record levels of GMB penetration in all of the markets where we operate.
Speaker Change: Hello, everyone.
Unknown Executive: Another quarter of solid results with excellent operational and financial performance in Brazil, and Mexico Gulf countries.
Unknown Executive: So brooks of at least 30% year on year.
Unknown Executive: Gary I'll work strong momentum from Q4 is above market growth is being driven by several factors.
Unknown Executive: You can prevent user experience with many my highlights.
Unknown Executive: Investment in cheap infrastructure, which is driving faster growth.
Speaker Change: At target.
Unknown Executive: And it wasn't executed marketing campaign.
Unknown Executive: On the awareness.
Unknown Executive: In Q4 around peak season.
Unknown Executive: Advertising.
Unknown Executive: It's a worldwide fleet.
Unknown Executive: I reached record levels.
Unknown Executive: MercadoPago also had a solid performance in Mexico and Brazil, with some of the highlights being the acquiring business growing at an accelerated rate sequentially in both countries. We had solid credit growth. Portfolio surpassed $4.4 billion and is growing strongly from last year, and a strong quarter for MercadoPago credit cards. We issued 1.5 million cards during this quarter, and the TPB reached $1.9 billion, growing 173% from last year.
Unknown Executive: Not all the markets, where we operate.
Unknown Executive: Medical also had a solid performance in Mexico, and Brazil, and some of the highlights being quite a bit.
Unknown Executive: It accelerated sequentially in both countries.
Unknown Executive: Solid trade growth.
Unknown Executive: So Patrick the $4 4 billion and growing strongly from last year on a strong quarter for Mercado Pago credit cards, we issued one 5 million this quarter.
Unknown Executive: One $9 billion growing 3% from last year.
Unknown Executive: In summary, during Q1, we delivered a strong operational performance in commerce and fintech, both in Brazil and Mexico, which has offset the negative impact of a weak macro in Argentina and the peso devaluation in that country. Before turning to our financial performance in more detail, I'd like to highlight that there are a couple of reporting updates that have taken effect this quarter. Investors can find a summary of the impacts on our financials in this quarter's shareholders letter and a full reconciliation in our earnings presentation.
Unknown Executive: In summary, Q1 with strong operational performance in Commerce, and Fintech, both in Brazil, and Mexico, which have offset the negative impact of a weak macro in Argentina, the peso devaluation.
Unknown Executive: Before turning to our financial performance in more detail I'd like to highlight that there are a couple of reporting updates I have taken them.
Unknown Executive: In fact it is.
Speaker Change: Got it.
Unknown Executive: Investors can find it somebody on the impacts to our financials in this quarter for holiday.
Unknown Executive: My comments today will refer to numbers that are comparable to the figures we reported in Q1 last year. Consolidated revenues grew at a fast pace on the back of the strong operational momentum that I mentioned earlier. Brazil and Mexico had an outstanding quarter, and the revenue growth was sufficient to offset the impact of headwinds in Argentina. Income from operations grew strongly year on year once again, with margin expansion being driven by Mexico and Brazil.
Unknown Executive: A reconciliation in our earnings presentation. My comments today will refer to the numbers are comparable figures were reported in Q1 last year.
Unknown Executive: Revenue has grown at a faster pace in the back of our strong operational momentum that I mentioned.
Unknown Executive: Mexico had an outstanding quarter, the revenues growth was sufficient to offset the impact of headwinds.
Unknown Executive: Income from operations grew strongly year on year.
Unknown Executive: This reflects the combination of growth, scale, and cost efficiency that drives operational leverage, and our long-term vision is to continue delivering both growth and profit, and we are confident in our ability to achieve that. Net income grew at a faster pace than income from operations, as lower FX losses in Argentina were partially offset by lower operational income in that country. Furthermore, the reporting updates I mentioned earlier have a broadly neutral impact on net income.
Unknown Executive: Once again.
Unknown Executive: They have.
Unknown Executive: Being driven by Mexico, and Brazil. This reflects the combination of growth scale and cost efficiency drive operational leverage.
Unknown Executive: Our long term ambition is to continue delivering both growth and profit.
Speaker Change: You know I really got cheap.
Unknown Executive: Net income grew at a faster pace.
Unknown Executive: Nowhere effect.
Unknown Executive: We're partially upset.
Unknown Executive: Lower operational income.
Speaker Change: Are there more reporting I bet I've mentioned already haven't heard broadly neutral impact on net income.
Unknown Executive: Overall, we are very pleased with the performance of the business in Q1, despite the headwind from Argentina. And this is a great way to kick off MercadoLibre's 25th anniversary. Now, I'll pass over to Richard for more on the solid foundations we have built for the past 25 years, looking ahead to the next 25 years of MercadoLibre in 2020.
Unknown Executive: Overall, we're very pleased with the performance of the business in Q1.
Richard Cathcart: The headwind from Argentina.
Richard Cathcart: Great way to kick off of America.
Richard Cathcart: Now I'll pass over to reach out.
Richard Cathcart: The solid foundation, we have built over the past 25 years.
Richard Cathcart: Looking ahead for the next 25 years.
Unknown Executive: In 2024, MercadoLibre will celebrate its 25th anniversary, and we look back on the progress we've made in democratizing commerce and financial services in Latin America. Today, Meli is the leading technology company in the region and a major tech company globally, and has been recognized for its innovation, growth, and impact in the region.
Richard Cathcart: In 2020 for Mercado Libre will celebrate its 25th anniversary when we look back on the progress we've made in democratizing Commerce and financial services and lots of America today medley as the leading technology company in the region and a major Tech company globally and have been recognized for its innovation and growth.
Unknown Executive: In addition to business growth and impact, MercadoLibre has a consistent track record of generating shareholder value since our IPO in 2007. We look forward to the next 25 years with great confidence and optimism, as we still see plenty of opportunities to continue to grow and fulfill our mission in a region that provides us with a large addressable market. In Latin America, e-commerce is far from mature, and financial services are ripe for disruption.
Unknown Executive: In the region and.
Unknown Executive: In addition to business growth and impact Mercado Libre has a consistent track record of generating shareholder value since our IPO in 2007, we look forward to the next 25 years with great confidence and optimism as we still see plenty of opportunities to continue to grow and fulfill our mission and a reason that provides us with a large addressable.
Unknown Executive: Market.
Unknown Executive: In Latin America ecommerce is far from mature.
Unknown Executive: Financial services are ripe for disruption.
Unknown Executive: We are the leading e-commerce platform in the region, which has significant potential for growth from new buyers and higher frequency as engagement and penetration of retail rise. By building the fastest and most extensive delivery network in the region, and by offering the widest selection and the best UX, we have become a natural destination for buyers and sellers. This drives a uniquely powerful and self-reinforcing network effect as sellers invest to maximize their sales by capitalizing on our traffic, whilst buyers receive an ever-improving value proposition which drives more traffic and growth.
Unknown Executive: We are the leading e-commerce platform in the region, which has significant potential for growth from you buy it at a higher frequency of engagement and penetration of retail rise.
Unknown Executive: By building the fastest and most extensive delivery network in the region by offering the widest assortment of the best UX, we have become a natural destination for buyers and sellers, it's drives a uniquely powerful and self reinforcing network effect as to let them back to maximize our sales by capitalize.
Unknown Executive: Our traffic was buys receive an ever improving value prop, which drives more traffic and growth.
Unknown Executive: We are also building one of the largest retail media platforms in the region, which leverages our extensive first-party data to offer advertisers unique audience-targeting capabilities and complete full-funnel strategies. We are challenging the status quo in financial services, and by offering a wide array of easy-to-use services for individuals and merchants in large markets underserved by incumbents, we have become one of the region's leading fintechs. Our ecosystem is our competitive advantage in fintech services. Its data is uniquely rich and enables us to cross-sell. It's also enabled us to have a better view of credit risk and operate a business which matches the lowest cost to serve in the region.
Unknown Executive: We're also building one of the largest retail media platform in the region, which Leverages. Our extensive first party data to offer advertisers unique audience targeting capabilities and complete full funnel strategy.
Unknown Executive: We are challenging the status quo and financial services.
Unknown Executive: Offering a wide array of easy to use services for individuals I mentioned.
Unknown Executive: Large markets underserved by incumbents.
Unknown Executive: Come one of the region's leading fintech.
Unknown Executive: Our ecosystem is our competitive advantage and tech services. It's data, it's uniquely rates have enabled us to cross sell.
Unknown Executive: It also enables us to have a better view of credit risk at all freighter business, which match at the lowest cost to serve in the region.
Unknown Executive: We have built a highly profitable acquiring business on the back of the technology and know-how developed for our marketplace. We are one of the largest fintechs in this market and are well placed for market share gains across the region. We are also building MeliMai with the ambition of being the largest and most valued loyalty program in the region by leveraging our ecosystem to offer unique benefits. Technology is at the heart of everything we do, and having one of the largest teams of engineers in the region ensures non-stop innovation and product development.
Unknown Executive: We have built a highly profitable acquiring business on the back of the technology and know how developed for our marketplace. We are one of the largest syntax in this market.
Unknown Executive: Well placed for market share gains across the region.
Unknown Executive: We are also building many mice with the ambition of being the largest and most valued loyalty program in the region by leveraging our ecosystem to often even benefit.
Unknown Executive: Technology is that the heart of everything we do and having one of the largest teams of engineers in the region and shows nonstop innovation on the product development.
Unknown Executive: We have a diversified mix of revenue with ample opportunities for growth and monetization. Our scale, financial discipline, and tech-first mentality mean we have low-cost structures with solid and sustainable profitability. MercadoLibre's powerful, intrinsic impact on the people we serve encourages entrepreneurship and promotes financial inclusion. We are proud of the achievements of the last 25 years, but our mission is far from complete. As a leader in an e-commerce market that is far from mature and one of the leaders in a financial services market that is ripe for disruption, we are confident and optimistic about our future growth. As we look forward to the next 25 years, we're confident that the best is yet to come.
Unknown Executive: Have a diversified mix of revenue with ample opportunities for growth and monetization.
Unknown Executive: Scale financial discipline and tech first mentality, mainly have a low cost structure, but solid and sustainable profitability.
Unknown Executive: For quarterly breaks powerful intrinsic impact on the people we serve encourage entrepreneurship and promote financial conclusion, we are proud of the achievements over the last 25 years.
Unknown Executive: Our mission is far from complete.
Unknown Executive: A leader in an e-commerce market, but it's far from mature I'm one of the leaders in our financial services market that is ripe for disruption.
Unknown Executive: Confident and optimistic in our future growth.
Unknown Executive: As we look forward to the next 25 years with <unk>.
Unknown Executive: But the best is yet to come.
Richard Cathcart: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 118. Joining us for the Q&A are Martin De Los Santos, CFO, Osvaldo Gimenez, FinTech President, and Ariel Szarfsztejn, Commerce President. Please wait while we compile our Q&A ROD. Our first question comes from Andrew Ruben with Morgan Stanley. Your line is open. Thanks very much.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one.
Richard Cathcart: One again.
Richard Cathcart: Joining us for the Q&A are Martin de Los Santos CFO, Oswaldo, you're Mendes Fintech, President and aerial Sharfstein Comverse President please wait while we compile our Q&A roster.
Richard Cathcart: Our first question comes from Andrew Ruben with Morgan Stanley. Your line is open.
Andrew R. Ruben: provide in the release that breaks down the peso denominated and non-peso EBIT. Just thinking about the Argentina business, the units down five, it didn't strike us as a major decline, but you had a big hit on EBIT. So I was hoping you could walk us through the situation during the quarter where you had a mismatch between revenue and costs and, perhaps, if you could, even how the business evolved on a month over month basis given how fast moving the Argentina macro situation has been. Thank you.
Andrew R. Ruben: Hey, Thanks, very much for the question and congratulations on that 25 years. It is helpful. The table you provide in the release that breaks down the peso denominated in non peso EBIT I, just thinking about the Argentina business the units down five it didn't strike us as a major decline, but you had a big hit on EBIT. So.
Andrew R. Ruben: Was hoping you could walk us through the situation during the quarter, where you had mismatch between revenue and costs and perhaps if you could even how the business evolved on a month over month basis with an given how fast moving the Argentina macro situation that's been thank you.
Martin: Hi Andrew, how are you? Thank you for your question. This is Martin.
Speaker Change: Hi, Andrew how are you and thank you for your question.
Martin: Yeah, as you know, in Argentina, we face two things. You know, the devaluation of Argentina, which reduced the size of our business. And as you know, Argentina is a high-margin, heavy-margin business operation. And then we have the macro situation that obviously puts some pressure on terms of consumption. We've seen reduced volume and demand, even though, as you know, we manage a marketplace that is very resilient to this type of situation.
Martin: In.
Martin: Yes, you know we in Argentina, we face two things happened, yeah, the devaluation of Argentina, which reduced the size of our business and as you know Argentina, what you say.
Martin: Hi, marching every margin business operation.
Martin: And then we have the macro situation that obviously put some pressure in terms of consumption, we have seen reduced volume and demand even though as you know we manage them.
Martin: Marketplace, which is very resilient to these type of situations.
Martin: So we think we outperform the consumption in general in the country. But we did suffer some loss of volume in Argentina on the commerce side of it. In terms of cost mismatch, I think we saw some inflation in terms of our shipping costs in Argentina. There was some pressure on that line of our P&L.
Martin: We outperformed their consumption in general in the country, but we did suffer some some loss of volume in Argentina, and the commerce side of our business in terms of cost mismatch I think we saw we saw some inflation in terms of our shipping.
Martin: Shipping cost in Argentina, but there was some pressure on that in that lineup of our P&L.
Martin: And then to wrap up the situation in the country, on the fintech side, the business performed extremely well. We continue to have a very strong brand in Argentina, asset management growing 64% year on year. We doubled the number of users of our investment products, 300% more than inflation, and then active users also growing at 31% year-on-year.
Martin: No.
Martin: And then to wrap up the situation in the country on the Fintech side there'll be assessed for from an extremely well because we need to have a very strong brand and I was asking.
Martin: Asking about the mine has been growing 64% year on year with double the number of users of our offer.
Martin: Our investment products.
Martin: Acquiring business it hasn't been that Ryan.
Martin: 300% more than inflation, and then act.
Martin: Actually active users also right now 31% year on year. So so overall I think that's what you can you'll see in terms of operating income and then when you go below operating income and as the double effect.
Martin: So overall, I think that's what you see in terms of operating income. But then when you go below operating income, as the exchange rate situation in Argentina has been normalizing, we see significantly lower FX losses in Argentina. So that's compensated in the net income line of the P&L. So overall, I would say that Argentina was a headwind in terms of EBIT, partially compensated at the net income level because of the lower FX and lower taxes that we paid this quarter in Argentina. But obviously, we had an extraordinary quarter in Brazil and Mexico that I'm sure we'll go into more detail later on in the call.
Martin: Exchange rate situation in Argentina has been normalizing, we see significantly lower FX losses in Argentina. So that's compensated in the in the net income line of the P&L. So overall I would say that Pasadena was a headwind in terms of.
Martin: Maybe it's partially compensated the net income level because of the lower FX and lower taxes that were paid this quarter hasn't Dana, but obviously, we had an extraordinary quarter in Brazil, or Mexico, but I'm sure. We'll go in more detail later on the call.
Operator: Great. Thanks, Martin.
Martin: Okay.
Speaker Change: Great. Thanks, a lot Tim.
Operator: Okay.
Operator: One moment for our next question. Our next question comes from Bob Ford with Bank of America. Hey, thank you very much. Happy anniversary and congratulations.
Speaker Change: One moment for our next question.
Operator: Our next question comes from Bob Ford with Bank of America.
Robert Erick Ford Aguilar: Hey, thank you very much. Happy anniversary, and congratulations on a great quarter.
Robert Erick Ford Aguilar: Hey, Thank you very much happy anniversary and congratulations on a great quarter.
Operator: Can you quantify the impact of the shift of Easter on the marketplace as well as Pago in Brazil and Mexico? And then, in Argentina, what percent of GMV is done by sellers with less than 10,000 unidades de valor adquisitivo per month? And how much would that, with the proposed tax cuts, represent to those small sellers in terms of GMV? And what do you need before you're willing to turn the key on interoperability in Argentina in terms of economics, security, or any other issues?
Operator: Can you quantify the impact from the shift of Easter on the marketplace as well as Pago in Brazil and Mexico.
Operator: And then.
Operator: In Argentina, what percent of GMP is done by sellers with it with less than 10000 vignette. When he that is if I look at Tc people per month.
Operator: And how much would that with the proposed tax cuts represent the smallest salaries in terms of GMB.
Operator: And what do you need before you are willing to turn the key on interoperability in Argentina in terms of economic security for any any other issues. Thank you.
Robert Erick Ford Aguilar: Hi Bob, it's Martin here. Let me take the first part.
Speaker Change: Hi, Bob it's about being here.
Martin: Let me take the first part I think you were asking about the effect of Easter on our volume, but as you know.
Martin: We always see a reduced volume on those dates because typically in our countries four consecutive holiday days.
Martin: In this quarter in particular was a little stronger because last year eastern felt on Q2 and this year probably in Q1. So if you look at the numbers for March they were.
Robert Erick Ford Aguilar: Affected.
Martin: Thus far the base. So there was a little bit of a loss of volume, which will eventually reverse next quarter because the opposite happens they will play in favor of our favorite broadly so that sometimes.
Martin: Is that fair given the.
Martin: I think you were asking about the effect of Eastern on our volume, which, as you know, we always see a reduced volume on those dates because, typically, in our country, it's four consecutive holiday days. And in this quarter, in particular, it was a little bit stronger, because last year, Eastern fell in Q2, and this year it fell in Q1. So if you look at the numbers for March, they were affected by those four days.
Martin: Is that the way we.
Speaker Change: But let me sort of thing.
Martin: The month by month numbers.
Martin: I'd say in March we probably lost.
Martin: So there was a little bit of a loss of volume, which will eventually reverse next quarter because the opposite happens, and we're playing in favor of April, probably. Well, we don't disclose the month-by-month numbers, but I'd say in March, we probably lost... 5 or 6 percentage points in that particular month. We'll see what happens in April when we announce Q2.
Martin: 555, or six percentage points in that particular months, we'll see what happens when we announce Q2.
Speaker Change: Got you.
Unknown Executive: Hi Bob. Let me answer part of the interoperatability question about Argentina. So, as you know, we built a QR code network that is extremely successful in Argentina. And a few years ago, we were required to interoperate in account-to-account transactions, which we have been doing for a few years, two or three years now. And that is working very well.
Martin: Yes.
Speaker Change: Hi, Bob let me.
Unknown Executive: So the part of aimed to a priority to question in Argentina. So as you know we built a QR code network. There is extremely successfully in Argentina and a few years back we were required to inter operate in account to account transactions, which we have been doing for for a few years two or three years now and that is working very well.
Unknown Executive: And now, there's a mandate that we need to also interoperate for credit card transactions, which are a minor part of QR transactions in Argentina, and the majority are account-to-account. So, this is a minor part of that volume, are credit card transactions.
Unknown Executive: And now what does the mandate that we need to also inter operate for.
Unknown Executive: Got it got transactions, which are a minor part of your transactions in Argentina, but the majority are account to account. So this is a minor part of that volume is credit card transactions.
Unknown Executive: And the way we built the networks, when we built them a few years ago, there was not a standard for credit card transactions. We do those transactions in a way that is processed as online payment transactions. And so, to be able to interoperate, we need two things. On the one hand, there's a technical requirement that those transactions need to be tokenized for the network to be secure. And on the other hand, we need to agree on commercial terms with the counterparties, which are likely to be banks and other wallets.
Unknown Executive: The way, we built that network since there was not.
Unknown Executive: When we built it.
Unknown Executive: He is back there was another standout for food sectors, we do.
Unknown Executive: Sections in a way a process thats all in payment transactions and so we know to be able to inter operate we need two things on the one hand, there is a technical requirement that goes does make sense to me.
Unknown Executive: We took a nice for the for the network to be secure.
Unknown Executive: <unk>, we need to agree on commercial terms.
Unknown Executive: With their counterparties, which likely will be banks other wallet.
Unknown Executive: And we are in that process. We... We are already on our side. We are able to process organized transactions, but we have not yet received those. Meanwhile, we are negotiating with banks about whether there will be some sort of interchange or fee for the wallets involved in these interoperable transactions.
Unknown Executive: We are in that process.
Unknown Executive: Sure.
Unknown Executive: We have already are already on our side, we are able to process organized infections matter, we have not yet received those means.
Unknown Executive: Meanwhile, we are negotiating with.
Unknown Executive: Banks about if there will be some sort of interchange.
Unknown Executive: Or or fee for the wallets involved in these integrally tough actions.
Unknown Executive: Bob, to answer your last question regarding Argentina, obviously, we are observing and analyzing the reform that's going on right now to see what the impact would be on our merchants. And then the number of merchants, I think you were referring to smaller merchants; it's a number that we don't disclose specifically. Thanks.
Operator: Thank you, and again, congratulations.
Marcelo Peev dos Santos: One moment for our next question. Our next question comes from Marcelo Santos with JP Morgan. Hi, good evening. Thanks for taking my question. I wanted to ask you about the profitability of Argentina.
Speaker Change: One moment for our next question.
Marcelo Peev dos Santos: Our next question comes from Marcello Santos with JP Morgan.
Marcelo Peev dos Santos: Hi, good evening. Thanks for taking my question. I wanted to ask you about the profitability of Argentina. There was a very steep decline in the EBIT contribution of Argentina versus what you reported last year. I just wanted to understand, is this kind of a new ongoing level, a new level for Argentina given this new currency reality, or was there something more like a one-off in this quarter that could be reversed in the next couple of quarters? Just because today Argentina has the way you disclose almost the same profitability as the rest, while it used to be much more profitable. So I just wanted to understand that. Thank you.
Marcelo Peev dos Santos: There was a very steep decline.
Marcelo Peev dos Santos: The EBIT contribution of Argentina versus what you reported last year I. Just wanted to understand is this kind of a new won't go in a new level for Argentina, given these new currency reality or was there something more like one off in this quarter that could be reversed in next couple of quarters, just because today or.
Marcelo Peev dos Santos: Yes.
Martin: Hi, it's Martin here, Marcelo. Thank you for your question.
Martin: I think we mentioned before, yeah, Argentina had some tough macro situations; the devaluation also didn't help because, you know, when you look at the revenue pools of Argentina, because of the devaluation, by definition, shrunk relative to the other countries, also had some tough macro and demand issues that affected, in particular, the commerce side of the business. But then also, Brazil and Mexico grew extraordinarily at a high rate. Just to put it in perspective, the EBIT of Argentina decreased year on year, as you mentioned, but the EBIT outside of Argentina grew by 185 percentage points.
Martin: So, almost double the EBIT coming from other countries. So as a result of that, as you can see, the current share of EBIT coming from Argentina is at 19% compared to a year ago, when it was about 60%. So I think Argentina Again, the evaluation is behind us, we see macro affecting Q1, and we'll have to see how the rest of the year plays out. But again, we think that in terms of the AVID contribution, it's a little bit normalized for the other reasons that I mentioned earlier today, that as we have...
Martin: But again, we think that in terms of the avid contribution is.
Martin: The exchange rate is higher than it used to be with the devaluation, and it is more normalized because of lower FX losses, so at a net income level, the variance is not so high, okay? So I will focus a lot more on net income as a main metric to evaluate the results of MercadoLibre. As we have been saying in the past, you know, we mentioned that there was a little bit of a distortion in the EBIT because of the FX in Argentina, and now that it's behind us, so I think in terms of the FX distortion, I could say that it's something that is a new normal, and now we have numbers that are more normalized in terms of EBIT results.
Operator: Perfect. Thank you very much.
Irma Sgarz: One moment for our next question. And our next question comes from Irma Sgarz with Goldman Sachs. Yeah, thanks for the opportunity. I'd like to ask about Mellie Meis and logistics. Thank you for the useful commentary during the show.
Irma Sgarz: Thanks for the opportunity. I'd like to ask about MeliMaiS and logistics. Thank you for the useful commentary in the shareholder letter. Now, as you get further into the rollout of the MeliMaiS program, where are you in terms of logistics network efficiency gains from the uplift to overall volume and units per shipment? And are the costs from the greater free shipping subsidies that you provide there now more than offset by those efficiencies? Or will that take more time as you adjust the flow of the network and the overall engagement still rises? And I'd also be curious if there are any notable differences in take-up and engagement with that program between Brazil and Mexico. Thank you.
Martin: Martin here. Yes, we have seen very good adoption of MeLiMice, both in terms of adopting the MeLi delivery date for those users that are enrolled in the MeLiMice program, but we have also seen incremental engagement and volume on our platform. So the results that we were expecting in terms of growth driven by many mice, we are seeing them there, and we are super excited about those results. Obviously, that increases a little bit the cost of our shipping operations. We estimate that year on year, and I have the number here to share with you.
Martin: It does put some pressure on margin. I think it adds 20 basis points as a percentage of GMB in cost. But it's more than compensated value, that incremental value that we're generating through MeLiMice. And then, in terms of your first part of the question, optimization, we think we're still at the very early stages of optimizing MeLiMice. Remember, MeLiMice comes with a MeLi delivery date, which is a day in the week that the user chooses to get their products.
Martin: So as we continue to scale MeLiMice, we will be able to lower the cost of shipping by optimizing the way we group certain products and the way we optimize the delivery cost of the products to our users. So it's early stages, but we are very optimistic and very encouraged by the results of engagement and adoption so far.
Irma Sgarz: Yeah, that's very exciting. May I just ask about the re-acceleration and TPV growth in Brazil? You highlighted new devices, and we know that you've been shifting upmarket, but I was hoping to just get a bit more detail on the drivers of this acceleration and the direction of the incremental margin that comes attached with the revenues from this.
Unknown Executive: Hi, Irma. So there were two components to the acceleration of TPV in Brazil. I would say the most relevant one, the more relevant one, is online payments. We have been able to, I think there have been several quarters in a row now, where we have been able to accelerate the growth of online payments in Brazil, mostly by adding several larger merchants, big merchants, and increasing the share of wallet we do with them.
Unknown Executive: And there are several drivers for this, but definitely better performance and better approval rates. We are very encouraged by how we see this operation continuing. And then on the point of sale business, as we mentioned in prior calls, we have been changing our go-to-market strategy, and that is having a good effect, and we are seeing that business growing at an accelerated rate on a quarter-on-quarter basis. So both, mostly online payments, but also to some degree, the point of sale business is accelerating. And just to complement that, Irma, in terms of monetization...
Unknown Executive: And just to complement that, Irma, in terms of monetization, as we disclosed in the investor presentation, you can see that we continue to increase the cross-selling of credit to our acquiring users, so that contributes to improve the profitability of that business.
Unknown Executive: <unk> in terms of monetization as we disclosed on the Investor presentation. You can see that we continue to increase the cross selling of credits to our tour acquiring users so that contributes to some to improve the profitability of that business.
Unknown Executive: Okay.
Speaker Change: Very helpful. Thank you.
Unknown Executive: Okay.
Unknown Executive: Okay.
Geoffrey Elliott: As a reminder, if you want to ask a question, please press star 11 on your telephone. Our next question comes from Geoffrey Elliott with Autonomous. Hello, thanks very much for taking the time.
Unknown Executive: As a reminder, if you want to ask a question. Please press star one one on your telephone.
Geoffrey Elliott: Our next question comes from Geoffrey Elliott with autonomous.
Geoffrey Elliott: Hello, thanks very much for taking the question. The change in Mercado Envios from agent to principal, the accounting impacts of that, are all very clear. So, thank you for that.
Geoffrey Elliott: Hello, Thanks very much.
Geoffrey Elliott: Taking the <unk>.
Geoffrey Elliott: It's just a change in makeup.
Geoffrey Elliott: NPS.
Geoffrey Elliott: Agents to principal the accounting impacts of battery very clear so thank you for that.
Ariel: But for me, from a business point of view, what was the objective there? What does this mean in practice for the business side, and why are you doing it? Why have you made this change in terms of conditions?
Ariel: With the objective there.
Ariel: What does this mean in practice.
Ariel: Four.
Ariel: The.
Ariel: How are you doing it why do you make this change in conditions.
Ariel: Hey, Geoffrey, this is Ariel here. So we see the process on the opposite side. So over the last four or five years, we've been switching from operating purely with national post offices and carriers across Latin America to building our own logistics network. And basically, that process has already happened. So what we've done now is adjusted our terms and conditions, bearing ourselves the responsibility for the execution, which is something we've already been doing. So there's nothing new in terms of the way we operate. I think that process has already occurred, and we are just now adjusting contractually and formally the way we've been operating for quite some time.
ADL: Hey, Jeffrey these ADL here, so we see the process on the opposite so over the last four or five years, we've been switching from operating purely with National post.
Ariel: We see some countries across Latin America into building our own logistics network.
Geoffrey Elliott: Okay, so it reflects kind of you taking the risk rather than the National Postal Service taking the risk. Do that again. So, essentially, you're taking the risk on shipping rather than the National Postal Service in different countries, and that's why you've made this change.
Ariel: We already had the risk. So this is what we've been doing since we launched our own last mile operation in 2019, since which we have been taking over warehouse operations, our line costs, etc, etc. So nothing new, no risk profile changes. Right now, it's just formalizing something that has been happening already. I would say that there's no change operationally; there's no incremental risk.
Ariel: there's no change operationally, there's no incremental risk, and it reflects better the way the business is run. Got it. Thank you.
Operator: One moment for our next question. Our next question comes from Neha Agarwala with HSBC. Hi, congratulations. Thank you so much.
Neha Agarwala: Hi, congratulations, Mr. Dalton. Thank you for taking my question. Just quickly, on the credit business, we saw a continued decline in the 90-day NPL, but there was an increase in early-day inquirancy, which you mentioned is partly because of a shift in the mix of the risk cohorts. Could you please elaborate on that as to why the early-day inquirancies have increased, and what do you mean by a shift to riskier cohorts? Thank you so much.
Unknown Executive: So there were two components to increasing early delinquencies. On the one hand, as you mentioned, we have been taking more risks going to riskier segments. And the reason we are doing that is because our models are better at forecasting risk and correctly evaluating the risk of each user. And therefore, we are also pricing these accordingly. So even though there are higher NPLs, these credits have been priced with an adequate spread, so it's not a source of concern there.
Unknown Executive: And the other factor that happened was the last week of March, the last week of the quarter, ended with four days that were either the weekend or holidays. And therefore, collections were typically lower than usual because in the last four days of the month, there was an invoice that would have been paid. Thank you very much.
Unknown Executive: Good Friday, and Saturday would adapt to <unk>.
Unknown Executive: Nonworking days of demand.
Neha Agarwala: If I can ask another question, when I look at your average interest rate, and this is excluding the increase in the provisions, there has been a drop of about 800 basis points, quarter on quarter, on the average interest rate for your loan book. I understand part of that is probably driven by the expansion in the credit card portfolio, but given the fact that you're moving into riskier cohorts, which are priced accordingly, why such a sharp decline quarter on quarter?
Unknown Executive: If I can ask another question when I look at your other.
Neha Agarwala: These include statements is excluded.
Neha Agarwala: And part of that is probably driven by the expansion in the credit card portfolio, but.
Neha Agarwala: And given the fact that you're moving into riskier cohorts, which advised accordingly.
Speaker Change: Why such a sharp decline quarter on quarter. Thank you.
Martin: Hi Neha, how are you? It's Martin here. I think, well, first, when we compare year on year, the NIMAL margins, I think you're referring to, are improving, despite the fact that we have a larger share of credit cards, which, as you know, is a lower NIMAL product. On a sequential basis, typically, Q1, actually, let's put it that way, Q4 tends to be a good quarter for credits because of a strong So Q4 is a good month for collection, while Q3 is a seasonally lower month for collection.
Neha Agarwala: Hi, This is Martin here I think well.
Martin: When we compare year on year, the Nemo margins I think is what youre, referring to is improving despite the fact that we have a larger share of credit cost, which as you know has lower niemela product.
Martin: On a quarter on a sequential basis, typically Q1 actually Q4 tends to be a good quarter for credits because of its strong collections because off of 13 months in the quarter on a year.
Martin: So Q.
Martin: Q4 is a good month for collection in Q3 is seasonally lower month for collections. So that's normal.
Martin: So that's normal. It's something that is expected, in addition to two other things happening. [inaudible] Like Osvaldo mentioned, there's nothing to worry about. We continue to have very strong AVID margins, NIMAL margins at 31.5 percentage points. So it's something that is under control. What is your outlook on the credit business?
Martin: In addition to two other things happening.
Martin: Speed in terms of growth of our credit.
Martin: Credit card portfolio. Its also contributing to that and also the fact that we accelerated originations of other products and that's the race more provisions upfront and remember we provisioned, 100% of the losses upfront when we originate so we have acute like Q1, where we accelerated sequentially the originations that tends to put pressure on our margin.
Martin: Are these like like Oswaldo mentioned, there's nothing to worry about we continue to have very strong.
Martin: Avid monsoons.
Martin: Meanwhile, margin of about 31, five percentage points, so that's something that kind of control.
Martin: So that is expected.
Neha Agarwala: Is your outlook on the credit business changed or modified slightly in the last month, given that we are now probably looking at a higher for longer kind of rate scenario in both Brazil and Mexico?
Speaker Change: Yeah look on the credit business changed or modified slightly in the last month.
Neha Agarwala: Given that you are now.
Neha Agarwala: Higher for longer.
Neha Agarwala: Neither in both Brazil and Mexico.
Operator: Sorry, Neha, could you repeat the question, please?
Speaker Change: So anyhow could you repeat the question please.
Neha Agarwala: With your outlook in terms of picking up originations in Brazil and Mexico, has that changed over the last month, given that we are probably now looking for a higher for longer rate scenario in both countries?
Neha Agarwala: Lithia outlook in terms of picking up in originations and with Brazil, and Mexico has that changed over the last month.
Neha Agarwala: That probably now looking for Ohio, Ohio for longer rates than that.
Neha Agarwala: Countries.
Unknown Executive: No, it hasn't. We continue to have the same strategy as we had in the past, which is to continue to.., you know, cautiously increase our credit book as we feel more confident in terms of our underwriting capabilities, as Osvaldo mentioned, and then also we are focusing a lot on growing our credit card, which is a critical product for our fintech strategy because it has many benefits in addition to the credit card, users that start using the credit card use most of our other fintech products, you know, bring their salaries into our account, they might take a loan, they might get insurance, start using the debit card and so on.
Neha Agarwala: No no. We haven't we continue to have the same strategy as we have in the past which is to continue to.
Unknown Executive: So cautiously increase our credit book as we feel more confident in terms of our underwriting cutback capabilities assets, while the mansion and then also we are focusing a lot on growing up credit card, which is a critical product for our Fintech strategy has many benefits in addition to their credit card.
Unknown Executive: <unk> begun start using a credit card.
Unknown Executive: Most of our other fintech products, they are bringing their salaries into account it might take alone. They Mike again insurance, how would you have been very kind and so on so.
Unknown Executive: It is an important part of our strategy with regards to interest rates or even a little higher expectation of going to be higher.
Unknown Executive: So this is an important part of our strategy. With regard to interest rates being a little bit higher, and expectations of them being higher, that is relatively a very small factor when compared to the spreads we have. And just to complement that, the fact that our loans are typically of short maturity allows us to adjust very rapidly to changing interest environments.
Unknown Executive: Relatively small factor when compared to the spreads we have.
Unknown Executive: Just a couple of them that the fact that our loans are typically short maturity allow us to adjust very rapidly too.
Unknown Executive: Changing interest environment.
Neha Agarwala: Perfect. Thank you so much. Very helpful.
Speaker Change: Perfect. Thank you so much very helpful.
Operator: One moment for our next question. The next question comes from Maria Clara Infantozzi with Etow BBA.
Neha Agarwala: Yes.
Speaker Change: One moment for our next question.
Operator: Yeah.
Speaker Change: Our next question comes from Maria <unk> with <unk> BBA.
Operator: Okay.
Speaker Change: Hi, Good evening, Thanks for taking my question I wanted to explore.
Speaker Change: Hello, operator today's democracy.
Speaker Change: Hi, <unk> bin.
Speaker Change: Thank you Joe Karbowski conclude gouvernement pediatric <unk>.
Speaker Change: And also accelerated penetration for another quarter.
Speaker Change: So there is a company that local geography, Cardiff will give me Jeremy.
Speaker Change: How far are you from such a scenario. Thank you.
Maria Clara Infantozzi: Hi Maria Clara, Ariel here. Thanks for your question.
Speaker Change: Hi, Maria Clara RTL here. Thanks for your question I think there is no change in strategy for us as we've been saying over the last few quarters. We know that there is an opportunity in the long run.
Ariel: I think there's no change in strategy for us. As we've been saying over the last few quarters, we know that there is an opportunity in the long run to increase our monetization on our shipping infrastructure. For now, we remain focused on A, capturing the most out of the efficiency potential that we have, which means continuing to drive productivity gains and reduce costs. B, I would say getting sellers to operate with our network, particularly continuing to improve our fulfillment penetration, which has been going up consistently. And three, being disciplined regarding passing through inflation increases. But we know we have another lever for the longer term as to continue monetizing. We just don't think it's the right time.
Ariel: To increase our monetization on our shipping infrastructure for now we remain focused on a.
Ariel: Capturing most.
Ariel: Most out of the efficiencies potential that we have which means continue.
Ariel: Continue driving productivity gains and reducing cost.
Ariel: I would say.
Ariel: Getting sellers to operate with with our network, particularly continue improving our our fulfillment penetration.
Ariel: <unk> has been going up.
Ariel: Consistently.
Ariel: And three being discipline regarding passing through inflation increases back, but we know we have another lever for the longer term is to continue monetizing. We just don't think it's the right time.
Ariel: Okay.
Speaker Change: Great. Thank you.
Ariel: Okay.
Speaker Change: One moment for our next question.
Operator: One moment for our next question. Our next question comes from Marvin Fong with BTIG. Oh, good evening.
Ariel: Our next question comes from Marvin Fong with <unk>.
Marvin Milton Fong: Good evening. Thanks for taking my questions and congratulations on 25 years. So, a couple of questions. You know, I'd like to get a little more detail on origination. So, I believe it was, you know, about the same growth rate as last quarter in dollar terms, but I'm just curious if, you know, how much Argentina factored into that. So, perhaps you could give us some detail by country, like how origination performed, you know, did it accelerate versus last quarter.
Operator: Yes.
Marvin Milton Fong: Hi, good evening, Thanks for taking my questions and congratulations on 25 years. So.
Marvin Milton Fong: Couple of questions.
Marvin Milton Fong: Like to get a little more.
Marvin Milton Fong: How much Argentina factored into that as well perhaps.
Marvin Milton Fong: Give us some detail by country like how origination.
Marvin Milton Fong: Formed did.
Marvin Milton Fong: And then, second question, just on the melee delivery days, I believe you gave us some disclosure about how many of your shipments are generated by that channel. Just curious, you know, if you could give us an idea of whether that's a significant money saver for you guys, or is it really just designed to kind of lower stress on the network, but it's not particularly, you know, saving on cost. And additionally, maybe some idea of where that percentage can go over time. Thanks.
Marvin Milton Fong: Our generated by that channel just curious if you could give us an idea.
Marvin Milton Fong: Is that all are significant.
Marvin Milton Fong: Money favor for you guys or is it really just designed to kind of lower stress on the network, but it's not particularly.
Marvin Milton Fong: Saving on costs and Additionally, just maybe some idea of where that percentage can go over time. Thanks.
Marvin Milton Fong: Okay.
Unknown Executive: Hi Marvin, in terms of origination, most of the acceleration is coming from Brazil, where we are very comfortable with how our models are performing, and we see increased demand for our loans. In Argentina, we continue to be cautious. We have accelerated versus last quarter, we have grown versus last quarter, but we are at a rate which is significantly lower in dollar terms, significantly lower than what it was prior to the elections. And in Mexico, we are growing on a year-on-year basis, but the origination was similar to that of the prior quarter.
Marvin Milton Fong: Hi, Marvin in terms of orders in Asia. Most of the acceleration is coming from from Brazil, where we are very comfortable with.
Unknown Executive: Our models are performing and we see increased demand for our loans.
Unknown Executive: Argentina, we continue to be cautious.
Unknown Executive: Have accelerated versus last quarter, we have grown versus last quarter, but we are at a rate which is significantly lower in dollar terms significantly lower than what it was prior to the elections.
Unknown Executive: In Mexico, we are growing on a year on year basis.
Unknown Executive: Origination was similar to that of prior quarter.
Unknown Executive: And I would add to that that we had a devaluation in the middle, so that also affects the growth rate in Argentina when you compare year-on-year, but we continue to have a very healthy book in Argentina. It's probably the lowest NPLs in a lot of regions, but we are cautious, as Osvaldo mentioned.
Unknown Executive: Without that the devaluation in the middle of that so that also affects the growth rate in Argentina, when you compare year on year basis.
Unknown Executive: We've got a very healthy book in Argentina is probably the lowest NPS mpls.
Unknown Executive: One of the reasons why we are cautious as Oswald dimension.
Ariel: Hey Marvin, Ariel here. Regarding Melee Delivery Day, I think for the first time in our investor presentation, we have provided you with some details on slow shipment share. So you can see that more than 5% of our shipments were delivered with a slow method, most of which came from Melee Delivery Day, which basically means that we saw a good adoption of MDD whenever buyers were using their Melee mice offering to get free shipping in low ASPI.
Ariel: Liberty day, which basically means that we saw a good adoption of mbd whenever bias, where we're using data minimized offering to get free shipping in low ASP items.
Ariel: To your question on economics, I think we are seeing savings coming from that delivery model as more and more we can consolidate items in the same box and the same delivery route. But still, we think that there's ample room for the program to continue scaling and driving costs down even more through more density in routes, more items per box, or even incremental transactions that could be delivered in the same delivery as well. So, good progress so far. We are excited with the results that we've seen, but the opportunity there is also relevant.
Ariel: To your question on Economics, I think we haven't seen.
Ariel: Savings coming from that delivery model as more and more we can consolidate items in the same box and on the same that EBIT route but still we think that there is ample room for the program to continue scaling and driving.
Ariel: Costs down.
Ariel: Down even even more.
Ariel: Two more of LCD and routes more items per box or even incremental transactions that could be delivered.
Ariel: In the same delivery as well so good progress so far and we are excited with the results that we've seen but the opportunity there is.
Ariel: Is also relevant.
Ariel: Okay.
Marvin Milton Fong: Thanks so much. I really appreciate it, everyone.
Speaker Change: Thanks, So much really appreciate it everyone.
Operator: One moment for our next question. The next question comes from Craig Maurer with FT Partners.
Speaker Change: One moment for our next question.
Craig Maurer: Yeah, hi, thanks for taking the question and happy anniversary. Um, wanted to ask about the ad penetration rate that moved up from 1.6 to 1.9%. Was this related to the GMV coming down Argentina, or was this an actual improvement in adoption? Thanks.
Craig Maurer: And our next question comes from Craig <unk> with Ft partners.
Craig Maurer: Yes, hi, thanks for taking the question and happy anniversary.
Craig Maurer: Wanted to ask about the AD penetration rate that moved up from one six to one 9% was this related.
Craig Maurer: To the.
Craig Maurer: The GMB coming down in Argentina or was this an actual improvement in adoption. Thanks.
Ariel: Hey, Craig. Ariel here again.
Craig Maurer: Hey, Greg how do you think here again, so we had a very strong quarter.
Ariel: So, we had a very strong quarter in ads. As you said, penetration went up 30 basis points, Q on Q, and revenues grew 64% in dollars over a year, almost 100% in constant currency. I think the increase in penetration is definitely not coming only from Argentina. We saw a consistent increase in penetration across every country, and Mexico actually presented the highest growth, both in terms of dollars and in terms of revenues as a percentage of GNB. So, overall, excited with what happened this quarter, and more importantly, convinced that the opportunity we have in front of us remains big, and we have many levers to continue capturing that.
Ariel: The increase in penetration is definitely not coming only from Argentina, we saw a consistent increase in penetration across every country and Mexico actually presented the highest growth both in terms of dollars and in terms of revenues as a percentage of dnb. So overall.
Ariel: Excited with what's happened this quarter and more importantly convinced that the opportunity we have in front of us remains to be big and we have many levers to continue capturing that.
Ariel: Can you just remind me if there's any seasonality in that number that we should be watching out for?
Ariel: Can you just remind if theres any seasonality in that number that we should be watching out for.
Ariel: No, we don't think there's a specific reason for sectionality. We made several product improvements, both in terms of the algorithms that we used for the bidding processes. We made changes in our placements, in our search results, so many moving parts that did help us get some acceleration there.
Speaker Change: No we don't think Theres a specific.
Ariel: A big reason on seasonality, we made several product improvements both.
Ariel: In terms of the algorithms that we used for the bidding processes, we made changes in our placements in our cat results. So.
Ariel: Many moving parts that need help us get some acceleration there.
Speaker Change: Okay. Thanks very much.
Ariel: Sure.
Operator: One moment for our next
Kaio Penso Da Prato: One moment for our next question, and our next question comes from Kaio Prato with UBS.
Speaker Change: One moment for our next question.
Kaio Penso Da Prato: Okay.
Kaio Penso Da Prato: And our next question comes from Kyle <unk> with UBS.
Kaio Penso Da Prato: Good evening. Hello, everyone. Thanks for the opportunity for...
Kaio Penso Da Prato: Good evening, hello everyone. Thanks for the opportunity to ask questions. I have two on my side, please.
Kaio Penso Da Prato: Good evening Hello, everyone. Thanks for the question I have two here.
Kaio Penso Da Prato: First, two questions on Fintech. Okay? First, on the accounting reclassification that you made this quarter, could you explain the rationale behind this change and why did you decide to do this now? And the second is related to Mexico. If you could please help us to understand the strategy behind the Fintech business there, specifically the banking business, if your plan is to compete with the Fintechs that are growing there, or if this should be much more a financial arm for the marketplace business, because looking at the financial industry there, seeing that not having a banking license makes the business much more difficult than in Brazil, for instance. You need some partners probably for investments and lending, so just would like to understand your view on this and if you are planning any other ways for your license there as well. Thank you.
Kaio Penso Da Prato: Please.
Kaio Penso Da Prato: First.
Kaio Penso Da Prato: Two questions on legacy. Thank you. Okay first on the accounting reclassification that we made this quarter. If you could explain the rationale behind the change in right now.
Kaio Penso Da Prato: The second is related to Mexico.
Kaio Penso Da Prato: If you could please help us to understand the strategy behind this is that business specifically.
Kaio Penso Da Prato: Our plan is to compete.
Kaio Penso Da Prato: Or it should be much more financial.
Kaio Penso Da Prato: Base business, because looking at your definition, because they're seeing it they're not having a big likely make the business much more digital than Brazil.
Kaio Penso Da Prato: Made some progress probably for divestment Lindsay just would like to understand.
Kaio Penso Da Prato: On this issue of planning.
Kaio Penso Da Prato: We are licensed.
Speaker Change: Thank you.
Martin: Hi Kaio, Martin here. In terms of the reporting update, as we explained in the investor letter, what we did is basically, in the past, we had the interest, income, and cost from the whole operation below EBIT as the MercadoPago business evolved from being a wallet to being more of a digital banking business. A lot of the business was the float that we had on that particular operation, which we brought above within EBIT right now.
Martin: In terms of the the reporting update as we explained on the Investor letter well within its basically in the past we had.
Martin: The interest income on cost from the hall operation below avid.
Martin: As we de Mercado Pago visa has evolved from being a wallet to being more of a digital banking.
Martin: Business a lot of a lot of the business.
Martin: If load that we had on that particular operation, which we brought about what will the Navy right now so we now recognize the.
Martin: So, we now recognize the interest that we generate as revenue and the cost that we generate as cost of goods sold. And that's a better reflection, a better reporting in terms of the nature of our business. And, in fact, this is the way we have been managing our business for quite a while. So, I think this is an improvement in terms of disclosures. And this is the reason why we did this at this point. Building on Martin's comment,
Martin: The interest that would generate revenue on the cost that was there any cost of goods sold and that's.
Martin: It better reflects on a better reporting in terms of the nature of our business and in fact this is the way we have been managing our business for quite a while so I think it is an improvement in terms of disclosures.
Martin: This is the reason why we did this at this point we are building on Martinez comment definitely the time value of money has been an integral part of how we price our fintech services everything we do upfront.
Unknown Executive: I'll be building on Martin's comment. Definitely, the time value of money has been an integral part of how we price our fintech services. Everything we do, from acquisition, when we pay salaries, and even more so now with a larger offering in terms of fintech services. So we believe that this better reflects how we look at the business, how this business is really a financial... And with regard to the second question about Mexico and our strategy, our strategy is to be the largest fintech company in Mexico.
Unknown Executive: Accordingly, when we pay et cetera, and even more so now we didnt larger offering in terms of Fintech services. So we believe that this reflects better how we look at the business. How it is because he is really a financial business.
Unknown Executive: We will work with a third party to offer a remunerated account, which is basically a money market, but where money is available 24-7 in the Mercado Pago account. So we have a full offering, and we believe there's a huge opportunity that Mexico right now is going through a transformation similar to the one the market underwent in Brazil in the last five, seven, or 10 years, where financial inclusion will increase a lot with access to credit. We have increased a lot, and we have a huge opportunity to be the leaders in this market.
Unknown Executive: For full fledged solution of products from acquired under one hand Fintech services on the other one.
Unknown Executive: There we are set for a long time now we have been able to offer our wallet and on top of that we we have been doing quiet for several years on a debit card for several years last year ago, three quarters ago, We launched our credit card, which is growing very very strongly and we work together.
Unknown Executive: We have a third party to offer an originated at one account, which is basically in money market.
Unknown Executive: Money is available 24, seven in <unk>, So we have a full offering.
Unknown Executive: The market underwent in Brazil in the last five seven or 10 years, where financial inclusion will increase a lot with access to paid we increased a lot and we have a huge opportunity to be the leaders in this market.
Unknown Executive: Okay.
Kaio Penso Da Prato: Okay, thank you very much. This is clear. Any plans for a potential upgrade of your license in Mexico?
Speaker Change: Any plans for a potential <unk> license.
Kaio Penso Da Prato: Mike.
Unknown Executive: Today we are working with an ISPA license, and we are able to do what we want to do. We regularly re-evaluate whether in the future we might need a different license, and if so, before we do anything, we will let you know.
Unknown Executive: Today, we are working with the license and we are able to do what we want to do.
Unknown Executive: Really reevaluate whether in the future we might need it for license and if so once we do anything where we will let you know.
Unknown Executive: Yeah.
Speaker Change: Okay. Thank you.
Operator: And one moment for our next question. As a reminder, if you wish to ask a question, press star 11 on your phone to get into the chat room. Our next question comes from Jamie Friedman with Susquehanna International Group. Hi.
Unknown Executive: And one moment for our next question as a reminder, if you wish to ask a question press Star one one on your phone to get into the queue.
Operator: Our next question comes from Jamie Friedman with Susquehanna International Group.
James Eric Friedman: Hi, good evening. I wanted to ask you a question about Argentina. So it looked like FX-neutral growth in Argentina came in slower than inflation, and I think you in your prepared remarks attributed that to reduced consumer demand. So I'm just trying to gauge that. Is that trend something that you are contemplating continuing? Because in the past, the pattern has been that Argentina's revenue would consistently outgrow inflation, so is this a, you know, a new reality that we..., need to consider?
James Eric Friedman: Hi, Good evening I wanted to ask a question about Argentina. So it looked like FX neutral growth in Argentina came in slower than inflation.
James Eric Friedman: And I think.
James Eric Friedman: In your prepared remarks attributed that to reduce consumer demand. So I'm just trying to gauge that is that trend something that you are contemplating to continue because in the past.
James Eric Friedman: The pattern has been that Argentina revenue would consistently outgrow inflation. So is this a.
James Eric Friedman: A new reality that we.
James Eric Friedman: Need to consider.
Martin: Hi, it's Martin here. I think we can talk about this quarter in which we saw a recession in Argentina, a slowdown in consumption. As you clearly mentioned, growth was high in nominal terms but below inflation. And, in fact, in dollar terms, it was also decreased from last year.
James Eric Friedman: Hi, it's about being here I think we actually kept them all this quarter in which we saw a recession in Argentina slowdown in consumption as you clearly mentioned growth was.
Martin: Hi in nominal terms, but below inflation and in fact in dollar terms. So that's also.
Martin: The decrease from last year.
Martin: We are monitoring the situation in the country, and we'll deal with macro situations as they arise during the year. But, as I mentioned earlier, we operate a marketplace that is very resilient to this type of situation. We have seen situations like this in the past, not only in Argentina but in other markets, and we will come out strong. We have a very strong brand, and we'll continue to manage the country as it is. On the fintech side of the business, as I mentioned earlier, we are performing extremely well in Argentina given the market conditions. And on the commerce side, we are outperforming the general retail industry.
Martin: As we.
Speaker Change: We are monitoring the situation in the country.
Martin: We'll deal with.
Martin: With the macro situation as it goes through the year, but as I mentioned earlier, we operate a marketplace that is very resilient to this type of situations. We have seen statements ivs in Boston.
Martin: But in other markets.
Martin: We'll come out strong we have a very strong brand and we'll continue to.
Martin: Newmont has a country I think at least on the Fintech side of it.
Martin: Of a business as I mentioned earlier.
Martin: Extremely wide S&P now given the market conditions.
Martin: I don't know on the Commerce side, who we are.
Martin: Our farming there.
Unknown Executive: Any compliments on the fintech side? I'd say we have seen some deceleration in the point-of-sale business; however, the QR code, the wallet, continues to go very strongly and above inflation. We have been cautious on the credit side.
Martin: Retail industry and they complement on the field.
Unknown Executive: <unk> side, I'd say, let's say, we have seen some deceleration the point of sale business. However, the QR code a wallet continues to grow very strongly and above inflation.
Unknown Executive: We have been cautious on the on the credit side.
Unknown Executive: Okay.
Unknown Executive: Hum.
Unknown Executive: And then, if I could just follow up, switching gears on... slide 18. And I apologize if he answered this, but I might have missed it. But The gross margin compression of 3.9% related to the change in shipping conditions, terms, and conditions, what was that about?
Speaker Change: And then if I could just follow up switching gears on <unk>.
Unknown Executive: This slide 18, and I apologize if you answered this but I might have missed it but.
Unknown Executive: The gross margin compression at 3.9% related to the change in shipping conditions terms and conditions.
Unknown Executive: What was that about.
Unknown Executive: Yeah, I think that's it. That's the fact that the margin is decreased because we have higher rates. What we tried to do on that page is try to explain, to try to normalize the change that we included to better understand the results of this quarter. So because we had roughly $300 million more revenues than we would have had had not made this change, that effectively increases the denominator so that it reduces the margin. And this is what we adjusted there.
Speaker Change: Yes, I think that's a that's a fact that the marching this increase because we have higher rates of what we tried to do it and that pace is try to explain to try to normalize the change that we include to better understand the results of this quarter. So because we have roughly.
Unknown Executive: $300 million more revenues that.
Unknown Executive: We would have had now.
Unknown Executive: This change effectively increases the denominator so that reduces the margin and this is why we adjusted there.
Unknown Executive: Got it. Okay. Sure. Yep.
Speaker Change: Got it okay.
Speaker Change: Sure Yes.
Unknown Executive: Okay.
Martin De Los Santos: This concludes the question and answer session. I would now like to turn it back to Martin De Los Santos, CFO.
Speaker Change: This concludes the question and answer session I would now like to turn it back to Martin de Los Santos CFO.
Operator: Thanks, everybody, for joining us. As we mentioned, we're very excited about the first quarter of our 25th year, particularly the results that we saw in Mexico and Brazil, which we saw... Tremendous growth, both in terms of fintech and commerce, with also improving profitability. As we mentioned, the average margin of Brazil and Mexico combined doubled year on year. And that's, you know, the result of commerce businesses doing very well in terms of ads and shipping efficiencies.
Speaker Change: Okay. Thanks, everybody for joining as we mentioned, we're very excited about the first quarter of our 25th year, but I think that with our results that we saw in Mexico in Brazil, which we saw tremendous growth both in terms of Fintech commerce with also improving profitability as we mentioned.
Operator: The avid marching Gulf, Brazil, and Mexico combined doubled year on year.
Operator: And Thats. The result of the Commerce visa is doing very well in terms of ads shipping efficiencies. There wasn't BV says that is continuous to improve profitability and then the fintech business in Brazil, and Mexico is also thriving growing credit portfolio growing very very nicely and improving profitability as well as acquired businesses performed extremely well.
Operator: They won't be a business that continues to improve profitability. And then the fintech business in Brazil and Mexico is also thriving, growing, you know, their portfolio growing very, very nicely and improving profitability, as well as acquiring businesses performing extremely well. And then, as we continue to grow, we also gain operational leverage that is going through our P&L. As we mentioned, on the bottom line, in terms of net income, very strong net income growth year on year. So, again, I am very excited about the results and looking forward to talking to you next quarter.
Operator: And then as we continue to grow we also gain operational leverage.
Operator: Going through our P&L as we mentioned on the bottom line in terms of net income very strong net income growth year on year. So so again very excited about the results and looking forward to talking to you next quarter.
Operator: Yes.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Operator: Okay.
Operator: [music].
Operator: Yeah.
Operator: [music].
Operator: Okay.
Operator: Yes.