Q2 2024 MercadoLibre Inc Earnings Call

Richard Cathcart: Hello, everyone, and welcome to the MercadoLibre Earnings Conference call for the quarter ended June 30th, 2024. Thank you for joining us. 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 CFO , Martin De Los Santos, our FinTech President, Osvaldo Gimenez, and our Commerce President, Ariel Szarfsztejn. Before we go on to discuss our results for the second quarter of 2024, I remind you that management may make or refer to and this presentation may contain forward looking statements and knowledge.

Operator: earnings conference call for the quarter ended June 30th, 2024. Thank you for joining us.

Richard Cathcart: I'm Richard Cathcart, MercadoLibre's Investor Relations Officer. Today, we will share our quarterly highlights via video, after which we will begin our live Q&A session with our CFO, Martin De Los Santos, our FinTech President, Osvaldo Gimenez, and our Commerce President, Ariel Szarfsztejn. Before we go on to discuss our results for the second 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. Therefore, please refer to the disclaimer on screen, which will also be available in our earnings materials on our Investor Relations website.

Speaker Change: and [inaudible]

Richard Cathcart: Tomorrow, August 2nd, 2024, marks 25 years since we founded MercadoLibre with the mission of democratizing commerce and financial services in Latin America. Over those 25 years, we have built a sustainable company that provides millions of small and medium-sized businesses with the tools they need to compete with larger players. We have enabled the shift to online retail by providing tens of millions of consumers with world-class levels of service, and we have included millions of people in the financial system across the region for the first time.

Speaker Change: and larger players. We have enabled the shift to online retail by providing tens of millions of consumers with world-class levels of service. And we have included millions of people into the financial system across the region for the first time. These are notable achievements, but they are also just a baseline from which we think about our even bigger ambitions to deliver on our mission at an even greater scale. We are as optimistic as ever about the opportunities that are ahead of us, and we are excited to pursue them with a culture of entrepreneurship, excellence and innovation that has served us well for the last 25 years. This is therefore a great moment to reaffirm our belief.

Richard Cathcart: These are notable achievements, but they are also just a baseline from which we think about our even bigger ambitions to deliver on our mission at an even greater scale. We are as optimistic as ever about the opportunities that are ahead of us, and we're excited to pursue them with a culture of entrepreneurship, excellence, and innovation that has served us well for the last 25 years. This is, therefore, a great moment to reaffirm our belief that the best is yet to come. Now, I will pass this on to Martin for more information on the second quarter of 2025. Thank you, Marcos. Hello, everyone.

that the best is yet to come. Now, I will pass it on to Martin for more information on the second quarter of 2024.

Martin De Los Santos: I am pleased to highlight MercadoLibre's outstanding performance in the second quarter of 2024, with strong growth across our key business units, as well as solid bottom-line financial results. In commerce, we saw the highest growth in sold items and unique buyers in 2021, with both metrics accelerating sequentially. GMB performed well across geographies, particularly in Brazil, where the 36% growth marks the highest level also since 2021.

Martin: Thank you, Marcos. Hello, everyone. I am pleased to highlight MercadoLibre's outstanding performance in the second quarter of 2024, with strong growth across our key business units, as well as solid bottom-line financial results. In commerce, we saw the highest growth in sold items and unique buyers in 2021, with both metrics accelerating sequentially. GMB performed well across geographies, particularly in Brazil, where the 36% growth marks the highest level also since 2021. In Mexico, we maintained our momentum with successful hot sales once again. And in Argentina, we saw a positive growth in terms of items sold.

Martin De Los Santos: In Mexico, we maintained our momentum with successful hot sales once again. And in Argentina, we saw positive growth in terms of item sales, reversing the negative growth that we saw during Q1. This growth is a result of our commitment to improving the user experience through innovation and technology and the investments we continue to make in our key strategic initiatives such as fulfillment and minimization. For fintech services, we saw a strong growth in monthly active users, which surpassed the 50 million mark for the first time.

Speaker Change: We saw results reverting the negative growth that we saw during Q1. This growth is a result of our commitment to improving the user experience through innovation and technology, and the investments we continue to make in our key strategic initiatives such as Fulfillment and Minimize. In FinTech services, we saw a strong growth in massively active users, which surpassed the 50 million mark for the first time. We also saw very solid engagement metrics demonstrating the traction that MercadoPago has within our users. We continue to see a very positive adoption of our remunerated account in all of our major markets, resulting in strong growth of assets and their management.

Martin De Los Santos: And we also saw very solid engagement metrics demonstrating the traction that MercadoPago has within our users. We continue to see very positive adoption of our remunerated account in all of our major markets, resulting in strong growth of assets and their management. Our consumer and merchant credit books continue to scale while delivering strong profitability. During the quarter, we issued 1.6 million new credit cards, and our TPV grew by 3x compared to last year.

Speaker Change: Our consumer and merchant credit books continue to scale while delivering strong profitability. During the quarter, we issued 1.6 million new credit cards, and the TPV grew by 3x compared to last year. The credit card is a critical component of our FinTech value proposition, and we feel confident about scaling this product as a result of the improving accuracy of the underwriting model. Acquiring TPV grew also very strongly in Brazil, Mexico, and Argentina, and this was a result of the move-up market strategy that we are implementing that enables us to reach larger merchants, and also the continuous investments that we make in the online payment segment. Our consolidated financial reports continue to grow.

Martin De Los Santos: A credit card is a critical component of our fintech value proposition, and we feel confident about scaling this product as a result of the improving accuracy of the underwriting model. Acquiring TPV grew also very strongly in Brazil, Mexico, and Argentina. And this is a result of the move-up market strategy that we are implementing that enables us to reach larger merchants and also the continuous investments that we make in the online payment segment.

Martin De Los Santos: Our consolidated financial results for the second quarter reflect the strong performance of our commerce and fintech operations, with revenues of $5.1 billion, growing above 40% year-on-year. We delivered income from operations of $726 million and net income of $531 million, resulting in a net income margin of 10.5%, which is the highest in the last eight years.

Martin De Los Santos: For more information on our results, please refer to our shareholders' letter. Now, I will pass it on to Richard for more business news. Our logistics network plays a major role in enabling e-commerce in the region and driving more offline retail online. It has become a key competitive advantage for MercadoLibre. Innovation is the foundation of the success of our logistics network, and we are pleased to share some of our most recent innovations today. In the second quarter of 2024, MercadoLibre launched a fulfillment center in Texas, USA.

Martin: resulting in net income margin of 10.5%, which is the highest in the last eight years. For more information on our results, please refer to our shareholders letter.

Richard Cathcart: Now I will pass it on to Richard for more business news. Our logistics network plays a major role in enabling e-commerce in the region and driving more offline retail online. It has become a key competitor advantage for MercadoLibre. Innovation is the foundation of the success of our logistics network and we are pleased to share some of our most recent innovations today. During the second quarter of 2024, MercadoLibre launched a fulfillment center in Texas in the USA. This is the first fulfillment center outside of Latin America and it was open to expand the assortment of products we offer to Mexican consumers by plugging U.S. sellers into our ecosystem. This is complementary to our existing cross-border.

Richard Cathcart: This is the first fulfillment center outside of Latin America, and it is open to expand the assortment of products we offer to Mexican consumers by plugging U.S. sellers into our ecosystem. This is complementary to our existing cross-border business from China into Mexico. We are offering a great shipping service for our U.S.-based assortment. Buyers are receiving their packages from the USA within a couple of days in the north of Mexico and within approximately three days in Mexico City.

Richard Cathcart: Shipping is free, and we also offer interest-free installments. In June 2024, we took another major step in our innovation journey with the launch of robotics in our distribution center in Cajamar, just outside the city of Sao Paulo. A total of more than 300 robots will have arrived by the end of the year, with a hundred of those already up and running. These robots will collaborate with the human workforce and will handle tasks such as transporting shelves containing products from storage areas.

Speaker Change: In June 2024, we took another major step in our innovation journey with the launch of robotics in our distribution center in Cajamar, just outside the city of Sao Paulo. A total of more than 300 robots will have arrived by the end of the year, with a hundred of those already up and running.

Richard Cathcart: This optimizes processing time by 20%. It also enables us to automate repetitive tasks, like product sorting, whilst reducing the distance that our workforce has to walk around the distribution center. It also increases total storage capacity by up to 15% per square meter. These robots operate autonomously, handling up to 20,000 items and 2,500 shells per day, returning to charge stations when their batteries are low.

Speaker Change: These robots operate autonomously, handling up to 20,000 items and 2,500 shells per day, returning to charge stations when their batteries are low. This ongoing investment in technology and innovation reflects our commitment to creating an increasingly efficient logistics network.

Richard Cathcart: This ongoing investment in technology and innovation reflects our commitment to creating an increasingly efficient logistics network. By building greater flexibility into our logistics operations, we have developed slow shipments, which offer additional shipping options for buyers and efficiencies for MercadoLibre. Slow shipments occur when a buyer chooses a slower shipping option than would be otherwise available to them because it may be more convenient, or in some circumstances, it may come with a lower shipping cost.

Speaker Change: By building greater flexibility into our logistics operations, we have developed slow shipments which offer additional shipping options for buyers and efficiencies for MercadoLibre.

Richard Cathcart: This enables us to take advantage of moments of peak capacity in two key cost areas of our network. Firstly, processing in our fulfilment centers. And secondly, the line haul trucks that travel between cities. With slow shipments, the shipping window becomes larger and more flexible for MercadoLibre, which means we can choose the moments of greatest idleness to process products in our fulfillment centers and ship them between cities and line halls to maximize network capacity utilization.

Richard Cathcart: With slow shipments, the shipping window becomes larger and more flexible for MercadoLibre, which means we can choose the moments of greatest sizableness to process products in our fulfillment centres and ship them between cities and line halls to maximise network capacity utilisation. Meli Delivery Day is another renovation which has slightly different benefits to slow shipping.

Richard Cathcart: Meli Delivery Day is another renovation which has slightly different benefits for slow shipping. The main efficiency built into the MDD model is in the last mile, where several deliveries at a single address on a single drop means that last mile vans can drop more packages at fewer addresses.

Speaker Change: The main efficiency built into the MDD model is in the last mile, where several deliveries at a single address on a single drop means that last mile vans can drop more packages at fewer addresses. This helps us to dilute our last mile costs.

Richard Cathcart: This helps us to dilute our last mile cost. Innovation and efficiency will continue to be key to the success of our shipping operations. For a more detailed discussion, check out the podcast on our industrial relations website with the head of MercadoMV, Agustin Costa. From cross-border in Texas, to robotics in Sao Paulo, and NDD across Brazil, Mexico, and Chile, we continue to innovate, and we'll continue to do so. Because, as always at MercadoLibre, the best is yet to come.

Speaker Change: Innovation and efficiency will continue to be key to the success of our shipping operations. For a more detailed discussion, check out the podcast on our investor relations website with the head of Mercado Envios, Agustin Costa.

Speaker Change: From cross-border in Texas, to robotics in Sao Paulo, and NDD across Brazil, Mexico and Chile, we continue to innovate, and we'll continue to do so. Because, as always at MercadoLibre, the best is yet to come.

Operator: 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.

Speaker Change: Thank you. At this time we will conduct the question and answer session. As a reminder, to ask a question you will need to press star 1 1 on your telephone and wait for your name to be announced.

Operator: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A transcript. The first question comes from the line of Andrew Ruben of Morgan Stanley. Andrew, please go ahead.

Speaker Change: To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster

Andrew Ruben: Thank you. So considering where you are in the 25th year, and congratulations on that, can you talk about where we are in the interplay between commerce and fintech? It's a quarter we see the acceleration in GMV, and also a number of fintech operating metrics picking up. So I'm curious how much you'd say is independent business drivers versus the two sides feeding each other. I'd be interested in the strategic update and maybe just honing in on the same topic in the near term.

Speaker Change: Thank you. So considering where you are the 25th year, and congratulations for that, can you talk about where we are in the interplay between commerce and fintech? It's a quarter we see the acceleration in GMV, also a number of fintech operating metrics picking up. So I'm curious how much you'd say is independent business drivers versus the two sides feeding each other. I'd be interested in the strategic update and maybe just honing in on the same topic near term. You have the Brazil GMV accelerating to the 36% FX. You also called out the higher remunerated account. We see growth in the credit business. So how much of that pickup would you attribute to these fintech initiatives versus something more commerce specific?

Martin De Los Santos: You have the Brazil GMV accelerating to 36% FX. You also called out the higher remunerated account; we see growth in the credit business. So how much of that pickup would you attribute to these fintech initiatives versus something more commerce-specific? Thank you. Hello, thank you. Hi Andrew, how are you?

Martin De Los Santos: Martin here. Thanks for your questions. Obviously, as we have been saying, you know, over the years, being part of an ecosystem is both the fintech side of commerce and vice versa, right? So I think in this particular quarter, credit is a good example of that. Credit is fueling growth on our commerce side as we provide better payment solutions for users. It's also very beneficial to our fintech value proposition, just like we're growing credit cards very strongly this quarter.

Speaker Change: Hi Andrew, how are you? Martin here. Thanks for your question.

Speaker Change: Obviously, as we have been saying, you know...

Speaker Change: over the years.

Speaker Change: Being part of an ecosystem feeds both the fintech side to commerce and vice versa, right? So I think in this particular quarter, credit is a good example to that, you know, credit is fueling growth on our commerce side as we provide better payment solutions.

Speaker Change: for users, also is very beneficial to their fintech.

Martin De Los Santos: And in terms of growth on the commerce side, we are very satisfied with the growth that we're seeing in Brazil. I mean, this is the second consecutive quarter in which we're accelerating in Brazil. We are sustaining very solid growth rates in Mexico, gaining market share in both markets, and also seeing a very strong recovery in Argentina, both on the commerce side as well as on the fintech side. So I think for the most part, our strategy continues to perform extremely well, just like you said, 25 years after our beginning, our company, we continue to grow at rates of really a startup rate, and we are super excited not only about what we have done so far over the past 25 years but, more importantly, about the many growth opportunities that we have ahead of us. Let me complement that.

Speaker Change: [inaudible]

Speaker Change: We are very satisfied with growth that we've seen in Brazil.

Speaker Change: I mean, this is the second consecutive quarter in which we accelerate in Brazil. We are sustaining very solid growth rates in Mexico.

Speaker Change: You know, 25 years after our beginning, our company, we continue to grow at rates of, you know, really a startup rate, and we are super excited, not only for what we have done so far over the past 25 years, but more importantly, to the many growth opportunities that we have ahead of us.

Osvaldo Gimenez: I think that, Andrew, both businesses. We have always said that both businesses are very synergistic, and we continue to believe that. And we have many, many examples of that. One is, for example, how we can deploy products on the marketplace to drive the growth of the marketplace. For example, in Mexico, a significant part of our GMV is paid either with MercadoPago, with store balance on MercadoPago, or with credit offered by us or by our own credit card on the one hand.

Speaker Change: Let me compliment that, I think that Andrew, both businesses, we have always said that both businesses are very synergistic and we continue to believe that and we have many many examples of that.

Speaker Change: One is, for example, in order to grow, how we can deploy the products on the marketplace to drive the growth of the marketplace. For example, in Mexico, a significant part of our GMB is paid either with Mercado Pago, with store balance on Mercado Pago, or we pay it offered by us or by our own credit card on the one hand. On the other hand, how we can, for example, offer insurance products in the marketplace and grow the number of policies we sell.

Osvaldo Gimenez: On the other hand, how we can, for example, offer insurance products in the marketplace and grow the number of policies we sell. Both businesses have been extremely synergistic. We have a huge user base on the marketplace and also on MercadoPago, and we drive users from one platform to the other one. I think that we are very excited about that. It continues to work very well. That's great. Thank you both.

Speaker Change: Both businesses have been extremely synergistic, we have a huge user base on the marketplace and also on Mercado Power and we drive the users from one platform to the other one. I think that we are very excited with that, that continues to work very well.

Speaker Change: That's great. Thank you both.

Operator: One moment for your next question. The next question comes from the line of Irma Sgarz of Goldman Sachs. Irma, please go ahead.

Speaker Change: One moment for your next question.

Speaker Change: The next question comes from the line of Irma Sars of Goldman Sachs. Irma, please go ahead.

Irma Sgarz: Yes, thanks for taking my question. You, congratulations also on your 25th birthday tomorrow. You had a great quarter again in terms of operating leverage, and yet I can think of several items that can still contribute to or unleash higher margins from here, like scaling ads, incrementally low increases in provisioning, and efficiencies in logistics, as you laid out. But before we all get ahead of our skis, are there any, perhaps, items or headwinds or areas of investment that we should think through, especially into the back half of this year?

Irma Sars: Yes, thanks for taking my question. New congratulations also on the 25th, 25th birthday tomorrow. You had a great quarter again in terms of operating leverage, and yet I can think of several items that can still contribute or unleash higher margins from here like scaling ads incrementally.

Irma Sgarz: Perhaps related to carrier cost adjustment. PositRates in Mexico, any marketing campaigns? to sort of level set expectations here a little bit in terms of what we should keep an eye on. Hi, Irma and Martin here.

Speaker Change: perhaps related to carrier cost adjustments or higher deposit rates in Mexico, any marketing campaigns, just to sort of level set expectations here a little bit in terms of what what we should keep an eye on. Thank you very much.

Martin De Los Santos: Let me talk about this quarter. I think, as you mentioned, we had a very strong quarter in terms of both EBIT results and, more importantly, net income. As you know, net income after the devaluation of Argentina has become a more relevant metric to look at, and we grew it by 100% year-on-year, and we delivered 10.5% this March. In terms of the EBIT margin specifically, you can see on a comparable basis, you see a contraction this quarter.

Speaker Change: Let me talk about this quarter, I think as you mentioned we had a very strong quarter in terms of both EBIT.

Speaker Change: In terms of the EBIT margin specifically, you see on a comparable basis, you see a contraction this quarter, most of that contraction, roughly 120 basis points of contraction, most of it comes from bad debt provisioning.

Martin De Los Santos: Most of that contraction, roughly 120 basis points of contraction, most of it comes from bad debt provisioning, and as you know, as we accelerated our credit book origination, we provisioned our expected losses up front, and that generates some pressure on margin, but we feel comfortable with that as we see very good performance in terms of NPLs, and nine-month margins continue to be very solid and with good profitability.

Irma Sars: And as you know, as we accelerated our credit book origination.

Irma Sars: We provisioned expected losses up front and that generates some pressure on margin, but we feel comfortable with that as we see

Irma Sars: very good performance in terms of MPLs and NIMAL margins continue to be very, very, you know, very solid and with good profitability. So we are okay with scaling the book.

Martin De Los Santos: So we are okay with scaling the book; we're increasing our credit card book as well; we issued more than 1.5, 1.6 million cards this quarter. We increased our credit card TPP by 3x compared to last year, so we feel comfortable with that kind of pressure on margin. In addition to that, we continue to invest in strategic initiatives. We increase the penetration of fulfillment by 6 percentage points year on year. We also increase the penetration of free shipping by 6 percentage points.

Irma Sars: We're increasing our credit card books as well. We issued more than 1.5, 1.6 million cards this quarter. We're in our credit card CPB by 3x compared to last year. So we feel comfortable with that kind of pressure on margins.

Irma Sars: In addition to that, we continue to invest in strategic initiatives. We increase the penetration of fulfillment by 6 percentage points year on year, and we increase the penetration of...

Martin De Los Santos: So, you know, investment will continue to be, as we have been saying for several quarters, at a similar pace, and there will be no change in our investment strategy. We will continue to invest in strategic initiatives, many miles, free shipping, credit, and so on. One moment for your next question. The next question comes from the line of Robert Ford of Bank of America. Robert, please go ahead. Thank you.

Irma Sars: We'll continue to be, as we have been saying for several quarters, at a similar pace and there will be no change in our investment strategy. We'll continue to invest behind our investment strategy initiatives, mainly MICE, free shipping, credit and so on.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of Robert Ford of Bank of America. Robert, please go ahead.

Robert Ford: Happy birthday and congratulations on the quarter. I just had a few questions. And the first was, could you talk a little bit about melamides and MDD and how that's contributing to the conversion and acceleration you're seeing in GMV, as well as the seller promotional tools that you call out today? And, you know, particularly the ones that are responding with concern. And then, how do you expect the end of tax withholding requirements for small businesses on their digital transactions to impact Pago in the marketplace in Argentina? And what's the timing for that?

Robert Ford: Hey, thank you. Sorry about that. Happy birthday and congratulations on the quarter. I just had a few questions and...

Robert Ford: And the first was, could you talk a little bit about Meliomycin and MDD and how that's contributing to conversion and the acceleration you're seeing in GMV, as well as the seller promotional tools that you call out today, and particularly the ones that are resonating with consumers?

Robert Ford: And then the third one I had was, you know, we understand that you've taken over 100,000 square meters of distribution space in Guarulhos, and we were curious as to the role that you anticipate for that space, particularly when it comes to centralizing inventory for Brazilian air cargo or processing cross-border transactions into Brazil. And where do you open up capacity in the rest of the network with the addition of that space in Guarulhos? At all? And then, how should we think about the implications of a Mexican banking license in terms of product enablers, funding, and then the various frictions, whether they be regulatory taxes or something else?

Speaker Change: to impact Pago in the marketplace in Argentina. And what's the timing for that?

Speaker Change: And then the third one I had was, you know, we understand you've taken over 100,000 square meters of distribution space in Guadalajara.

Speaker Change: And we were curious as to the role that you envision for that space, particularly when it comes to centralizing inventory for Brazilian air cargo or processing cross-border transactions into Brazil. And where do you open up capacity in the rest of the network with the addition of that space in Guadalupe, Guadalupe is it at all?

Speaker Change: And then, how should we think about the implications of a Mexican banking license in terms of product enablers, funding, and then the various frictions, whether they be regulatory, tax, or something else. And then lastly, and I apologize for all this.

Osvaldo Gimenez: And then lastly, and I apologize for all this, in the press release, you mentioned some downstream benefits of your more aggressive remuneration strategies and AUM strategies. And I was wondering if you could expand on those, please. And that was, that was it. Thank you. Hey, Bob.

Ariel Szarfsztejn: Ariel here. So I think on MeliMice we are going through the same trajectory that we've been seeing over the last few quarters. MeliMice is successfully generating incremental engagement and incremental GMB. Therefore, users who enroll in the program have higher frequency, higher GMB, and lower turn compared to the previous program. Engagement KPIs are looking good. And to your point on Meli Delivery Day, we see adoption of MDD trending upward. So, in general terms, we are extremely satisfied with the impact that the program is having on our business, and particularly the satisfaction of our users, and we intend to continue increasing the user base of subscripters.

Ariel: Hey Bob, Ariel here.

Speaker Change: So...

Speaker Change: I think on Melimice, we are going through the same trajectory that we've been seeing over the last few quarters. Melimice is successfully generating incremental engagement and incremental GMB. So users who enroll in the program have higher frequency, higher GMB, lower churn compared to the previous program.

Bob: Engagement KPIs are looking good and to your point on Meli Delivery Day we see adoption of MDD trending upwards.

Robert Ford: So, in general terms, we are extremely satisfied with the impact that the program is having in our business and particularly in the satisfaction of our users, and we pretend to continue increasing the user base.

Ariel Szarfsztejn: And Ariel, is that NDD adoption coinciding with more packages per week or per unit of time? So, in every single market, we see consumers choosing to get their packages with MDD trending upwards, and within MDD, we see consolidation also going up. In terms of capacity and distribution centers, I think you mentioned a couple of things that are different. So, we did move our air hub to Sao Paulo. We just needed more space to deal with the volume that we are applying.

Adiel: And Ariel, is that NDD adoption coinciding with more packages per week or per unit of time?

Adiel: So, in every single market, we see consumers choosing to get their packages with MDD trending upwards, and within MDD, we see consolidation also going up.

Robert Ford: Yeah.

Speaker Change: In terms of capacity and distribution centers, I think you mentioned a couple of things that are different. So we did move our air hub.

Ariel Szarfsztejn: But more on a general view, I think, as Martin mentioned in the previous answer, we will continue building the capacity linked to the growth of our business and the increase in penetration of fulfillment. And that is true for every single market.

Martin: In Sao Paulo, we just need more space to deal with the volume that we are applying, but more on a general view, I think, as Martin was mentioning in the previous answer,

Martin: We will continue building the capacity linked to the growth of our business and the increase in penetration of fulfillment, and that is true for every single market.

Ariel Szarfsztejn: This quarter, or these few quarters in particular, we have been expanding capacity in Mexico. At some point, we will continue expanding capacity in Brazil and the rest of the market as well. Nothing changing or directionally radical with the way we've been operating so far. But in the end, we are compounding the growth of MercadoLibre as a whole with the increase in fulfillment penetration. And that's after 40 years.

Speaker Change: This quarter, or these few quarters in particular, we have been expanding capacity in Mexico. At some point, we will continue expanding capacity in Brazil and the rest of the market.

Robert Ford: As well, nothing changing or directionally radical with the way we've been operating so far. But in the end, we are compounding the growth of MercadoLibre as a whole with the increase in fulfillment penetration.

Ariel Szarfsztejn: Sorry, I was just going to ask if that... That facility is domestically oriented, is that fair? Yes, we are not doing any international flights from Brazil to other countries, not from any country of Latin America to another one. The only international connection that we do is from Texas to Mexico, which is not going through air.

Martin: [inaudible]

Speaker Change: Sorry, I was just going to ask, that facility is domestically oriented. Is that fair?

Osvaldo Gimenez: Bob, I'll cover two questions related to fintech. One of them was how we expect the end of tax withholding requirements in Argentina to impact MercadoPago, and we are very excited about that. Today, electronic payments in Argentina had a drawback versus cash payments because there were perceptions of taxes we needed to withhold on behalf of the local IRS from every seller, so that was a detractor for further adoption of electronic payments in general, and the law that passed Congress recently removes that at the federal level, not at the state level, but at the federal level. This, however, has not yet been implemented by the local IRS, so we need that to happen, and then we will implement it, but that really will be a positive step for all kinds of electronic payments.

Osvaldo Gimenez: If I recall correctly, the second question was regarding the implications of the Mexican banking license. And I would say that there is a huge opportunity in Mexico to compete and further deploy financial services and that by having a banking license, we will be able to add products to a cycle of products and, for example, allow people to be able to collect salaries using the Mercado Power account. And so we believe that the opportunity we see in the country is huge. We have already been growing our credit book very significantly, and this will be a process that will be long, typically around two years, but it depends on the regulator.

Speaker Change: And I would say that that is something that we believe there's a huge opportunity in Mexico.

Speaker Change: and so we believe that the opportunity we see in the country is huge.

Speaker Change: We have been already growing.

Osvaldo Gimenez: We believe that we will continue growing our footprint in Mexico throughout that period. For example, recently, we increased the rate we paid to depositors in a cuenta remunerada, and we are very excited with the results we are seeing. And that's what triggered my question with respect to the benefits of the downstream benefits of those AUM strategies. Could you expand a little bit on that further? Yeah, the reason for the cuenta remunerada is that it really drives principality.

Speaker Change: And we are very excited with the results we have seen.

Osvaldo Gimenez: We see that the two main drivers for principality are where people put their savings first and, together with that, where they get most of the credit. So we are driving those two up significantly by having a very competitive cuenta remunerada and also being aggressive in deploying our credit card strategy in Mexico. So these are not just opportunistic depositors taking advantage of the 15% rate.

Speaker Change: Yeah, the reason for the cuenta nominada is it really drives principality. We see that...

Speaker Change: The two main drivers of principality is...

Speaker Change: where people put their savings first and together with that where they get most of their credit. So we are driving those two up significantly by having a very competitive cuenta remunerada and also being aggressive deploying our credit card strategy in Mexico.

Osvaldo Gimenez: You're seeing some real adoption of the rest of the ecosystem. Yeah, well, we'll probably go to the next question, and we can go into more detail on this. But yeah, the short answer is yes, it contributes to the income.

Speaker Change: So these are not just opportunistic depositors taking advantage of the 15% rate, you're seeing some real adoption of the rest of the ecosystem.

Speaker Change: Yeah, we'll probably go to the next question and we can go into more detail on this. But yeah, the short answer is yes, it contributes to the economy.

Operator: Thank you. One moment for your next question. The next question comes from the line of Marcelo Santos of J.P. Morgan. Marcelo, please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of Marcelo Santos of J.P. Morgan. Marcelo, please go ahead. Thank you. Thank you.

Marcelo Santos: Hi, good evening. Thanks for the opportunity to ask questions. I have two on my side.

Ariel Szarfsztejn: The first is, given that you launched your distribution center in Texas, could you please comment a bit on your broader ambition for cross-border, how relevant this could be, and where do you think this could be in a couple of years? And the second question is regarding the net shipping subsidy, so getting the shipping revenue minus shipping cost divided by GMV. We see that it improved a lot on a quarter-over-quarter basis. If you could please dissect the drivers that led to the sequential improvement from one quarter to the next, and if you see further room for more efficiency there. Thank you very much. Hey Marcelo, how are you?

Marcelo Santos: Hi, good evening. Thanks for the opportunity for asking questions. I have two on my side. The first is, given that you launched your distribution center in Texas, could you please comment a bit on your broader ambition on cross-border, how relevant this could be, where this could, like,

Speaker Change: And the second question is regarding the net shipping subsidy, so getting the shipping revenue minus shipping cost divided by GMV.

Ariel Szarfsztejn: This is Ariel. So let me start with your first question related to cross-border. I think we've always said that cross-border is still a huge opportunity for MercadoLibre in general. Today, almost 15% of the GMB that we have in Mexico is coming from cross-border, mostly Chinese.

Speaker Change: So let me start with your first question related to cross-border. I think we've always said that cross-border is still a huge opportunity for MercadoLibre in general.

Speaker Change: Today, almost 15% of the GMB that we have in Mexico is coming from cross-border, mostly Chinese.

Ariel Szarfsztejn: But I would say that in the rest of Latin America, our cross-border business is still small, and we think we have an opportunity to generate some value there. Specifically, for Texas, as our introductory video mentioned, we think that we can complement the selection that we have in Mexico from local Mexican sellers with inventory coming from North American sellers. And that is particularly relevant considering that there are certain pieces of that selection that we cannot get locally in Mexico or we cannot find at the right price.

Speaker Change: But I would say that in the rest of Latin America, our cross-border business is still small and we think we have an opportunity to generate some value there.

Speaker Change: specifically about Texas.

Speaker Change: inventory coming from North American sellers.

Speaker Change: And that is particularly relevant considering that there are certain pieces of that selection that we cannot get locally in Mexico or we cannot find at the right price. So in the end, our North American strategy is to complement.

Ariel Szarfsztejn: So, in the end, our North American strategy is to complement the offering that we have in Mexico and be able to serve our consumers better. And eventually, thinking about the strategic impact, we think this can be relevant. We think this could be multi-country in the future, but it's too early to tell. The first signs of that operation are really, really positive.

Ariel Szarfsztejn: We see consumers getting extremely engaged with the products that we are offering, and we see our sellers from the U.S. also very satisfied with the sellout that they have in the inventories that they are bringing to our warehouse. Going to the second part of your question about shipping margins and costs, I would say that we are pleased with the results that we are seeing from our logistics operation. So, in terms of the discipline with which we are managing the operation itself, but also in our ability to manage our P&L while continuing to invest in our strategic priorities.

Speaker Change: in the future, but it's too early to tell.

Speaker Change: Going to the second part of your question about shipping margins and cost, I would say that we are pleased with the results that we are seeing from our logistics operation.

Speaker Change: So, in terms of discipline with which we are managing the operation itself, but also with our ability to manage our P&L while continuing to invest behind our strategic priorities.

Ariel Szarfsztejn: This quarter, as you were saying, we saw an expansion in shipping margin, and that expansion is mostly coming from our ability to drive efficiencies in our operation. And that happened even with some headwinds coming from Mexico, where we are operating at max capacity and where we have an extremely strong hot sale. I would say, broadly speaking, we are still committed to running shipping with a very disciplined P&L. And you can see that clearly when you look back at the longer-term picture, right?

Speaker Change: This quarter, as you were saying, we saw an expansion.

Speaker Change: In shipping margin, that expansion is mostly coming.

Speaker Change: Some headwinds coming from Mexico where we are operating at max capacity and where we have an extremely strong hot-sail season.

Speaker Change: I would say, broadly speaking, we continue committed to running shipping with a very disciplined P&L. And you can see that clearly when you look back.

Ariel Szarfsztejn: So, if you go back to 2019, you can see that our net shipping cost remains broadly flat, or even improves if you were to add our flat fee revenues into that one. And in that same period, we moved fulfillment penetration from 6% to 50%, and we moved pre-shipping up 30 percentage points.

Speaker Change: into the longer term picture, right? So if you go back to 2019, you can see that our net shipping cost remains broadly flat.

Speaker Change: or even improving if you were to add our flat fee revenues into that one. And in that same period, we moved fulfillment penetration from 6% into 50%. We moved pre-shipping up 30 percentage points. We increased our square meters.

Ariel Szarfsztejn: We increased our square meters by 5x, all this across the region. So, again, shipping is a key driver and a key strategic priority for MercadoLibre. And we are committed to executing what we need while managing costs and revenues with strong discipline. Thank you. Thank you very much. One moment for your next question. The next question comes from the line of Maria Clara Infantozzi from C-PAL. Maria Clara, go ahead.

Speaker Change: by 5X, all these across the region.

Speaker Change: So again, shipping is a key driver and a key, you know, strategic priority for MercadoLibre and we are committed to executing what we need while managing costs and revenues with strong discipline.

Speaker Change: Thank you very much.

Speaker Change: One moment for your next question.

Speaker Change: The next question comes from the line of Maria Clara Infantozzi from Itao. Maria Clara, please go ahead.

Maria Clara Infantozzi: Hi, everyone. Thanks for taking my question. It's about your view on the implementation of Gen-AI in the edge business. So this has been a key topic of discussion in the earnings calls of some big techs during these past days. And can you please share your thoughts on this topic?

Speaker Change: Hi everyone, thank you for taking my question. It's about your view on the implementation of GenAI in the Edge business. So, this has been a key topic of discussion in the earnings calls of some big techs during these past days.

Unknown Executive: Is mal-investing at its root? And which opportunities of improvement in business do you foresee with the implementation of Gen-AI? And, if I may add, can you please comment on how the AI business has been affecting your recommendation in GINE? Thank you. All right. Martin, can you mute the line on the other side, please?

Speaker Change: And can you please share your thoughts on this topic? Is Mali investing its role? And which opportunities of improvement in business do you foresee with the implementation of GenAI? And if I may add, can you please comment on how the AI business has been affecting your recommendation in time? Thank you.

Speaker Change: Hi Maria and Martin, I'm going to ask you, can you mute the line on the other side please?

Unknown Executive: Thank you. Yes, as you mentioned, we have been putting a lot of resources into AI and chain AI throughout the company. We don't have a centralized department of AI, but all of our different business units, and particularly the IT team, have been focusing on trying to find opportunities to improve efficiency and deploy AI solutions, both in the way we manage the business as well as in the way we interact with customers. And some examples of that are on the commerce side. Obviously, we are using AI to help us with recommendations, as you mentioned, but more important than that, on reviews.

Martin: Thank you.

Martin: Thank you.

Speaker Change: Yes, as you mentioned, we have been putting a lot of resources into AI and chain AI throughout the company, really. We don't have a centralized department of AI, but all of our...

Speaker Change: different business units and really the IT team have been focusing on trying to find opportunities to improve our efficiency and deploy AI solutions both in the way we manage the business as well as consumer facing.

Speaker Change: And some examples to that are on the commerce side, obviously, we are using...

Speaker Change: A.I. to help us with recommendations as you mentioned, but more important than that on reviews for instance, that in the past if you were to review a product you had to go through many different...

Unknown Executive: Now we can consolidate that into a more efficient way of communicating the qualities of the product, a particular product. Pictures, as you know, some of the pictures that are published might not be the same quality that we are expecting from our merchants, and we can improve those with AI. Answers from sellers is another good example. In the past, if you were to buy something at 2am in the morning, you would have to wait until the next day to get an answer.

Speaker Change: [inaudible]

Speaker Change: We have a lot of pictures that are published that might not be the same quality that we are expecting from our merchants. We can improve those with AI.

Unknown Executive: That obviously affected the conversion of the product significantly. Now we can respond right away by using GenerAI models. On the developer side, we have 16,000 developers who are also using AI tools to improve productivity, and that's also generating some improvements and efficiencies in the way we deploy products throughout the company. And I think one of the most important projects that we have is CX, Customer Experience, and Customer Support, which we are also applying AI tools that will help us to not only respond more efficiently in terms of cost but also be more... [inaudible] One moment for Kaio, please go ahead.

Speaker Change: On the, obviously, on the developer side, we have 16,000 developers which are also using AI tools to improve productivity and that...

Speaker Change: Also, generating some improvements and efficiencies in the way we deploy products.

Speaker Change: Part 2.

Kaio De Prato: Hello everyone, thanks for the question. So, two quick on my side, please. With all these good trends that we are seeing in the fintech business, I was wondering if you could share some ideas about the profitability of the fintech business in your three main countries, Brazil, Mexico, and Argentina, and what levels you think you can achieve in each of them. Just an idea or how it has been evolving over time would be really helpful here.

Speaker Change: Hello everyone, thanks for the question. So, two quick on my side please. With all these good trends that we are seeing in the FinTech business,

Speaker Change: in your three main countries, Brazil, Mexico and Argentina.

Speaker Change: And what levels do you think you can achieve in each of them? Just an idea of how it has been evolving over time.

Speaker Change: Thank you very much.

Kaio De Prato: And additionally, you are mentioning that you would like to become the number one digital bank in Mexico. What do you think are your competitive advantages against the digital players in Mexico today, as seen that now you are with similar offerings compared to most of them nowadays? Thank you very much. Hi Kaio.

Unknown Executive: You know, we don't share a lot of details regarding specific profitability in each of the three countries. But let me share with you that we are profitable in all three countries, in all the three largest markets in Argentina, Brazil, and Mexico. In the case of Brazil and Mexico, it's driven mostly on the fintech services side, driven mostly by a credit book, and acquiring is profitable in all three markets. In the case of Argentina, the importance of credit is less relevant than in the other markets, but we have such a strong position as a wallet, leveraging the payments everyday users make, that makes up for a lower credit volume at this point.

Speaker Change: You know, we don't share a lot of details regarding specific profitability in each of the countries. Let me share with you that we are extremely profitable in all three countries, in all the three largest markets, in Argentina, Brazil, and Mexico.

Speaker Change: In the case of Brazil and Mexico, it's driven mostly on the syntax services side, driven mostly by Craig's book.

Unknown Executive: And we are very profitable in all three markets. Regarding the second question, we have claimed that we are applying for a license and that we want to be the number one digital bank in Mexico. We believe we have several competitive advantages. First of all, we already have a large user base given the importance of, on the one hand, the marketplace and, on the other hand, our acquiring business, which is very developed in Mexico.

Speaker Change: Regarding the second question, it was...

Speaker Change: that we have claimed that we are applying for a license and that we want to be the number one digital bank in Mexico. We believe we have.

Unknown Executive: And furthermore, we have been growing aggressively. First, initially, our consumer case book there for several years, but also, recently, our credit card, and we're very excited with the kind of growth we are seeing. And we believe that this synergy we have between the marketplace acquiring business and the fintech services businesses is something that nobody else has, so we believe we have a very strong position in Mexico. Okay, great. Thank you very much.

Speaker Change: But also, recently, our credit card, and we're very excited with the kind of growth we are seeing, and we believe that this synergy we have...

Operator: One moment for the next question. The next question comes from the line of Joa Suarez of Citi. Joa, please go ahead. Thank you and congratulations on the results. I have two quick ones on my side.

Joa Suarez: The first one is I wanted to dig a little bit deeper into the GMP performance in Brazil. We initially had the impression that this course was going to be more challenging. Naturally, you had the flood that you're going to do soon. And not only do we see an acceleration, but we also see volumes driving this acceleration. So I just wanted to understand, I realize there's no silver bullet here, but what do you attribute this to MAURI+, how much do you attribute this to, I mean, I just want to go into some detail, what are the main points that you would attribute this acceleration to? It would be interesting to hear.

Speaker Change: how much it contributes to

Ariel Szarfsztejn: And we also saw a good development in the ads penetration right now at 2%. So I just wanted to hear your thoughts on the broader retail media adoption. How much of this comes from you involving your own capabilities? And also, any thoughts on the profitability of this business would also be interesting to hear. Thank you. Hey Joao, this is Ariel.

Speaker Change: [inaudible]

Ariel Szarfsztejn: So thank you for your question on Brazil. I think it's a good thing that I am getting kind of a similar question on why we grew so much in the Brazil quarter and the world quarter tells me that we must be doing something positive on that one. So the answer to your question is that there is no silver bullet for the performance, so it's not something specific that I can attribute that growth to.

Ariel Szarfsztejn: The fact that I am getting kind of a similar question on why we grew so much in Brazil quarter and World quarter, we must be doing something positive on it.

Ariel Szarfsztejn: So, the answer to your question is that there is no silver bullet.

Ariel Szarfsztejn: I would say several strategies and actions were executed across the business, from improvements in selection, expanding our 3P selection, complemented with more 1P, which is helping us, you know..., strengthen MercadoLibre's position as the go-to place to buy in Brazil, and improvements in pricing. We are getting more and more obsessed with our price competitiveness. We continue also improving our shipping offering with faster deliveries, slower deliveries, more fulfillment, and more pre-shipping. As we said in the past, we are putting a lot of effort into de-averaging Brazil into regions, into categories, into different types of users so as to find the right solution to push for growth in each of those segments.

Speaker Change: From improvements in selection, expanding our 3B selection, complemented with more 1B, which is helping us, you know,

Ariel Szarfsztejn: strengthens MercadoLibre's position as the go-to place to buy in Brazil, improvements in pricing, we are getting more and more obsessed.

Speaker Change: As we said in the past, we are putting a lot of effort in de-averaging Brazil into regions, into categories, into different types of users as to find the right solution to push for growth in each of those segments.

Ariel Szarfsztejn: Product and experience continues to be a key priority for us. We continue to invest in innovation in beauty. For example, we deploy virtual try-ons.

Ariel Szarfsztejn: Product and experience continues to be a key priority for us. We continue to deploy innovation in beauty, we deploy virtual try-ons, we are expanding our compatibilities in auto parts, trading, in consumer electronics, pre-sales, I mean, we continue to improve our experience more and more.

Ariel Szarfsztejn: We are expanding our compatibilities in auto parts, trading, and consumer electronics pre-sales. We continue to improve our experience more and more. I think we've also developed over time a good muscle to quickly identify and adjust our promotional calendars and marketing efforts so as to capitalize on the opportunities that appear in the market at every single point of time, and that's also helpful. And last but not least, as Osvaldo was saying before with the first question, our payment ecosystem. Blue money, including buy now, pay later, credit card, and account money, continues to gain share in our checkout, and that's definitely helping us increase conversion.

Ariel Szarfsztejn: I think we also developed over time.

Ariel Szarfsztejn: a good muscle to quickly identify and adjust our promotional calendars and marketing efforts to capitalize the opportunities that appear in the market at every single point of time and that's also helpful. And last but not least...

Ariel Szarfsztejn: As Osvaldo was saying before with the first question, our payment ecosystem, so blue money, including buy now, pay later, credit card, account money, continues to gain share in our checkout and that's definitely helping us increase conversion.

Ariel Szarfsztejn: In summary, I would say that what you see today is probably the compounded effect of 25 years of investing fully focused in Latin America. So the second part of your question related to advertising. So I would say, again, another good quarter or great quarter for us. Our penetration reached 2% of GMB, which is a 40 basis points improvement year over year. The revenues grew 51% year over year in dollar terms.

Ariel Szarfsztejn: So, in summary, I would say that what you see today is probably the compounded effect of 25 years investing fully focused in Latin America.

Ariel Szarfsztejn: So the second part of your question is related to advertising.

Speaker Change: So I would say

Ariel Szarfsztejn: Again, another good quarter, or great quarter for us. Our penetration reached...

Ariel Szarfsztejn: [inaudible]

Ariel Szarfsztejn: That's the eighth consecutive quarter with a growth rate above 50%. In particular, we saw a great performance coming from cross-border sellers, from 1P brands, and that product continues to represent the majority of the business. I will also add to the ad thing: a big milestone for ads. One moment for your next question. The next question comes from the line of Jamie Friedman of Susquehanna International Group. Jamie, please go ahead.

Ariel Szarfsztejn: In particular, we saw a great performance coming from cross-border sellers, from 1P brands.

Ariel Szarfsztejn: and that product continues to be present.

Ariel Szarfsztejn: I will also add to the ad thing, a big milestone for ads.

Speaker Change: One moment for your next question.

Ariel Szarfsztejn: The next question comes from the line of Jamie Friedman of Susquehanna International Group. Jamie, please go ahead.

Jamie Friedman: Hi, good evening, and congratulations on the 25th. I just wanted to briefly get your summary message about, um, credit quality because You know, there's a lot of different inputs here, but the NIMAL did deteriorate on a year-over-year basis by about 500 basis points, though admittedly it was roughly flat sequentially. The provision, that's page 10.

Jamie Friedman: Hi, good evening and congratulations on the 25th. I just wanted to...

Jamie Friedman: briefly get your summary message about

Jamie Friedman: And then on page 19, the bad debt provision, which I realize is also a function of growth math, but that also increased about 300 basis points sequentially. So I know it's a lot of detail.

Jamie Friedman: credit quality because, you know, I realized that there's a lot of.

Jamie Friedman: different inputs here, but the NIMAL did deteriorate on a year-over-year basis, about 500 basis points, though, admittedly, it was

Jamie Friedman: roughly flat sequentially. The provision, that's page 10, and then on page 19 the bad debt provision, which I realize is also a function of growth mass.

Jamie Friedman: But that also increased about 300 basis points sequentially. So I know it's a lot of detail, but if you could just give us like the overall message about how you're thinking about credit quality, that would be helpful. Thank you.

Operator: But if you could just give us the overall message about how you're thinking about credit quality, that would be helpful. Thank you. Hi, sorry, we just got dropped, you know, our line got dropped, so if you can give us one second, we're trying to... Okay, I can repeat it, Osvaldo. Do you want me to say it again?

Operator: Hi, sorry, we just got, we dropped, you know, our line got dropped, so if you can give us one second, we're trying to...

Operator: Bear with me for a second, please. One second, please. Please enter your dialing pin and press pound when finished.

Operator: Okay, I can repeat it as well, do you want me to say it again?

Operator: Bye-bye.

Operator: One second, please.

Operator: Love, Darlene, once again. Hello, we can hear you. Okay, if you could please, I don't know if you listened to the last part of the answer from Ari, but we can move on to the next question, and if needed, we can go into more detail on that. Please go ahead, please.

Speaker Change: Got it.

Speaker Change: Please enter your dialing pin and press pound when finished.

Operator: Hello. We can hear you.

Operator: Okay, if you could please, I don't know if you listened to the last part of the answer from Ari, but we can move on to the next question if needed, we can go into more detail on that. Please go ahead, please.

Operator: So, I was just asking, this is Jamie Friedman at Susquehanna, I was just asking for the one-liner on credit quality on page 10, the nine miles, though they were roughly flat sequentially, they did deteriorate about 500 basis points year over year. On page 19, the 300 basis point increase in the bad debt provision, though I realize that is growth math, but I noticed a lot of detail, but if you could just share the one Thank you. Absolutely not. NIMAL was slightly down, but that compression was, I would say, fully explained by the growth of the credit card portfolio as a percentage of the total portfolio. So it's mostly a change of mix.

Jamie Friedman: So I was just asking, this is Jamie Friedman at Susquehanna, I was just asking for the one-liner on credit quality on page 10, the nine miles

Operator: Though they were roughly flat sequentially, they did deteriorate about 500 basis points year over year. On page 19, the...

Operator: 300 paces point increase in the bad debt provision, though I realize that is growth math. But I know this is a lot of detail, but if you could just share the one-liners, how you're thinking about credit quality, that would be helpful. Thank you.

Speaker Change: Absolutely, NIMAL was slightly down, but that compression was, I would say, fully explained by the growth of the credit card portfolio, as percentage of the total portfolio, so it's mostly a change of mix.

Osvaldo Gimenez: The credit card factory has a lower NIMA because we will provision up front, but only a small portion of the portfolio generates revenue initially. Having said that, we are very excited with the evolution of all of our credit portfolios. We are seeing very good results in the earlier cohorts of the credit cards. We continue to see improvement in our scoring models and shortening of the payback periods for each cohort. That's why we have been growing the credit card portfolio. And beyond that also, the credit card is obviously strategically very, very, very important. And then when the difficult part of the question is regarding, if I understand correctly, the evolution of NPLs.

Osvaldo Gimenez: The credit card factory has a lower NEMA because we book provisions up front.

Osvaldo Gimenez: but only a small portion of the portfolio generates revenue initially. Having said that, we are very excited with the evolution of all of our credit portfolios. We are seeing very good results in the earlier cohorts of the credit cards. We continue to see the improvement in our scoring models and shortening of the payback periods for each cohort. That's why we have been growing the credit card portfolio.

Osvaldo Gimenez: strategically very, very, very important.

Osvaldo Gimenez: And then when the second part of the question is regarding, if I understood correctly, is regarding to MPLA evolution. And again, we are comfortable with the research we're seeing are the spreads we have are very, very healthy.

Osvaldo Gimenez: And again, we are comfortable with the results we are seeing. The spreads we have are very, very healthy, and I think overall, we are comfortable with the credit portfolio. Yeah, and going back to NIMAL, just to add, we don't disclose specific NIMAL exposures for products or for countries. But as Osvaldo mentioned, this is a mixed issue.

Osvaldo Gimenez: I think, overall, we are comfortable with the credit portfolio. Yeah, and going back to Naim, I'll just compliment...

Martin De Los Santos: If you were to look at individual product portfolios, NIMAL is stable or improving year on year. So, that's... That's why we feel comfortable accelerating growth. Our credit book reached $4.9 billion, growing 51% year-on-year, on the back of very strong profitability results. Okay, thanks, Martin. Thanks as well.

Martin De Los Santos: We don't disclose specific NIML for products or for countries, but as Osvaldo mentioned, this is a mixed issue. If you were to look at individual product portfolios, NIML are stable or improving year on year. So that's good.

Martin De Los Santos: That's why we feel comfortable accelerating growth. Our credit book reached $4.9 billion, growing 51% year-on-year, on the back of very strong profitability results.

Martin De Los Santos: Okay. Thanks, Joaquin. Thanks as well.

Operator: One moment for your next question. The next question comes from the line of Geoffrey Elliott of Autonomous. Geoffrey, please go ahead.

Speaker Change: One moment for your next question.

Speaker Change: The next question comes from the line of Geoffrey Elliott of Autonomous. Geoffrey, please go ahead.

Geoffrey Elliott: Hello, thanks very much for taking the question. There's clearly lots of growth, lots of acceleration, lots of positives in the numbers. Can you tell us what the biggest positive surprise for you over the last year has been? If you wound back to 12 months ago, and you could see the numbers that you've just printed, which part of the business is it that has exceeded your expectations? Hi, Geoffrey.

Geoffrey Elliott: Hello, thanks very much for taking the question. There's clearly lots of growth, lots of acceleration, lots of positives in the numbers.

Geoffrey Elliott: Can you tell us what has been the biggest?

Geoffrey Elliott: positive surprise for you over the last year. If you wound back to

Geoffrey Elliott: 12 months ago.

Unknown Executive: I think if you look at the results over the past year, we are super excited about all parts of our business. I mean, on the commerce side, as Ari mentioned, we are growing Brazil 36% on the back of. We have seen 30% growth last quarter and sustained growth in Mexico. This is the third consecutive quarter in which growth is 30% year on year. Consequently, we are gaining market share in both markets. We're also very positively surprised about the turnaround in Argentina. We had a tough quarter last quarter in Q1.

Unknown Executive: Hi Jeffrey, I think if you look at the results of the past year, we are super excited about all parts of our business. I mean, on the commerce side, as Ari mentioned, we are growing Brazil 36% on the back of the US.

Unknown Executive: in 30% last quarter and...

Unknown Executive: staying growth.

Unknown Executive: In Mexico, this is the third consecutive quarter by which...

Unknown Executive: grow 30% year-on-year.

Unknown Executive: So, we are gaining market share in both markets.

Unknown Executive: We're also very positively surprised about the turnaround of Argentina. We had a tough quarter last quarter in Q1. We'll regain growth once again on the commerce side of Argentina.

Unknown Executive: We regained growth once again on the commerce side of Argentina. Our fulfillment infrastructure continues to be deployed and gains great gains in penetration, which results in a much better user experience. The number of users has been growing, the number of buyers, as well as the number of monthly active users on the FinTech side of the business. Then, on the FinTech side, we have tremendous opportunities ahead of us in Mexico. Assets under management are performing very well throughout the region.

Unknown Executive: [inaudible]

Unknown Executive: A number of users have been growing, a number of buyers as well as monthly active users on the FinTech side of the business.

Unknown Executive: And then on the FinTech side, we have tremendous opportunity ahead of us in Mexico.

Unknown Executive: Our credit book, just like Osvaldo mentioned earlier, is performing very well, and we've accelerated growth the past two quarters. So we're excited about all of our businesses, and particularly about the new businesses that are growing. MercadoPlay, which is relatively new, is showing some positive signs so far. Nelemise, which we launched a year ago, is performing very well. So we are very excited about both the commerce as well as the FinTech side of the business. Okay, it sounds like the answer to that is everything. I'm tempted to ask you to pick just one, but I won't.

Unknown Executive: Assets under management are performing very well throughout the region. Our credit book, just like Osvaldo mentioned earlier, performing very well and we accelerated growth the past two quarters.

Unknown Executive: So, we're excited about...

Unknown Executive: all of our businesses, and in particular also the new businesses that are growing. Mercado Play, which is something relatively new, is showing some positive signs so far. Nelly Mais, which we launched a year ago, is performing very well. So we are very excited about both the commerce as well as the fintech side of the business.

Speaker Change: Okay, it sounds like the answer to that is everything. I'm tempted to ask you to pick one, but I won't. Just to follow up, the new customers, the monthly active user growth,

Unknown Executive: Just to follow up, the new customers, and the monthly active user growth... Who are those people? Are they people who've not used Ecom before? Are they coming from competitors? Where are the new users coming from?

Unknown Executive: Who are those people? Are they people who have not used Ecom before? Are they coming from competitors? Where are the new users coming from?

Unknown Executive: Just to be fair with you, it's true that the answer was broad because we're really excited about the performance of the business. I think if I had to highlight one, it would probably be the surprise of continuing to gain market share in Brazil for several quarters. For more than a year now, every quarter, we continue to grow at a faster rate than the market on a very large scale. So that's obviously something that we are very proud of, and very positively surprised by.

Unknown Executive: Just to be fair with you, it's true that the answer was broad because we're really excited about the performance of our business.

Unknown Executive: I think if I had to highlight one, it's probably the surprise of continuing to gain market shares in Brazil.

Unknown Executive: [inaudible]

Unknown Executive: If I were to pinpoint something on the fintech side, I would say that several quarters ago we restructured how our team is organized with a strong focus on fintech services, and since then, we have seen very strong growth, both in Brazil and Mexico, not only in the number of users but in the frequency they use our products and how, for example, cuenta remunerada has grown and credit cards have grown. So I would say the increased focus we put on fintech services is really paying off, and that is really in line with the expectations we have. Great, thanks very much.

Unknown Executive: If I were to pinpoint something on the fintech side, I would say that

Unknown Executive: several quarters ago we restructured how our team is organized with a strong focus on fintech services. And since then we have seen very strong growth both in Brazil and Mexico, not only in number of users but in the frequency they use our products and how, for example, cuenta remunerada has grown and credit cards has grown. So I'd say the increased focus we put on fintech services clearly is paying off and that is

Unknown Executive: It's really according to the expectations we have.

Speaker Change: Great. Thanks very much.

Speaker Change: One moment for your next question.

Operator: One moment for your next question. The next question comes from the line of Craig Maurer of FT Partners. Craig, please go ahead.

Speaker Change: The next question comes from the line of Craig Mauer of FT Partners. Craig, please go ahead.

Craig Maurer: Yeah, thanks. Again, congratulations on your 25th. Most of my questions have been asked and answered, but wanted to ask you a follow-up to Jeff's question, you know, on market share. If you could characterize for us where you think market share is for MercadoLibre in each of the major in each of the main markets and how that's progressed year on year, that would be helpful. Yeah, you know, as you know, market shares are a lot of information, But it's not that accurate.

Craig Maurer: Yeah, thanks. Um, again, congratulations on your 25th. Um, most of my questions have been asked and answered, but wanted to ask you a follow up to Jeff's question, you know, on

Craig Maurer: Market share. If you could characterize for us where you think market share is for Mercado Libre in each of the major in each of the main markets and how that's progressed year on year that would be helpful.

Unknown Executive: I mean, the reason why we believe we are gaining market share is because we're growing at a very rapid pace, most likely, for sure, in the market. But in terms of specific market share numbers, those are numbers that we don't share, but it's public information, I'm sure you can, you can get. What we can say is that at a growth rate of 36% year on year in Brazil and 30% in Mexico, we are gaining market share for sure. Okay, thank you.

Unknown Executive: As you know, market shares are a lot of public information.

Speaker Change: That's not that accurate. I mean the reason why we believe we are gaining market share is because we're growing a very rapid pace most likely

Unknown Executive: [inaudible]

Operator: One moment for your final question. The final question comes from the line of Marvin Fong of BTIG. Marvin, please go ahead. Good evening.

Marvin Fong: Okay, thank you.

Speaker Change: One moment for your final question.

Speaker Change: The final question comes from the line of Marvin Fong of BTIG. Marvin, please go ahead.

Marvin Fong: Thanks for taking my questions and congratulations as well on the anniversary as well, a strong quarter. I would just like to turn to the topic of the Brazilian macro environment in terms of, you know, it looks like inflation is kind of ticking up and the central bank is pausing. So just with respect to your fintech business, you know, two parts to this, you know, does it factor at all or how does that trajectory factor at all into your willingness to, you know, lean into, you know, acquiring more, extending more credit, and acquiring more borrowers in that country?

Marvin Fong: Good evening, thanks for taking my questions, and congratulations as well on the anniversary as well as.

Marvin Fong: the strong quarter. I would just like to turn to the topic of the Brazil macro environment in terms of

Marvin Fong: You know, it looks like inflation is kind of ticking up and the central bank is pausing. So just with respect to your FinTech business, you know, two parts on this, you know, does it factor at all or how does...

Marvin Fong: And then secondly, you know, how might it affect your, your, your spreads? You know, I think in the second quarter, you had some positive gross margin impact from credit spreads and credit funding. Just any thoughts on how you might pass or not pass on interest rate funding costs to your, to your, to your customers? Thanks. Hi Marvin.

Unknown Executive: So, mostly the decision of how to expand our credit books, our credit offerings, is principally related to how we are seeing payments evolving, how we see our models evolving. And as long as we continue to see that our models are working well, and NPLs are coming down, we will continue being aggressive with the expansion of credit. Our credits typically are very short, and therefore we are very flexible to adjust to any change in interest rate policy that may come. And with regard to Great spreads and funding. I would say that today we have spreads that are very healthy.

Marvin Fong: Hi Marvin, so

Unknown Executive: Mostly the decision of how to expand our credit books, our credit offerings is...

Unknown Executive: [inaudible]

Unknown Executive: [inaudible]

Unknown Executive: Great spreads and funding, I would say that.

Unknown Executive: We are always looking for ways to continue growing the great book we have, and in some cases, that will imply working with very positive spreads but smaller than the one we have now because there's an opportunity to continue further expanding the retail market, where in order to reach those customers, we need to be even more competitive vis-a-vis traditional banks. And just to complement the macro, I mean, we've been operating in Latin America for 25 years, and we've seen many different macro situations.

Unknown Executive: very positive spreads, but smaller than the one we have now because there's an opportunity to continue further expanding upmarket, where in order to reach those customers we need to be even more competitive with vis-a-vis traditional banks.

Unknown Executive: And just to compliment on macro, I mean, we've been operating in Latin America for 25 years and we've seen...

Unknown Executive: And we believe that in our industry, both in commerce and FinTech, the secular trend of people moving online, both to shop online as well as to bring their finances, digitalize their finances, so we are a lot more focused on continuing to improve our products, continue to offer faster shipping, a better assortment on the commerce side, and increasing the credit book, as Osvaldo mentioned. A macro should not affect our performance or our goals in the future, at least what we're seeing so far in Brazil, Mexico, and Argentina.

Speaker Change: Many different ones.

Unknown Executive: And we believe that in our industry, both in commerce and FinTech, it's a lot more important and stronger the secular trend of people moving online, both to commerce online as well as to bring their finances, digitalize their finances. So we are a lot more focused on continuing to improve our products.

Osvaldo Gimenez: continue to offer faster shipping, better assortment on the commerce side, increasing the credit book, as Paulo mentioned, and macro should not affect our performance or our goals in the future, at least what we're seeing so far in Brazil, Mexico, and Argentina.

Unknown Executive: I really appreciate the insight there. Thanks so much. This concludes the question and answer session. I would now like to turn it back over to Martin De Los Santos for closing remarks. Well, thank you, everybody, for joining us. Once again, I am very excited about the results of the quarter, but more importantly, about the future of MercadoLibre. We are celebrating our 25th year tomorrow. But we're looking ahead. We continue to see as many big opportunities as we saw 25 years ago.

Speaker Change: Really appreciate the insight there. Thanks so much.

Unknown Executive: This concludes the question and answer session. I would now like to turn it back over to Martin De Los Santos for closing remarks.

Martin De Los Santos: So, again, looking forward to the second half of the year and to reporting to you in three months. Thanks again. This does conclude the program. You may now disconnect.

Martin De Los Santos: Well, thank you everybody for joining. Once again, very excited about the results of the quarter, but more importantly about.

Martin De Los Santos: [inaudible]

Martin De Los Santos: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.