Q4 2024 MercadoLibre Inc Earnings Call
Speaker Change: [music].
Hello, everyone and welcome to the Macquarie Libre earnings Conference call for the quarter ended December 31st 2024. Thank you for joining us I'm, Richard Cathcart, Mercado Libre Investor Relations Officer.
Today, we will share our quarterly highlights all video after which we will begin our lives Q&A session with all management team.
Before we go on to discuss the results of the fourth quarter of 2024, I remind you that management may make or two in 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. Please.
Note that this call is being recorded and a replay will also be available on our Investor Relations website.
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The Doctor Mercado Libre Dot com.
Speaker Change: With that let's begin with a short message from our CFO.
Hello, everyone 'twenty 'twenty four with another remarkable year for my colleague our key top line metrics G. M D. According to TV trade portfolio and asset management outpace the market in Brazil, Mexico, and Argentina, driving significant market share gains and highlighting our position as a leading e-commerce.
Speaker Change: Looking at Hardie. It prevents you know value proposition enables us to pass the 100 million unique buyers in our marketplace and 60 million monthly active users.
Speaker Change: For the first time this milestone reflects the trust and loyalty of our users in our ecosystem and it also highlights the success of investments in growth have been making over the past few years and enjoyed 34, we continued investing in our logistics infrastructure.
Speaker Change: Critical enabler that reduces friction attract more users to online commerce, we opened new fulfillment centers and expanded our free shipping offering.
Speaker Change: This resulted in a record breaking number of new buyers coming to our marketplace.
Speaker Change: What are your best friend Watson.
Speaker Change: 24, we should be fine.
Speaker Change: We get new cars are more than doubled our preferred you're having a solid credit card offering is critical but ambition of becoming the largest digital bank in Latin America, and leveraging our unique competitive advantages and underwriting probably three years or.
Speaker Change: So we could be investing upfront to capture these opportunities even if.
Speaker Change: Sometimes they put short term pressure on margins.
Speaker Change: Although comps becoming profitable.
Speaker Change: You'll see our risk policy approach, we're confident we're on the right from these investments are central to our ability to continue delivering outstanding results and building a business with much greater scale in the long run even after a 25 year for pros, we continue to see a large opportunity ahead of us the pillars of our long term growth strategy our base.
Speaker Change: On the relatively low penetration of e-commerce in the region, a huge opportunity to offer better financial products, who lost.
Speaker Change: Population, having underserved by traditional banks.
Speaker Change: Oh gosh, former Jonathan Kees minerals, we're pleased with these financial results.
Speaker Change: $21 billion revenue generating over 1 billion barrels from free cash flow, which.
Speaker Change: This demonstrates our ability to drive profitable growth, while continuing to invest not long term strategic objectives. Although we have talked about 25, we're more optimistic than ever motherboards.
Speaker Change: Now I'll hand, it back to reach out to share more details on some of the innovations that made these results possible.
Speaker Change: [music].
Speaker Change:
Speaker Change: That'd be concluded Mercado libre, 25th anniversary year reflects on another year characterized by innovation throughout our ecosystem as you develop technology to build the best comment.
Speaker Change: Her experience in Latin America, all within a unique ecosystem one of our top focus areas is developing a world class purchasing experience for each of our vehicles. We are removing specific frictions in each category disguise from virtual try on makeup so enabling users to schedule a change of ties within the buying fly how about size.
Speaker Change: Shipped directly to the mechanic and enabling sellers to offer bulk discounts Tobias in fashion, we standardize filters devices and enables a better returns experience whereby users can exchange that purchase for a different size of one of the thousands of many places across the region.
Speaker Change: Supermarkets to launch full suite.
Speaker Change: New store from paid that's allows that's an obligation on sub categories within groceries.
Speaker Change: Users can more easily put multiple items at the same products in that basket directly from their search results. They can also easily add I just purchased in the previous shops to that cost and they can see the progress that they're making to reaching the free shipping threshold all the grocery category.
Speaker Change: We're also deploying technology to improve efficiency and all logistics operation.
Speaker Change: In 2024, we reached record levels of productivity in all geographies and a record number of shipments per boots gain.
Speaker Change: Gains of scale on the back of a 29% year on year increase in items ships also helps cost pet package in local currency to either decline year on year or rising below inflation in all major geographies.
Speaker Change: There are no silver bullet when it comes to driving logistics efficiency. Instead, all focuses on dozens of small incremental gains to compound over time.
Speaker Change: Examples of this include grouping initiatives to increase the number of items the delivery of new shelving system in our fulfillment centers that improves productivity, while reducing capex and continuous improvements in all of our reaching out.
Speaker Change: We're also investing to improve our value proposition for sellers in 2020 full we implemented several key tools, which include my page, where sellers can customize their space on Mercado Libre group publications and create their own product ourselves.
Speaker Change: Can also engage directly with potential buyers, who are now able to follow their favorite stopes sellers can generate coupons and create jobs to specifically target audience.
Speaker Change: The dynamic pricing tool is a feature that also made price adjustments to lifting based on internal and external competitiveness within its purpose limit, thereby enhancing sellers market positioning the growing size frequency and engagement of our marketplace user base.
Speaker Change: Also enables us to improve the value proposition of Mercado Pago, it's enabled us to better understand their diseases, which helps us to offer them credit lines and cross sell although it's in Texas. In 2024, we were able to ramp up our credit card offering buy backs are selecting users and increasing credit limits. After years of tests. We also have made it to.
Speaker Change: Yeah for preapproved views as to pick up a called whilst making a purchase on the marketplace.
Speaker Change: And we also offered special buying conditions for cardholders during peak season, with 18 installments for high ASP items available only to Mercado Pago cardholders to complement the great value prop with the credit card users can also access the attractive returns on deposits in Brazil, Mexico, Argentina, and Chile, as well as new investments.
Speaker Change: Options, we recently launched the melee dollar stable coin that users can buy hold or sell in or out of specific tax free in basketball products called LCI in L. A in Brazil with investment starting from just 100 racks.
Speaker Change: Improvements and you ask them value proposition have also been key in our acquiring business. This year, we focused on improving the processing time to payments on a P. O S devices through technology.
Speaker Change: As a result, we have seen higher NPS.
Speaker Change: Our value prop is complemented by an ecosystem that includes credit cards and loans to match and where we're able to use OCA finance to back to school and increased limits. Both of these helped to increase metro retention.
Speaker Change: Part of our innovation is a dedicated team of more than 18000 engineers and tech centric culture.
Speaker Change: Hows is to enhance productivity to quickly respond to market opportunities remain ahead of our competitors by innovating, we strengthen our leadership in the region. This will continue to be all focused in 2025 and beyond and it's underpinned our confidence.
Speaker Change: Best is yet to come.
Speaker Change: Yeah.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up the handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press star and then to.
Speaker Change: Also please limit yourself to one question re queue to ask additional questions.
Speaker Change: The first question comes from Andrew Ruben with Morgan Stanley. Please go ahead.
Speaker Change: Hi, Thanks, very much for the question if I could ask around the credit portfolio. So you mentioned the risk first approach and the ability to scale back as needed I guess, if I could with two related questions. The first would be amid the rising interest rate backdrop in Brazil, how would you describe your comfort or risk appetite around credit.
Speaker Change: In the country and then related to that you know as credit becomes more penetrated in your G. M V and salary base. How do you think about the impacts to the overall ecosystem in a scenario where you do take a more cautious issue its approach. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Hi, Andrew.
Speaker Change: What's the first part of the question. So far we have seen no signs of deterioration in our credit portfolio and in fact in Brazil. It Greg I had the lowest first payment default on record in in December.
Speaker Change: That said, we have taken some measures to reduce risk at the margin.
Speaker Change: Given the weaker macro backdrop, you mentioned and also the rise in interest rates as of now we are no longer issuing micro cogs.
Speaker Change: Great.
Speaker Change: But we have reduced significant hasn't said one.
Speaker Change: The reason, but we have really significantly the amount of microcontroller issuing.
Speaker Change: And also we have tightened the payback periods on new issue. So essentially you are being a little more cautious. Nonetheless, we are very comfortable with the level of risk. We are taking and there's a couple of other questions. If I got it right. It was regarded to penetration of G. M. V is that is it is a concern I'd say, it's not a concern.
Speaker Change: This point, we believe we have plenty of room to continue growing penetrations on the consumer side.
Speaker Change: We have seen happened lately is particularly Mexico, some cannibalization from from taxes paid on the marketplace with credit card instead of consumer loans that was expected and we expect that to continue happening, but what we're seeing is increased penetration of oh, okay problems in the marketplace.
Speaker Change: Just to complement Andrew as we have talked to you in the bus.
Speaker Change: We are seeing as well as I mentioned very healthy books, it does hurt profitability npls.
Speaker Change: And why we accelerated our credit portfolio by 74% year on year. This quarter, we are alert to what happens in Brazil in the past you've seen us.
Speaker Change: Slow down you know two years three years ago, when something that we don't like we saw in the market was always know once we all went into that.
Speaker Change: Keep in mind that also the duration of our credit portfolio is very short so that gives us a lot of flexibility to adjust to any anything that we that we see on the market that requires us to adjust if that's a risk exposure.
Irma Cigars: And the next question comes from Irma cigars with Goldman Sachs. Please go ahead.
Irma Cigars: Yes, hi, things very strong results in Argentina, and can this item gross but also Derek contribution margin. So it was a positive outlook for economic growth in that country and this could be a some support to the overall margin in 'twenty to 'twenty. Five. So was just curious to hear from you. How you would think or encourage us to think about it.
Irma Cigars: Tailwind than headwind for margin in this geography in 2025 any areas of investment do cost increases that we should just be aware of and separately in Brazil. The contribution margin was down a bit year over year.
Irma Cigars: My quick ones was the case, but was this simply a reflection fear over your higher provisions for the credit card build outdoor or anything else that played out for you. Thank you.
Irma Cigars: Yeah.
Speaker Change: Hi, everybody is locked in here yeah, we are very optimistic about what's going on in Argentina, we saw a recovery on the second half of the year.
Speaker Change: If you remember we had a tough first and second quarter items sold in Argentina grew by 18% in Q4, increasing from 10% the previous quarter. So very strong recovery on the commerce side with visa and I'm pleased that goes well and feedback we will quadruple our book our credit book in Argentina, We grew it by four.
Speaker Change: Next from last year, the bulk of that is very profitable npls under control, obviously with low in lower interest rates people are taking on more risk. So we're very optimistic on the on the on the macro signals that we're seeing on our platform.
Speaker Change: And obviously, Argentina is a relatively higher margin country compared to Brazil and Mexico.
Speaker Change: Claims part of ebay and promise of margins in terms of Brazil, you're right. Most of the compression that we see specifically on Brazil comes from investments that we're doing particularly on the credit card.
Speaker Change: So as well as I mentioned the credit card continues to improve in terms of profitability, we're seeing the older cohorts, becoming profitable already but obviously, there's a larger share of new credit cards being issued so it continues to drag on margins, but this is an investment and we are very conscious off away optimistic because of all the benefits that it brings to our eco.
Speaker Change: System. So so that's what I would say about margins.
Speaker Change: Yeah.
Marcelo Santos: And the next question comes from Marcelo Santos with JP Morgan.
Marcelo Santos: Hi, good evening, Thanks for taking my questions just a following up on earmuffs question.
Marcelo Santos: If you were to discuss a bit the balance between growth and margin going forward like.
Marcelo Santos: What what would you add to the discussion on the balance thank you.
Speaker Change: Maybe I'll say no I think it's the same thing we've been saying for quite a while now we are we have ahead of us a tremendous opportunity both on commerce and Fintech and we want to make sure that we capture those opportunities. So we will continue to make strategic investments to capture those colonies.
Speaker Change: Logistics on the credit card Oh, they they might put some margin pressure, sometimes aren't part of our business, but we don't manage the business for a particular margin target on a quarter by quarter basis. We are very satisfied with the growth that we're delivering both on commerce and Fintech and the long term as we continue growing and capturing share we should be able to do a look there.
Speaker Change: Dilute our fixed cost and continue to improve margins in the long term.
Speaker Change: I would love.
Speaker Change: I would not see it as a as a straight line the margin trajectory and I will look at it as a longer term would you say the raise that we're playing we're playing a long term.
Speaker Change: Bob will here.
Speaker Change: Okay. Thank you very much.
Speaker Change: And the next question comes from Niihau AG Waller with HSBC. Please go ahead.
Speaker Change: Hi, Thank you for taking my question can you hear me fine.
Speaker Change: Yes, we can.
Speaker Change: Okay.
Speaker Change: Two quick questions first are we talked last year about investments and hoping you warehouses ran I read the process Hanmi monthly houses do you expect to open this year on a trajectory that we can expect central did all right. What's the anesthesia and taking questions now you've made a lot of improvements on the commerce platform.
Speaker Change: What are the initiatives that you're taking for the noise E. S. P items, how you're finding of competition from some of your peers, who focus more on dental work ticket size items. Thank you so much.
Speaker Change: Hany, how does how are you this.
Speaker Change: So to your first question, we opened a few warehouses during this year.
Speaker Change: Two particularly during Q4, which expanded the capacity that we needed to go through our peak season.
Generally speaking I'm, taking a step back as demand grows and thinking about the long term opportunity. We have in the region with think that incremental capacity will not only be necessary, but also crucial to drive the shift from online to online commerce in Latin America.
Speaker Change: Got something new or at least not a change in direction in terms of capacity buildup from what we have been doing but we think that we will continue supporting what within the business.
Speaker Change: We'll need us to set up the customers are in the in the proper manner right.
Speaker Change: The second point of your question regarding lowest beat.
Speaker Change: Listen let me first bring the point that if you ought to look at the growth rates across a S. P ranges you would see that both in Brazil, and Mexico and also in the rest of Latin America, our low ticket items sales are actually growing at BARDA or even faster than the average.
Speaker Change: All of our marketplace and that's basically a consequence of many things on the one hand, we continue evolving our UI our of our.
Speaker Change: Platform with a better expedience more features like some of the ones that we were highlighting in the video for apparel and beauty, we continue scaling mainly mice and with mainly mice millions of lives every day, and so offering more of free shipping and in in in that price.
Speaker Change: Range and we also have CVD, which gave us gives us the right supply for those items. So we know there is no. One particular silver bullet is to tackle that range, but we are very happy and pleased with the support we've got so far.
Speaker Change: Okay.
Speaker Change: And the next question comes from Rodrigo gas them with.
Speaker Change: I T I to be be a please go ahead.
Speaker Change: Yeah. Good evening guys two questions here from my side. The first one I'd just like to go back Martine to that.
Speaker Change: A point that you mentioned about you know initial measures to reduce risk in Brazil in the credit book is one of the most discussed topics with investors you mentioned the microcards, but if you could just go a little bit deeper here and share them.
Speaker Change: In addition to the Microcards what else you were you guys doing to kind of you know prevent.
Speaker Change: Or to reduce their risk given the macro outlook. That's the first question and the second one specifically on the card book last quarter, you guys shared very interesting information on profitability. Both on the not Namal and also on the EBIT side are not going after the numbers here, but if you could just share on a qualitative basis the trend.
Speaker Change: Both of the nine Mo and the EBIT of the credit card book would also be very interesting to hear from you guys that is all thank you guys.
Speaker Change: Okay.
Rodrigo: Hi, Rodrigo.
Speaker Change: I'll take the first part of your question I'll, let Martin.
Speaker Change: I'll take the second part going back to great grief, particularly in our credit card book in Brazil, as I say one of the things we're doing is.
Speaker Change: Significantly reducing the issuing of microcards, but beyond that when we're doing this.
I mentioned tightening the payback period of the guard of the cars, we issue and basically what this means is we segment caused bye bye.
Speaker Change: <unk> score risk and what we do is we are.
Speaker Change: We'll limit to some degree.
Speaker Change: The amount of calculation due to the to the lower doses.
Speaker Change: Riskier segments so to speak.
Speaker Change: And that way, we ensure that the paybacks are in line with what do we expect even if somehow the economy is great. So we have been more cautious in using cards to the riskier segments.
Speaker Change: And on top of that as you know we have been improving.
Speaker Change: Improving our scoring models and we're very comfortable with how they are working.
Speaker Change: Yeah in terms of nine Mo I think we explained in the past.
Speaker Change: As far as the numbers I mean, the trends. So you can see within the number.
Speaker Change: Have a nine month or 27.6, this quarter, while reported compared to $39 eight a year ago.
Speaker Change: So it's below a year ago, but slightly better than last quarter and what's going on there are a couple of things first of all the share of credit cards are further product portfolio continues to increase and as you know the credit card that is lower nine month product.
Speaker Change: Having said that the nine months our credit card continues to improve as we continue to have older cohorts mature and become profitable.
Speaker Change: Share of profit double cohorts. The dime out continues simple. So you have a larger share of nowhere near nine months product with a improving nemo.
Speaker Change: Within it and then when you look at the other products, which are positive.
Speaker Change: Actually very good spread those improved sequentially quarter on quarter. So when you put all that together you see and visit.
Speaker Change: Deterioration of nine months year on year, which is by defined because of mix shift or credit card or an improvement of nine month quarter on quarter because of improvements that we have seen on the other credit products, including the credit card as well. So I hope that helps you get a picture of where we stand with that.
Speaker Change: So where we're going as soon as they are great car will continue to be a faster growing portfolio within within credit cards. This quarter grew by around.
Speaker Change: 18% compared to the overall portfolio that grew at 57% of that.
Speaker Change: Perhaps.
Robert: And the next question comes from Robert for it with Bank of America. Please go ahead.
Robert: Okay. Thanks, so much congratulations on the quarter and forgive me for asking a question about credit.
Robert: But but when do you expect your quarterly net credit card investments to be cost puzzle or did that just happened in the fourth quarter of 'twenty four and can you comment on any acceleration in the two year maturation period for younger cohorts. It sounds like you've got some flexibility there to accelerate that in terms of who you choose to underwrite and then I was curious how much of.
Robert: The wallet funding on the marketplaces now coming from resources within the ecosystem and how are you thinking about that penetration rate as we move forward. Thank you.
Speaker Change: Or if I'm sorry, let me take the first part of the question. So I would say both in the case of Brazil and in the case of Mexico, we are being slightly more restrictive in the number of cars we issue.
Robert: We are doing is being <unk>.
Speaker Change: Restrictive to towards the more the riskier segments.
Speaker Change: So nonetheless, we have been aggressive in expanding limits and so on until <unk> got them in volume is growing aggressively on a year on year on year on year basis.
Speaker Change: Okay.
Speaker Change: And with regards to <unk> I would say that as we mentioned alcohol Csar two years old.
Speaker Change: Our profit level or an email basis.
And then what we're seeing is that the repayment of the newer cohorts.
Speaker Change: Generally better than that of the other ones I mean line to what we expected when we issued them. So as long as we are able to continue issuing new cohorts repayments that behave as we expect we will continue to expand in the book.
Speaker Change: And I think Bob you are referring to the share of payments, let's say in the marketplace that is done with what we called Blue money Gluing medical about credit card account money last consumer craves I must say that the number has been increasing over time as we deploy.
Speaker Change: Battery grade lines have more credit cards to our users and we don't disclose the exact number by roughly <unk> to give you a sense depending on the country you go from 18% to 25% or so.
Speaker Change: Payments out of that with our own payment methods.
Speaker Change: And the next question comes from Kai Eau de Pretto with UBS. Please go ahead.
Speaker Change: And the next question comes from.
Speaker Change: Jay well Suez with Citigroup. Please go ahead.
Speaker Change: Hi, Thank you just a quick one on my side I just want to understand the relevance of these high risk products in the micro carts.
And and if this but by taking down the risk by reducing the risk do you think there could be any repercussions in the pace of growth of the GMT.
Speaker Change: Okay.
Speaker Change: No. We don't expect any significant impact of the reduction iterations of Microcards. Initially when we started even though Scott we wanted to give way to Onramp people, who we know have a credit card into extending their credit card.
Speaker Change: And I would say that it was successful in some cases.
Speaker Change: Typically in cases, where they were already using another one of our our grape rows. So in specific segments will continue to each of those microcards, but it will be a significantly lower part of Russia. The shelf mix you did total issuance that we had last year, but it will not have any significant impact.
Speaker Change: In any of the other metrics.
Speaker Change: So thinking about the broader credit card. So we should expect in terms of the pace of growth where should we expect a major change right.
Speaker Change: Yeah.
Speaker Change: I gave you already all the color I could we as you know we don't give any guidance so.
Speaker Change: I think that we have been cautious.
Speaker Change: We continue to see opportunities to continuation with the paybacks that we plan and we will we will do so our complement continuously a very strategic product for us for a fintech.
Speaker Change: So so long as we have good customers good models improving collections as we have seen so far we will continue to grow it.
Speaker Change: Again, if you have a question. Please press star and then one.
Speaker Change: Our next question comes from Craig Mauer with F. T partners. Please go ahead.
Speaker Change: Okay.
Craig Mauer: Hey, there this is not gone on for Craig. Thanks for taking the question I just wanted to ask on advertising.
Craig Mauer: In the letter it gave some commentary that stone area you are looking to invest in.
Speaker Change: A lot of room to scale long term there you just talk about what those areas are and how we should think about a target as a percentage of GMB going forward just given the lack of maybe progress a little bit this year on that metric as a present GPU G&P. Thanks.
Craig Mauer: Hey, Craig.
Speaker Change: Sorry, I wasn't on mute so.
Speaker Change: We think that we performed really well in nuts.
Speaker Change: During this quarter, particularly in peak season, our team executed really well.
Speaker Change: And we managed to build the right relationships with brands on <unk>.
Speaker Change: Sellers and that led to you know.
Speaker Change: 50 basis points of expansion year over year in revenues as a percentage of G. M B.
Speaker Change: Linking these two to your question in the long run we still have two or three key development areas on the one con way to build relationships with brands and agencies in the region. We continue to interact with them to gather feedback with that eight or a product as we build success Casey's as to foster.
Speaker Change:
Speaker Change: And get more advertisers, we have a very dense product roadmap.
Speaker Change: Our offering continues to evolve from product that's only to a fully funded strategy with display brand b.
Speaker Change: You ought to sit there and we continue to improve the tech solution and the tech stack that that we are providing to our users.
Speaker Change: And then we also think.
That that would be expanding our inventory beyond the melee ecosystem could be an important lever as to become more attractive for brands and agencies, who are looking to run full campaigns across different platforms with that in mind I would say, we don't guide so it's not that I can I can.
Speaker Change: Share with you our targets, but I do feel very very comfortable in saying that we're in the early stages or advertising as a percentage of G. M. B, we have a baby powder.
Speaker Change: In terms of penetration with some of our international competitors and we believe that Theres No reason why Medicare Libre will not get to similar levels in the long run. So I guess you would just to the patient.
And we will get data by by Iterating, our product and I'm getting the right commercial relationships.
Speaker Change: Okay.
And the next question comes from Josh Beck with Raymond James. Please go ahead.
Speaker Change: Yes.
Yes. Thank you.
Speaker Change: Taking the question I wanted to ask about.
Speaker Change: Some of the fulfillment centers that recently went online.
Speaker Change: Did you receive.
Speaker Change: To achieve the types of.
Utilization levels that you would like to during the 2020 for holiday season or is that something that you.
Speaker Change: You would maybe more like we see in the 2025 holiday season kind of with respect to.
Speaker Change: Peak utilization and then just a little bit of a follow up on a different topic.
Speaker Change: How should we think about provision grows it certainly seems like.
Speaker Change: There is a bit of a maturing of the cohorts that you brought on the last two years.
Speaker Change: Any any colors or pointers on how we should think about.
Speaker Change: Modeling provisions thank you.
Josh Adeel: Hey, Josh Adeel here.
Josh Adeel: So to the first point of your question, Yes, we are extremely satisfied with the performance of our logistics network in Q4, I think we balanced with balanced.
Josh Adeel: All the expansions that we require them to deal with the demand that we knew was going to come to Mercado libre with lots of productivity improvements and efficiencies for sure. The extra capacity that we built over the last few quarters helped us cope with that demand while also improve that product.
Josh Adeel: D V D. It typical warehouse will get to its peak utilization in a few years. So it's not that you opened a warehouse in from one day to the other you do reach 90% utilization, but given that we really needed the capacity I would say we are a bit more advanced in that learning process, but everything aligned.
Speaker Change: With what we were planning and as I was saying before we continue to think that investing in logistics capacity is strategic to enable mercado libre to continue growing in the long run I think I'll, let Martinez will answer the second part of the question.
Speaker Change: Yes, I think we're having provisions there are two forces that you need to consider we're trying to modeling the provisions going forward on the one hand, the historical portfolios are performing better on a state by the way the credit card as you clean.
Speaker Change: Thus portfolios they become profitable just like Oswaldo was mentioning we already see portfolios two years all of our already profitable and continue to improve as we as we move ahead on the other hand, you need to look at sequential growth.
Speaker Change: Let me give you. The example of last quarter.
Speaker Change: We grew our portfolio sequentially by 23% compared to 29% this quarter and why that happens as you know we provision losses upfront. So when you have an increments sequential incrementals portfolio that generates some pressure on bad debt.
Speaker Change: Two things that you need to consider when trying to model.
Speaker Change: Bob Dead operations for our future.
Speaker Change: Yeah.
Speaker Change: And the next question comes from Deepak map event with Cantor Fitzgerald. Please go ahead.
Deepak: Hi, Thanks for taking the question I'll, Let me ask one on E Commerce and then one on now Fintech on the ecommerce side, you're seeing a very good acceleration in buyers and also frequency is going up very nicely can you provide some color on the drivers maybe in terms of how user behavior is changing or any certain categories that incrementally.
Deepak: Contributing in the last few quarters are you seeing maybe perhaps a mix of categories like essentials, becoming a bigger parts of the consumer behavior is driving towards that any additional color you can share that would be helpful. And then I have a follow up.
Deepak: Sure Hi, Deepak how do you'll hear so indeed, we are very pleased with the acceleration in buyers coming into the platform and data behavior as well I think there is no silver bullet to explain what's happening.
Deepak: Like this is a compounding or 25 years investing in adjusting and improving our value proposition improving our product. The expedia has more than model we have.
Deepak: Adding features that do vertical ice the expediency in Mercado Libre, we consistently see more and more you set us.
Deepak: Buying stuff in more than three categories, which is a key retention driver and given given our our beta new categories are growing very nicely like essentials everyday essentials coming from dry groceries.
Deepak: Is doing super well, but at the same time consumer electronics and common industries, which are which are our biggest categories and more historical ones do perform really well. Our pattern is another category that is doing that is doing very.
Deepak: They will ask us well beauty's doing amazing so no one thing that can explain the behavior in frequency I think it's a compounding effect of all the offering that we're putting out data and particularly of course free shipping is a key enabler for us is to boost.
Deepak: Demand right so.
Deepak: I believe that that together with all the technology that we've put in demand acquisition.
Deepak: Are showing the results.
Deepak: Got it and if I can ask one on the credit and I apologize. If this was already asked been jumping on a couple of calls so on Nemo improvements that we're seeing quarter to quarter can you expand on that a little bit maybe between products and then in response.
Deepak: The majority of the cohort because and then also the improvements that you're seeing in terms of your Andrew underwriting algorithms, how should we think about kind of like the rank order of what is driving it basically has to think about the sustainability of this over the next few quarters. Thank you very much.
Speaker Change: Sure Deepak I'll say that today, if you look at the our higher product spreads explain almost all of the sequential expansion.
Deepak: Having said that today, we have.
<unk> printed that have been driven primarily by by debt bad debt, which has decreased as a percentage of portfolio on a consolidated basis that was due to better collections across all books in part due to seasonality as people Latin America, usually Gabe and makes us salary or half an extra salary in.
Deepak: Simba and that many times is used to pay back debt. That's on the consumer side on credit card side, and then on the merchant side. They do get extra sales because of the holiday season and that is also used to pay back debt, but it's important to remember that that provision policies per cohort remain unchanged and so that the asset quality, so I would say.
Deepak: All in in terms of Nemo, we are seeing improvements in the Nemo of the credit card book and then we have seen already very high knee malls on the consumer book and the merchant book.
Deepak: As we move up market in those two segments, probably we will see some compression in the market because we're given those two segments that are less risky and therefore, we expect a lower spread from them and then you have to combine all of the all of the effects.
Deepak: Each segment and the other thing that has happened is that the credit card book is gaining share within all of our book So even though.
Deepak: It is improving its nemo when you look at it all of it put together a will stress to some degree the overall MLR of the book because of the higher Brent version of the credit card.
Again, if you have a question. Please press star and then one our next question comes from Kayode. The Presto with UBS. Please go ahead.
Kayode: Hello, everyone. Good evening, thanks for the opportunity I have just one follow up question on <unk>. Please.
Deepak: Please given the.
Deepak: <unk> that we have been India, I, just would like to understand what your expectations for the Fintech business and more specifically on credit because what we are seeing there is basically the traditional banks shifting from trading to Lindsay, suggesting a solid the real growth at least 50.
Deepak: 50% there. So just wondering if we can expect even faster growth on your side given the low market share that he was do you have there.
Deepak: And they are penetrated quite Max and if you have any kind of restriction because youre not a bank there.
Deepak: Getting a banking license is we've seen your plans for the short term. Thank you.
Deepak: Hi, Kyle So I'll say, we have grown a lot of our portfolio in the last year nearly forex year on year I remember at this point what do we have is a consumer who kind of merchant book, but we do not issue a discount credit cards in Argentina.
Deepak: We are very excited about the opportunity and excited because what we see is that.
Deepak: If you look at.
Deepak: Credit to the private sector in Argentina. It is a small fraction of what it is in other countries in Latin America. So there is less crowded and also so there is significant demand, particularly in a country, where the central bank rates have come down in the last year from 140% to 29%.
Deepak: So as Greg gets cheaper there is also more demand for it.
Deepak: We.
Deepak: We also on top of everything given that the open additional upgrade what we see is the lower ratios of that debt that we have in any country. Having said all that we continue to be cautious Argentina is a country where in the past we have seen volatility.
Deepak: Never even macro measures. So we want to be cautious and therefore, if you look at our lows the duration in Argentina happens to be lower than in other countries and we see more time of macro stability will feel more comfortable and expanded that.
Deepak: Going to the second part of the question, we do not need to be a bank to be able to expand our book.
Deepak: Obviously, we could have deposits if we were a banker.
Deepak: Use those deposits to expand that book, but we have been able to do that by securitizing and receivables.
Deepak: Dice in coupons from from from from the lows, we expect to be able to continue growing without the need to become a bank nonetheless, something that we analyze regularly and at any point, we could change the decision but at this point. This is not a restriction for growth on the on the credit side of the business.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Martin de Los Santos for any closing remarks.
Speaker Change: Okay. Thanks, everybody. We are pleased with Mercado livre risks at performance in 'twenty, 'twenty, four which was a very special year for us since we celebrated our 20 <unk> anniversary and was probably one of the best years in our history with strong topline growth to deliver solid profits and generated $1 $3 billion in free cash flow.
Speaker Change: Even after investing about $900 million in Capex, and investing 3 billion, Brazil, and our Fintech business, mostly to tighten our credit book.
Speaker Change: To recap what I mentioned before because I think it was cut off while I was answering the question for me or Mark, but we'll continue to invest with discipline in order to.
Speaker Change: Capture this enormous growth opportunities that we have ahead of us as we have seen in the past despite sometimes lead to short term margin volatility. While we are focused on long term sustainable growth and we're very optimistic.
Speaker Change: On that front as we see some of the results of our investment in particular on the milestones that we achieved in 2024. This year, we surpassed the 100 million buyers in our ecommerce platform more than 61 million monthly active users of American apparel. So we're very very excited about the growth opportunities. We have ahead of us.
Speaker Change: And then eventually the margin potential that will continue to increase as we continue to scale our business and they look fixed costs going forward. So thanks, everybody for joining with that.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.