Q2 2019 Earnings Call
Hello, everyone and welcome to the Medical Limited earnings Conference call for the quarter ended June Thirtyth 2019, I infer that equal Sanmen Investor Relations officer for our company.
Our senior manager presenting today is Pedro Arnt, Chief Financial Officer. Additionally, Michaels, our petty Chief Executive Officer, Amazon documented executive VP of payments will be available during today's Q and a session.
This conference call is also being broadcast over the Internet and is available through the Investor Relations section of our website.
I remind you that management may make forward looking statements relating to such matters as continued growth prospects for the company industry trends and product and technology initiatives. These statements are based on currently available information and recording assumptions expectations and projections about future events, while we believe that our assumptions expectations and projections are reasonable in view of the currently available information you are cautioned not to place undue reliance on these forward looking statements. Our actual results may differ materially from those discussed in this call for a variety of reasons, including those described on the forward looking statements and risk factors sections of our 10-K and other filings with the Securities and Exchange Commission, which are available on our Investor Relations website.
Finally, I would like to remind you that during the course of this conference call. We may discuss some non-GAAP measures a reconciliation of those measures to the nearest comparable GAAP measures can be found on our second quarter 2019 earnings press release available on our Investor Relations website.
Now, let me turn the call over to better.
Great. Thank you so let's dive straight in.
And let me kick off this quarter's call by saying that we are pleased and optimistic about how this year is playing out.
We have delivered another very strong quarter from a gross billings perspective, as we continue to grow and gain scale on our leading e-commerce and fintech ecosystems across Latin America.
Let's first take a look at how we closed a great second quarter that carries us into the third quarter of 2019 with solid momentum.
The following Kb place consolidated quarterly results within context.
Gross merchandise volume accelerated to 33% year on year on an FX neutral basis, reaching $3.4 billion.
Total payment volume also accelerated versus the prior year quarter to 90% year on year on an FX neutral basis to $6.5 billion.
While total payment transactions grew in triple digits at 112.5% year over year and reached 182 million payments processed.
Gross billings grew 73% year on year on an FX neutral basis ascending to $606 million.
We're encouraged to observe these robust rates of growth in key performance integrators.
All of which are pointing to increasing consumer validation of the innovative product and service offerings, we have built around e-commerce and Fintech.
As a result of this.
And given the size of the opportunity we continue to garner confidence in our cycle of investing aggressively to add more users at the expense of near term profitability.
Let me now walk you through our Fintech progress report.
During the quarter total payment volume accelerated both in dollars and on an FX neutral basis, driven for the most part by off platform TPV growth.
The latter not only explain the majority of total TPV growth during the quarter, but reached an important milestone during June as that was the first month that TBV from off platform surplus on platform TPV in our history.
In line with that consolidated total payment transactions also grew triple digits, driven by strong growth in off platform transactions as a result of the performance in the growth of transactions across our product portfolio of merchant services, and Pos and wallet initiatives.
Off marketplace in other words off platform total payment transactions grew 233% year on year, the second consecutive quarter of total transactions in number from off platform growing above 200%.
We also continue to execute well on our Mpls business device sales grew again during the second quarter in Brazil, Mexico, and Argentina, while at the same time the size of the active installed base of M. Pos devices continues to grow.
On a consolidated basis, we have more than doubled the number of quarterly active devices versus the second quarter of last year, while npos TBV, both in dollars and on an FX neutral basis grew triple digits in all of the countries, where we offered the device.
Also and as a result of this solid execution and Pos devices that processed at least one transaction over the last 12 months on a consolidated basis almost reached 3 million.
Our merchant services business, where we process payments of other online businesses had an exceptional quarter. Both in terms of merchant net new ads and TPV growth.
On an FX neutral basis merchant services total payment volume accelerated to 130% year on year, reaching $1 billion for the first time ever in a single quarter.
Additionally, and as a result of the aforementioned TPV growth of this business merchant services revenues accelerated for the third consecutive quarter to 113% year on year on an FX neutral basis.
On our wallet initiative, we observed that the shift to a mobile first digital payments ecosystem continues to resonate with our users.
As such we are fortunate to benefit from increasing secular tailwinds as cash digitalize is and more aspects of the lives of our users become mobile.
Consequently during the quarter wallet total payment volume accelerated both in us dollars and on an FX neutral basis to 251% year on year and 419% year on year, respectively.
Driven mainly by successful execution in Argentina.
The first market, where wallet initiatives were launched.
Complementing this solid growth and also helping us scale out the buildout of our network of digital mobile wallet. During the second quarter, we have more than doubled the issuance of prepaid cards tied to wallet account balances versus the first quarter of 2019.
Additionally, we are encouraged to see TPV coming from these prepaid cards continue to grow in triple digits, both in dollars and on an FX neutral basis.
Still on her wallet initiative during the month of June we reached the 3 million monthly active payer mark on our mobile wallet in a single month for the first time on a consolidated basis.
We are also making inroads building and distributing innovative and inclusive asset management products for our users.
As adoption of our asset management solution continues to grow.
During the quarter in Argentina, and Brazil.
The countries, where the product is available already over half of Mercadopago balances in both countries were invested in these asset management products.
Lastly on Fintech, let me give you an update from our merchant and consumer credit business.
During the quarter Mercado Crazy delivered healthy metrics loan portfolio grew 75% year on year, and 44% quarter on quarter in us dollars driven by the successful rollout of consumer credit and Npos credit products in Brazil, and by re training of our behavioral credit scoring models that have enabled us to roll out the product to new users with improved credit terms and conditions.
We're also pleased to report that Argentina also contributed to the loan portfolio growth as we have began offering loans to consumers to purchase away from our marketplace.
This is the first country and we look forward to replicating this consumer credit business line in other markets as it is the largest addressable market in terms of size.
And a potential source of very relevant profit stream for us going forward.
With that let's now move on to marketplace and logistics.
On a consolidated basis marketplace GMV on an FX neutral basis accelerated versus the prior quarter growing six percentage points faster.
Unique buyers as well as new buyers delivered robust rates of growth as well.
With unique buyers accelerating to 21% year over year, while new buyers accelerated 14%.
Gross respectively.
Supply is also growing nicely as live listings grew for the 10th consecutive quarter above 50% year on year, reaching 224.1 million live listings.
On a market by market basis, let's start with Brazil.
FX neutral GMB accelerated almost 10 percentage points versus the first quarter of 2019% to 27.1% year on year.
The sequential acceleration was driven in part by easier comps as we had the structure curse strike and the World Cup during the same quarter last year.
As well as greater investments targeted to generate traffic and improved conversion rates.
Mexico continues to maintain momentum growing almost in line with the first quarter of 2019.
On an FX neutral basis, GMP grew 45% year on year as assortment quality continues to grow.
Mexico is the country with the highest official store penetration and almost 18% of GMP.
Another positive readout for the hyper competitive Mexican market is that our net promoter scores are also ticking higher signifying growing user promotion of our platform.
Moving south to Argentina, despite the implementation of a 10 Argentine peso flat fee. During April our marketplace continues to show resilience growing FX neutral gross merchandise volume meaningfully above the rate of inflation, while also accelerating traffic.
On an FX neutral basis, GMV grew 63% year on year on the back of solid 57% year on year growth during the same period last year.
Growth in apparel and home and garden verticals were highlights during the quarter.
On the mobile front.
Mobile App GMB surpassed 50% of total GMV during the month of June for the first time, while our E. Commerce App ranked number one on Android play store in Argentina, Brazil and Mexico.
Also registrations through mobile devices grew over 10 percentage points year on year to 80% of all registrations as we successfully transition users from desktop to mobile.
Let's now move on to the Buildout of our warehousing and logistics managed network another strategic building block and critical enabler of our enhanced marketplace.
We continue adding more product features and tools for our merchants into our proprietary logistics and warehousing management technologies, while also improving productivity in those distribution centers.
The latter initiatives should also enable us to add more verticals to our logistics network and consequently help us drive higher penetration as we head into the coming quarters.
On a consolidated basis managed network penetration continued to gain share from drop shipping as it gained 16 percentage points year on year, reaching 26% of items shipped.
These gains were driven mainly by execution in Argentina and Mexico.
In Argentina, Mercadoenvios penetration reached an all time high of 62% of items shipped.
Versus 42% last year, driven by the successful adoption of Meli flex shipping platform, which reached 8% of items shipped.
It's important to highlight here that meli flex adoption is positively impacting the efficiency of mercadoenvios in Argentina, as almost 60% of flex shipments or same day.
Additionally, we also continue to optimize lead times through addition of more zone skipping routes in Argentina, and improved service levels on existing ones.
Also contributing to higher Envios penetration, we delivered in the second quarter.
On the fulfillment front.
Not only did we successfully initiate operations of our 65000 square meter fulfillment center in one of Cyrus with adoption numbers that give us confidence that we can continue scaling the solution as we enter into the back half of 2019, but also our fulfillment operations in Mexico exceeded expectations growing 27 percentage points year on year, reaching 29% of items shipped.
Additionally, and as part of our efforts to expand our managed network. During the months of May and June . We also successfully launched our meli logistics platforms in Brazil and Mexico.
Along with Flex Meli logistics is another innovative proprietary logistics platform that we have built from the ground up to prop up the scale and reach of our managed networks.
It combines in house technology, and existing physical distribution capacity to reduce dependency on traditional carriers shortened lead times cost and perhaps more importantly to significantly enhance the end to end shipping experience for our buyers.
Lastly on logistics, the Brazilian managed network penetration increased 13 percentage points versus last year driven for the most part by our cross stocking centers and initiatives.
As of the second quarter, 20% of all items shipped went through our own managed logistics network of cross docking and fulfillment.
Although penetration of fulfillment solution was flat versus last quarter in Brazil, we have continued iterative to improve processes productivity and also improve our warehousing management technology and algorithms.
As a result, we have observed a reacceleration of adoption of our fulfillment solution in the back end of the quarter generating expectations on our end, though we have positioned ourselves to drive higher merchant adoption of fulfillment during the second half of 2019.
Now that I've covered the main highlights and K.P. ice for the quarter, let's move on to financials, where we began to accelerate the pace of investment in our growth initiatives as we move into the back half of 2019.
During the second quarter gross billings extended to $606 million and grew 73% year on year on an FX neutral basis. The latter I remind you marks the 20 onest consecutive quarter of gross billing growth above 60% driven by continued monetization on our marketplaces as well as successful execution on our fintech initiatives.
In particular, our financing business merchant and consumer credit and off platform payments processing through our merchant services and Npos businesses have been strong drivers of this growth.
Gross billings in our main countries on an FX neutral basis was robust across the board.
Mexico delivered a sixth consecutive quarter of growth above, 50%, while Brazil, and Argentina maintained momentum growing 55% and 117% year on year, respectively.
Consolidated net revenues grew faster than gross billing on an FX neutral basis accelerating to 102% year on year, and reaching $545 million as we continued calibrating and optimizing shipping and loyalty program subsidies and implemented flat fee initiatives in Argentina for the full quarter.
Gross profit ascended to $272 million, representing 50% of revenues during the quarter versus 48% a year ago.
The 233 basis points of scale year on year was driven for the most part through collection fees and sales taxes, which were partially offset by shipping subsidies and warehousing costs as our managed logistics network expands.
We've included a detailed breakdown of these and also other opex margin evolution in the slides that accompany this presentation.
Consequently, as reported operating expenses ascended to $285 million or 52% of revenues versus 56% during the second quarter of 2018.
On a sequential basis, however, operating expenses increased almost 26% explained for the most part by increases in marketing expenses as we began to invest more aggressively in customer acquisition for our multiple product lines.
As well as new head count we've added to our engineering product development teams, which increased by over 50% versus the same period last year.
Operating losses decreased to negative $12.5 million as a result of the of four mentioned investments.
We saw a $14.7 million in financial expenses attributed for the most part to interest accrual on our convertible notes due 2028.
Interest income increased by 240% year on year to $33.7 million attributable to the proceeds from the convertible note.
And the follow on offering.
Proceeds from earlier this year.
Our Forex line was zero point $8 million, mainly as a result of the strengthening of the Brazilian real over the U.S. dollar net liability position in Brazil during the second quarter of 2019.
We delivered an income tax gain of $8.9 million attributed for the most part to tax loss carry forwards in Mexico, which were partially offset by income tax expenses in Argentina and Brazil.
Net income ascended to $16.2 million for the second quarter of 2019, resulting in a basic net income per share of 31 cents.
In summation, we feel we've delivered another great quarter, which leaves us on a strong footing to pursue our strategic objectives in the second half of 2019 and beyond.
Our focus will be on disciplined execution against our priorities as we aspire to be a leading platform for mobile digital commerce and fintech throughout all of Latin America.
We have already built out a well diversified product portfolio across multiple countries and are confident that the strength of these business lines. The flexibility of our balance sheet offers us and this still nascent digital opportunity in Latin America will continue to enable us to deliver long term value to all our stakeholders as we move into the rest of 2019 and beyond.
And with that we can now take your questions. Thank you.
Thank you, Sir ladies and gentlemen, if you have a question at this time, Please press star and one.
If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Sure. Our first question comes from Stephen Ju from Credit Suisse. Please go ahead.
Okay. Thank you.
So Pedro.
Some thinking through the mobile point of sale opportunity.
It seems like a per merchant utilization rate seems to be a fractional, whereas some of your competitors are probably right now.
So given that the size of the merchants that you have maybe smaller but can you talk about what you may be able to do to drive faster per device TPV.
And secondarily I don't think we've ever seen a sequential dollar pickup in sales and marketing spend from Q1 to Q2.
At the level that you showed.
On the support so can you talk about where the main focus of that incremental spend maybe.
And whether it's consumer seller facing okay. Thank you.
Ladies and gentlemen, please continue to hold your call will resume momentarily.
I see okay.
Can you hear us.
Hi, Steve I'm, sorry, I can't hear you.
Okay, Yeah, thanks, well we had some.
No no no.
Let me start again doesn't have some.
Standing opponents, so Steven double what do you see in terms of their merchant decision radar. If you owned by design. We when we started our NPS business will first address the very low end of the long tail of the market and that is where we have been gaining a lot of traction and so it is to be expected that the number of transactions per devices is more around that of some of our competitors, having said that during last quarter. We started to move up market, we launched a new device towards the end of last quarter.
We are starting per as small businesses still more visitors, but not the low end of the long tail as we're addressing before so.
These strategic moves forward, we believe we will be.
Addressing these this market segment that we have not addressed in the past.
Great second question very quickly Steven.
I think the second quarter. Many times is somewhat heavy on marketing spend it's when the hot sale occurs in Mexico. So theres always increased investment there having said that I think this year. What you see is the growing number of product lines, we have particularly in fintech that we began to invest more aggressively behind in terms of marketing and also a renewed focused on brand building and brand marketing investments part of that is to start generating the mercadopago brand and sub brands around Npos credits merchant services, but some of that is also to strengthen the marketplace brand equity positioning if you look at it on a country basis, you'll realize that pretty much spread than that across them significant margins the pickup in marketing spend.
Thank you.
Thank you.
Our next question comes from Robert Ford from B away. Please go ahead.
Thank you congratulations on the quarter and thanks for taking my question or <unk> can you discuss the wallet funding frictions across the major marketplaces, and ER and how you're addressing those please.
Hi, Ben and so I would say that.
This is James on a country by country basis, we made a lot of progress.
These last few weeks in Argentina, and we are in the process of making that same programs in Brazil first Nandan Dina.
In the last few weeks, we were able to.
The impact from of transfers from any bank account through to the bottom of the Bu. So we are able to see transactions or transfer from any bank account and that is we easier than what it used to be in the past and because of Brazil. We are integrating right now with SPV is it similar to that of the titles.
We expect that also to to make the funding fundings inefficiently easier now to what it has been so far.
Okay Thats helpful and can you talk a little bit more specifically on the growth of the mobile wallet two sided network in Brazil in terms of the number of payers collectors and the frequency and then maybe can you share with us what you're doing there to make the wallet stickier. It seems that you've had several successful strategies and Argentina.
And I was wondering how how how difficult it is to replicate that in Brazil.
Yes, Hi, Bob let me have not disclosed numbers of its because the payments in awards investment. So let me give you qualitative approach as Weve said in the past. We we are probably one year behind what we were in Argentina. We were later to launch, but we are starting to see tractions. Both in terms of of some large merchants, where we are adding.
And also in terms of consumers, who are starting to use the platform and we're starting to see.
Monthly growth rates that are very interesting as as we mentioned in the past. This we know these markets will take longer to develop than the one in Argentina seems well requires maintenance integrations with softer houses, but we are encouraged by the results we have seen.
All right. Thank you very much.
Yes.
Thank you.
Our next question comes from Edward.
From Keybanc capital. Please go ahead.
Hey, good afternoon. Thanks for taking the question I guess first on Brazil, I know you seem to remediate some of the issues that you encountered there, but maybe digging a little bit deeper what do you think cause kind of a flat penetration to one Q and then I guess second.
Obviously, some big competitors move into markets like Mexico.
Any any change do you think in the competitive environment.
That you're observing thus far thank you.
Can you just clarify which penetration you're looking at if its fulfillment by Mercado library, or which adoption of which metric.
Yes, the fulfillment by by Mercadolibre.
Great, Yes, so just to put that in context.
I think what we said in the earnings is that we saw a quarter that exited on actually a much more positive note that it started so a lot of the initiatives in terms of.
Investments and technology behind making it easier for sellers to adopt our fulfillment solution and also incentives for them to adopt our fulfillment solution are beginning to gain traction.
That's encouraging I think also very importantly, when you look at the end game here. The endgame is to improve the cost and the quality of deliveries.
In the country and I think the other side of the coin for Brazil, and fulfillment is the cross stocking efforts, which are evolving extremely well and consequently, Brazil already has one fifth of all volume.
Going away from the drop ship market, which is not that far behind where Mexico is so all in all I would say overall shipping strategy in Brazil continues to perform very well.
Driven primarily by cross docking, but also when we look at the end of the quarter adoption of fulfillment was beginning to ramp up.
Let's see how that evolves over the next few quarters, if it becomes a trend, which we hope that is the case.
And in terms of marketing Mexico.
In terms of the competitive dynamic in Mexico on retailing business I don't think there have been any significant changes over prior quarters I think Mexico continues to be hyper competitive we continue to see very strong performance from our business.
And I think we're pleased with the GMB growth, we continue to deliver there and obviously the financials I began to improve considerably from a topline perspective, as we get more efficient and rationalize more and more our free shipping spend.
Great. Thanks, so much.
Thank you.
Our next question comes from Deepak Mathivanan from Barclays. Please go ahead.
Hi, guys its Trevor on for Deepak.
First question can you elaborate a bit on the GMB growth in Brazil, the 27% was faster than overall E com growth, but the comp was a lot easier and you have strong momentum on various categories is there anything specifically that you can highlight that maybe is going to offset some of these tailwinds. I know you guys don't give guidance, but is this sort of a run rate we should expect.
Going forward second question on the Fintech side can you talk about the frequency increase on some of the new use cases that you're launching what should we expect in two h. along the lines of new use cases and merchant categories. Thank you.
Yeah. So let me take the Brazil number one first of all that can take the payments question.
I think like we've said.
Going forward with Brazil, we've done a lot of innovative work around improving shipping not just the quality, but also the pricing around that and so hopefully that continue to generate.
The positive momentum going forward. Additionally, from a comp perspective, I think the tougher comps are behind us so.
How much will grow will give that out once we report future numbers.
I think in general terms, we continue to have an ambition to gain market share and to continue to grow faster than the market is growing.
And if we remain focused on the innovation that we have been delivering on the marketplace front.
That should play out favorably.
Regarding the second question Vincent take we are we are seeing increasing frequency.
Only that we want things when we see the most is in Argentina, we do all that were over the last year. What we have seen is the number of transactions per user is increasing and also the number of users who lets say 234 or.
Over five sections per month, it's also increasing and when we look at that.
Trying to understand why that is happening we see that those users who adopt multiple flows of payments arnason ranking.
Salaries in the growth on that I mean, you since we're doing not just one kind of transactions such as pain would occur code or topping up a mobile phone or print from utilities and we get users to do more than one or two of these loans and they get a month, we get them to significantly increase the frequency of use. So we are in the process of ramping that up in Argentina, and trying to replicate it in Brazil and Mexico.
Great. Thanks, guys.
Thank you.
Our next question comes from Ravi Jain from HSBC. Please go ahead.
Hi, I have two quick questions starting with.
Pavel first the credit business is scaling up nicely. So could you give us some color on.
Quarter, one of the three key initiatives that you are focusing on for now and how you want to manage the risk around the credit business.
And second thing on on the E Commerce coming back following up on the Brazil question.
And how is the competitive environment in Brazil.
Yeah, Youre seeing is it isn't getting.
It's getting more competitive is that.
Neutral I mean, how are you seeing like the new product categories that you're focusing on which is maybe a pedal and.
And the basic items. Thank you.
Okay.
So in terms of the credit business as you.
So you said you are have been able to scale. During this year part of the things that have been going very well our day consumer credit business, which we launched in Brazil last year and in that and we're in the process of launching in Mexico, and Argentina, we have gone beyond.
Just paid to buyers to include parts and whatnot. So we already offering trades in Argentina, where people can take the money and not been on our platform and just take it to the bank account that would droid and then pay us back and all of these initiatives have shown lots of traction.
And those are what are driving the consumer business this year.
In terms of merchants as we say in the script. We have been doing is we'll be able to improve our models and as we improve our malls, we are more comfortable reaching out to more merchants and offering them the larger loans.
Great in terms of Brazil competitive scenario again, I think no significant shift for the last few quarters, Brazil has always been a very competitive market with multiple players.
I think we've seen some some nice share gains this quarter when we look at a consolidated market numbers.
From a category perspective, I think apparel continues to perform well for us.
Consumer package goods, which was your other question I think is more of an opportunity going forward, perhaps the back half of this year beginning of this year beginning of next year and when we break down market share gain opportunities on a category by category basis. There clearly are categories that we still haven't fully explored and that we hope to tackle moving forward.
So I think theres still room for us to sustain our leadership and even gain in terms of share as we focus on these categories and just in general on continuing to improve the user experience that we offer in that market.
Thank you.
Thank you.
Our next question comes from.
Scott from Goldman Sachs. Please go ahead.
Yes, hi, Thanks for taking my question two quick questions. Firstly on the TPP reached a milestone this quarter with them off platform TPV in June surpassing the on platform TPV and.
Thank you for even the in the past sort of consistently said that year.
You see room for obviously, having the of platform TPV growing to multiple times the volume of the on platform TPV and I was wondering as you sort of think about the road map going forward.
Do you still think that.
That makes sense to them.
To run this to run this business directly or would there at some point also be an opportunity to potentially so partially separate.
Separate your your payment or Fintech opportunities.
From the e-commerce in a in a more formal way.
Okay sort of understand where I'm going with this question and then the second question on on customer acquisition I think very much in line with the messages that you passed on the on the past quarter that you're investing more on the marketing side and and driving further customer acquisition I was just curious if you could.
She had a little bit more detail on where you may be seeing the biggest opportunities in terms of driving additional cohorts of customers.
Into your.
Into your base and is that maybe mostly on the ecommerce side or is it mostly on the pago side on sort of the consumer facing side.
And are there any specific regions or demographics that you're going after and this push thank you.
Sure.
So the first question your investment banker question I think quite the contrary when we look at the roadmap for the next few years, what we still see significant opportunity for cross selling across the different pieces of our ecosystem.
Very closely tied to each other so when we look at adoption of many of our Fintech products. For example, among our marketplace users both merchants and consumers. There is still significant adoption opportunities there and those are obviously, the lower lowest customer acquisition costs. We have so as we roll out our loyalty program and as we try to get better at cross selling across platforms. The synergies of having these businesses together I think is potentially the biggest competitive advantage and differentiator we have against many of the competitors that we face both on the Fintech side and the retail side. So we still see these businesses as very very intrinsically United and as a critical component of our competitive advantage.
In terms of where new user cohorts in customer acquisition can come from like I said before the investments have applied to both the payments businesses and the marketplace.
I think just the nature of the addressable market that we have it in front of us in payments probably means that if we look at a three to five year view.
Payments should be an area of greater user acquisition as we aspire to become a digital wallet for mass markets.
But that doesn't mean that there's still opportunities to increase the number of users on the marketplace. We've seen a pickup this last quarter as we noted in terms of new users for the marketplace. As a consequence of this investment and I think that's that's very positive news as well.
So again customer acquisition investments for both marketplace and payments, obviously payments as we rollout QR in mpls across multiple countries will probably be their source of new users and then as we cross sell hopefully some of those users also big marketplace users regionally I think the strategy is typically we would like to eventually have coverage of of all countries. The mpls in the queue. Our strategy, sometimes do start with a certain regional focus and then expand but at the end of the day, our aspiration is to become a payment standard across entire markets.
Okay. Thank you very much.
Thank you.
Our next question comes from.
New car from Deutsche Bank. Please go ahead.
Hi, Thanks for taking the question.
You talked about new users can you talk.
The fees.
The new users.
As you roll out the new Oh, Fintech products, how many users or do you have that data that on both platforms or the ecommerce platform and not also using fintech products.
Uh huh.
Great. So if you look at the ramp up in investment.
Marketing as I said before it's not focused on any specific geo.
Marketing spend as a percentage of revenue has increased.
Sequentially in most markets and certainly in the three largest markets and so we're looking to drive acceleration in new user acquisition, both marketplace and certainly for payments as we build out.
The ecosystem across different markets, you will probably see the heaviest assessments in Brazil, Mexico, and now which are the three that's where we're most focused on right now in terms of building out the talk of ecosystem.
Okay and.
The.
With us.
And that does influence on a problem so often.
The.
Pick downhill level.
Okay, and said that you see how do you think are selling well.
Our goal is to make our.
I was very tough.
So with brokers of America.
Those who don't use wallet no.
Yes, but not.
Asset management for example on our Mpls, so its something well not on what we see huge opportunity we did not disclose I'll make a comment and user friendly.
So no news on that.
Thanks, a follow up on the investment side.
About investment, especially in marketing.
You know you how much more capital.
Probably.
More extensive discussions.
With regard to how you're going to invest.
Hello.
King in terms of investment.
Over the next few quarters.
In terms of like you know the amount of investment and the direction that those investments.
Yes, so I think.
A lot of investment will be behind the rollout of the Fintech platform. So that's a combination of.
Online marketing brand marketing subsidy of Npls is.
And commercial agreements.
Trying to increase the number of large are large scale. Thanks.
Pursue.
There are investments in our logistics efforts for the marketplace as we rollout a growing number of warehouses sortation centers and distribution centers.
Those are.
The focus terms is incremental spend going forward.
Consumer and merchant Aquas and on Finpac.
In Britain marketing efforts and.
Continued investment behind the rollout of logistics.
Thank you.
Thank you.
Our next question comes from Gustavo Olivera from yes.
Go ahead.
Hi, Peter Thank you for taking my question I have two questions.
The first one is if you could give us the rationale for the flight free feeding pain plantation Argentina.
And when and if you think about the removing the flat fee in Brazil, and I would like to understand what are your thoughts on GMV impact if that was the case and then the second question would be about your agreement we pay Paul if there is anything you can comment about it or on whether you expect to finalize and in general lines, what would be the thinking behind.
Let me start with the second one very quickly. So we continue to work through implementation details with pay Pal more and more working now on the nuts and bolts.
Process and technology, I think we will disclose where we come out at the appropriate time. This is a long term relationships or whatever we'll launch now is the initial and then we'll see where it goes from there, but I think it makes more sense to disclose it when we actually launch the different efforts.
The rationalize for the flat sea in Argentina, I think we learned a lot from the launch of the flat fee in Brazil, and if you look at the way, we launched Flightseeing, Argentina, you'll realize it's a much smaller amount I think it's positive in terms of.
Eliminating from the site items that potentially don't really rotate well because there's there's a fixed cost for very small cost items that aren't that relevant but the way we've managed it in Argentina has been.
[laughter] detrimental to units sold than in Brazil, I think in terms of Brazil, whether we would remove it.
I think it's something that we will always leave ourselves open to analysis, either removing it or lowering it but theres nothing that weve announced to our sellers or that have in the cards.
That we can disclose right now.
Okay.
Thank you.
Our next question comes from Petro.
Please go ahead.
Hi, Good evening, everyone. Thank you for taking my question just one quick follow up on the on the customer acquisition question.
In Brazil, and specifically now that that you're investing more heavily in and fulfillment adoption and probably also investing more heavily and.
Bedrooms yourself you mentioned.
Maybe a npos subsidies and things like that.
Does it make sense to assume that we should assume relatively weaker margins going into the back half of the year in Brazil, specifically.
Thanks, That's my question.
So we don't give forward guidance, but piano I think we've been answer is that we see as enormous mid to long term opportunity a lot of it's in the Fintech space. Obviously I think we've raised capital. So that we can make sure that we capture that opportunity over the long run and not try to up plans for any specific reserve cover the spurt.
So you see incremental investment behind building out our logistics capabilities building out the Fintech network across multiple geographies I think we'll try to remain disciplined in how we deploy capital and make sure that it makes sense for the long term, but not focusing on short term results.
Got it thank you.
Thank you. Our next question comes from Jamie Friedman from Susquehanna. Please go ahead.
Hi.
Hi, Thanks for taking my question I wanted to ask Pedro burst, although oh with regard to the merchant services growth that was.
Very impressive this quarter what is the use cases.
An online merchants using your merchant service solution, what I mean is that typically a larger merchant or smaller merchant is there any profile.
Who is using the <unk>.
Pago solutions from merchant services.
So these are very low so.
Mostly we have been focused I would say in the <unk> market.
No they have a larger merchants who usually are.
Eric.
Okay, but the midmarket or to whom we provide a very good solution. Both in terms of the food stamps and junk dose of fraud prevention ease of integration.
That's for the and so on and what.
We have been doing lately is starting to focus more also in the long tail, which was not really are just in the past and so we continue to do to drive growth mode.
Medium merchant, we're more focused on the long tail and has led us to a slight growth over the last year.
Okay I'm embarrassed I don't know this is good but we in terms of the QR code.
And on par.
Overlap.
The QR code just go to merchants that do not take their mobile point of sale or is there a use case, where they would have both if someone wanted to commit a nonpartisan transaction or quarter transaction actually thinking about like the roll out of the queue are versus.
Sure so okay.
Hello.
Most of the impact was the.
I think it's pretty low, but the long term, we see individual some cases.
Sure.
Yes, what do we see some very large merchants for somebody to do we had flags of doughnuts or breaking over Uh huh.
Sure how are excellent so what.
So lots of people for a long term view.
Okay. Thank you.
Thank you.
Our next question comes from Marvin Funk from BTI G.
Oh, great. Thank you for taking my question. That's the first one I guess or could you just update us on on your you know your goals in terms of how much are you want running over your managed network how have your agriculture changed I think you.
You know how to plan for the next two to three years and I was just curious you know based on you know how you guys have been performing.
Have you updated those gold at all and.
Thank you.
Hello.
Can you repeat the beginning of the question.
Yes, I was just you know I think from talking to the <unk>.
Before that <unk> that there were some goals lets you had set out in terms of how much.
The you know the deliveries that you wanted to run going over the managed network I was just curious if you know what those if you could just remind me what those goals are and if you know you've gotten more aggressive.
You know with your outlook on how much you want running over the managed network.
You know in the past few quarters have here as you're thinking Oh.
Changed.
No I think we said that we we strive over you know a multiple year view to deliver delivery times and costs that are best in market and as a consequence of that we would need to run in excess probably have 60% of all units shipped through a network that is in the old drop ship network that we had so when we look at the evolution versus that long term goal Mexico is it roughly a third I think of all shipments already not running on drop ship, Brazil is slightly above 20.
Argentina is higher than most of those and we're seeing consistent improvements in terms of lead times and also overall cost. So I think we remain optimistic with the rollout of our logistics capabilities. Obviously, if we are at you know a third and a fifth in Brazil in Mexico, There's still a lot of work to be done over the next multiple quarters to get to that mid term goal, but I think we see very good traction in that direction and I would say equally important we see our lead times as being very competitive in all of the markets, where we operate so things are planning out I think very much in line with what we had set out to accomplish on the logistics front.
Okay. Great. Thanks, Thank you very much Frank Thank you.
Thank you. Thank you ladies and gentlemen for attending today's conference. This concludes our today's session. You may all disconnect good day.