MercadoLibre Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2025
Skip to Participants

everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended 03/31/2025. 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 and A session with our management team. Before we go on to discuss our results for the first quarter of twenty twenty five, I remind you that management may make or refer to and this presentation may contain forward looking statements and non GAAP measures.

So please refer to the disclaimer on screen, which will also be available in our earnings materials on our Investor Relations website. Please note that this call is being recorded and a replay will be made available on our IR website as well. With that, let's begin with a short message from our CFO.

Hello, everyone. We are excited to kick off 2025 with another great quarter at MercadoLibre as we continue to deliver strong growth across both ecommerce and fintech. In q one, we maintained the rapid pace of net revenue growth achieved in 2024 while making solid progress on all of our strategic initiatives. This momentum is fueled by continued investments and improvements in the value proposition for our users. In commerce, we continue to deliver strong growth, outpacing all of our major markets.

Brand preference metrics for our marketplace reached all time highs in Brazil, Mexico, Argentina and Chile during the quarter. This is clear evidence that our investments are working and that we're further the year. Significant increase portfolio are significant in of a in delinquency at comfortable levels. In March, first time defaults on the credit card in Brazil, which a new all time low, driven by ongoing improvements in our scoring models and a successful move stabilization of the macroeconomic environment has helped us to fully leverage the strength of our brands and value proposition in the country. Income from operations grew at a faster pace than revenue, helped by the strong performance in Argentina. We are very encouraged by the positive impact of our strategic investments across the MercadoLibre ecosystem, which are critical for us to capture the many long term growth opportunities that we see in both commerce and fintech in Latin America. Thank you for your continued support and interest.

Now I hand it over to Richard for some exciting updates on fintech.

Q1 was the most recent of a long series of quarterly results that reflect Mercado Barrio's fantastic momentum. Monthly active users, for example, continue to grow above 30% year on year and reached 64,000,000 in q one twenty five. Today, we want to highlight some of the exciting changes that are taking place as we continue to democratize financial services in the region. Our aim is to transform people's relationships with financial services, So that as many people as possible have access to products such as the yielding account, credit, investments, insurance, and much more. Perhaps more importantly, we want users to see the relationship as win win.

This is a core pillar of MercadoPago's positioning and, more importantly, how we intend to continue disrupting the markets in which we operate. Here's a short video that should help investors understand how we're thinking about every decision we take as we build MercadoPago to become users' primary relationship.

Late fees, denied loans, exploitation. That's finance as we know it. A win lose game in a suit and tie disguise. But Mercado Pago is changing this game, turning it into a win win situation, a game with one unnegotiable rule. Every user feels like winning in every single financial move.

Every sale, every tap, every new card, every yield check. This isn't just about transactions. It's about transformations. When you win, the world around you wins too. Your favorite cafe thrives.

Your local shop grows. Your community flourishes. Because real winning isn't about outdoing others. It's about the progress we all share. The future of finance is here, and this time, everyone wins.

Aside from communicating the win win value proposition of Mercado Pago, we also want it to be even more closely tied to MercadoLibri at the center of our ecosystem. This is why MercadoPago has turned yellow and now shares the primary color of our ecosystem. This allows us to feed off the huge awareness and high levels of confidence that consumers across the region have in our marketplace. We don't want to have a yellow side of the ecosystem and a blue side of the ecosystem. We want to have a single ecosystem.

We launched the new branding in our apps and sites in Chile and Mexico in Q1 with Brazil following in mid April. This change doesn't only impact our FinTech services business, but also our acquiring business. And alongside the yellow colorway, we're also implementing an updated visual identity that is more aspirational and more modern. We have also updated Mercado Bago's UX, evolving the in app experience from something that resembled a super app to a look and feel that brings a more specialized banking experience. We're raising the bar so that all of the products we offer are displayed and can be navigated in the simplest way possible.

These are all changes that should help us achieve our long term ambition of becoming the largest and best digital account in Latin America. And it's another reason why we're excited that the best is yet to come.

Operator

We will now begin the question and answer session. And the first question will come from Andrew Rubin with Morgan Stanley. Please go ahead.

Andrew Ruben
Andrew Ruben
Analyst at Morgan Stanley

Hey, Andrew at Morgan Stanley here. Thanks very much for the question. I'd like to explore a bit the sustainability of some of the trends you're seeing in Argentina. Items sold, it looks like this step change to 52% growth. So I'm trying to understand even quarter on quarter what drove such an acceleration.

Andrew Ruben
Andrew Ruben
Analyst at Morgan Stanley

And similarly, we look to the contribution profit in the country, you mentioned the reinvestment in Brazil, reinvestment in Mexico, but still quite strong margin in Argentina. So trying to understand the sustainability of that trend and how you're thinking about investments in the country going forward. Thank you.

Operator

Perhaps our speaker lines are muted.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Hey, Andrew. This is Ariel. Thanks for your questions. So as you said, we had an amazing quarter in Argentina with last year recoveries recovery in demand strengthening even farther. We were able to capture strong growth.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

As you said, 126% of GMV growth year over year, 52% on items sold, items per unique buyer going up. Of course, there are different effects, right? On the one hand, we are comparing our numbers with a baseline from Q1 last year, which was a bit weak. But simultaneously we see ourselves and more importantly we see ourselves gaining market share. And that's not just because of what happened last year, but it's also because of everything we've been executing over the last few months in order to help the business get recovered being in shipping and making our prices more affordable, pushing for more financing, improving selection and so on.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

So in all, we continue to enhance our value proposition and we'll continue to do so in the coming quarters. Of course, comparables will get tougher, but we are convinced we have the core of what we need to continue having a great business coming from the country.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

And just to complement Andrew, yes, we're seeing clearly stabilization of Argentina. We have seen it for the past few quarters. But obviously, have a tough comp last year was a really tough quarter in Q1. So that also helped us with the comparison. But having said that, we've seen lower inflation, decreasing interest rate, which is helping us with our credit book.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Our credit book grew by ForEx year on year in Argentina in dollar terms. Not only that, but improved profitability as well. That's helping profitability in Argentina. Assets under management from a very large base in Argentina continues to grow, grew at 69% year on year. And profitability overall, the consolidated profitability for Argentina improved by 11 percentage points during the quarter compared to last year.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

So we think we are very optimistic about Argentina, not only because of macro, but more important than that, because of all the brand that we have in Argentina, both from Margalita and Mercado Pago, the user experience that we have in Argentina performing extremely well, as Adi mentioned, both in commerce as well as in fintech. And we will continue to deploy and improve the user experience in Argentina just like we're doing in the other countries.

Executive

And if I were to add one comment is with regards to the reinvestment we're doing in Brazil and Mexico on the FinTech side that is mostly related to our credit card in those countries. And we have not launched a credit card in Argentina. So when we do definitely we will invest also in building that portfolio.

Andrew Ruben
Andrew Ruben
Analyst at Morgan Stanley

Great. Thank you all for the color.

Operator

The next question will come from Irma Gars with Goldman Sachs. Please go ahead.

Irma Sgarz
Irma Sgarz
Analyst at Goldman Sachs

So 1P GMV posted some really solid growth. Can you talk a little bit in more detail about what drove this growth and what categories perhaps contributed more? Was supermarket, for example, a relevant force here? And if you can also comment on margin evolution here, are you getting closer to breakeven ex adds and on a full cost basis? Or is that something on the cards for this year? Thank you.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Hey Irma, how are you? Ariel here again. So yes, as you said 1P had a tremendous Q1 with GMV growth evolving 01/2002 year over year with strong performance across market and across categories. And I would say that's the consequence of continuing to improve selection and price competitiveness. We also continue to make progress in terms of managing the business through more and more technology.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

We are doing automatic onboarding, automatic buying, automatic pricing and that's all contributing in for us to get better economics and simultaneously continuing to grow. I would say growth in 1P is not driven by supermarket. 1P supermarket is growing, but our growth in 1P goes much beyond what happened in supermarket and is more and more spread across different categories of our business. Of course, consumer electronics continues to hold a big share of what we are doing in 1P. So to the second part of the question going to supermarket, we are extremely satisfied with the consistent progress we have been making in supermarket for some quarters already.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

In Q1, we grew 65% year over year. That's faster than any other category in our marketplace and sequentially accelerated. And I'd say that's the result of an improved value proposition across the board, right? So we have better and more consistent selection. We have better navigation with aisles that facilitates shopping experience.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

We have deployed features for repurchase and some other things that allow our users to fill in their cards and buy stuff easily. We improved our promotional activities and special dates. And last but not least, we are increasing the share of 1P within supermarket and we are doing so because it helps us get more effective in getting consistency and availability of supply day after day. But it also brings efficiency and improvement in economics, right? So 1P in supermarket actually has better unit economics than 3P as we manage to operate with massive movements in our warehouses operating like pallets and mastercases.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

We managed to get better revenues from advertising through our relationships with manufacturers. So 1P is and will definitely play a strategic role in supermarket moving forward. Going to the question on margins. Year over year margins in supermarket in particular continue to improve. So we are excited with that and that's part of the reason why we feel comfortable investing behind doing more and more site merchandising to push for a category in which we have a lot of confidence and we have proven that can bring downstream impact in the users that do engage in buying consumer packaged goods in MercadoLibre.

Operator

The question will come from Robert Forit with Merrill Lynch. Please go ahead.

Robert Ford Aguilar
Robert Ford Aguilar
Senior Analyst at Bank of America Merrill Lynch

Hey, good evening Richard, Martine, Maria, Rosvaldo. Thanks for taking my question. With respect to fast moving consumer goods, was actually surprised that it was a highlight in Argentina. Can you talk a little bit about the TAM across the region, maybe the halo effect for other categories, how you're thinking about subscribe and save? And you alluded to this, Adele, but how big of an unlock is this in terms of having now a full funnel solution in FMCG for advertising?

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Hey, Bob. Ariel once again. So thanks for the question. I think in general terms e commerce penetration in FMCG is pretty, pretty low. So longer term the opportunity is huge. We are just starting with this category both ourselves and probably some of our competitors. So we are excited with everything we see and with everything we can build as to push that penetration closer to what e commerce represent to the general retail. On halo effect, I was just mentioning before, do measure downstream impact of supermarkets.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

So buyers who buy CPG in MercadoLibre end up buying more of general merchandise in MercadoLibre as well and that's very positive. Then there is a huge list of product improvements that we need to deploy and we need to code first. Subscribe and Save is definitely in that list. It will get a time in which we will be able to do that, but we are more on the basic feature building right now. So many things to continue doing in order to get there.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

We will at some point, but again excited with the progress this is happening in every single market where we operate and we expect that to continue in the future.

Operator

Your next question will come from Marcelo Santos with JPMorgan. Please go ahead.

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

Hi, good evening. Thanks for taking my questions. I would like to ask for an update on the logistics plan, especially on Brazil. I think there were some new saying that you're planning to boost the distribution center deployment. So where you are now?

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

Where do you want to get? And if you could also comment on other regions? Thank you very much.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Hey, Marcelo. How are you? Yes. I think there's nothing changing in terms of our logistics plan to be shared in this call. As we mentioned in the past, we think logistics is a key enabler for the growth of our business and we don't want to take risks in terms of not having the required capacity to deal with demand.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

But given our current scenario and our internal projections, there are no changes to what we announced in the past in terms of footprint. So we were very active in deploying a large number of fulfillment centers last year. I think this Q in particular the number was a bit lower, but that's just because of seasonality and time to market in setting up new facilities, but we'll continue building and expanding our footprint as needed in order to deal with the demand that we think we will continue generating in the marketplace.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

And to complement from a financial perspective, you take logistics investments or CapEx and logistics this quarter as a percentage of revenues is consistent with what we had a year ago. So similar path from a financial perspective.

Operator

The next question will come from Rodrigo Gastim with Itau BBA. Please go ahead.

Rodrigo Gastim
Equity Research Analyst at Itau BBA

Yes. Thank you. Good evening, everyone. I just would like to double click here on the main drivers behind Argentina's contribution margin evolution. You said is easy comps, I understand that, but you've reached the highest contribution margin ever.

Rodrigo Gastim
Equity Research Analyst at Itau BBA

So just wondering here where it mostly came from. Is it coming from higher take rates, revenue mix with higher growth, the FinTech business, the acquiring business, which has higher margins, SG and A dilution from the faster top line growth? So anything here on the main drivers, specific drivers in Argentina, actually to help us to understand the future would also be very helpful. Thank you, guys.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Rodrigo. It's Martin here. I think Argentina performed extremely well both on commerce and fintech. Most of our businesses grew very nicely in the quarter. I think that's the main one of the main drivers is growth that enabled us to dilute fixed costs in a very efficient way and also to find efficiencies in logistics and in many other areas of our business.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

The credit business grew very nicely, I mentioned it before, and improved profitability, interest rates coming down in Argentina, helping us also with the credit business, not only because of more adoption of credit, because it's more affordable to people, but also by lowering the cost of funding, it improves our margins on that particular product. So I think for the most part, we've seen recoveries, and as Ari mentioned earlier, in commerce, items sold growing at 50 plus year on year. So I think throughout the business, margins have improved. And this is the reason why, not only because of comp from last year, but also genuine and sustainable improvements on profitability we've seen in Argentina so far.

Executive

The only thing I would add to that is that as interest rates have continued coming down, we also saw an increase in the percentage of transactions that were paid with credit cards installments where we have also extra revenues and an extra take rate.

Operator

The next question will come from Neha Agarwal with HSBC. Please go ahead.

Neha Agarwala
Neha Agarwala
Analyst at HSBC

Hi. Can you talk a bit about the asset quality trends? We did expect some seasonality and some seasonal worsening, but I also see that there's stronger growth in credit cards, which should dilute the asset quality both early days in the season and today NPL. So if can shed some more light on what kind of trends should we expect going forward? And also if there's any contribution of the growth in the Argentina credit business on these asset quality numbers that we are seeing? Thank you so much.

Executive

Sure. I'll say there are several moving parts when we look at our portfolio of loans. Basically on the one hand, we are increasing the share of credit cards to the overall portfolio, the share of credit cards to the overall portfolio. And even though, yes, credit cards have a lower NIM than other parts of the portfolio, the The NIM of railcars itself has been improving. We never had such a good quarter as this one.

Executive

So the asset quality is super good. What is changing is the share there. And also as these we grow our portfolio and older cohorts mature, the percentage of cohorts that are older therefore with a positive NIM will increase and therefore this goes in the opposite direction. This improves and offsets the change in mix. Then we are moving up market.

Executive

And by moving up markets in the both in the merchant and particularly in consumer side of the credit book. And this what it means is we will have a little bit lower risk, but also lower spreads because of the better credit we are offering. And so I would say that those have been the main drivers behind the change of mix in the credit portfolio. With regards to Argentina, in Argentina, I would say that our is the country where we find delinquencies to be the lowest. Part of the reason behind that is that is a country where the private sector has lower debt than in every other market just because the credit markets were closed for so long.

Executive

And also that people really use MercadoPao pretty much every day. So they tend to pay us back quickly because we are in many cases their primary account and they need us for their everyday lives. And so the credit quality in Argentina continues to be very good and that has driven up the increases Martin mentioned in terms of portfolio size both on the consumer and on the merchant side of the business.

Operator

The next question will come from Geoffrey Elliott with Autonomous. Please go ahead.

Geoffrey Elliott
Director - Research at Autonomous Research

Hello. Thanks very much for taking the question. Could you discuss the strategy in terms of deposits in Brazil? We've seen the 120% of CDI rate offered over the last few days. What's behind that?

Geoffrey Elliott
Director - Research at Autonomous Research

Is that about building customer loyalty? Is it about funding? Is it about something else? Can you give some thoughts there?

Executive

Geoffrey, I would say that the main driver for that is really it's marketing and positioning ourselves as really the leading digital bank. It's something that when we look at our positioning, it's moving in this direction and this really adds to principality Once consumers start bringing their money into Mercado Power, what they do is they start using Mercado Power more often. We increase their retention. We increase the use they do of their money in the marketplace through our many, many positives. And we launched a campaign a few weeks back, very powerful marketing campaign in Brazil, where we are starting to use the yellow color as background instead of a blue color.

Executive

And also we have recruited Anita, which is a very popular single in Brazil to push for our to advertise Marco Apao and that is working very nicely. And part of the value proposition is that we are the account that pays the most in Brazil. And so we are making sure that continues to be the case. There are limits to that as you know, there are three different conditions you have to keep in order to get the 120% of CDI. You have to be part of our loyalty program.

Executive

You have to put together the money in a special pot and there's a limit of few thousand reais that you can invest in that pot. So I think it is working nicely. We have created a lot of awareness and people associate us more and more with digital bank. And so thinking I would say in the right direction.

Operator

The next question will come from Caio Prado with UBS. Please go ahead.

Kaio Prato
Kaio Prato
Analyst at UBS Group

Hello and good evening. Thanks for the opportunity for question here. I would like to start a little bit more about the credit business. First, I would like to understand how is your appetite today across your main products, if you can share. Last quarter you made clear that you were going to reduce the issuance of micro cards.

Kaio Prato
Kaio Prato
Analyst at UBS Group

So just wondering if you can share a little bit the effects from that and more about the strategy going forward. Also if you can talk a little bit by region would be helpful. And finally, we noted a drop of your credit portfolio. We've seen one of your funding structures filings in Brazil in March. And in this report, you mentioned that you had almost $800,000,000 from on cash for funding on this impact. So can you provide further details on this?

Kaio Prato
Kaio Prato
Analyst at UBS Group

What is the funding breakdown of the portfolio today? And if you are somewhat changing the strategy going forward? And if so, what's the rationale? Thank you very much.

Executive

Hi, Cario. Let me start with how we're seeing the credit portfolio in general and let me start with Brazil and our risk appetite in Brazil. We have not seen any deterioration in our portfolio. I think that both on the consumer side and on the credit side, we continue to be very profitable and NPLs continue to be very healthy. And now in Brazil, as I mentioned, the credit card book, the recent cohort has the lowest first payment defaults we have seen.

Executive

So we are very excited with how our credit models are evolving. That said, we have taken some more measures to reduce risk because we are looking at what's happening in the market and we have seen some deterioration from other players. And so what we have done is beyond reducing the issuance of micro cards, we have been, let's say more conservative with regards to those customers who have the lower credit score. And would say this tightening is rather small, but it's something that we have done and we are very comfortable with the level of risk we are currently taking. Something similar has happened in Mexico, probably more towards the end of last year and early this year, then we have been able to relax a little bit the issuance of new cards, but we were also more conservative and tightened a little with regards to those customers that have a lower credit score.

Executive

But we have not seen any impact in our NPLs.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Regarding funding, Caio, the strategy continues to be the same. Just as a reminder, we fund our books, our credit books in Mexico and Brazil mostly with warehouse facilities, which are funded by large banks, JPMorgan, Goldman Sachs and Citibank. And in Argentina, we typically go to the capital markets on a regular basis to fund our credit portfolio. In Brazil, specifically, which you asked, we also book certain loans on our financial institution, supposed to sending it to the FIDIC. And sometimes we optimize the cost of funding by leaving some more loans in our financial institution.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

That is what we did this quarter. This is probably what you're referring to. But there's no change in terms of the share of third party funding and the ways we are funding our credit book. This is mostly a tactical adjustment that we did this quarter.

Operator

The next question will come from Jao Soares with Citigroup. Please go ahead.

João Pedro Soares
João Pedro Soares
Senior Equity Research Analyst at UBS Group

Thank you for taking the question. Very quick ones and kind of follow ups. The first one is just to understand if there should expect any what would be the repercussions on the commerce growth when you move when you try to derisk a little bit your concession, right? Initially, we saw with the micro credits and we saw limited impact, and now you're moving towards cutting some of let's say, middle level risk here on the clients. So just wanted to understand if there would be any repercussions on the commerce growth. And just to understand the opportunity of the credit card in Argentina and any view on timing, should we expect a similar impact that we saw as you start to accelerate credit origination in other countries? Should we expect something similar in Argentina?

João Pedro Soares
João Pedro Soares
Senior Equity Research Analyst at UBS Group

I don't know how the behavior changes varies, right from if you compare to Brazil and Mexico? Those would be the questions. Thank you.

Executive

Joe. Let me address first part of the question, which is what repercussion it may have or not in the marketplace, what the actions we're taking with MercadoParo. I would say, we don't expect any repercussions in the marketplace when we look and what we track so closely is what we call blue money, which is a total of payments on the marketplace that are coming from any of the Mercado Power sources, own sources such as account to account or personal loans or credit cards. And some of those three variables continue to grow in all three markets in Brazil, Argentina and Mexico. And we expect that to continue to be the case.

Executive

So we don't expect to see any deceleration in the marketplace driven by us tightening a little bit on the credit side. And moving on to the second part, was the potential evolution of the credit card in Argentina. We expect this to be a very relevant card in the market. It's I would say that we have been learning. We first launched in Brazil, then we were able to launch faster in Mexico.

Executive

And I believe we have a very strong position in Argentina and we would expect it to be interesting. Obviously, we will be cautious as we adapt the models to the local country and each country is different, but we expect to be able to do that in the second to start issuing cards in the second half of the year.

Operator

The next question will come from Marvin Fong with BTIG. Please go ahead.

Marvin Fong
Director at BTIG

Great. Thanks for taking my questions. Congratulations on the quarter. Would just like to drill down, I think, Mexico. You mentioned in the shareholder letter that there was one high ASP category that you saw a bit of softness on.

Marvin Fong
Director at BTIG

I was just wondering if you could elaborate on that and what growth outside of that category looked like? Was the growth outside that category consistent with what we've seen in prior quarters in Mexico? And then just a quick question on NYMOL. I think you referenced the seasonality factor that the fourth quarter was unusually high because of the additional payment period. We kind of normalize for all of that, and I recognize all your commentary about the underlying strength and the credit card that's gaining share there.

Marvin Fong
Director at BTIG

But at a headline level, would NIMOL have improved quarter over quarter without that seasonal factor? Or just kind of any visibility on when you think nine more at a consolidated level might turn, begin expanding quarter over quarter would be great. Thank you.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Hey, Marvin. Ariel here. Thanks for your question. So we are very satisfied with the progress of our business in Mexico in general and during Q1 in particular. We continued compounding growth and value created for our millions of consumers unique buyers grew north of 25% and top line remained very solid.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

I would say we were still negatively impacted by a slower start of the year for our technology vertical. It grew below the average of the rest of the marketplace. We basically saw more aggressive competition both in terms of pricing and financing in this category. And in some cases, we lacked some of the selection that we needed to compete. We have clearly identified the issue and have several targets initiatives to deal with these such as some selected adjustments to our premium take rates, some rebates to improve price competitiveness and some other things.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

We are already seeing positive results coming from each of those. And by the way, the effect from technology was kind of isolated our overall GMV continue well ahead the market and the rest of the categories grew even further. I would say with the trend that we used to have in previous quarter around 30% year over year in general terms. Very good momentum.

Executive

And with regards to Nimal, I would say that both sequentially and year over year, I'd say the part of the compression is due to the function of spreads and product and country mix. On the one hand, the mix as I mentioned is more towards credit card. The share of credit cards increased by 8% of points over the year. And this is structurally a product that has a lower NIM than consumer loans for example. And then also as we are moving up market both in the consumer and merchant originations that also has an impact both on yield and in bad debt yield basically.

Executive

So it's safer. We have less default, but we have an impact in revenue yield and bad debt yield. And as for country mix, Argentina share of the credit portfolio doubled year over year and this partially compensates for the minimal compression because we have higher margins in Argentina.

Operator

The next question will come from Craig Maurer with Feet Partners. Please go ahead.

Craig Maurer
Co-Director of Research & Managing Director at Financial Technology Partners

Yes, hi. Thanks for taking the questions. I wanted to ask a bit more specifically about the fintech competition in Mexico. Your product offering is trending more toward what we see from the likes of new. And I was wondering if you can comment on how you see that evolving over time.

Craig Maurer
Co-Director of Research & Managing Director at Financial Technology Partners

Secondly, with regards to the trade war dynamics that The U. S. Is propagating, we've been hearing that those e com businesses that are getting shut out of The U. S. Market are redeploying resources to LatAm.

Craig Maurer
Co-Director of Research & Managing Director at Financial Technology Partners

And I was wondering if you're seeing any change in behavior from your competition, specifically from Asia in Latin America. Thanks.

Executive

Craig, let me take the first question. I'd say that definitely in Mexico, all over Latin America, we want to be in MercadoLopao is on the one hand acquiring business, but on the other hand, we want to become the best and largest digital bank in the region. So definitely we'll be competing with the more traditional banks and with fintechs also quite also the digital banks. And we are very excited by the growth we are seeing. We're very excited by the Net Promoter Score we are obtaining from our users, also from the frequency, users use MercadoPago and also by the sheer growth of our user base in Mexico.

Executive

I would say that the most relevant products for us have been the super yielding account and the credit card and both of them are growing strongly. And so I would say, yes, think there is an opportunity in Mexico. We are seeing that what we saw happen in Brazil over the last ten years in terms of increased use of financial services and in particular of digital financial services that is happening in Mexico right now and we want to seize that opportunity.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Yes. Think your the second part of your question was regarding the national competition and cross border trade into Latin America. We have been operating in a very competitive environment. Many players coming to the region, not only shipping from Asia, but also building their operations locally in the region.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

So we haven't seen a change in that pattern. We continue to compete with them and nothing really changed, at least the short term because of tariffs. In fact, the other way around, there are certain tariffs that were imposed in Mexico and Brazil, increasing the cost of shipping products into the country that diminished a little bit the volume of cross border trade into the region. On the flip side, Argentina flexuralized and opened the market, so there's more volume coming into Argentina that represents an opportunity for us as well because we are shipping products from The U. S.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

While at the same time, some international players will come into Argentina, but we much rather see an open market than a closed market. So to summarize, I think for the most part, we haven't seen a big impact of related to the tariffs in The U. S.

Operator

The next question will come from Deepak Mathivanan with Cantor Fitzgerald. Please go ahead.

Deepak Mathivanan
Senior Equity Research Analyst at Cantor Fitzgerald

Hey guys. Thanks for taking the question. So Martin, EBIT margin in 1Q is up 70 basis points year on year and you kind of have a relatively favorable comp in the next few quarters as some of the credit card portfolio headwinds stabilize. Argentina contribution margin trends have also been very good in 1Q. So I guess the question is, should we still expect some of the investment plans that you have constrained full year margin expansion? Can you give us an updated view on how you think about the margin trends? And then the second question, just to double click a little bit on ads, the penetration as a percent of GMV seems to have kind of gained a few more basis points quarter on quarter than we typically see. Can you expand how much is driven by ad units like display video versus some of the more traditional ad units? And can we expect this run rate of penetration gains to continue in the next few quarters? Thank you so much.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Deepak, how are you? Yes. I mean, you're correct. I mean margins, if you look at EBIT margin improved by 70 basis points year on year from 12.2% to 12.9%. Most of the expansion for that is country mix.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Argentina, which by the way has a larger a bigger margin than the other countries, increased shares of revenues from 14 to 34%. So that on itself helps us in terms of improving margins. On the other hand, Argentina itself also improved margins as we discussed earlier today, so also helped in positive direction. That more than compensated this quarter the investments that we continue to make in Brazil and Mexico, mainly in logistics and credit card that generated some margin compression in Brazil and Mexico. But I think, obviously, we don't guide regarding margins, but we have been consistently saying that we don't manage the business to a short term margin goal.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

What we want to make sure is that we do not miss the large opportunity of growth that we have ahead of us in commerce and fintech. If we need to invest behind those opportunities, we will continue to do so, even if it might make some short term pressure on margins. In the example of last year, where we had in 2024, we had margins slightly lower than 2023, but we delivered strong growth and this is something that we want to continue to deliver because opportunity continues to be enormous in Latin America. Only 15% of transactions are done online and will play an important role of bringing more people online. Fintech adoption and financial inclusion is very, very low.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Most of the regions, particularly Mexico, as Oswaldo was mentioning. So again, the focus is on growth, while at the same time managing for a reasonable profitability, as we call it in Meli, grow fit, balancing finding the right balance between growth and profits.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Hey, Deepak. Ariel here. So to your question about that, we had a solid quarter. We grew about 50% year over year of an FX neutral basis with penetration going up in Brazil, Mexico and Argentina. And that's basically coming from an improvement in our product stack.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

We had a great quarter in brand ads, which is part of our search offering. So although coming from a low base we have seen a positive acceleration coming from the extension of the product to sellers. So it was previously only available for top brands and making it more widely available is paying off. Kind of the same thing happened with display. So we grew this quarter above 100% year over year in display similarly to brand ads coming from a widely available offer to more sellers and also coming from new features in the product like automatic generation of creativity for campaigns, better analytics etcetera, etcetera.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

PATS continues to do very well. So we remain optimistic, right? So we have already a business that is the size of $1,000,000,000 in revenue per year, but we think we are just getting started. And last but not least, the launch of Macau Play on TV is another exciting step in the direction of expanding our inventory beyond the marketplace and it will definitely play a key role in our strategy in the long term.

Operator

The next question will come from Josh Beck with Raymond James. Please go ahead.

Josh Beck
Josh Beck
Managing Director at Raymond James

Yes. Thank you so much for taking the question. I wanted to ask about the magnitude of short term margin pressure that you're seeing from the strategic investments in shipping? So just would like to understand that. And then a little bit of a follow on to, I think, Craig's question.

Josh Beck
Josh Beck
Managing Director at Raymond James

Are you seeing any impact from maybe higher ocean freight rates because there's certainly been such a slowdown? Or maybe just kind of help us think through the sourcing of some of your goods, if you have any notable exposure to some of these ocean routes that all of sudden have a lot less volume, would love an update there.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Yes. I think as I mentioned earlier, right, when you look at the margins in the different countries and you can find this in our disclosures, the air contribution margins in Argentina improved by 11 points compared to last year for the reason that I explained earlier. Whereas on the opposite side, Mexico and Brazil compressed roughly five percentage points both of them compared to last year. And the reason for that the main reason for that, I would say I would point out to three reasons. Credit card continues to grow and putting some margin pressure in the short term as we continue to improve the profitability of the credit card that might change.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

If we look at credit cards other than two years are already profitable. The logistic infrastructure, we'll continue to build our logistic infrastructure to try to increase the penetration of fulfillment in Brazil and keep up with the levels that we have in Mexico in a market that's growing 25% to 30% year on year. So that requires investments. And then lastly, think if you look at year over year, both Mexico and Brazil were affected by the evaluation. So that also put a little pressure on both Brazil and Mexico's contribution margins.

Martín de los Santos
Martín de los Santos
EVP & CFO at MercadoLibre

Regarding the second part of your question, our CVT business is relatively small. It's mostly into Mexico. It's nascent into Argentina over the past this quarter and the previous quarter, we started to deliver products into Argentina now that is open. But we plan to continue to invest and develop that business because we think that it's a good opportunity for as a business on itself, but also to complement the offering that we have within our marketplace to continue shipping products from Asia directly into Latin America and from the Texas operation that we have in The U. S.

Operator

The next question will come from James Friedman with Susquehanna. Please go ahead.

Jamie Friedman
Senior FinTech and IT Services Research Analyst at Susquehanna International Group

Hi. It's Jamie Friedman at Susquehanna. Thanks for taking my question. I was wondering if you could share any data that you might have on Credito, the credit portfolio and its attached rate to the marketplace. So in some markets, I think you've occasionally disclosed that, but what sort of accelerator do you enjoy as you originate and that attaches to purchasing in the broader marketplace ecosystem? Thank you.

Executive

So I think that what we have disclosed in general is this what we call blue money, which covers on the one hand a credit, but also money that's already within the Markel power system. And that is roughly in the order of depending on the country on 20% to 30% of the GMV we process on the marketplace that has been trending up as I mentioned, but it continues to be within that range for the mainstream countries.

Operator

The next question will come from Dani Burger with XP. Please go ahead.

Analyst

Hi, good evening. Thank you for taking my question. I have a quick one on competition. It's actually a follow-up. Regarding Brazil, if you could just update us on your view regarding the TikTok shop launch this month here.

Analyst

How do you see that in terms of maybe affecting you guys? And in Argentina, you mentioned about the increased interest. We even saw some news recently. If you could also share your view on the recent developments in terms of competition in Argentina that would be interesting as well. Thank you.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Hey, Danny. How are you? Ariel here. So on TikTok, I think it's still early days. So they launched in Mexico A Few Months back.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

They are just launching in Brazil. So we don't have too much info to share with you. Of course, we are paranoid. So we follow them closely, but there's not much to be shared. In Mexico, they seem to be focused on low value items coming from domestic sellers to be seen what their strategy is going to be in Brazil.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Again, step back, would say that there seems to be a higher overlap in data value prop with some other platforms more than with MercadoLibre. But again time will tell, right? So we will follow that one closely and decide how to respond. To wrap this one up, I would say that typically when there's a new entrant in the e commerce space, particularly when they come with a different playbook, they tend to bring new users who used to shop offline into the online world and that will create another opportunity for us as well and we hope we can take advantage of that one. In terms of Argentina, even more early, so we saw interest and we know that Temu launched operations in the country.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

Amazon has also been shipping items from The U. S. Into Argentina, but not much to be said, right? There are no numbers or indications that they are getting progress that is calling our attention. As Martin was saying before, this presents an opportunity for us as well.

Ariel Szarfsztejn
Ariel Szarfsztejn
Commerce President at MercadoLibre

So three weeks after the government opened their regulatory framework, we were live with our drop shipping from The U. S. Into Argentina. Now we are live with shipping items from our Texas inventory into Argentina as well and we expect to continue expanding that selection to complement our local marketplace.

Operator

And this will conclude our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead. The conference is now concluded. Thank you for

Executives
    • Ariel Szarfsztejn
      Ariel Szarfsztejn
      Commerce President
    • Martín de los Santos
      Martín de los Santos
      EVP & CFO
Analysts
Powered by Quartr

Key Takeaways

  • MercadoLibre delivered another quarter of strong net revenue growth across both ecommerce and fintech, with income from operations growing faster than revenue thanks in part to Argentina’s performance.
  • Fintech momentum continued as monthly active users rose over 30% year-over-year to 64 million, while first-time defaults on the Brazil credit card hit an all-time low and asset quality remained comfortable.
  • Argentina stood out with GMV up 126% year-over-year and items sold up 52%, driven by recovering demand, improved selection, more affordable pricing, and lower inflation boosting credit growth and margins.
  • On the 1P side, automated pricing and onboarding helped sustain robust GMV gains beyond electronics, and the supermarket category grew 65% year-over-year with improving unit economics as 1P share increased.
  • Strategic investments included rebranding MercadoPago in yellow to unify the ecosystem, upgrading the app UX toward a specialized banking experience, expanding logistics capacity, and growing ad revenues via new search and display products.
AI Generated. May Contain Errors.
Earnings Conference Call
MercadoLibre Q1 2025
00:00 / 00:00

Transcript Sections