Hello everyone, and welcome to the Mercado Libre earnings conference call for the quarter ended September 30, 2022. Thank you for joining us. I am Richard Cathcart, Investor Relations Officer for Mercado Libre. Today we will share our quarterly highlights on video, after which we will begin our live Q&A session with our Chief Financial Officer, Pedro Arnt, and Chief Executive Officer of MercadoPago, Osvaldo Gimenez. Before we discuss our third quarter results for 2022, please note that management may make forward-looking statements regarding growth prospects, industry trends, and product and technology initiatives. These statements are based on currently available information and our present assumptions, expectations, and projections about future events. While we consider our assumptions, expectations, and projections to be reasonable given the available information, we advise you not to place undue reliance on these forward-looking statements. Our actual results may differ materially from those discussed in this call due to various factors, including those detailed in the forward-looking statements and risk factors sections of our Form 10-K for the year ending December 31, 2021, and other filings with the Securities and Exchange Commission, which are accessible on our investor relations website. Now, let’s begin with a summary of our results. Hello everyone. I'm delighted to have the opportunity to discuss some of the key achievements and messages from our third quarter of 2022 results. During Q3, we delivered strong growth in both Commerce and Fintech, making progress toward our annual profit expansion targets. Our operating margin increased by over 500 basis points to 11%, contributing to a quarterly profit of $296 million, alongside solid operating cash generation. This reflects the strong performance of our business, our ability to manage costs as we grow, and our commitment to sustainable and profitable growth. Our commerce business has demonstrated resilience despite macroeconomic challenges, with a 32% increase in GMV on an FX-neutral basis as physical retail fully reopens. Our investments in technology over the past few years have significantly improved our service levels, leading to market share gains across various geographies and product categories. Investments in logistics have also played a major role in enhancing service levels, with our managed Mercado Envios network penetration reaching 92%, up 5 percentage points in the past year. We are advancing our strategy to enhance monetization, with our Ads business achieving 1.3% penetration over gross merchandise volume, reflecting a gradual increase from previous quarters. We've implemented several improvements in our Ad tools and have a technology roadmap that is accelerating. Mercado Pago had another outstanding quarter, surpassing 40 million unique active Fintech users for the first time. Off-platform TPV recorded its fourth consecutive quarter of triple-digit growth at $23 billion, achieving 122% growth. Our MPOS operations in Mexico and Chile contributed significantly to this growth, along with QR codes in Brazil and our Digital Banking Account solutions in Argentina. The Mercado Credito portfolio reached $2.8 billion, reflecting a slower growth rate as we reduced originations to prioritize risk management and margin over growth. Our Credits business showed a solid financial performance, with quarterly IMAL spreads rising to nearly 37%. Early NPLs remained stable compared to the previous quarter, which indicates our effective risk mitigation measures in a challenging lending environment, especially in Brazil. With significant gross profit and operating margin expansion, we concluded another quarter with strong financial results reflecting the growth of our higher-margin business, disciplined short-term growth investments, and our focus on leveraging our scale to reduce costs in COGS, Sales & Marketing, and G&A expense lines. This has allowed us to continue investing in engineering talent, evidenced by higher Product & Development expenses as a percentage of sales, as we had projected. A more detailed review of the third quarter operational and financial results is available in the shareholder letter on our investor relations website. Before we transition to the live Q&A, I'll turn it back to Richard to discuss some of the latest updates regarding our product and user experience. In our mission to democratize access to commerce and financial services, we have continued to enhance the shopping experience on our marketplace. One example is the short videos featured on the homepage of our e-commerce app, where consumers can discover products and learn more about their details and features. This enjoyable content adds a discovery element to the search experience, promotes user engagement, and provides sellers with a new channel for marketing and sales. When searching for apparel and fashion items from various sellers, brands, and official stores, the search experience is critical. We have improved the user experience in our fashion segment, allowing users to browse through different product categories, lifestyles, and brands. This enhances the discovery process, which is essential for this category. As buyers search for items, they now have better filters to aid their search. These enhancements are another result of our ongoing investment in technology this year, but there is much more to explore on our app. As always, we will ensure prompt delivery to your home so you can start using your new products as soon as possible. To improve delivery times and reduce logistics costs, we have introduced a crowdsourcing solution for the last mile in Brazil and Mexico, leveraging our network of service centers. With this innovation, our vans will bring products intended for high-density delivery neighborhoods to a service center that serves as a last-mile facility, instead of delivering door-to-door. From there, drivers from our crowdsourcing platforms will make the final deliveries to consumers. All of this is supported by technology developed by our 1,500 engineers dedicated to logistics. These developers continue to work on logistics projects that will enhance our network’s efficiency and cost-effectiveness, from inbound handling to delivery and returns. The Meli Places network has expanded to nearly 7,000 locations, with over 99% set up for pickups and returns. In our effort to democratize financial services across Latin America, we have launched many products in the last 18 months, including debit and credit cards, savings and investment products, crypto wallets, insurance, personal loans, and others. We now offer a comprehensive range of services tailored to our users' needs, enabling millions of people to manage all their financial services within our ecosystem, whether they are individuals or small to large businesses. This initiative extends beyond Brazil, as our recent IFPE license approval in Mexico allows us to market Mercado Pago actively and offer its tools to the substantial unbanked and underbanked populations of the country. Mercado Libre remains committed to delivering better products and services focused on enriching the experience of our millions of users with solutions designed for their needs. To emphasize that commitment, we plan to hire an additional 4,000 engineers by the end of the year, all dedicated to developing and enhancing the competitive advantages of our ecosystem. As always, greater things are ahead.

Our first question comes from Andrew Ruben with Morgan Stanley. Please go ahead.

Hi. Thanks very much for the question. So, some strong results overall, but just to focus on credit and particularly the past due rate. So, when considering the moving pieces, you mentioned origination, loan performance and the 360-day dynamics, how do you see the evolution of this metric playing out? Really any color on the drivers when you think this past-due cycle could end and what the necessary factors might be? Anything around that would be highly appreciated. Thank you.

Hi, Andrew. This is Osvaldo. So, I think we see the total receipts in line with what we expected when we look at the segments in terms of past-due dates. We see that basically performing as we expected them to perform. We did see some degradation publicly in Brazil mostly during the second quarter and that was when we started to limit the amount of loans we offered, particularly personal loans, and it is in the results; this quarter has been in line with what we expected. Going forward, we don’t provide guidance, but we believe that probably interest rates in Brazil are close to peaking or will start coming down next year. It’s still too early to tell, particularly as Brazil elected a new president last week. With that in mind, we expect macro conditions will start to improve in Brazil, which was the country we were most concerned about regarding the degradation of personal loans. So I think that all is working according to what we expected.

Very helpful. Thanks, Osvaldo.

Thank you. One moment for our next question. Our next question comes from Irma Sgarz with Goldman Sachs. Please go ahead.

Yes. Hi. Thank you for taking my question. So with ads now reaching 1.3% of GMV, I was hoping you could just shed a little bit more light on what drove this quarter-over-quarter increase as you pointed out, it was just a small, but steady increase. So I was wondering if you already feel that you saw an impact from the launch of the new HQLs that you have been developing or if this is just something for the quarters to come, maybe even for 2023? And a second quick question is, with encouraging metrics that you’ve posted once again around user growth and engagement, I was wondering if you could perhaps just share your latest thoughts around shifting to a different perhaps two-tiered loyalty program going forward.

Great. Thanks, Irma. So, on advertising, I think most of the rollout of the new product tools came towards the end of the quarter. The impact of those is constantly evolving, improving the product. I think we should see more in the upcoming quarters than in the entire third quarter. What we see in the third quarter is just the natural evolution of an advertising business where there is very strong demand despite the macro backdrop given where we play along the conversion funnel. As we continue to invest resources and roll out the tools that came out towards the end of the quarter, we also have new tools that we believe will provide a lot of upside from our advertising solutions in the future. In terms of loyalty, we continue to work towards launching the next version of the loyalty program. I think we’ve identified that most of the value is in Level 6. We continue to see a strong evolution of users buying into Level 6. The overwhelming majority of Level 6 users are purchased users and not users who have earned their way to Level 6. We hope to launch a new version of the loyalty program in the upcoming quarters that positions it increasingly better to be a subscription model with more and more benefits that we will continue to build for that highest level where a majority of the users will probably purchase. But, we will likely continue to offer the ability to reach that level through earned methods as well.

Thank you. One moment for our next question. Our next question comes from Thiago Macruz from Itau. Please go ahead.

Hi guys. Thanks for taking my question. Well, my first question is regarding MercadoPago’s cost of funding. You have been consistently bringing it down, but arguably there is still some way to go to reach levels similar to those of your competition. Which alternatives do you feel you have to accelerate this process? If set, is it fair to say that your cost of funding keeps you from maybe entering any lower spread credit products today? And my second question is regarding the World Cup and Black Friday, a very unique combination at the end of this year. Should we expect it to become maybe a little bit more aggressive with your 1P product in the upcoming months? Thank you.

Let’s see. You’re correct in saying that there is still room to continue to drive down the cost of funding through renegotiations in structures and more utilization of CDDs. For the current segment we participate in, we still think most of our focus will be that the quality of the underwriting is the most significant driver of the margins in that business and less so the incremental basis points or hundreds of basis points that can derive from the cost of funding. I think if you take a longer-term view, then what you brought up is valid, and as we look to penetrate higher-income segments or pursue lower spread credit products, we will have to continue expanding our cost of funding and look for alternatives to increase lower costs of funding. But that’s not a short-term priority right now, it's more something that’s in a mid-term roadmap. In terms of fourth quarter, historically, we do lean more into our 1P business during that time. You saw that in our results last year where profitability in the fourth quarter was significantly lower than in prior quarters. However, we continue to see a combination of a 1P business that has a better margin structure than it had last year and an overall business with a better margin structure. Although there will be a ramp-up in investment pace, I do not encourage investors to assume that what happened last year is what we will replicate this year. I think the margin in the fourth quarter should be better this year than it was last year. So, don’t extrapolate from prior year performance.

Thank you very much.

Thank you. One moment for our next question. Our next question comes from Bob Ford with Bank of America. Please go ahead.

Thank you. Good evening, Pedro, Richard, Osvaldo, and congratulations on the quarter. How is the ad penetration across geographies? And how do you expect that to evolve? And in that context, how should we balance the contribution margin in Brazil? And the outlook for that as well please. And then, Richard, you mentioned nearly 7,000 places in the opening remarks. Can you provide some of your one year numbers for maybe the top three markets and describe any additional functionality besides the pickup and drop-off that you are doing now please?

Hey, Bob. So, the margin structure for the advertising business is fairly consistent across geographies. It’s a very high-margin business. I think we said EBIT margins are in the high 70s, low 80s. Attach rates or adoption vary by geography, with Mexico having the highest attach rate. There’s a combination of 1P business, but also simply how far we’ve executed and what the overall market dynamics are. In general, with 1.3% of overall penetration, it’s still incipient in any of the geographies we look at, and we expect solid growth over a multi-year period across all the regions.

That makes sense. And then, with respect to the contribution margin from Brazil, how should we be thinking about that?

Okay. It was the second question. Sorry, so Brazil did see some compression in contribution margin. A majority of that can be explained by top-line movement, mainly our reticence to pass on incremental interest rate costs into the marketplace pricing, unlike what we did off-marketplace generates. This led to a certain amount of compression in terms of take rates. When you combine that with investments that have continued to grow at a constrained pace but somewhat faster than the revenue growth, we see that compression. The overall idea is, if we get a change in the interest rate environment, we don’t expect the Brazilian market to necessarily not add incremental margin; it should also be able to scale going forward.

That makes sense.

And then on places and functions, it’s interesting. We’ve said that places had a potentially very important role in adding nodes to our logistics network for pickup, delivery, and returns. Returns continue to grow in terms of percentage, but more importantly, customer satisfaction from that drives better conversions. For example, in Argentina, we began to see the other piece of the places thesis which is creating a cash-in and cash-out network that has the potential to rival ATM machines. Store owners can make incremental revenue and drive incremental foot traffic by serving as cash-in and cash-out points, and we are seeing strong execution on that front in Argentina, and it's something we would look to mirror across our geographic footprint. Remember that we have these cash points in Brazil, Mexico, and Chile as well.

But right now, are you testing any other functionality around fintech or maybe apparel, something like a little wardrobe area for trying things on and returning right there? Those types of things.

No, not yet. I think we need to be cautious about how much extra operational demands we overlay on these corner shops and small stores. The focus right now is on the two biggest opportunities we see short-term, which are the nodes in the logistics network for drop-off, pickup, returns, and the ability to move money into and out of digital wallets through these store fronts.

Thank you. One moment for our next question. Our next question comes from Marcelo Santos with JPMorgan. Please go ahead.

Good evening, thanks for taking my question. I have two. The first is regarding fulfillment. It’s been around 40% for a while. What has been the performance there? What are your woes regarding this modality? And the second is regarding logistic monetization. I think a couple quarters ago, you said you’d start to experiment with some ways to differentiate the monetization or fulfillment. How has that been going? Maybe you can give some color geographically or in general? Thank you very much.

Marcelo, thank you. We continue to aspire to drive greater adoption of fulfilled by MELI in Brazil and across other markets. We’ve invested in warehouses and infrastructure that allows us to scale up and have a higher percentage of orders and purchases being fulfilled through us. If you look at the evolution from Q3 to Q2, it was positive. We added about 3 percentage points of adoption of fulfillment in Brazil and three in Chile as well. Mexico has always had the highest penetration; it’s over two-thirds of all orders fulfilled from our fulfillment centers, and we believe the other markets will continue to grow towards higher numbers. We need to see what the end state is. However, we continue to try to improve the experience for sellers in terms of sending inventory to us and removing inventory when it’s not performing well. All of these things should help make it easier and more attractive for merchants to send more inventory to our fulfillment centers. Simultaneously, we’ve introduced monetization not only on low-turning inventory but simply on the usage of our fulfillment centers. That helps our P&L a lot. But, it generates a disincentive for merchants to send us inventory until they see that the added cost is more than offset by improved conversion and lift in sales. That monetization is still very timid. We’re talking about something closer to $10 million a quarter instead of what its long-term potential could be. So, it’s still fairly slow because we’re trying to carry out both the introduction of monetization and trying to increase the adoption of fulfillment.

Perfect. Thank you very much.

Thank you. One moment for the next question. Our next question comes from Stephen Ju from Credit Suisse. Please go ahead.

Okay. Thank you. So, hi Pedro, I guess a follow-up question on the advertising business. What about principal ad units that are driving the growth there? I think you talked about display as what sounds like sponsored search ad units. How much more heavy lifting do you think you need to do on behalf of your sellers? Because some of them will be very sophisticated and will understand how to run ad campaigns on their own, but others may need some help. So, can you talk about some of the advancements you may be driving with automation on their behalf? Thanks.

Great. So, still, the vast majority of the monetization is on product ads. The insertion of sponsored listings that are interspersed within search results are identified as sponsored listings, but they appear in the middle of a search result. We have growing capabilities and begin to see improved monetization in terms of display advertising and other more complex ways to work with larger merchants or even brands that want to promote sales of their products directly or from merchants already selling on the network. That's still a smaller portion of the revenue base, and where a lot of the uptick can come from. You are correct that many merchants, especially smaller ones, still have a learning curve. We see that when we look at the dollars invested per listing from cross-border merchants, many from China and Asia who are more sophisticated in using advertising to help conversion rates. Over time, we will need to work with the local Latin American merchant base, which is by far the largest, for them to gain comfort and ability to use the advertising product like our cross-border merchants. This will be a combination of better tools, greater automation, education, and also patience over time. In the case of larger brands and larger merchants, it’s more a matter of having improved reporting capabilities and better abilities to segment and generate audiences within MercadoLibre, with many of the more recent rollouts tailored around that, making reporting capabilities and audience construction easier.

Thank you.

Thank you. One moment for our next question. Our next question comes from Marvin Fong with BTIG. Please go ahead.

Great. Thank you for taking my question. A question on achieving the 40 million Fintech users for the quarter—I think in terms of percentage growth as well as absolute new users, this is the best quarter in recent memory. Could you comment on any particular things that you think drove this higher adoption rate? Or do you think it was just general trends towards more Fintech usage? And then a second question, just on contribution margins. I did note the decline in Brazil, but also Argentina increased significantly even in U.S. dollars. What drove that improvement? Is it because the mix of Fintech in Argentina is higher and that’s a higher-margin category compared to Commerce?

Hi, Marvin. So, with regards to Fintech users per quarter, I would say that this has been a year where we decreased the incentives we have offered users to use our products, particularly in the first and second quarters. In the past, we offered more incentives and discounts for people to try our QR codes, pay utilities, or top their mobile phones using our wallet. We stopped doing all of that. So, I would say that it’s been more organic growth we’re seeing now. The focus has been mostly on increasing engagement, increasing principle, and having our users try different use cases and as many product flows as possible. In terms of what we are going to do to continue this growth, it’s mostly about continuing to roll out new products and services. We’re now focusing at a given level in Argentina, Brazil, and Mexico, and only now are starting to roll out more products to Chile. So, there’s room for us to continue with these rollouts and this growth.

Sure. In Argentina, we see an increase in participation from Fintech. The Fintech business there is also higher margin than in other markets, given the scale we’ve already achieved. An interesting data point is that the digital account and wallet in Argentina are breakeven or slightly positive in terms of margin structure. This indicates the way that ideally other markets will evolve over time as those businesses grow and gain scale. On the back of that growth, inflation also plays a role, and there's a greater ability to dilute costs in general. Overall, both at the gross profit level and on a direct contribution level, there is significant cost dilution given a much higher rate of growth of local currency revenues compared to expenses primarily in local currencies.

That’s terrific color. Thanks, Osvaldo and Pedro.

Thank you. One moment for our next question. Our next question comes from Deepak Mathivanan with Wolfe Research. Please go ahead.

Great. Thanks for taking the question. Given the recent changes in the political climate in Brazil, do you anticipate any operational or business strategy changes over the next 12 to 24 months in any areas that we should be aware of? And then maybe, second question, Pedro, can you give us some color on the current profitability of the e-commerce segment? With advertising scaling and logistics monetization coming through in many markets, how should we think about maybe at a high level, the contribution of e-commerce to the total profitability over the next 12 months? Thank you so much.

Great. The answer to the first question is no, no change in strategy derived from any change in political governments. I think our business has thrived over the past 20-plus years throughout the entire region and has gone through multiple changes in Presidents and ideological shifts in governing parties, and that’s never changed our strategy. Our users inform our strategy and the enormous need for digital commerce and digital payment that exists across the region. Both on the e-commerce side and fintech side, our goal continues to be for growth and continued market share gains to hold our leadership position. With the scale we have now, we can find incremental profit engines across our different commerce and fintech businesses, whether it be advertising, credit, or the MPOS business, combining that growth with consistently delivering incremental EBIT over the upcoming periods. At least that’s the aspiration in terms of the financial model.

Thank you. One moment for our next question. Our next question comes from Kaio Prato with UBS. Please go ahead.

Hello everyone. Good evening. Thanks for the questions. I have two regarding Mercado Credito, please. We can see that the overall margins of your credit business actually expanded on a quarter-over-quarter basis, but if you take a look at your provision coverage, you actually reduced it if we look at 30 days or 90 days. Just wondering if you could elaborate on your provision coverage going forward. Should we expect an increase in the provisions as a percentage of the total portfolio in order to increase the short-term coverage ratio again, or not—if this is a matter only of lower origination? The second one is around your appetite towards the end of the year and the beginning of next year in term of origination. Are you already originating more during October or not? And what is the strategy going forward as well? Thank you.

Hi Kaio, we disclosed more information this quarter in the shareholder letter, but it's clearly broken down how our current, and 1 to 90-day past dues, or 90 days past due are provisioned in our portfolio. You can see that we are provisioning around 93% of all loans that are over 90 days past due and over two-thirds, 68% of those that are between 1 and 90 days past due. We have been very conservative in our provisions and will continue to be. We remain using the same way to provision bad debt, and we have been very, very conservative. The increase you see in NPLs is primarily related to our slowing down the originations and having an average duration of about two months while we keep the bad loans on our books for a full year. This is primarily related to that. With regards to year-end and early next year, as you know, we provide guidance. So far, what we have done is to reduce the volume of origination, and as we see conditions improve, we will reverse that, but we’re not giving guidance on when that should happen.

Okay. Thank you very much.

Thank you. One moment for our next question. Our next question comes from Geoffrey Elliott with Autonomous. Please go ahead.

Hi, hello. Thanks very much for taking the question. On this topic of credit and when you can ramp up originations again. I mean the way you describe trends during the third quarter, it's kind of in line with what you expected. It doesn't sound like things fell off a cliff. So what is it now that is stopping you from ramping back up? What would you need to see to get more profit on credit origination? Is it something in your portfolio? Is it something on the macro side? What do you need to see there?

Geoffrey, what we did during the end of the second quarter and during the third quarter, we scored users in 12 segments. Those that were lower ranking, we stopped offering them both personal loans and buy now pay later. For those that were slightly better ranked but still not high up, we stopped offering them personal loans, yet we continued to offer them buy now pay later. The good news is that we believe, with hindsight, we took the right decision. It was a wise decision because those segments where we continued offering loans were profitable, while we kept control groups for those groups where we stopped offering loans, and those were not profitable. So, I think we made a wise decision. Now, we continue offering loans in terms of control groups, and when we see conditions improving, we’ll be able to ramp those segments back up again.

If I can add from a high-level perspective here, I think the way we've always constructed MercadoLibre is with a long-term view. We're not looking to maximize the size of the credit portfolio over the next 2 or 3 quarters; we are looking to build a healthy and sustainable credit book and business over 10 years. We’ve said from the beginning that we would slow down when we thought that the quality of the underwriting warranted that, and we would not put the credit organization under pressure to accelerate unless they are comfortable that it’s the right time to start ramping up originations again. So, we will continue to manage it in that conservative fashion.

Thank you. Also, one of the Fujikis made a way that would allow it to buy the loans as well as consumer and merchant loans. How soon could you start doing that, originating auto loans and funding them through the Fujiki channel?

Not sure I fully understand the question.

So, there was a change in the offering memorandum of one of your Fujikis improved in the last few weeks to allow it to hold auto loans. So the question was, are we going to see your Fujiki holding auto loans soon? How are they going to be originated? What was behind that change?

Okay, auto loans was the question; sorry, I apologize for not picking up that. We are going to take our time over the next few quarters to build out the product, user experience, test risk models. So, don’t expect a rapid ramp-up of auto loans. It is a segment we are interested in. It’s one that should ideally over the long run become one of the multiple credit segments we move into. But we are still in the process of building the product, enhancing the user experience, testing product-market fit, and gathering data for the models. So, it's not something that will be material in any way over the next few quarters.

Perfect, thanks very much for those answers. Thank you.

Thank you. One moment for our next question. Our next question comes from Neha Agarwala from HSBC. Please go ahead.

Hi, thank you for taking my question. Congratulations on the results. On your credit book, could you provide some light on how your underwriting models have performed across the geographies? Has one geography performed better than the other versus your expectations? And also across the different verticals, so across consumer loans and merchant loans. I noticed that the duration for the merchant loan book has gone down quarter-on-quarter. Is that on purpose? Or is that just what you’re seeing? And the second question, regarding secured lending products, are you looking to grow new secured lending products, like a collateralized credit card, given the current environment where you're being cautious with unsecured lending? Thank you so much.

I would say that let me start with the first part regarding the different geographies and different products. We have three main geographies and mostly two or three products—merchant loans, which are split into online and in-store, and then consumer loans. Each of those nine categories were profitable during the quarter. I would say that we saw more pressure on Brazilian consumers, which is where we were the most restrictive with regard to our loans. That was compensated for with higher profitability and higher margins in Argentina. Overall, our IMAL numbers improved for the quarter. We are happy with the results we have seen. Merchant margins also improved, both in Brazil and Mexico.

On collateralized credit cards or other secured lending, let me just separate this. This is not a consequence of slowing down unsecured lending. One of the beauties of MELI is we are not solely a financial institution that needs to grow the credit business in order to continue delivering growth and margin expansion. Credit for us is a business that serves as a driver of more volume, more sales, and more wallet adoption within our transactional businesses, but we're not under pressure to grow it because it is our core revenue stream. That allows us to pace ourselves going back to my previous answer. We are looking into secured lending products, like collateralized loans and credit cards, but those are all things that are in the future. Right now, some of those are being built, like the auto loan product. Others are just ideas, but eventually we will get there.

Perfect. If I can just follow up on that, have you been raising prices even in the third quarter for your loan products, passing on the higher funding costs or the higher risk perception that you have? Or are you largely done with the repricing initiative for the loan loans?

So, yes, there has been an increase in APRs as a consequence of anticipating certain deterioration of credit performance in the mid-risk segments. For the lower-risk segments, we actually turned those off in many respects. So, yes, there has been a price increase anticipating that weakening performance.

And we should continue to expect that in the fourth quarter as well? Or do you think you’re largely where you should be?

I think let's talk about the fourth quarter when we report it. It's still early in the quarter. Thank you.

Thank you. One moment for our next question. Our next question comes from João Soares with Citigroup. Please go ahead.

Thanks. Thanks for taking the question. Just two quick ones from my side. The first one, Pedro, you mentioned the profitability of the ad business currently at high 70s, low 80s EBIT margin. Can we expect – I mean, as this business changes, is this margin sustainable? How should we view this margin in the medium to long run? That's my first question. The second question is a broader question. When you consider you're basically stepping back on certain initiatives that have been dragging margins, right? And you're right now as you've revised the underwriting of the credit card business and reduced origination, you’re also likely lowering, at least as a percentage of net revenue, your provision. So, it seems to me that everything points to constructive margin at least in the medium run. What can you share in terms of those moving parts and how we should see those margins going forward? I know you don't provide guidance, but anything would help.

Sure. On advertising, we’ve said we are going to accelerate the rate of engineers allocated to our advertising businesses. We see very encouraging signs regarding how big this could be. There are strong product-market fit and good feedback from advertisers. This implies that as we try to accelerate the revenue base and the penetration of GMV, those investments could compress those margins somewhat. I think we issued the high 70s to low 80s as an indication that even with ramping up investment, this remains an incredibly accretive business. However, it’s fair to say that as we accelerate growth by investing more in R&D and engineering, you could see some margin compression. You’re right; we don't guide on bigger picture outcomes. What we've said is that we see continued review of our revenue streams and how many of these newer streams are negatively affecting EBIT margins, but we have confidence these revenue streams will grow into profitable businesses. We’re differentiating between fields where should continue to aggressively invest and others where we can afford to take our time. There are no changes in strategy or tactics, but we feel we can wait because they are strategically less critical. We have also made strong efforts to improve margin structures in some areas, and we're seeing favorable results, allowing for quicker reacceleration. We continue to aspire for growth and market share gains while increasing our EBIT generation on an annual business. That’s the financial model we strive to deliver.

Very clear. Thank you.

Thank you. One moment for our next question. Our next question comes from Sean Dunlop with Morningstar. Please go ahead.

Awesome. Thanks for the question. It sounds like we're fairly constructive on the macro at least given all those comments about Brazil, and it was great to see ongoing market share gains. I guess I'm just wondering how we can think about buyer health in some of the key geographies: Brazil, Argentina, Mexico? Any color regarding the cadence of spend during the quarter? If you saw a drop towards the back half and the last month would be helpful among certain demographics or geographies. To the extent that we did see a downturn, would it be appropriate to look towards 2014 to '16 or 2009 as an analog? Or are there maybe features of the business today that would render it more or less recession-resistant than these periods?

Great. Let me take those in reverse. Historically, our business has been resilient. We’ve never said countercyclical, but we do think that given the breadth of selection that a marketplace can offer in tougher macro conditions, consumers can trade down while continuing to shop from us. We need to see what happens. I wouldn't linearly extrapolate 2014 to 2016 because the overall percentage of retail—not just online retail, just overall retail—that MELI represents has changed significantly, so we need to see what happens. Importantly, the first part of your question, and again, it is still early as the peak period in Q4 is about to come. So we’ll see what happens, but we don’t see significant weakening in consumer spend so far. So far across most geographies, nothing significant to report. Argentina potentially is the country where we are seeing some weakening; elsewhere, nothing noteworthy at this stage, and we’ll address this further with the full fourth quarter results in February.

Hi, this is Chris checking in for John. Thanks for taking my question. Your marketplace has been gaining share in Brazil over the past year. Can you discuss what you think are the most impactful drivers of that outperformance? And what gives you confidence in the business' ability to continue those share gains going forward? Thank you.

We’ve been investing behind this business for over 20 years. I think we have an unparalleled tech team. If you look at the pace of innovation on the user experience over the last two years, it’s dramatically increased in quality and quantity of output, and our users begin to see that in the experience. We’ve expanded our selection and improved category management, resulting in market share gains in Brazil. Our data shows this on a consolidated basis and across most categories, reflecting more verticalized category experiences. The overlay of our logistics network is critical to this success, with nearly 90% of all deliveries in Brazil being done through MELI logistics, so we control most of the routing and experience. Mercado Pago is increasingly a differentiator in the marketplace, offering credit and payment ease. We are now reaping the benefits of investments made over the past five to six years.

Great. Thanks so much.

I am showing no further questions at this time. I'd now like to turn it back to Pedro, MercadoLibre's CFO, for closing remarks.

Thanks, everyone, for the questions. The whole MELI team has a big fourth quarter coming up, moving into the peak season. It's back to work for us, and like we said, we'll be able to go over the fourth quarter when we speak to you again in February. We look forward to that. Until then, bye-bye, everyone.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.