Mercadolibre Inc Q3 FY2023 Earnings Call

Hello, everyone. I am Martin de los Santos, MercadoLibre's CFO. For those of you who haven't met me, I have been at MELI since 2007, first as a Board member and since 2012 as a public management team. For the past seven years, I have led the credit business and last August when I took the position of CFO. I look forward to meeting as many of you as possible in due course. I am pleased to report a strong set of results in my first quarter as CFO with a successful third quarter across geographies. 2023 continues to show an attractive combination of growth and profitability with a record in income from operations, with strong momentum across geographies in both commerce and fintech. MELI’s revenue growth accelerated, with Mexico being particularly strong, with revenues growing above 60% year-on-year, while Brazil also posted a strong performance with around 40% growth. These two countries have again increased their contribution to our total revenues. This strong business growth combined with cost discipline led to OpEx and SG&A dilution as the business continues to scale. Income from operations more than doubled year-on-year for the fourth consecutive quarter with margins expanding once again. Brazil was the largest contributor to our profit growth, representing a significant portion of it. During Q3, in the commerce business, we saw acceleration in GMV and items sold growth in the three main geographies where we operate with higher items provided. This higher user engagement comes from continued experience improvements, especially on the logistics front where we reached 48% fulfillment penetration and offer better delivery promises, improving conversions and further development of categories in technology. As a result, we have a record of 50 million buyers and market share gains, especially in Brazil and Mexico. Mercado Pago's off-platform TPV accelerated in all main countries. We saw an increased number of users and higher engagement metrics as we position Mercado Pago as a comprehensive financial service provider. On the digital account, we are particularly excited about engagement with more people using the remunerated accounts and other asset management solutions in Brazil and Argentina and better NPS in Mexico from U.S. improvements. In payments, the highlight for Q3 has been online payment solutions represented strong growth across the region. The great business continues to perform within our expectations through very healthy spread levels as we saw NPLs improving, particularly in Brazil. We have accelerated originations in all of our products. During Q3, we issued over 1 million credit cards and surpassed $1 billion for the first time. As our underwriting models continue to improve, we can tap into new opportunities offering larger credit lines with longer durations with the best offers for consumers. Overall, in Q3, we achieved a combination of rapid growth, scale gains, and margin improvements, showing the strength of our economic model. To deliver these results, we have invested in technology that provides a world-class user experience and enables us to be more efficient in terms of our cost structure. These results give us confidence to continue investing in future growth opportunities. And now let me get back to Richard with business news.

During Q3, MercadoLibre launched our loyalty program, MELI Mas, an important step to enhance our loyalty value proposition with a simpler structure, more compelling shipping benefits, and premium video and audio content. With MELI Mas, we now have a brand in which we can invest to raise awareness and increase engagement with MELI's ecosystem. MELI Mas gives users access to a world-class content bundle, free shipping above R$29, and 12 months with free music from Deezer amongst other perks. Our content bundle for MELI Mas users includes Disney Plus and Star Plus as well as special discounts to subscribe to HBO Max, Paramount Plus, and Lionsgate Plus. Through Deezer, users can access a complete library of audio content and music, a service that we believe users will be able to enjoy on a daily basis. Users see the MELI Mas offering throughout our apps and website, where the value proposition becomes clear as they shop with us, with the MELI Mas logo clearly highlighted, building the brand of the loyalty program. The shipping benefits are key to the program. MELI Mas users get free shipping on millions of items above R$29, versus the standard free shipping threshold of R$79, if the product is in one of our fulfillment centers and chosen for delivery on the user's MELI delivery day. As consumers look for products on MercadoLibre, they will see the MELI Mas logo on the products that are eligible and they can filter their search for MELI Mas items. As a new delivery option, loyalty users can choose a specific day of the week to receive all of their packages. This solution enables us to sell and deliver lower value items with the great experience that MELI is known for, while maintaining cost discipline in our P&L. Users still have the option for same- and next-day delivery if they want their item delivered quickly, if they are willing to pay for shipping on items below the free shipping threshold, or for free for items above the threshold. To access all of these benefits, users can subscribe or earn their way in organically by engaging with MELI's ecosystem. Subscribing is quick and easy, and users can choose between a credit card, automatic charge from their MercadoLibre account, or a monthly invoice. So the subscription is accessible for different types of users. We're able to offer buyers the full benefits bundle for just the equivalent of two to three paid shipping charges. For users who earn points by shopping with MercadoLibre to get the MELI Mas membership, our credit card offers double points, enabling users to reach the loyalty status more quickly. In August, we launched a big marketing campaign to raise awareness of the program. Initial results give us confidence that MELI Mas complements our value proposition, bringing extensive benefits to even more MercadoLibre users. We're confident in the program's long-term potential because, as always, at MercadoLibre, the best is yet to come.

Hi. Thanks very much for the question and welcome again, Martin. Perhaps, Marcos taking advantage of your joining today. It's been a period of strength for the business. We've seen a lot of past year's investments flowing through to results. So as you look from here, say, over the next three to five years, I'd be curious to hear what opportunities you see for MELI that you're personally most excited about still. Thank you.

Hi, Andrew. How are you? Good to be here. Yes, we are really happy with the way the business has been evolving over the last 24 months at least. We're really growing nicely, gaining market share, and lately, also gaining scale and increasing margins. As you know, we don't guide, but there are many exciting things going on, particularly AI. That hopefully will enable us to provide our users a better experience, enable us to launch innovative ideas, and also scale and gain efficiencies, whether it be in customer service, fraud prevention, or in the way our developers—15,000 developers—go about developing and performing quality control, etc. So, obviously, looking forward to the next three years, I think that's a key thing to look into.

Yes, hi. Thanks for taking my question. Congratulations on the results. Marcos, also taking advantage of you joining the call. If you're looking at the KPIs that determine compensation across the executive team or leadership team, how do you think these will evolve from here, again, thinking maybe over a multiple-year basis? And asking the same question maybe in a slightly different way, are there any incrementally new KPIs to watch for as you go into this next phase of growth and investment or the Board feels should gain perhaps more importance to incentivize the right amount of investment versus risk-taking?

So, obviously, we try to compensate our—you know, myself and the key employees—based on long-term results, not on quarterly or even yearly—actually, our long-term retention program is a six-year program. And obviously, we are in a very dynamic environment and a very dynamic business. If you look at MercadoLibre six years ago, both in terms of scale but also in the scope of things that we do and where we are today, it is an extremely different company. And I expect that to be the case in the next six years. Whether it is in fintech, where we are moving into insurance that has already gained relevance and scale, whether it is assets under management that is growing strongly across all of our geographies, or our credit card business that didn't exist a few years ago and is now a very sizable business. So, obviously, there are new businesses that are coming along and that we expect to gain scale and scope. And as they do, they will have an impact on our results and in our compensation and in the KPIs, whether it is Mercado Play, which is our advertising-supported streaming operation or whether it's Clips, which is our short videos launch, both of which are gaining really nice traction. So, obviously, there are many things that we're doing. And as they gain scale, they become important in terms of KPIs and also in terms of results and compensation. I don't know if that answers your question, Irma.

Hi, good evening. Thanks for taking my question. I wanted to discuss a bit the profitability and margin. It was a very strong print that you had this quarter, above the previous one. In the previous one, you were indicating that you might give some back to reinvest in growth. But actually, things improved from the previous quarter. So I wanted to understand what happened that the improvement came, and how you see this trade-off going forward? Is there something new that allowed the trade-off not to happen and you to grow and have margins at the same time? I just wanted to touch on this point.

Thank you, Marcelo. It’s Martin here. Yes. In fact, we did have a great quarter in terms of profitability, reaching 18% EBITDA margin coming from last quarter's 16%. I would say that most of the businesses and countries performed extremely well during the quarter, particularly the 3P marketplace, which was the biggest contributor to margin improvements, but also the acquiring business, credit business, as well as the advertising business, in that particular order, also contributed to margin improvement. We looked at it by country, and most of the improvement came from Brazil, where we improved 12 percentage points year-on-year, and Mexico six percentage points year-on-year. Additionally, we gained significant scale by growing as we did, which allowed us to dilute part of our costs, which we manage with a lot of discipline. Having said that, we have been investing behind our business, which is the main goal. We think that we operate in an industry where we have a lot of investment opportunities that we need to make sure that we continue to look at the long-term prospects of the business. So we'll continue to invest in logistics, where we increased 6 percentage points fulfillment penetration. We also, in this particular quarter, as we launched MELI Mas, invested behind the brand to promote the new loyalty program. We continue to invest in smaller countries like Chile and Colombia. We have a team of 15,000 developers that continue to build our product, and we're investing in our own product. So again, we are managing the business, not to a particular target—margin target—but for the long term. But this quarter was a very good quarter, not only because we improved the margins, but also because we grew and gained market share, particularly in Brazil and Mexico.

I'd like to start a bit about the credit business in Brazil. You mentioned that you just accelerated the penetration in the longer-duration consumer products here. Can you please elaborate on that? Should we expect a shift in MELI's credit concession strategy in Brazil? And, so far, how have you been receiving the evolution of the credit quality of those new cohorts, please?

Hi, Maria. Yes, as we mentioned, we saw an increase in the spreads we are seeing in Brazil and, therefore, felt confident to increase the pace of origination in our consumer business there. We are—so far—we're happy with the results we are seeing, and we continue to accelerate the pace of originations. We have also increased the pace of issuing credit cards in Brazil for the same reason. We are encouraged by the results we are seeing and how, every time we create a royal, we have better credit scoring and solutions.

Hello, everyone. Good evening. Thank you for taking my question. My question is also on the FinTech business, please. You mentioned during the presentation the importance of credit card strategy to be the main financial provider of choice for your users. So in light of this, my question is, out of your almost 50 million unique FinTech users, how many clients see Mercado Pago as a principal digital account nowadays? If you have some percentage of principal-ity that you can share. And how much do you think you can achieve in the future, please? Thank you.

Kaio, we have not disclosed in the past principal-ity. What we have disclosed, and this continues to be the case, is that when we look at all of our users in a given country, particularly in Brazil, where we have more of our credit portfolio and more of our credit products launched, what we are seeing is a continuous increase in the number of products that our users are utilizing and in the availability, not only of consumer credit but also of credit cards. These two, together with assets under management, which are growing near triple digits in Brazil and Mexico and over triple digits in Argentina, are a key component of a user becoming principal. So all metrics are moving in the right direction. The other one is TPV generated, both by a credit card and a debit card. But we have never disclosed a principal-ity measure.

Sure, Kaio. So I think that—this is not the first time that this is discussed in Brazil. I think the jury is still out. There are many things that are being discussed. One of them is having a potential cap on interest rates. Another one is probably limiting, to some degree—interest-free interest rates. The third one is probably putting a cap on the interchange, and each of those would affect us in different ways. It's still very early. Until we have the details, we are not able to tell. We believe that the credit card is a key driver for consumption in Brazil, and probably that should limit how much that is affected.

I had two questions. Maybe a different spin on the first question, which is, Marcos, back in 2019, this was like a little over a $2 billion revenue business, doing like $1.1 billion in gross profit. And you're approaching like 7 times those levels now. So the growth through the pandemic, and comping the comps everything else, it's almost unprecedented, and yet you're growing at rates that are similar to where you were growing back in 2019. So I'm curious as you think about what's transpired over the last four years, if you can kind of frame how you see the mainstream in e-commerce because of the pandemic and how that may have benefited a market like Latin America uniquely relative to other markets versus drivers of the business that were more company-specific, like improvements in the e-commerce experience because of faster shipping times and things like that, or the benefits of having a broader ecosystem with payments. Just how you think of the components or the build of how this business has gotten so big, so fast, and just keeps growing at this pace. That's kind of the first question. And then the second one, if you could just talk a bit more about the advertising business in the quarter. I didn't—I may have missed it—didn't see the absolute amount. But if you can just talk about how that's trending and how you're thinking about the ad business longer term. Thank you.

Okay. Thank you, Scott. So, yes, COVID was—in general, around the world—very good for ecommerce companies, and the same thing happened in Latin America. We basically doubled during COVID in those two years—2021 and 2020. But unlike what happened in other parts of the world, we continue to grow at a very healthy rate, once life resumed to normal. We're very happy about that. We think that we had done, prior to 2019, many things. We had invested a lot of money and efforts on mostly technology, so we got us at the right time in the right place. We were able to benefit, I think, more than other players in the region when that happened. Since then, when we grew in scale, obviously, the power of the ecosystem is very strong, and we continue to add features and functionalities and products to this ecosystem, advertising being one of them. Financing on the credit cards is another one, insurance is another one, and more recently, all the content plays, whether it's our partnership with Disney and other great content providers that we are distributing through MELI Mas, or whether it's Mercado Play or our Clips. We continue to add features, functionalities, and products and brands. I think we have created something that is pretty unique in the region and around the world, and each part strengthens the other. We have a lot of scale. As you mentioned, we are seven times the size we were a few years back. More importantly, our growth rate is still very healthy, and we have a very strong balance sheet, and we intend to continue innovating, continue investing, and focusing on the next 5 to 10 years, not in the next three to four quarters. Then Ariel can give you more background on advertising.

Scott, Ariel here. So ads continue to grow well. We grew above 70% in revenue this quarter for the sixth consecutive quarter, with no major changes in strategy. We continue improving our product with feedback from advertising and promoting our solutions to different segments of sellers and brands. Product ads continue to be the main driver of growth, specifically from the self-service sellers, but we are seeing more and more traction from other segments as well. Overall, we had a quarter with 1.7% of penetration of ads as a percentage of GMV, but I think it's worth highlighting the case of Argentina. So structurally, given market dynamics, Argentina has a lower penetration. If you were to factor in the fact that inflation makes it even harder for advertisers to keep up with our GMV growth, and also the effect of having a bit lower demand from advertising in Argentina because of structural context, it's worth saying that if you were to take out Argentina from the equation, advertising penetration in our GMV would be roughly close to 2%.

It may actually be Bob Ford. Congratulations on the quarter. How much of the Brazilian GMV growth is coming from markets where you now have a distribution center and faster shipping within Brazil, or before you were sending that from Sao Paulo or a more distant location? And then what percent of GMV is now being delivered on a MELI delivery day? And where do you expect that to stabilize as we move forward? And then lastly, can you discuss your use of AI in search product recommendations and risk plays? Thank you.

Hi, Bob. This is Ariel. Thanks for your questions. I think we don't typically disclose demand data based on geographic segmentations or even logistics methods. But I would say that more and more we are trying to grow in both of the segments that you have highlighted in your first two questions. We are being proactive in trying to gain traction and market share in some of the regions where our market share today is underrepresented. That means that we do see increased demand coming from areas that are further away from our fulfillment center. Still, the main capitals and cities of Brazil do concentrate a big share of our demand. Similar trends happen with MELI Delivery Day. It's still super early days, so not much data to be shared on that regard. But I do want to say that it's slowly gaining traction, of course aided by the launch of MELI Mas in Brazil and Mexico. So more and more, we are seeing consumers actively choosing the MELI Delivery Day as a way to receive their packages. With regards to AI and search, we are working on that. We are putting a lot of effort into building solutions around AI. I don’t have much to disclose as of now, but search, reviews, questions and answers, buy box products, and products are areas we are closely examining.

Building on that, we have been using AI for a long time now for many years, both in terms of fraud prevention and credit scoring. Both are ideal use cases for AI, because we have millions of transactions every day with a clear outcome—either fraud or no fraud. With the right variables, we can build a very strong model that has predicted and ensured best-in-class fraud prevention. Given the experience we have built through credits, we have also built our credit scoring models leveraging AI.

Makes a lot of sense, Osvaldo. It seems like with the larger data lakes, faster processing speeds, and more sophisticated LLMs, it just gets better. And then, Ariel, just to follow up, can you comment a little bit in terms of where you do have consumers choosing a delivery day? Are you seeing materially improved densities and improvements in terms of average shipping costs? Or is it still a little bit too early to discuss?

Yes, I think it is early to discuss. We are seeing some efficiencies in our operations driven by the fact that we can consolidate shipments and take advantage of some of our idleness when we operate. However, I would say it’s too early to share specific data on that. Again, the variables are moving in the direction that we expect but too early to share numbers behind that.

Good evening. Thanks for taking my questions and congratulations on the great quarter. I'd like to ask maybe a two-part question on cross-border. So in Mexico, I think your shareholder letter cited you grew very strongly there, which is interesting because I think Temu only recently entered the country and is also seeing some strong adoption. So could you discuss how you see the cross-border market in Mexico evolving? Is it that Temu's entry is actually growing the pie for everybody? And the second part of the question is, how might this inform your strategy in Brazil where I understand your cross-border penetration—the mix relative to your GMV—is very low, but that presents an opportunity for you? And then I have one other question.

Thanks, Marvin. So before going into the details, first and foremost, over the last 24 years, we've always been competing with players from all over the world. In a sense, we are used to having new entrants trying to capture a pie of Latin America. We've seen Temu enter Mexico, in particular, in May, more or less, and we've seen them making progress in app downloads and monthly active users. They seem to be spending a lot of money on marketing on social media, trying to get consumers to download their app. We are, obviously, monitoring that closely. But our data suggests that there is a bigger overlap between that business and other cross-border platforms. Our business continues to perform well, as shown by the acceleration of items sold to 38%. Unit growth has been strong across the board, including categories where some of those players are focusing on and all ASP ranges. Our competitive advantages remain untouched, particularly logistics, which enables us to deliver fast shipping, and payments, which allow us to provide attractive financing to our users. So, in the end, our playbook remains the same. We continue strengthening our business with more sellers, more brands, more assortment, more financing, and faster delivery. We also continue investing in improving our own cross-border trade capabilities. With MELI Mas, we think we are also now offering free shipping on lower-ticket items, which was not the case in MercadoLibre until two months ago. Moving to the second part of the question regarding Brazil, I think the cross-border market is still too new. It’s hard to say. We have applied the program and got accepted just a few weeks back, so there’s not much to share. But we remain confident, as I was saying about Mexico, that the combination of fast deliveries, local payments, and financing, and a strong brand trust will continue to differentiate MercadoLibre versus our other companies. We will continue building capabilities to compete in cross-border in Brazil, as we are doing today in Mexico, Chile, and Colombia.

Sure. And just my follow-up, a bigger picture question. I think it was a very strong quarter in terms of acquiring more fintech active users. I was just curious beyond what you wrote in the shareholder letter, could you elaborate on what’s driving that? Was it more internal initiatives? Or do you think it was some component just from the broader economy and whatnot? So just would love some color there. Thank you very much.

I think there are several factors contributing to that. One of those is our remunerated account, both in Argentina and in Brazil, which is doing very well. What we pay our users depends on what the risk-free rate is in each of the countries. In Brazil it's around 13%; in Mexico around 10%. In Argentina, given the recent spike in inflation and interest rates, it has been close to 100%. This gives users a huge incentive to move out of banks with savings accounts, which many times pay zero, or only pay after 30 days, and move their money into Mercado Pago. I think that has been part of the driver. Another part of the driver has been, as we were saying, the increased availability and offering of credits that we're providing, particularly in Brazil and Mexico—not so in Argentina, where we have been cautious given this rate environment.

Great. Thanks. On the MELI Mas subscription plans, is there any color that you can share on initial subscriber counts here in the first two or three months? Is that ramping as you expected? And then, second question, can you give us an update on where we are in terms of logistics monetization? I realize you've indicated it will be gradual over a number of years, but just any update over the last few quarters would be helpful. Thank you.

Thanks all for your questions, Martin here. I think it's too early to tell. As Ari mentioned before, we launched this program a few months ago. We are seeing good engagement with the program as well as with the MELI Delivery Day, but it's too early to share numbers in terms of adoption. I think in the coming quarters, we will share more information, but we are excited about the program.

Yes, Trevor. So on monetizing shipping, I think our Q3 results and our year-to-date results show that we have been able to pull levers to offset some of the headwinds that we have in shipping from higher inflation rates in the logistics environment and higher fulfillment penetration that has helped us keep our total net shipping costs over GMV broadly stable in 2023. I mean, we still think that we have plenty of opportunities to improve our net shipping costs by focusing on productivity, efficiency, and scale benefits. But we also want to incentivize more sellers to use our fulfillment solutions, particularly in Brazil. So, in all, there is potential to monetize fulfillment, specifically in the future, if we decide to do so. But, as we have always said, we are not in a rush to do that. We are always mindful of what monetization might imply for consumer prices and competition.

Hello. Thanks very much for taking the question. I wanted to touch on the offline POS business in Brazil. It looks like fintech services take rates were down a little bit. We saw that you rolled out some pricing there that is cheaper for the merchant, but clearly, it's less beneficial for you in terms of the MDRs that you're charging. Can you just remind us, how does that offline POS business fit with the rest of MELI? What is the synergy there? And then if you’re thinking out 5 years, 10 years, how is that going to fit into the rest of what you're doing? Does it still really make sense for that business to be a focus? Or is it something that could become smaller over time or maybe doesn't make sense to keep over time? Thank you.

Hi, Geoffrey. We see the POS business, the in-store business, as a big part of our fintech offering. We allow merchants to charge with Mercado Pago offline. Some are very small merchants, some are SMBs, and even some are larger merchants. We've been able to provide this solution in, I'd say, a very profitable way, and we continue to do so. The profitability behind our POS business has been very good throughout the quarter. We have seen some changes as we move upmarket. Some of that is related to changing our go-to-market strategy. As we attract larger merchants, we're offering lower processing fees. It's better for the merchant because they have lower fees, as you said, but it's also good for us, because we see higher activation rates and higher TPV per device. So while we may be getting a lower margin in terms of margin on top of TPV, we're achieving larger margins per device sold. Therefore, I think this continues to be very good for us. I'd say I'd add that on the POS front, in this quarter, we have been making changes beyond pricing in terms of our go-to-market strategy, and we are very encouraged by the results we're seeing, again, in terms of activation and TPV per device.

Thank you so much, and congratulations on the strong quarter. Just two quick questions. First, on the 1P business, we talked earlier in the year about some acceleration, gradual acceleration in the 1P business. How is that going? And what is the vision going forward? And my second question is on the credit quality. There was a little bit of an uptick in early delinquencies. Could you explain to us where that is coming from? Despite some pickup in the loan growth, maybe Mexico is not doing as well. So if you could talk a little bit about the early delinquencies and about how the portfolio in Mexico is performing, that would be very helpful. Thank you so much.

Hi, Neha. This is Ariel. So 1P grew 58% year-over-year on a consolidated basis. If you were to look at this by country, Brazil actually grew considerably more than this. The way we think about it is that 1P remains a strategic priority for us. We see this as a key lever to compete and gain market share in certain categories, particularly consumer electronics. We are very happy with the transformation of our 1P business over the last 12 months. We've had major improvements in our ability to manage pricing, promotions, and stocks with the help of technology. We have also seen significant improvements in how we connect and relate to suppliers and negotiate with them. We think all these progresses are structural gains that will put the business on strong footing for long-term growth and market share gains. So we remain optimistic and will keep investing behind that business.

Neha, regarding NPLs in Mexico, let me split that into two. On the merchant side, NPLs have remained very flat. The spreads are very healthy, so we see very good results. As for the consumer side, they have increased a little bit, but by design. What happened is our spreads are very healthy. We decided to take a little bit more risk and to increase the amount of originations, and that usually comes with slightly higher NPLs. However, those have been priced in to the rates we are offering. Thus, spreads continue to be super healthy in Mexico, and this was part of the strategy to grow faster, even though NPLs may increase; it is priced in already.

Perfect. If I can follow up on the 1P. Could you give us some numbers regarding the penetration as a percentage of GMV, where it was at the end of last year and where it is now currently—just to get an understanding of the pace of growth? Thank you so much.

Yes. So penetration keeps improving, particularly in Brazil, where we are in the low or mid-single digits, around 3% or 4% penetration. Again, we are extremely happy with the progress that we've made so far, and we'll continue investing in growing the business while also improving our profitability, which has been the case this quarter.

Thank you. Hi, everybody. I have two questions here. One, the first one, I just wanted to hear a little bit about Black Friday preparations. We've been hearing a lot of news about how excited the company is, and maybe talk a little bit about any expectations in terms of the winning categories here—any granularity in terms of our expectations? And the second question is talking a little bit about the 1P, just to follow up on that. In regards to profitability, you talked about in the press release about improving profitability. So I wanted to hear a little bit about where we are right now and where you think we could be. I know the company doesn't guide, but any qualitative message on this would be appreciated. Thank you.

Yes. Thanks, João. This is Ariel. So Black Friday preparations keep us busy for sure. We are extremely excited about the way our company has been performing, and we expect to have a great big season. All of our teams—commercial, marketing, shipping—they are all preparing to continue the inertia that we had this quarter and this year and have a great event both in Black Friday, Christmas, etc. We know this is a relevant moment for our consumers, and we want to be there to satisfy their needs. Regarding profitability, as I mentioned before, we see very strong profitability improvements, particularly in Brazil. We are getting smarter in the way we buy, having better negotiations, which give us better terms. We are getting better at managing inventory, so our days of stock are getting better and hence, our working capital as well. We are also getting smarter in the way we price the items we sell, and we are working a lot on taxation efficiency, which is key to compete in Brazil. So again, we are moving and pulling all the levers to make this a strategic and profitable business for the company. We are not there yet, but we'll continue working in that direction.

Great. Thank you so much. Hi, guys. A couple of questions. First, can you give some additional color on the improved loyalty program? What are you seeing in the early days in terms of frequency, average spend compared to a non-member from the program? I know it’s in early stages, but any color there would be great. And then the second one, the Central Bank interest rate is coming down in Brazil consistently. We just saw another cut today. Can you remind us of the implications of this to your business on profitability? I guess, I mean we can wait for the Q to see the financing revenues. But wondering if there is a way you can help us with the benefits to EBIT from the dynamics in the last few months. Thank you so much.

Hi, Deepak. Ariel here. So we don’t disclose specific data on MELI Mas yet. But on the one hand, our old loyalty program, L6, already generated an increase in frequency and GMV per buyer whenever they decided to subscribe to our program. We are seeing the same, or an even better trend with the new subscribers who are joining our MELI Mas program and with the existing subscribers who are getting used to the new benefits and the new value proposition of our program. So in general terms, we are excited about the engagement we see on the platform. Again, it's too early to say. Communications have just started. Our product keeps evolving. So we have many things to continue working on to make customers even more aware of all the benefits and how they can interact with that program. So, excited, but I don't know, hopefully, we’ll be able to share more details in the next call.

Regarding interest rates coming down in Brazil, it tends to be good for us for several reasons. Mostly, on the marketplace where interest rates are lower, we tend to see more transactions on those transactions where we charge our interest rate. The price tends to be lower for us, so profitability improves. On the fintech side, I would say it's also positive but closer to neutral because many times what happens is competitive pressures make it necessary for us to pass those savings to merchants. That has been the case when rates increase, and will probably be the case as we decrease. Overall, it's positive for us.

Hi, guys. Thanks for squeezing me in here at the last minute. I just wanted to quickly ask about credit. So last quarter, I think there were comments about expanding lending into mid-risk segments—not higher risk segments just yet. I wanted to ask what you were seeing there? Were there any surprises or adjustments that you encountered?

Actually, that is exactly what we're doing. We have been increasing originations in Brazil, both on the consumer credit side and credit card side. On the consumer credit, probably what’s happening is, to some degree, we are—remember, up until a year ago, we were issuing more credit, then we became more restrictive. So you don’t yet see this impact in terms of the total portfolio. But originations are up, and we are expanding, as you said, into the mid-risk segment. On the credit card front, we have been able to expand our offering, addressing this mid-risk segment and incorporating more information from third parties into our models.

Thanks, everybody, for your questions. I'm looking forward to reporting back to you next year with our fourth-quarter results. Good night.

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