Hello, everyone and welcome to MercadoLibre's Earnings Conference Call for the quarter ended December 31, 2023. 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&A session with our CEO, Marcos Galperin, Chief Financial Officer Martin de los Santos, Fintech President Osvaldo Gimenez, and Commerce EVP Ariel Szarfsztejn. Before we go on to discuss our results for the fourth quarter of 2023, I’ll remind you that management may make or refer to statements 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. With that, let’s begin with a summary of our results. Hello everyone. I’m delighted to share that MercadoLibre delivered solid results in Q4 marking a strong conclusion and outstanding year. Overall, 2023 highlighted the strength of our financial model and its future potential, as well as the powerful impact of compounding several years of investment in technology. For our commerce business, it was a year of accelerated growth and market share gains in most countries. We achieved this by continuing to make improvements in the value proposition to buyers and sellers in our marketplace. I would like to highlight three important initiatives that contributed to our success in commerce. We continued to invest in having the widest product assortment in order to offer the best buying experience to consumers. A key contributor to this was the acceleration of our first-party business, particularly in Brazil, where it grew by 81% in 2023. We continued expanding our logistic network with record fulfillment penetration of almost 50%, which provided an improved user experience to our buyers. This resulted in faster shipping and fewer late deliveries, particularly around the Christmas season. Our ads business continues to deliver impressive results, growing revenues at an accelerated pace. In 2023, we onboarded almost 50,000 new advertisers who appreciate the value of promoting their products on our platform. On the Fintech front, Mercado Pago maintained strong momentum as users and merchants continued to adopt our services. In the acquiring business, we delivered solid TPV growth and gained market share in most countries where we operate, both online and in-store payments. We made improvements in approval rates and deployed new features that enabled us to move upmarket, enhancing the value proposition to SMBs. In Fintech services, we expanded our product offering and made improvements to user experience. The increased engagement with our products resulted in Mercado Pago achieving the milestone of surpassing for the first time 50 million active users in a single quarter. The credit business continues to be an important piece of our Fintech strategy, and it delivered another quarter of strong results with accelerated growth and solid spreads as we continue to cautiously manage risks. During Q4, Meli delivered strong financial results. Revenues grew by 42%, accelerating both in Fintech and commerce due to the strong execution during the peak season and investments we made throughout the year. For the quarter, we delivered a 13.4% EBIT margin, excluding one-off expenses from previous years as explained in the letter to shareholders. This represents margin improvement from Q4 of 2022 while we continue to invest in building a logistic infrastructure, supporting our MELI+ loyalty program, as well as expanding our credit card offering. Following our strong financial performance in 2023, it’s a good time to reflect on the journey over the past six years. During that timeframe, we multiplied our revenues by 10x while achieving significant improvements in profitability, culminating in nearly $2 billion of operating income in 2023. In recent years, we have increased our investment in technology, which enabled us to launch multiple products and services and make significant improvements in user experience. We have grown our development team by more than 10,000 in the last three years alone and currently have 16,000 engineers who are constantly working to create the best experience for our users. We remain committed to our technology-led strategy in order to continue delivering sustainable results for Meli. We enter 2024 with optimism about our growth opportunities and confidence in our capacity to continue to execute on our strategy. Now, back to Richard to share some product initiatives from 2023. As a technology company with more than 15,000 developers, launching products and features is at the heart of our business as we continue to innovate. Innovation is about new products and businesses, but it's also about being attentive to and passionate about detail and solving multiple small customer pain points that compound into a great user experience. 2023 was no different. We've launched several new products and services such as the MELI Mas loyalty program, Meli delivery day, credit cards for consumers in Mexico, and businesses in Brazil, amongst many other things. We've also vastly improved our core products with several new experiences that build onto our value proposition as we continue to strive to offer our users the best experience. Today, we want to share some of this year's highlights. In commerce, we continued to look at the specific needs of each vertical to improve the user experience as we believe this will drive offline consumption online. In 2023, we considerably improved the navigation in fashion, apparel, and sports with standardized filters across brands and sellers. This enables consumers to find what they need more quickly. On the product pages, users can also see the 'more like this' section to find similar items to a product that the user has clicked on rather than simply going back to the search results. This feature is powered by artificial intelligence. AI-based features are already an integral part of the Meli experience, with many innovations launched in 2023, including a summary of customer reviews on the product pages that concentrates the main feedback from buyers of that product. On beauty product pages, a summary of products, functions, and characteristics is automatically created that facilitate buyer’s choices. Push notifications about items left unpurchased in shopping carts are now highly personalized and remind users why they may have chosen to buy a particular product. We have also added an AI feature that helps sellers to respond to questions by preparing answers that sellers can send immediately or edit quickly. To deliver a better experience to our sellers, we launched a new version of the seller hub where they can see all of the promotional campaigns available for them to participate in. A new pricing tool also enables sellers to easily compare prices with competitors and similar products and receive insights and recommendations on how to boost sales. In 2023, we also re-launched our ads tech stack. An automated buying platform was launched for display ads accompanied by live reports and unique insight analysis. We enhanced our bidding algorithm for product ads and introduced new placements on search and product pages that give more visibility to sponsored products. Our brand ad solution was also launched as a mid-funnel campaign option to enhance consideration for brands. Our platform also now includes a feature for agencies to be able to manage different brands through the platform. Brands, sellers, and official stores can delegate certain products or even the whole assortment to a specific agency. The agencies are now available to manage all accounts delegated to them in one place. And to expand the possibilities given to advertisers, a new pool of custom audiences was launched and later expanded, enabling advertisers to use filters to create an infinite combination of audiences for their campaigns. Finally, in advertising, MELI Play was launched as an ads-based streaming platform. Through a revenue share model with studios, we were able to offer free content to our users across the region, enabling us to explore a new revenue stream for ads. In logistics, most of the technological improvements were behind the scenes and were crucial in helping us to maintain costs broadly stable as a percentage of GMV whilst expanding fulfillment penetration. We optimized routes from first to last mile, fulfillment-centered processes, and demand prediction. On the UX front, buyers are now notified that their package is being delivered and can follow it through their app. And for sellers that adopt fulfillment, an enhanced tool to manage inventory brings more technology to the process, flagging products that need to be replenished, how many units should be sent to us, amongst other things. At Mercado Pago, we continue to innovate as we consolidate our position as one of the region's leading Fintechs. In the acquiring business, the launch of the Mercado Pago tap brings a free POS option to merchants by turning their cell phones into a tool to receive payments via NFC technology. We also improved the pairing process of mobile POS devices with merchants' cell phones and worked behind the scenes to reduce processing times, which had a positive impact on NPS and helped to improve the experience of merchants and buyers. With more personalization in the Mercado Pago app, our seller homepage now prioritizes the features that merchants most need on a day-to-day basis. In Fintech services, we continue to search for ways to facilitate financial inclusion. We expanded our credit card offer to Mexico and launched our collateralized credit card solution in Brazil, where the user receives a credit limit equivalent to the value of funds deposited into their account. These products enable consumers to start building a credit score and take advantage of the possibilities that a credit card brings for many for the first time ever. Innovations in credit enabled us to attract new users. For merchants, we now offer a business credit card using Open Finance to contribute to scoring. For consumers in our lower-risk cohorts, a new product enables them to opt for larger, longer-duration loans in our app, personalizing the loan to their needs and expanding the use cases of our credit product. As our product stack expands, we have focused on facilitating and simplifying navigation around all of the different products available on Mercado Pago. Our digital account homepage combines the most used features, such as transfers, credit limits, investment positions, and insurance, adapting to the user's profile. We have seen increased traffic to all of our key digital account products as a result. Digital account users in Brazil can now see a summary of their monthly activity on a personalized report, an enhancement that brings more information to the user about their finances. The report also highlights new offerings that may be useful to the user, such as our certificates of deposit and investment funds, alongside credit products and our remunerated account. All of the innovations offered by MercadoLibre and Mercado Pago continue to have a deep, intrinsic impact in Latin America by generating economic and financial inclusion for entrepreneurs and individuals. A recent report in partnership with Euromonitor shows that MercadoLibre is the main source of income for 1.8 million families in the region and that for 54% of users in the region, Mercado Pago was the first digital payment method available to them. This was just a snapshot of the innovations delivered by our teams in 2023. In 2024, our users can expect even more because there's always a MercadoLibre. The best is yet to come.

Thanks very much for the detail and for the question. I'd like to dig in a bit on the logistics network. We see that the net shipping fees and some of the shipping costs look like they were a bit more of a drag than in recent quarters. So I was wondering if you could help with what changed sequentially, whether it was more seasonality or if there have been, let's say, sequential changes in investment areas such as shipping campaigns or DC builds in the quarter. And then perhaps zooming out a bit on the logistics network, how do you think about the state of the network, where you are for shipping fees, and how do you think about the intensity of investment in those areas for the year ahead versus 2023? Any comment there would be very helpful. Thank you.

Through compared to last year, lower delay rates, more fulfillment penetration, particularly in Brazil, and more free shipping coming from Melimise together with a network that has expanded over the year and particularly in Q3. So going to your specific question about margin compression or sequential margin compression, we also experienced some cost pressures during Q4 that you will see revert in early Q1. And basically, those headwinds in Q4 come mainly for the following reasons. Number one, this is the first quarter in which Melimise has been fully operating. And that means that we have increased the level of free shipping offered in Brazil and Mexico. I think we've discussed before Melimise is a strategic and long-term investment that we think will continue increasing loyalty and driving incremental orders and GMB. So it's a conscious investment on our part. Second, I think the growth of 1P in our business, whose GMB was 50% higher quarter-over-quarter in dollars, also acts as a headwind basically because there are no sellers paying for shipping revenues given that we are the sellers in the case of 1P. I think that's going to mention point number three. In previous quarters, we flagged that some of the shipping gains in terms of take rates were due to the negotiated postponement of cost increases from our suppliers after already having passed through higher prices to sellers at the start of the year. And those costs are now hitting our P&L as we were expecting. And on the fourth, I think Argentina also added some pressure as we decided not to fully pass inflation through to our prices on the spot in an environment with accelerated inflation and a lot of uncertainty in the market. Of course, then you have peak season, which is the biggest component of the sequential compression of shipping costs. There is a ramp-up in capacity to be able to attend demand coming from our buyers. There is also an increase in unit costs coming from labor hours and bands and truck drivers, etcetera. And that is the biggest component of the sequential compression, which you will see probably revert in early Q1 in 2024. Finally, and just to wrap up on this first part of the question, it's also important to note that we were expecting most of these increases in costs, and that is one of the reasons why we decided to increase our flat fees. So the charge that we make to the sellers when they sell items below the free shipping threshold. If you recall, we increased that fee in Brazil in approximately July or August, and we did the same in late Q3 in Mexico. And this is one of the levers we have used to manage our shipping P&L as well. And it's a good example of how we manage the profit and loss of the company in a consolidated manner and not on a line-by-line basis. So to your second part of the question, I think, as we've been saying many times, in the long run there will be opportunities for us to continue monetizing our logistics network. We are not desperate for that. We think long-term not only in monetization but also in remaining competitive in terms of prices to our buyers and to our sellers, and we are conscious on how to execute around that opportunity.

Very helpful color. Thank you.

Hi. I hope you can hear me well. Connectivity has been a bit patchy. I have two very quick questions. Firstly, on Mexico, sequentially the margin was a little bit lower into the fourth quarter, which is obviously to be expected given the seasonality. But 1P, I think, plays less of a role here. So I was wondering if you could just elaborate on the drivers here. I imagine some of the logistics capacity ramp-up has to do with that. But is there anything else that we should be mindful of? And then on the commerce take rate, this builds a little bit on the earlier question, but we also noticed that there was a sequential decline quarter-over-quarter. And it is just basically sort of a reflection of, and I'm excluding 1P here, but is that just mostly really a reflection of category mix and logistics? And is there anything else at play that we should – in the revenues and shipping revenue dynamics that you just described – that we should be mindful of, especially as we look into 2024 and think about this line, whether there should be further compression coming into the commerce take rate? And maybe, sorry, if you can also add to that the influence that lower funding cost of rates that should be positive for the take rate. But I don't think we saw much of an effect, if I'm not mistaken. So if you could just also speak to that. Thank you.

Hey, Irma. Ariel here again. So on Mexico's sequential compression, I think you were spot on with some of your hypotheses. And it relates to what I was explaining before. So everything that I just described about operating in peak season, with building capacity before the event and increasing unit costs is actually more complex in Mexico for two reasons. On the one hand, in Mexico, during Q4, we opened three fulfillment centers and one cross-docking station, a big cross-docking station. As we've been pointing out over the last few quarters, we have a capacity constraint there that we need to fix. And of course, whenever you open new warehouses such as these ones, the ramp-up process is a bit costly. And that's part of what has happened over the quarter. Secondly, our existing warehouses were operating at maximum capacity. And that also puts an extra pressure in terms of productivity for our fulfillment operations. So in the end, there's nothing that we were surprised about. We are managing the cost and the performance of the network. But we think we are in good shape for the future. So no comments on the second part of the question on some things that you should expect or that we should call out there.

Irma, it's Martin here. Regarding the funding cost being lower, it should benefit the credit business, of course, because it lowers the cost of funding for that operation. So that should improve margins. And it also should help us on both the commerce side as well as the Fintech side, because it lowers the cost of discounting coupons. So that should result in improvements in margins.

So probably, let me be clear on that, Martin. Probably, you will see more of an impact with regards to the marketplace, where the fee we charge for including installments is fixed on the Fintech side of business. On the acquiring side of business, many times when the funding cost is lower, we end up passing some of those savings to consumers. And that is not as straightforward in the marketplace. Thank you, Irma.

Good evening, everybody, and congratulations on the quarter. I was curious, how should we think about service transfer pricing and the recurring tax impact on profitability? And when it comes to advertising, how should we think about ad penetration rates in 2024 and the receptiveness of the product stack with larger display advertisers now that they've had time to really understand the product and maybe build their budgets coming into this year?

Hi, Bob. I think you're referring to the withholding, the incremental withholding tax that we started booking this quarter, as we explained in the shareholder letter. I think if you, obviously, it's a big charge, and this is the reason why we excluded it from the results, to explain results, because it generated a big distortion in Q4 results. That's to put in perspective a full charge of roughly $350 million. Only 6% of that corresponds to this particular quarter. The way to look at that is by roughly, I would say, $20 million incremental cost per quarter will resolve for this incremental tax that we're going to be starting to provision from now on. Just to complement that, keep in mind that the $350 million one-off charge was fully funded because throughout the last 10 years, we're funding a judiciary account with those amounts. So if in the event that we lose this case, we will continue disputing it. In the event that we lose it, it will not have a material cash impact on our results. So in summary, I think it's about $20 million per quarter, the impact going forward.

Bob, this is Ariel. So going back to your question on advertising, I think, start by saying that we are extremely pleased with the ad result from the quarter. Our revenues grew 72% year-over-year on an FX neutral basis. It's the seventh consecutive quarter going above 70%, and that's driven mainly by Brazil and Mexico. I think as we mentioned in our shareholder letter, we added 53,000 new advertisers this year, and this is a great achievement and shows how strong the level of interest in our product is today, and we expect to build on that in the coming quarter. On sequential penetration, I think while ads continue to grow at a very fast pace, GMV accelerated at an even faster pace this quarter, and it is the case that ad revenue does not necessarily follow a one-to-one growth pattern with our GMV. Particularly during Q4, our GMV accelerated from 59% growth in Q3 to 79% in Q4, and it's worth maybe highlighting the case of Argentina, which represents 20% of our GMV but only around 10% of our ad revenue. That's the main factor for sequential penetration. In such a high inflation context, the lack of stocks in the seller's hands disincentivized some of the ad investments, and simultaneously, advertisers were not necessarily updating their investment amounts together with their item prices, and for that, we did already deploy some features that automatically update ad budgets whenever there is an inflationary context in item prices. So, as I was saying before, we remain extremely confident in our product stack, and we see ample opportunities for growth in the coming years. Regarding display, it's been not so long for our current product format to be live, and we are going through the learning curve in terms of go-to-market strategies, as well as the brands learning about branding possibilities in MercadoLibre. So, we believe in the product that we have, in the value proposition we are offering with display ads as an awareness tool for one of the largest audiences in Latin America, but we need to be patient, and we think that we can continue building on the product we have to gain even more traction and make a display an even bigger business for MercadoLibre and for our sellers.

A very helpful idea. Thank you so much.

Hey. Good evening. Thanks for the opportunity. So I have one question on the credit portfolio, please. I saw your origination was much higher this quarter, and you mentioned that your own credit card is one of the most used on your platform, I think among the five most used. So I just would like to have a sense of how much of this origination is coming from the credit card, and how are you seeing the contributions specifically of the credit card in your GMV today? In other words, what's the level of GMV penetration today versus one year ago? And finally, what makes you comfortable with the credit card origination today? Because we are already seeing some spikes in short-term NPLs, which is attributed to this product. Thank you.

Hi, Kaio. Let me start by the end, and then I'll go back to the first questions. With regards to what makes us more comfortable, we first launched credit cards in Brazil three years ago, and we have been iterating the models we use to score grades. We have done many iterations, several every year. And with each iteration we do, we get better results. We saw the credit situation overall in Brazil worsen a year and a half ago, two years ago. So we were more cautious. And now, throughout last year, we started feeling more and more comfortable, and we have been increasing the amount of origination in Brazil. And also, we launched a credit card in Mexico, and we've been, I would say, aggressive in rolling it out. When we look at, as we say in the shareholder letters, when we look at total payment volume for our credit card, year-over-year, it has grown well above 100%. So we have been aggressive with regards to that. In terms of portfolio, there has been high origination. We have not disclosed the origination amount, but we have disclosed the total portfolio. And you can see how the chunk coming from the credit card is growing. It has reached $1.2 billion, which is nearly 100% growth versus a year ago. And on top of that, I would say that the credit card is growing in exactly the way we expected it to grow. We are expanding in the lower segments and also starting to have a little more traction in the higher segments. And the penetration we see in the marketplace is growing in Brazil and in Mexico. Most importantly, when we look at the total penetration of credits in the marketplace, which adds our consumer loans and our credit card, it is growing significantly. So it's not that we are cannibalizing consumer loans with a credit card, which has probably lower profitability per transaction, but rather that we are adding to that number.

Okay, thank you. Can you share the level of penetration nowadays in your platform?

I would say this is, we have not disclosed the precise level. We can disclose that this is the largest means of payment we have today in Mexico.

Hello, everyone. Good evening. Thanks for taking my question. So I would like to explore the profitability of the 1P operations in the release you mentioned that you achieved better profitability trends, despite the seasonality of the business in the fourth quarter. So can you please give us more granularity on how the contribution margin of the business has been evolving lately? We feel that the accelerated growth of the category has been allowing you to have better negotiations in terms of suppliers. And how do you feel about the growth potential of the channel going forward? How far are we from reaching an optimum stability level in the division?

Hi, Maria. Thank you for your question. Yes, we have made significant progress in the 1P business throughout the year, and we feel that we are a much more sustainable footing today than we were a year ago. As you say, we made improvements on margins. We look at our product purchase margin has improved a few percentage points in 2023, and we expect to continue improving that. That gave us the confidence to grow our business, and we did grow it in Q4 by 60% year-on-year in dollars and 85% in local currency, taking advantage of the obviously the peak season that we had in Mexico as well as Black Friday. So we are making significant progress. As I mentioned, one way of looking at the 1P business is obviously we don't share the actual profitability of the business, but I can give you some guidance in terms of how we're doing. If you were to look at the 1P business now, it is profitable before considering fixed costs and including all variable costs, that is shipping as well as financing. So one way to look at it is the more volume we have, the better we dilute the fixed cost of that business. So we are at a point where we feel that we can scale the business and should start to contribute to lower the deficits that we have in terms of area. Finally, we think we have plenty of room to continue to attach more advertising to that business, and that creates a big opportunity to continue improving the profitability of 1P.

Ariel here, just to complement Martin. So we continue to think that 1P is strategic in order for us to sustain our competitive position, gain market share, and more importantly, satisfy customer demands through better selection and price competitiveness. So we continue to be strategic in deciding which categories and products we serve with 1P while simultaneously optimizing our consolidated P&L. So while we don't have a specific target regarding 1P penetration for the future, we are encouraged by the progress we've made in terms of profitability, in terms of supplier relationships and operating processes. And the more confident we feel about that, the more probability that we could scale in the future, and the bigger we get, the more benefits of scale we will capture, as Martin was saying just before. Having said that, there is seasonality in terms of category demand and the role that 1P plays in the different categories, particularly consumer electronics was a high demand category during the big season, and it's one category where 1P plays an even more strategic role for us. So to wrap up, we have many initiatives in place to continue improving our retail business, both in terms of economics as well as in terms of selection, price management, and supplier relationships, and we'll continue to work on that.

Great. Thanks. First one, just to build on the earlier question on advertising, can you remind us where we are in terms of penetration on a geographic basis? I think to your earlier comments, advertising may be remaining softer in Argentina and perhaps stronger in Mexico and Brazil. Just any numbers to help kind of frame the progression there, particularly as the GMB growth in Argentina is probably optically making that ad penetration look weaker. And then secondly, in Argentina, items growth accelerating for the second straight quarter up 22%, I think. How much of that is related to kind of the worsening inflation dynamic in that market and more of that pull-forward of consumption versus maybe some improvement in consumer demand? And just appreciate that you don't give any guidance, but at a high level, do you think that degree of unit growth is durable?

Hey, Trevor. Ariel here. I think we don't disclose specific numbers in terms of penetration by country, but we have shared that while the overall ad revenue penetration as a percentage of GMB was 1.6% in Q4, if you were to exclude Argentina from that equation, you would get something like 1.9. So Argentina is definitely a big detractor in terms of measuring ad revenue as a percentage of GMB.

Yes, and the successful item sold that you mentioned in Argentina is just like you said, we saw the first half of the year where items were flat year-on-year, mainly because of the recession that we faced in the first half of 2023. Then the second half was a government put more money in people's pockets. We saw a pickup in volume, both in terms of GMB and items sold, which increased 12% in Q3 and accelerated to 21% in Q4. And that part of that is inflation, is like advanced purchases ahead of expected devaluation towards the end of the year, which eventually happened in December with the new government and towards the second half of December. We saw a slowdown of those volumes. But that's correct, your assumption about our consumption.

Hi, thank you. Yes, just one more question on my end. I just wanted to get, I'm just trying to understand the different moving parts for the operating profit margin thinking about 2024. I think you mentioned that we should see some reversion in terms of the logistics cost pressure rating in the first quarter. And of course, we have structural growth, the 1P business, of course, affected by naturally, there's going to be seasonality, but on a more on a year, we should see an increase in penetration of the 1P. So just want to try to understand different moving parts, also taking into consideration that you're growing again your credit portfolio within credit cards, which should come with increasing provisions. So I know it's, I don't want to see a forward-looking statement, but just trying to understand what should we have in mind for different moving parts for your operating profit margin. Thank you.

Thank you, João for your question. First of all, I will discuss a margin. Let me verify that all the numbers that we'll be discussing contemplate the adjustment for the $351 million of one-offs, given the size of it, we felt that it was easier to explain and taking those one-off out and obviously, including the appropriate costs corresponding to this particular quarter. I would say that if you look at margins on a year-on-year basis, excluding the one-off that I mentioned before, we improved margins by 270 basis points because of expanding the business and basically growing the business and diluting our fixed costs, while at the same time, we continue to invest behind the many growth opportunities. One of them is credit cards, as you mentioned, but also fulfillment and several other things that we're doing at the company. This is something that we plan to continue. We think that we run a business that should scale very nicely in the long term, and we'll continue to focus on managing costs very efficiently, and as we continue to grow the business, we should be able to continue scaling in the long term. Q4 in particular is a quarter with seasonality in terms of lower margins because of investments that we make in commerce, particularly behind the special events of Black Friday and Blue Wednesday. Furthermore, during Q4, we intensified certain investments, as Ari mentioned before, such as fulfillment, 1P, and free shipping. If you were to look at the sequential compressions of margins, we have roughly four and a half points of compression in margins. That compression comes mainly from 1P and shipping, which affects our cost of goods sold. In terms of our 1P business, two-thirds of the compression comes from the 1P business, as Ari mentioned. The revenues of 1P grew from 9% to 12% of total revenues. You can see that in our disclosures. And as you know, 1P has a different margin structure than 3P because almost 100% of the GMB is booked as revenues compared to just the take rate of the 3P business. So although there was pressure on the margin, the incremental negative impact on EBIT due to 1P was only $20 million during the quarter. On the other hand, we generated more than $220 million incremental GMB from 1P, which resulted in market share gains of almost 10 percentage points in the consumer electronics category, as Ari was mentioning before. The other part of the compression comes from shipping. As Ari mentioned, there is a seasonality factor in shipping during Q4, which comes with higher costs associated with peak seasons. It happened this quarter, and we expect this trend to revert back to normal the following quarters. And then finally, investments that we're making, and we have been flagging over the last few quarters to the market, investments on a value proposition, which includes the launching of more fulfillment centers. We launched three. We implemented three new fulfillment centers this quarter. The increased adoption of Melimise resulted in higher levels of free shipping. We put all those together. That explains the compression that you see quarter-on-quarter.

Let me add to that your question regarding credit portfolio and provisions. Throughout this year, we have been able to expand our credit portfolio and furthermore, gain share in credit cards. Despite that, we have been able to increase our net interest margin after losses and also decrease NPLs, which have pierced 30% for the first time in quite some time. Again, we don't guide, but we are confident with how the credit business is evolving.

Hey, guys. Thanks for taking the questions. I apologize if this was asked already, but one big-picture question and then one tactical one. If you think about logistics, what are the big initiatives for 2024, maybe with respect to expanding the fulfillment centers or the middle mile and last mile operations? How should we think about the CapEx levels as we progress through the year? Then second one on competition, e-commerce players from China have caused pretty significant shifts and moved into the U.S. It is anticipated in several Latin markets. Can you share any color on your thoughts and how you're positioning the business for any sort of potential competitive intensity growing? Thanks so much.

Hey, Deepak. How are you, it’s Ariel. In terms of logistics, I think we don't guide and we don't disclose future numbers in terms of performance, etcetera. But just to reiterate what I said and Martin tried to explain. So most of the sequential compression on logistics was coming from peak season costs, which has been reverting during early Q1. So that's important. Having said that, we have many, many projects on hand to execute during 2024, none of which we think should drastically change the way we manage our P&L. We will invest in faster delivery. We will continue investing in slower delivery simultaneously. We will continue testing more automation and robotics as we have been doing so over the last few years. We will continue working with our technology team. We have thousands of developers fully dedicated to improving the processes and the experience of our customers with logistics and the way we operate inside our warehouses and processing stations. So all in all, we will focus on becoming more efficient, serving our customers better, improving our delivery promises and execution, and to support the business of the marketplace with more categories and better services. Regarding the Asian competition, I'd say we've seen Temu in particular more present in Mexico over the last few months. But still, as you can see from our results, we grew 32% year-over-year in items sold in Mexico. So we are extremely pleased with how we are executing in the countries. All categories in Mexico are showing good year-over-year GMB growth. While we see some of the Asian players focused on apparel and home and mostly focused on low ASP items, we see our growth in those segments as extremely healthy. So in the end, we are confident that our competitive advantages, particularly logistics and payment, remain strong. We have a unique logistics network. We have a unique buy-now-pay-later and credit card offering in Brazil and Mexico, etcetera, which we think will continue helping us drive our business and our market share gains in those markets. So to wrap up, in the past several years, we have been successful in competing against Asian players who were executing strategies similar to the ones that current players are executing. So we expect to continue doing so in the future, building on our strengths and successfully competing against whoever is operating in each of the markets where we are.

Just on your question on CapEx, obviously, we don't guide future expenditures, but this year, 2023, was roughly $500 million invested on CapEx, which was fully funded with our own cash flow generation.

Thank you. Sorry for having a bad line. Thanks for taking my question. My first question is about MELI Mas. Is MELI Mas net negative in terms of P&L? I understand it has recurring benefits and has a lot of loyalty benefits, but when you think about the P&L impact, is it negative now and should it remain negative in the future? That's the first question. The second question is, did you also see this seasonal, this peak cost last year, or was something that you had stronger this year because you were running at fewer capacities?

Thank you for your question. The first part of the question was related to MELI Mas. Okay, sorry. We don't look at MELI Mas as an individual P&L. We look at this as a way to generate incrementality in our marketplace. You break it down between content. Content is basically cost-neutral because we pass on the benefits that we get. Basically, the cost that we pay for the content, we pass it on to our consumers. And then the shipping, obviously, we provide more free shipping, but that generates incremental volume that then in turn should finance that operation. In the short term, we are investing behind this initiative because we're also investing in advertising, but it shouldn't be looked at as an individual P&L and more so as part of the critical part of our strategy for commerce.

And then regarding the peak season, if we saw a particular peak, a special peak in terms of cost, probably this quarter, the incrementality of cost due to peak season was a little bit higher than we saw last year. But again, as Ari mentioned, this is something that will revert in the following quarters. And I was expecting to have a peak in incremental cost during peak season.

Hi there. Yes, thanks very much for taking the question. Just one at this stage, please. On Argentina and the Fintech business, as we kind of contemplate entering a recessionary environment in Argentina, how should we think about the Fintech business? The e-commerce business is a bit more kind of logical to me in that sort of environment in terms of thinking about consumer demand, et cetera, units sold. But just on the Fintech side, it's not clear to me kind of what the drivers will be exactly under that scenario. If you could kind of help me with that, that would be great. Thanks.

I would say, let me try to split the question between the different businesses we have. With regards to acquiring, I would say it's a business that also is very much independent of there being a recession. Obviously, the volumes are impacted, but we are growing so much by gaining share, and the impact tends to be could be smaller. Let us not get into what will happen in the future, but it's a business that people still continue to sell and process payments. So it will come by a little bit, is basically the growth rate, but no more than that. Where we've been more cautious is on the Fintech services side of the business on issuing credit. We don't have yet a credit card in Argentina, and we have been more cautious throughout the fourth quarter, even before the elections, knowing that there could be an evaluation and there could be increased NPLs. And that's why we were already more cautious towards the end of last year, and most of the volume growth you saw is coming from Mexico and Brazil and not from Argentina. And then we'll see what happens with the other Fintech service products. What we're seeing today is an inflation that in Q4 and even today has peaked and is higher than it was, and that is a further incentive, and we have seen that for people to bring money from their bank into the Mercado Pago account, which is currently remunerating 80% year-on-year, and it's a huge advantage versus zero at most banks. So we saw throughout the fourth quarter an increase in assets under management. You don't see that in total numbers because the evaluation at the end of the year, but in local currency, we grew assets in our account by 6x year-over-year. So I would say that I'm comfortable with the impact we saw towards the end of last year. We cannot predict what we don't forecast what will happen in the future.

And if I may complement, the credit business in Argentina continues to have the lowest NPL compared to all other markets, and it continues to be extremely profitable.

Hi, thank you for taking my question. A quick one. I noticed that the ticket size for your credit card loans across the segment have been coming off. Is this a conscious decision, or is this a trend based on the demand that you're seeing from your clients? And any color on the credit uptake in Mexico, what kind of products are working in Mexico? How is the response on the credit card? That would be very helpful. Thank you so much.

Let me start with the first part of the question, and then address the second one. Regarding the credit card loans, they have been decreasing as a deliberate choice. We have been focusing on reaching out to more consumers who previously did not have a credit card by offering micro lines, which are typically 100 or 200 units. These are very small lines. Additionally, we have introduced warranted cards, where we require individuals to deposit 100, 200, or 300 units in their account to receive a card backed by that amount. This has been part of our strategy to help many of these individuals get a credit card for the first time. As for the credit uptake in Mexico, we have experienced significant growth, particularly with the credit card, our latest product launch, which has been quite successful. When we consider the total volume of loans we are providing to consumers, combining consumer loans with credit cards, that segment has also been growing well.

Just in terms of the asset quality trends that you are seeing in Mexico.

It has been, remained fairly stable. The profitability has continued to be good.

Excuse me, did you say Martin Fong? I thought you cut out there. But thanks for taking my question. Two, if I may. First, I think maybe you touched on this earlier, but the Fintech take rate, I think there was some compression there, part of which was related to financing costs. And I think in prior quarters, we had thought that perhaps the take rate would fall kind of in step with funding costs. You see some spread compression there. Any thought about how you should think about that going forward? And then second question, just to touch again on the credit portfolio, the consumer loan balance fell a little bit quarter-by-quarter. So was that a function of what you were saying about Argentina and pausing there? Or was it some currency issues or any kind of highlight there? Is it sort of you're focusing more on credit card and maybe the consumer book won't have as much growth for the time being?

I would say on the Fintech take rate, part of the impact is the larger portion of our credit book coming from credit cards, which have the portion of those loans that are interest-bearing, which are lower than in the other kind of loans. That has some impact on that. Also, on the other part of the Fintech business, when you look at our acquiring business, as we move into SMBs, they typically have slightly lower take rate, albeit with significantly larger volume. I would say those have an impact on the overall take rate. The second one you mentioned, if I got it right, was there was an impact in the credit portfolio because of the Argentina devaluation, right? Yes, there was some impact for two reasons. The first one is in the fourth quarter before the elections, we were more conservative in issuing credit in Argentina. The second one is more direct, which is the currency devaluation. Since we take the portfolios at the end of the quarter, the devaluation happened throughout December and the forwarded loans portfolio we're showing in Argentina is devalued already.

Thank you. I'm showing no further questions at this time. Let's turn the call back over to Martin de los Santos, CFO, for any closing remarks.

Well, thank you, everybody. As we mentioned, we are super excited about the result of the quarter that we're closing a great 2023. And we look forward to seeing you when we present results of Q1 of 2024. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.