Mercadolibre Inc Q2 FY2024 Earnings Call

Hello everyone, and welcome to the MercadoLibre Earnings Conference Call for the Quarter Ended June 30, 2024. Thank you for joining us. I am 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 CFO, Martin de los Santos; our Fintech President, Osvaldo Gimenez; and our Commerce President, Ariel Szarfsztejn. Before we go on to discuss our results of the second quarter of 2024, I remind you that management may make or refer to, and this presentation may contain, forward-looking statements and non-GAAP measures, so please refer to the disclaimer on screen, which will also be available in our earnings materials on our investor relations website.

Tomorrow, August 2, 2024, marks 25 years since we founded MercadoLibre with the mission of democratizing commerce and financial services in Latin America. Over those 25 years, we have built a sustainable company that provides millions of small and medium-sized businesses with the tools they need to compete with larger players; we have enabled the shift to online retail by providing tens of millions of consumers with world-class levels of service; and we have included millions of people into the financial system across the region for the first time. These are notable achievements, but they are also just a baseline from which we think about our even bigger ambitions to deliver on our mission at an even greater scale. We are as optimistic as ever about the opportunities that are ahead of us and we are excited to pursue them with the culture of entrepreneurship, excellence and innovation that has served us well for the last 25 years. This is therefore a great moment to reaffirm our belief that the best is yet to come. Now, I will pass it on to Martín for more information on the second quarter of 2024.

Thank you, Marcos. Hello, everyone. I am pleased to highlight MercadoLibre's outstanding performance in the second quarter of 2024, with strong growth across our key business units as well as solid bottom line financial results. In Commerce, we saw the highest growth in sold items and unique buyers since 2021, with both metrics accelerating sequentially. GMV performed well across geographies, particularly in Brazil where the 36% growth marks the highest level since 2021. In Mexico, we maintained our momentum with a successful Hot Sale once again. And in Argentina, we saw positive growth in terms of items sold, reverting the negative growth that we saw in Q1. This growth is a result of our commitment to improving the user experience through innovation and technology and the investments we continue to make in our key strategic initiatives such as fulfillment and MELI+. In Fintech Services, we saw strong growth in monthly active users which surpassed the 50 million mark for the first time and we also saw very solid engagement metrics demonstrating the traction that Mercado Pago has within our users. We continue to see a very positive adoption of our remunerated account in all of our major markets resulting in strong growth of assets under management. Our consumer and merchant credit books continue to scale while delivering strong profitability. During the quarter, we issued 1.6 million new credit cards and TPV grew by 3x compared to last year. The credit card is a critical component of our fintech value proposition, and we feel confident about scaling this product as a result of the improving accuracy of the underwriting models. Acquiring TPV grew also very strongly in Brazil, Mexico and Argentina and this was a result of the move up market strategy that we are implementing, enabling us to reach larger merchants and also the continuous investments that we will make in the Online Payment segment. Our Consolidated Financial Results for the second quarter reflect the strong performance of our Commerce and Fintech operations with revenues of $5.1 billion growing above 40% year-on-year. We delivered income from operations of $726 million and net income of $531 million, resulting in a net income margin of 10.5%, which is the highest in the last eight years. For more information on our results, please refer to our shareholders letter. Now, I will pass it on to Richard for business news.

Our logistics network plays a major role in enabling ecommerce in the region and driving more offline retail online. It has become a key competitive advantage for MercadoLibre. Innovation is a foundation of the success of our logistics network, and we are pleased to share some of our most recent innovations today. During the second quarter of 2024, MercadoLibre launched a fulfillment center in Texas in the USA. This is the first fulfillment center outside of Latin America and it was opened to expand the assortment of products we offer to Mexican consumers by plugging U.S. sellers into our ecosystem. This is complementary to our existing cross-border business from China into Mexico. We are offering a great shipping service for our U.S.-based assortment. Buyers are receiving their packages from the USA within a couple of days in the north of Mexico, and within approximately three days in Mexico City. Shipping is free and we also offer interest-free installments. In June 2024, we took another major step in our innovation journey with the launch of robotics in our distribution center in Cajamar, just outside the city of Sao Paulo. A total of more than 300 robots will have arrived by the end of the year, with 100 of those already up and running. These robots will collaborate with the human workforce and will handle tasks such as transporting shelves containing products from storage areas. This optimizes processing time by 20%. It also enables us to automate repetitive tasks like product sorting, whilst reducing the distance that our workforce has to walk around the distribution center. It also increases total storage capacity by up to 15% per square meter. These robots operate autonomously, handling up to 20,000 items and 2,500 shelves per day, returning to charge stations when their batteries are low. This ongoing investment in technology and innovation reflects our commitment to creating an increasingly efficient logistics network. By building greater flexibility into our logistics operations, we have developed SLOW shipments which offer additional shipping options for buyers and efficiencies for MercadoLibre. SLOW shipments occur when a buyer chooses a slower shipping option than would be otherwise available to them because it may be more convenient or, in some circumstances, it may come with a lower shipping cost. This enables us to take advantage of moments of idle capacity in two key cost areas of our networks. Firstly, the processing in our fulfillment centers; and secondly, the line haul trucks that travel between cities. With SLOW shipments, the shipping window becomes larger and more flexible for MercadoLibre, which means we can choose the moments of greatest idleness to process products in our fulfillment centers and ship them between cities in line hauls to maximize network capacity utilization. MELI Delivery Day is another innovation, which has slightly different benefits to SLOW shipping. The main efficiency built into the MDD model is in the last mile, where several deliveries at a single address on a single drop means that last mile vans can drop more packages at fewer addresses. This helps us to dilute our last mile costs. Innovation and efficiency will continue to be key to the success of our shipping operations. For a more detailed discussion, check out the podcast on our Investor Relations website with the Head of Mercado Envios, Agustin Costa. From cross-border in Texas to robotics in Sao Paulo and MDD across Brazil, Mexico, and Chile, we continue to innovate and will continue to do so because, as always at MercadoLibre, the best is yet to come.

Thank you. At this time we will conduct the question-and-answer session. The first question comes from the line of Andrew Ruben of Morgan Stanley. Andrew, please go ahead.

Hi, thank you. So considering where you are at the 25-year mark, congratulations for that. Can you talk about where we are in the interplay between commerce and fintech? It's a quarter we see the acceleration in GMV as well as a number of fintech operating metrics picking up. So I'm curious how much you'd say is independent business drivers versus the two sides feeding each other. I'd be interested in the strategic update and maybe just honing in on the same topic near-term. You have the Brazil GMV accelerating to the 36% ex-FX. You also called out the higher remunerated account. We see growth in the credit business, so how much of that pickup would you attribute to these fintech initiatives versus something more commerce specific? Thank you.

Hi, Andrew. How are you? It's Martin here. Thanks for your question. Obviously, as we have been saying over the years, being part of an ecosystem is beneficial both on the fintech side and commerce, and vice versa, right? So I think in this particular quarter, credit is a good example of that. Our credit is fueling growth on our commerce side as we provide better payment solutions for users. Also, it's very beneficial to the fintech value proposition as credit cards performed very strongly this quarter. In terms of growth on the commerce side, we are very satisfied with the growth that we're seeing in Brazil. This is the second consecutive quarter in which we accelerated in Brazil. We are sustaining very solid growth rates in Mexico, gaining market share in both markets and also seeing a very strong recovery in Argentina on both the commerce and fintech sides. So I think, for the most part, our strategy continues to perform extremely well. Like you said, 25 years after we began our company, we continue to grow at rates similar to those of start-ups, and we are super excited not only for what we have done so far over the past 25 years but, more importantly, for the many growth opportunities that we have ahead of us.

Let me complement that. I think that Andrew, both businesses—our Fintech and Commerce sides—are very synergistic and we continue to believe that, and we have many, many examples of that. One is, for example, in order to grow, how we can deploy products on the marketplace to drive the growth of the marketplace. For example, in Mexico, a significant part of our GMV is paid either with Mercado Pago, with a store balance of Mercado Pago, or credit offered by us or by our own credit card on the one hand. On the other hand, how we can, for example, offer insurance products in the marketplace and grow the number of policies we sell. Both businesses have been extremely synergistic. We have a huge user base on the marketplace and also on Mercado Pago and when we drive users from one platform to the other, we are very excited with that, that continues to work very well.

Okay, thank you both.

One moment for your next question. The next question comes from the line of Irma Sgarz of Goldman Sachs. Irma, please go ahead.

Yes, thanks for taking my questions. Congratulations also on your 25th birthday tomorrow. You had a great quarter again in terms of operating leverage. And yet I can think of several items that can still contribute or unleash higher margins from here like scaling ads, incrementally lower increases in provisioning, efficiencies in logistics as you laid out. But before we all get ahead of our skis, are there any perhaps items or headwinds or areas of investment that we should think through especially into the back half of this year, perhaps related to carrier cost adjustments or higher deposit rates in Mexico, and any marketing campaigns just to sort of level set expectations here a little bit in terms of what we should keep an eye on? Thank you very much.

Hi, Irma, it's Martin here. Let me talk about this quarter. I think we—as you mentioned, we had a very strong quarter in terms of both EBIT results, but more importantly, net income. As you know, net income after the devaluation in Argentina has become a more relevant metric to look at, and we grew it by 100% year-on-year, delivering 10.5% margin. In terms of the EBIT margin, specifically, you see on a comparable basis, a contraction this quarter. Most of that contraction is roughly 120 basis points. Most of it comes from bad debt provisioning, and as you know, as we accelerated our credit book origination, we provision losses upfront, generating some pressure on margin, but we feel comfortable with that as we see very good performance in terms of NPLs, and NIMAL margins continue to be very solid with good profitability. So we are okay with scaling the book by increasing our credit card book as well. We issued more than 1.5 million—1.6 million cards this quarter. We're in credit card TPV by 3x compared to last year, so we should balance that kind of pressure on margins. Additionally, we continue to invest in strategic initiatives. We increased fulfillment penetration by 6 percentage points year-on-year, as well as free shipping. Investments will continue to be— as we have said for several quarters—at a similar pace, and there will be no change in our investment strategy. We'll continue to invest in our strategic initiatives, minimize free shipping, credit, and so on.

Thank you.

One moment for your next question. The next question comes from the line of Robert Ford of Bank of America. Robert, please go ahead.

Hey, thank you. Sorry about that. Happy birthday and congratulations on the quarter. I just had a few questions. First, could you talk a little bit about Meli Más and MDD and how that's contributing to conversion and the acceleration you're seeing in GMV as well as the seller promotional tools that you called out today and particularly the ones that are resonating with consumers? Then, how do you expect the end of tax withholding requirements for small businesses on their digital transactions to impact Pago in the marketplace in Argentina? And what's the timing for that? And then the third one I had was, we understand you've taken over 100,000 square meters of distribution space in Guadalajara. We were curious as to the role that you envision for that space, particularly when it comes to centralizing inventory for Brazilian air cargo or processing cross-border transactions into Brazil. How do you open up capacity in the rest of the network with the addition of that space in Guadalajara? Also, how should we think about the implications of a Mexican banking license in terms of product enablers, funding, and then the various frictions, whether they be regulatory, tax, or something else? Lastly, in the press release, you mentioned some downstream benefits of your more aggressive remuneration strategies and AUM strategies. I was wondering if you could expand on those, please. That was it. Thank you.

Hey, Bob, Ariel here. So I think on Meli Más, we are going through the same trajectory that we've been seeing over the last few quarters. Meli Más is successfully generating incremental engagement and incremental GMV. Users who enroll in the program have higher frequency, higher GMV, and lower churn compared to the previous program. Engagement KPIs are looking good. To your point on MELI Delivery Day, we see adoption of MDD trending upwards. In general terms, we are extremely satisfied with the impact that the program is having on our business and particularly on user satisfaction, and we pretend to continue increasing the user base of subscribers.

And Ariel, in terms of the MDD adoption, coinciding with more packages per week or delivery at a time?

Yes. So in every single market, we see consumers choosing to receive packages with MDD trending upwards. Within MDD, we see consolidation also going up. In terms of capacity and distribution centers, I think you mentioned a couple of things that are different. So we did move our air cargo to Sao Paulo. We just needed more space to deal with the volume that we are applying. But more on a general view, I think, as Martin was mentioning in the previous answer, we will continue building the capacity linked to the growth of our business and the increase in penetration of fulfillment, and that is true for every single market. This quarter or these few quarters, in particular, we have been expanding capacity in Mexico. At some point, we will continue expanding capacity in Brazil and the rest of the market as well, nothing changing or directionally radical with the way we've been operating so far. But in the end, we are compounding the growth of MercadoLibre as a whole with the increase in fulfillment penetration. I will let Osvaldo complement.

Sorry, I was just going to ask you that facility is domestically oriented. Is that fair?

Yes, we are not doing any international flights from Brazil to other countries, nor from any country of Latin America into another one. The only international connection that we do is from Texas into Mexico, which is not going through air.

Great.

Bob, let me cover the two questions related to FinTech. One of them was how do we expect the end of tax withholding requirements in Argentina to impact Mercado Pago? We are very excited about that. Today, electronic payments in Argentina had a drawback versus cash payments because of perceptions and taxes we needed to withhold on behalf of the local IRS from every seller. So that was a detractor for further adoption of electronic payments in general. However, Congress recently removed that at a federal level, not at a state level, but at a federal level. This, however, has not yet been implemented by the local IRS. So we need that to happen and then we will make the implementation. But that will have a positive impact on all kinds of electronic payments. If I recall correctly, the second question was regarding the implications of the Mexican banking license. I would say that there is a huge opportunity in Mexico to compete and further deploy financial services and that by having a banking license, we will be able to add products to our stack of products. For example, let people be able to collect salaries in their Mercado Pago account. We believe that the opportunity we see in the country is huge. We have already been growing our credit book very significantly. This process tends to be long, typically around two years, but it depends on the regulator. However, we believe that we will continue growing our footprint in Mexico throughout that period. Recently, we increased the rate we are paying to depositors in cuenta remunerada, and we are very excited with the results we are seeing.

And that's what triggered my question with respect to the benefits of those AUM strategies. Could you expand a little bit on that further?

Yes. The reason for cuenta remunerada really drives principalities. We see that the two main drivers of principalities are where people put their savings first, and together with that, where they get most of the credit. So we are driving those two up significantly, by having a very competitive cuenta remunerada, and also being aggressive in deploying our credit card strategy in Mexico.

So these are not just opportunistic depositors taking advantage of the 15% rate. You're seeing some real adoption of the rest of the ecosystem.

Yes. Yes, Bob, we'll probably go to the next question, and we can go into more detail on this later. But yes, the short answer is yes, it contributes to that.

The next question comes from Marcelo Santos of JPMorgan. Marcelo, please go ahead.

Hi, good evening. Thanks for the opportunity to ask questions. I have two on my side. The first is, given that you launched your distribution center in Texas, could you please comment a bit on your broader ambition on cross-border and how relevant this could be? Where do you think this could be in a couple of years? The second question is regarding the net shipping. So dividing getting their shipping revenue, minus shipping cost divided by GMV, we see that it improved a lot on a quarter-over-quarter basis. If you could please dissect the drivers that led to the sequential improvement for one quarter to another and if you see further room for more efficiency there. Thank you very much.

Hi Marcelo, how are you? This is Ariel. So let me start with your first question related to cross-border. I think we've always said that cross-border is still a huge opportunity for MercadoLibre in general. Today, almost 15% of the GMV that we have in Mexico is coming from cross-border, mostly Chinese. However, I would say that in the rest of Latin America, our cross-border business is still small, and we think we have an opportunity to generate some value there. Specifically about Texas, our introductory video was mentioning, we think that we can complement the selection that we have in Mexico from local Mexican sellers with inventory coming from North American sellers. That is particularly relevant considering that there are certain aspects of that selection that we cannot get locally in Mexico or cannot find at the right price. In the end, our North American strategy is to complement the offering that we have in Mexico and better serve our consumers. Eventually, thinking about the strategic impact, we think this can be relevant. We think this could be multi-country in the future, but it's too early to tell, although the signs of that operation are really positive. We see consumers getting extremely engaged with the products that we are offering, and our sellers from the U.S. are also very satisfied with the sell-out that they have in the inventory that they are bringing to our warehouse. Regarding the second part of your question about shipping margins and costs, I would say that we are pleased with the results that we are seeing from our logistics operation. In terms of discipline with which we are managing the operation itself, but also with our ability to manage our P&L while continuing to invest behind our strategic priorities. This quarter, as you were saying, we saw an expansion in shipping margin. That expansion is mostly coming from our ability to drive efficiencies in our operations, and that happened even with some headwinds coming from Mexico where we are operating at max capacity and where we have an extremely strong hot sale season. Broadly speaking, we continue committed to running shipping with a very disciplined P&L, and you can see that clearly when you look back into a longer-term picture. If you go back to 2019, you can see that our net shipping costs remained broadly flat, or even improved if you were to add our flat fee revenues into that one. In that same period, we moved fulfillment penetration from 6% to 50%. We moved pre-shipping up 30 percentage points. We increased our square meters by 5x, all this across the region. So again, shipping is a key driver and a strategic priority for MercadoLibre, and we are committed to executing what we need while managing costs and revenues with strong discipline.

That’s very clear. Thank you very much.

The next question comes from the line of Maria Clara Infantozzi from Itaú. Maria, please go ahead.

Hi everyone. Thanks for taking my questions. It's about your view on the implementation of GenAI in the ad business. This has been a key topic of discussion in the earnings calls of some of these sites during this test phase. Can you please share your thoughts on the topic as now in the front and what improvement opportunities in business do you foresee with the implementation of GenAI? Also, can you comment on how the AI business has been affecting your recommendation in time? Thank you.

Hi, Maria Clara, this is Martin. I mean, as you use—can you mute the line on the other side, please? We are hearing some noise. Thank you. Yes, as you mentioned, we have put a lot of resources into AI and GenAI throughout the company, really. We don't have a centralized department of AI, but all of our different business units and clearly, the IT team have been focusing on trying to find opportunities to improve our efficiency and deploy AI solutions, both in the way we manage the business and consumer-facing. Some examples of that are on the commerce side. Obviously, we are using AI to help us with recommendations, as you mentioned, but more importantly than that on reviews. In the past, if you were to review a product, you would have to go through many different reviews; now we can consolidate that into a more efficient way of communicating the qualities and prospects of a particular product. Our pictures that publish might not be the same quality that we are expecting from our merchants, and we can improve those with AI. Answers from sellers is another good example. In the past, if you were to buy something at 2:00 AM in the morning, you would have to wait until the next day to get an answer, which obviously affected significantly the conversion of the product. Now we can respond right away using GenAI models. On the developer side, we have 16,000 developers who are also using AI tools to improve productivity, and that is generating improvements and efficiencies in the way we deploy products throughout the company. One of the most important projects that we have is on customer experience and customer support by which we are applying AI tools that will help us not only respond more efficiently in terms of cost but also be more accurate in terms of how we manage those issues. These are some examples, but there are many others. Osvaldo, maybe you could also complement.

Yes. The only thing I was going to add, you asked about search and where you're seeing technical advancements. We are turning search into something more semantic, making it easier to guide users to what they're looking for.

The next question comes from Kaio Da Prato of UBS. Kaio, please proceed.

Hello everyone, thanks for the question. So two quick ones on my side, please. With all these good trends that we are seeing in the fintech business, I was wondering if you can share some idea about the profitability of the fintech business in your three main countries, Brazil, Mexico, and Argentina? What levels do you think you can achieve in each of them? Just an idea of how it has been evolving over time would be really helpful here. Additionally, you're mentioning that you would like to become the number one digital bank in Mexico. What do you think are your competitive advantages against the digital players in Mexico today since you now have similar offerings compared to most of them nowadays? Thank you very much.

Hi Kaio. We don't share a lot of details regarding specific profitability in each of the three countries. Let me share with you that we are extremely profitable in all three countries—in Argentina, Brazil, and Mexico. In the case of Brazil and Mexico, profitability is driven mostly on the fintech services side, primarily by our credit book and acquiring services, which are profitable in all three markets. In Argentina, the importance of credit is less relevant than in the other markets, but we have such a strong position as a wallet leveraging the payments that users make every day that makes up for a lower credit volume at this point. We are very profitable in all three markets. Regarding the second question about our claim that we are applying for a license and that we want to be the number one digital bank in Mexico, we believe we have several competitive advantages. First, we already have a large user base given the importance of both the marketplace and our acquiring business, which is very developed in Mexico. Furthermore, we have been doing aggressively with our consumer credit book there for several years, but also recently with our credit card, and we are very excited with the kind of growth we are seeing. This synergy between the marketplace, acquiring business, and fintech services is something that no one else has. So we believe we have a very strong position in Mexico.

Okay, great. Thank you very much.

One moment for the next question. The next question comes from the line of João Soares of Citi. João, please go ahead.

Thank you and congratulations on the results. I have a couple of quick questions. First, I wanted to explore the GMV performance in Brazil a bit more. Initially, we thought it would be more challenging, but it seems we've seen an acceleration, along with increased volumes. Can you share what the main factors contributing to this acceleration are? Additionally, I've noticed that ads penetration is currently at 2%. I would like to hear your thoughts on the wider adoption of retail media and how much of this growth is due to enhancing your capabilities. Any insights on the profitability of this business would also be appreciated. Thank you.

Hey, João. This is Ariel. So thank you for your question. I think it's a good thing. The fact that I am getting kind of the same question about why we grew so much in Brazil this quarter, means we must be doing something positive. So the answer to your question is that there is no silver bullet performance. It's not something specific that I can attribute that growth to. I would say several strategies and actions were executed across the business from improvements in selection, expanding our 3P selection complemented with more 1P, which is helping us strengthen MercadoLibre's position as a go-to place to buy in Brazil, improvement in pricing; we are becoming increasingly obsessed with our price competitiveness. We also continue improving our shipping offering with faster deliveries, slower deliveries, more fulfillment, and more free shipping. As we said in the past, we are putting a lot of effort into averaging Brazil into regions, categories, and different types of users to find the right solutions to push for growth in each of those segments. Product and experience continue to be a key priority for us. We continue to deploy innovation in beauty, deploy virtual trials, and expand our compatibilities in out-of-park trading in consumer electronic presales. We continue to improve our user experience more and more. We have developed a good muscle to quickly identify and adjust our promotional calendars and marketing efforts to capitalize on emerging opportunities in the market, and that's also helpful. Lastly, as Osvaldo was saying before with the first question, our payments ecosystem, including Blue Money and Buy Now Pay Later, as well as our credit card and account offerings, continues to gain share in our checkout, supporting the increase in conversion. To summarize, I would say that what you see today is likely the compounded effect of 25 years of investment focused entirely on Latin America. Regarding advertising, we had another great quarter. Our penetration reached 2% of GMV, an improvement of 40 basis points year-over-year. The revenues grew 51% year-over-year in dollar terms—that's the eighth consecutive quarter with a growth rate above 50%. We particularly saw great performance from cross-border sellers and 1P brands, and that product continues to represent the majority of the business. I would also add to the ad performance that we reached a significant milestone.

One moment for your next question. The next question comes from the line of Jamie Friedman of Susquehanna International Group. Jamie, please go ahead.

Hi, good evening and congratulations on the 25th. I just wanted to briefly get your summary message about credit quality because I realize there's a lot of different inputs here. The NIMAL did deteriorate on a year-over-year basis, about 500 basis points, though admittedly, it was roughly flat sequentially. The provision – that's Page 10. And then on Page 19, the bad debt provision, which I realize is also a function of growth math but that also increased about 300 basis points sequentially. I know there's a lot of detail, but if you could just give us the overall message about how you're thinking about credit quality, that would be helpful. Thank you.

Hi. Sorry. We just got – our line got dropped, so if you could give us one second we will try to.

We can hear you. Okay. If you could please, Ariel, if you didn't listen to the last part of the answer from us, we can move on to the next question. Please go ahead.

So I was just asking – this is Jamie Friedman at Susquehanna. I was just asking for the one-liner on credit quality. On Page 10, the NIMAL, though they were roughly flat sequentially. They did deteriorate about 500 basis points year-over-year. On Page 19, a 300 basis point increase in the bad debt provision. I realized that as growth math. But there is a lot of detail, but if you could just share us the one-liners on how you're thinking about credit quality, that would be helpful. Thank you.

Absolutely. NIMAL was slightly down, but that compression was, I would say, fully explained by the growth of the credit card portfolio as a percentage of the total portfolio. So it's mostly a change of mix. The credit card factory has a lower NIMAL because we provision upfront, but only a small portion of the portfolio generates revenue initially. Having said that, we are very excited with the evolution of all of our credit portfolios. We are seeing very good results in the earlier cohorts of the credit cards. We continue to see that the improvement in our scoring models and shortening of the payback period for each cohort, that's why we have been growing the credit card portfolio. The second part of the question is regarding, if I understood correctly, the NPL evolution. Again, we are comfortable with the results we are seeing; the spreads we have are very, very healthy. Overall, we are comfortable with the credit portfolio.

Yes. And going back to NIMAL just to complement, we don't disclose specific NIMAL portfolios for countries, but as Osvaldo mentioned, this is a mixed issue. If you were to look at individual product portfolios, NIMAL are stable or improving year-on-year. That is why we feel comfortable accelerating growth. Our credit book reached $4.9 billion, growing 51% year-on-year on the back of very strong profitability results.

Okay, thanks Martin. Thanks, Osvaldo.

The next question comes from Geoffrey Elliott of Autonomous. Geoffrey, please go ahead.

Hello, thanks very much for taking the question. There's clearly lots of growth, lots of acceleration, lots of positives in the numbers. Can you tell us what has been the biggest positive surprise for you over the last year? If you wound back to 12 months ago, you could see the numbers that you've just printed, which part of the business is it, which has exceeded your expectations?

Hi Geoffrey, I think if you look at the results over the past year, we are super excited about all parts of our business. I mean, on the commerce side, as Ari mentioned, we are growing Brazil 36% on the back of 30% last quarter and sustaining growth in Mexico. This is the third consecutive quarter in which we've grown 30% year-on-year. So gaining market share in both markets, we are also positively surprised about the turnaround of Argentina. We had a tough quarter last quarter in Q1, and we regained growth once again on the commerce side of Argentina. Our fulfillment infrastructure continues to be deployed with great gain in penetration, resulting in improved user experience. The number of buyers, as well as monthly active users on the fintech side of the business, have also been growing. On the fintech side, we have a tremendous opportunity ahead of us in Mexico. Assets under management are performing very well throughout the region. Our credit books, as Osvaldo mentioned earlier, have been performing very well, and we accelerated growth in the past two quarters. So we are very excited about all of our businesses and, in particular, also the new businesses that are growing, like Mercado Play, which is relatively new and showing positive signs. So far, Meli Más, which we launched a year ago, performing very well. We are very excited about both the commerce and fintech sides of the business.

Okay. It sounds like the answer to that is everything. I'm tempted to ask you to pick one, but I won't just to follow up. The new customers, that the monthly active user group, who are those people? Are they people who have not used e-commerce before? Or are they coming from competitors? Where are the new users coming from?

Just to be fair with you, it's true that the answer was broad because we're really excited about the performance of the business. I think if I had to highlight one, it’s probably the surprise of continuing to gain market share in Brazil for several quarters. For more than a year now, every quarter, we continue to grow at a faster rate than the market at a very large scale. So that's obviously something that we are very proud of and positively surprised by.

If I were to pinpoint something on the fintech side, I'll say that several quarters ago we restructured how our team is organized with a strong focus on fintech services, and since then we have seen very strong growth, both in Brazil and Mexico, not only in number of users but in the frequency and use of products, demonstrating strong growth in cuenta remunerada and credit cards. So I'd say the increased focus we put on fintech services clearly is paying off, and that is really according to the expectations we have.

Great. Thanks very much.

The next question comes from Craig Maurer of FT Partners. Craig, please go ahead.

Yes, thanks. Again, congratulations on your 25. Most of my questions have been asked and answered. But I wanted to ask you a follow-up to Geoff's question on market share. If you could characterize for us where you think market share is for MercadoLibre in each of the main markets? And how that's progressed year-on-year, that would be helpful.

Yes. As you know, market shares are often based on public information that isn't always accurate. I mean, we believe we are gaining market share because we are growing at a very rapid pace most likely above market. However, in terms of specific market share numbers, those are numbers we don't share, but as public information, I'm sure you can find them. What we can say is that at a growth rate of 36% year-on-year in Brazil and 30% in Mexico, we are definitely gaining share.

Okay, thank you.

The final question comes from Marvin Fong of BTIG. Marvin, please go ahead.

Good evening. Thanks for taking my questions and congratulations as well on the anniversary and the strong quarter. I would just like to turn to the topic of the Brazil macro environment in terms of— it looks like inflation is kind of ticking up and the Central Bank is pausing. So just with respect to your fintech business, there are two parts to this. Does it factor at all or how does that trajectory factor at all into your willingness to lean into acquiring more credit and acquiring more borrowers in that country? Then secondly, how might it affect your spreads? I think in the second quarter, you had some positive gross margin impact from credit spreads and credit funding. Just any thoughts on how you might pass or not pass on interest rate funding costs to your customers? Thanks.

Hi Marvin, so mostly the decision of how to expand our credit books, our credit offerings is principally related to how we see payments evolving and how we see the markets evolving. As long as we continue to see that our markets are working well and NPLs are coming down, we will continue to be aggressive in expanding credit. Our credits are typically very short, and therefore, we are very flexible to adjust to any changes in interest rate policy that may come. Regarding credit spreads and funding, I would say that today we have spreads that are very healthy. We are always looking for ways to continue growing the credit book we have. In some cases, that will imply working with very positive spreads but smaller than the one we have now, as there is an opportunity to continue further expanding upmarket where, in order to reach those customers, we need to be even more competitive with traditional banks.

And just to complement on macro, I mean we've been operating in Latin America for 25 years, and we've seen many different macro situations. We believe that in our industry, both on commerce and fintech, the stronger secular trend of people moving online, both to commerce online and to digitalizing their finances is a lot more important. So we are much more focused on continuing to improve our products, offering faster shipping, better assortment on the commerce side, and growing our credit book, as Osvaldo mentioned. Macro should not affect our performance or growth in the future, at least what we see so far in Brazil, Mexico, and Argentina.

I really appreciate the insight there. Thanks so much.

This concludes the question-and-answer session. I would now like to turn it back over to Martin de los Santos for closing remarks.

Well, thank you, everybody, for joining. Once again, very excited about the results of the quarter, but more importantly, about the future of MercadoLibre, celebrating our 25th year tomorrow. But we're looking ahead, we continue to see as many big opportunities as we saw 25 years ago. So again, looking forward to the second half of the year and to reporting to you in three months. Thanks again.

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