Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MercadoLibre Inc (MELI, Financial) reported strong growth across key business units, with revenues of $5.1 billion, growing above 40% year on year.
- The company saw a significant increase in monthly active users for its fintech services, surpassing the 50 million mark for the first time.
- MercadoLibre Inc (MELI) launched a fulfillment center in Texas, expanding its product assortment for Mexican consumers and enhancing cross-border operations.
- The company introduced robotics in its distribution center in Cajamarca, optimizing processing time by 20% and increasing total storage capacity by up to 15% per square meter.
- MercadoLibre Inc (MELI) achieved a net income margin of 10.5%, the highest in the last eight years, reflecting strong financial performance.
Negative Points
- The company faced a contraction in EBIT margin, primarily due to increased bad debt provisioning as it accelerated its credit book origination.
- Operating at max capacity in Mexico presented challenges, particularly during the hot sale season, impacting logistics efficiency.
- The implementation of tax withholding requirements for small businesses on digital transactions in Argentina could impact Mercado Pago's operations.
- The company's aggressive remuneration strategies and AUM growth could attract opportunistic depositors, potentially affecting long-term stability.
- MercadoLibre Inc (MELI) continues to face macroeconomic challenges in Latin America, including inflation and interest rate fluctuations, which could impact its fintech business.
Q & A Highlights
Q: Considering where you are at the 25-year mark, can you talk about the interplay between commerce and fintech? How much of the growth in GMV and fintech metrics is driven by independent business drivers versus the two sides feeding each other?
A: (Martin de Los Santos, CFO) Being part of an ecosystem benefits both fintech and commerce. For example, our credit offerings fuel commerce growth by providing better payment solutions, which also strengthens our fintech value proposition. We are seeing strong growth in Brazil, Mexico, and a recovery in Argentina. Our strategy continues to perform well, and we are excited about future growth opportunities.
Q: You had a great quarter in terms of operating leverage. Are there any headwinds or areas of investment we should consider for the back half of the year?
A: (Martin de Los Santos, CFO) We had a strong quarter with net income growing 100% year on year. The EBIT margin contraction was mainly due to increased bad debt provisioning as we accelerated our credit book origination. We continue to invest in strategic initiatives like fulfillment and free shipping. Our investment strategy remains unchanged.
Q: Could you talk about Meli Más and MDD and how they contribute to GMV acceleration and consumer engagement?
A: (Ariel Szarfsztejn, EVP - Commerce) Meli Más generates higher engagement and GMV, with users showing higher frequency and lower churn. MDD adoption is trending upwards, leading to more consolidated deliveries. We are expanding capacity in Mexico and other markets to support this growth.
Q: Can you comment on the broader ambition for cross-border operations, especially with the new distribution center in Texas?
A: (Ariel Szarfsztejn, EVP - Commerce) Cross-border is a significant opportunity, particularly in Mexico where 15% of GMV comes from cross-border, mostly from China. The Texas center complements our Mexican selection with North American inventory, offering products not available locally. This strategy could expand to other countries in the future.
Q: How do you view the implementation of GenAI in your ad business and other areas?
A: (Martin de Los Santos, CFO) We are using AI across various business units to improve efficiency and consumer experience. Examples include better product recommendations, improved review consolidation, enhanced product images, and faster customer support responses. AI is also helping our developers and customer experience teams.
Q: Can you share insights on the profitability of the fintech business in Brazil, Mexico, and Argentina?
A: (Osvaldo Gimenez, Fintech President) We are profitable in all three markets, driven by our credit book and acquiring business. In Argentina, our strong wallet position compensates for lower credit volume. We believe our synergy between marketplace and fintech services gives us a competitive advantage, especially in Mexico.
Q: What has been the biggest positive surprise for you over the last year?
A: (Martin de Los Santos, CFO) We are excited about the performance across all business areas. If I had to highlight one, it would be the consistent market share gains in Brazil, growing at a faster rate than the market for over a year. On the fintech side, our increased focus on fintech services has paid off, especially in Brazil and Mexico.
Q: How do you view the Brazil macro environment and its impact on your fintech business?
A: (Osvaldo Gimenez, Fintech President) Our decision to expand credit offerings is based on payment and NPL trends. We are flexible to adjust to interest rate changes. We have healthy spreads and are looking to expand upmarket. (Marcos Galperin, CEO) We focus on improving products and services, believing that secular trends in online commerce and digital finance will drive growth regardless of macro conditions.
Q: Can you characterize MercadoLibre's market share in its main markets and how it has progressed year on year?
A: (Marcos Galperin, CEO) While specific market share numbers are not disclosed, we are confident we are gaining market share given our rapid growth rates, particularly in Brazil and Mexico.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
