MercadoLibre, Inc. Q3 FY2025 earnings call

• Continued investment in e-commerce and fintech to capture growth opportunities.
• Revenues grew 39% year-on-year, marking 27th consecutive quarter of growth above 30%.
• Brazil's reduced free shipping threshold delivered strong results with GMV, items sold, and buyers increasing.
• Mercado Pago had stellar quarter with NPS highs and credit portfolio growth.
• Argentina's resilience despite macro challenges, remaining a profitable market with long-term growth potential.
• Operating income growth showed balance between growth investments and profitability.

Brazil: Revenues grew due to reduced free shipping threshold; GMV and items sold accelerated, buyers increased with improved conversion rates, retention, and frequency; unit shipping costs in Brazil reduced by 8%. Mexico: GMV growth accelerated, unit shipping costs in fulfillment continued to fall. Mercado Pago: Monthly active users growth accelerated, NPS hit record highs in Brazil, asset under management and credit portfolio grew, credit card growing rapidly. Argentina: GMV, buyers, and TPV remained resilient but trends slowed due to macro backdrop, impacting EBIT margin but still a profitable market with long-term growth perspective. Operating Income: USD 724 million, grew 30% year-on-year.

• Optimism about Argentina's long-term potential despite short-term macro challenges.
• Continued investment in user acquisition with disciplined approach, expecting similar investment range going forward.
• Expecting unit shipping costs to trend downwards over time through productivity and process improvements.
• Confidence in margin trajectory as business scales and investments mature, such as credit card and 1P investments maturing.

• Macro challenges in Argentina impacting growth and EBIT margin.
• Potential churn of new users if marketing spend is reduced.
• Competitive dynamics in Brazil and other markets affecting cost structure and ancillary revenue streams.

Q: So maybe a question on Argentina, you cited some macro challenges on GMV, TPV, higher funding costs. So I'm curious to understand first how these items evolved over the course of the quarter? And then second, on a related note, we know you've been through political cycles, but I'm curious following Sunday's election to hear your latest views on the Argentina economic outlook. And how this feeds into your plans for growth investments in the country, fulfillment centers, credit cards or otherwise.

A: Andrew, it's Martin here. Thank you for your question. Yes, as you know, Argentina continues to be a very important market for us, not only because of the size of the opportunity, but because of the leadership position that we have in the country. So we, as always, we remain much more focused on continuing to improve the value proposition. As we always said, more than macro, the important thing about our business is what we do with our users and our platform. So we continue to invest in Argentina. We opened the second fulfillment center this quarter. We launched the credit card. So we are optimistic about the prospects for Argentina in the long term for our business. In the first half of the year, as you know, we had a very strong -- we saw very strong growth in both commerce and fintech. And in Q3, due to macro instability related to the midterm elections, we saw some slowdown of growth and some increases in interest rates will affect the consumption and increased our funding cost. Having said that, despite macro, we saw solid growth in Argentina, revenues grew by 39% year-on-year in U.S. dollars, 97% in local currency, items also grew by 34%. We had a very tough comp last year. Our credit book, even though we took a more cautious stance, grew by 100% year-on-year, and we maintained very solid healthy portfolio and very solid metrics in terms of NPLs or bad debt. So we are used to managing volatility. I think this quarter as an example to that. And then looking ahead, we think that hopefully some of the volatility will go away after the results of the elections. I will continue to be very optimistic in Argentina for the long term. It continues to be a very profitable market with a lot of growth potential for us in the future.

Q: Can you talk a bit about the impressive growth in the active user base that you had. When you look at the 6 million to 7 million new quarterly active users that you added from the second to the third quarter, can you break down increase by brand-new users versus those that were previously active users, but perhaps not at each and every quarter and that just increase this frequency? And what are the demographics of the new users you're attracting? Is there -- is there -- potentially -- and I'm asking this because if there's a potential risk of those new users being a little bit more promotion focused so that it might churn if you were to pull back on any measures around couponing or marketing spend. And perhaps in that context, if you can talk about how we should think about marketing spend as we progress into next year, and whether we can come back to some degree of dilution to the investments that you're making there right now.

A: Ariel here. Pleasure to hear you. So we had an amazing quarter in terms of our user base. We grew the total unique buyers in our platform, very, very fast this quarter, reaching the 75 million active buyers that you are referring to. Out of those, more or less 4 million were new buyers to the platform. And then the others, there were buyers that did buy at some point in MercadoLibre, we believe both the total number of buyers and the number of new users are -- is very healthy, and it's a great testament of everything we are doing in MercadoLibre by improving the value proposition, both in Brazil, where we are lowering the free shipping threshold, take rates and so on, which you know, but also in the other countries, we had a great quarter in Mexico. We had a great quarter in Chile, Colombia, Argentina, which Martin was referring to. So we are excited with everything that is happening with the vibrancy that we are generating in our platform and the engagement and frequency that we see from those users that we're bringing into the platform. Martin de Los Santos: And Irma, it's Martin here. In terms of marketing spending, I think if you look at this particular quarter, it was represented about 11% of revenues, which is in line with what we saw last quarter in Q2. As we mentioned last quarter, we were stepping up a little bit of investment in user acquisition in terms of performance plus our affiliate channel. We invested more in our affiliate channel, which grew by 4x year-on-year, this is the way to attract new segments of the population, in particular, younger people and has been a very effective way of bringing more volume to our platform. So I think going forward, will continue with a similar range of investment. And as we said in the past, we are acquiring users. We have a very sophisticated methodology to acquire users to make sure that those users that we bring are actually contributing to profitability and are adding to the volume sold on our ecosystem. So we're very confident that the level of investment is the right one to support the growth that we are delivering quarter after quarter.