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MercadoLibre Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The company is very satisfied with the growth it is delivering both on commerce and fintech.
- The company opened new fulfillment centers and expanded its free shipping offering, resulting in a record-breaking number of new buyers coming to the marketplace.
- The company improved its value proposition and surpassed 100 million unique buyers in its marketplace and 60 million monthly active users in its fintech platform.
- The company launched Meli Dólar, a stablecoin that users can buy, hold, and sell in its app and specific tax-free investment products called LCI and LCA in Brazil with investments starting from just BRL100.
- NIMAL deteriorated YoY due to mix shifts towards credit cards.
- Argentina has seen volatility in every macro measure in the past.
- The company is cautious in issuing cards to the riskier segment.
- The company is excited about the growth opportunities ahead and the margin potential will continue to increase as the company scales its business and dilutes fixed costs going forward.
- The company expects to see some compression in NIMAL as it moves upmarket in the two segments, giving loans to less risky segments.
- The company will continue to make strategic investments to capture opportunities in logistics and credit cards, which might put some margin pressures on the business.
Q&A Highlights from MercadoLibre Inc Earnings Call Q4 2024
- Analyst asked about MercadoLibre's comfort level with credit in Brazil amid the rising interest rate backdrop and the impacts of credit penetration on the overall ecosystem.
- Osvaldo Giménez, Chief Financial Officer, stated that MercadoLibre has taken measures to reduce risk, such as reducing the amount of micro cards issued and tightening payback periods on new issuance. Despite these measures, MercadoLibre is comfortable with the level of risk it is taking and has seen no signs of deterioration in its credit portfolio.
- Osvaldo Giménez, Chief Financial Officer, stated that MercadoLibre has taken measures to reduce risk, such as reducing the amount of micro cards issued and tightening payback periods on new issuance. Despite these measures, MercadoLibre is comfortable with the level of risk it is taking and has seen no signs of deterioration in its credit portfolio.
- Analyst asked about the tailwinds and headwinds for margin in Brazil in 2025 and any areas of investment or cost increases that should be aware of.
- Martín de los Santos, Chief Operating Officer, stated that MercadoLibre is very optimistic about the recovery in commerce and fintech in Argentina. The company quadrupled its credit book in Argentina and saw a strong recovery on the commerce side of the business. He also mentioned that Argentina is a relatively higher-margin country compared to Brazil and Mexico, which explains the improvements in margins. In terms of Brazil, the company is investing in credit cards, which continues to drive margins, but is conscious of the investment and optimistic about the benefits it brings to the ecosystem.
- Martín de los Santos, Chief Operating Officer, stated that MercadoLibre is very optimistic about the recovery in commerce and fintech in Argentina. The company quadrupled its credit book in Argentina and saw a strong recovery on the commerce side of the business. He also mentioned that Argentina is a relatively higher-margin country compared to Brazil and Mexico, which explains the improvements in margins. In terms of Brazil, the company is investing in credit cards, which continues to drive margins, but is conscious of the investment and optimistic about the benefits it brings to the ecosystem.
- Analyst asked about initiatives to improve the commerce platform and address competition from peers focusing on lower ticket size items.
- The company has opened two warehouses during 2024 to expand capacity and support the shift from online to online commerce in Latin America. The company is also investing in improving the user interface and platform features, scaling Melimise and Meli Delivery Day, and offering more free shipping in the low ticket item range.
- The company has opened two warehouses during 2024 to expand capacity and support the shift from online to online commerce in Latin America. The company is also investing in improving the user interface and platform features, scaling Melimise and Meli Delivery Day, and offering more free shipping in the low ticket item range.
- Analyst asked about the company's quarterly net credit card investments and acceleration in the two-year maturation period for younger cohorts.
- The company is being more restrictive in the number of cards it issues, particularly towards the riskier segment, but total payment volume is growing aggressively on a year-on-year basis. All two-year-old cohorts are profitable on a NIMAL basis, and newer cohorts are showing better repayment behavior than expected. The company continues to expand its book by issuing new cohorts with expected repayment behavior.
- The company is being more restrictive in the number of cards it issues, particularly towards the riskier segment, but total payment volume is growing aggressively on a year-on-year basis. All two-year-old cohorts are profitable on a NIMAL basis, and newer cohorts are showing better repayment behavior than expected. The company continues to expand its book by issuing new cohorts with expected repayment behavior.
- Analyst asked about the fulfillment centers that recently went online and if they were able to achieve the desired utilization levels during the 2024 holiday season.
- Ariel Szarfsztejn, the CFO, stated that the company is satisfied with the performance of its logistics network in Q4, and they were able to achieve the desired utilization levels. He explained that the company balanced the expansion of its logistics capacity with productivity improvements and efficiencies, which helped them cope with the demand. He added that a typical warehouse takes a few years to reach peak utilization, but the company is on track with its learning process.
- Ariel Szarfsztejn, the CFO, stated that the company is satisfied with the performance of its logistics network in Q4, and they were able to achieve the desired utilization levels. He explained that the company balanced the expansion of its logistics capacity with productivity improvements and efficiencies, which helped them cope with the demand. He added that a typical warehouse takes a few years to reach peak utilization, but the company is on track with its learning process.
- Analyst asked about the provisions for bad debt and how they are modeled.
- Martín de los Santos, the COO, explained that there are two forces to consider when modeling provisions for bad debt. The first is the historical performance of portfolios, which are improving over time. The second is the sequential growth of the portfolio, which generates pressure on bad debt when there is an incremental portfolio. He gave an example of the previous quarter, where the portfolio grew by 23% compared to only 9% in the current quarter, leading to an increase in provisions.
- Martín de los Santos, the COO, explained that there are two forces to consider when modeling provisions for bad debt. The first is the historical performance of portfolios, which are improving over time. The second is the sequential growth of the portfolio, which generates pressure on bad debt when there is an incremental portfolio. He gave an example of the previous quarter, where the portfolio grew by 23% compared to only 9% in the current quarter, leading to an increase in provisions.
- Analyst asked about the acceleration in buyers and frequency on the e-commerce side and the drivers behind it.
- Ariel Szarfsztejn, the CFO, explained that the acceleration in buyers and frequency is a compounding effect of various factors, including the company's investment in adjusting and improving its value proposition, product, and user experience. He highlighted the growth of new categories such as essentials, consumer electronics, home and industries, apparel, and beauty, which are all contributing to the company's success. He also mentioned the importance of free shipping in boosting demand and the company's technology and demand acquisition strategies.
- Ariel Szarfsztejn, the CFO, explained that the acceleration in buyers and frequency is a compounding effect of various factors, including the company's investment in adjusting and improving its value proposition, product, and user experience. He highlighted the growth of new categories such as essentials, consumer electronics, home and industries, apparel, and beauty, which are all contributing to the company's success. He also mentioned the importance of free shipping in boosting demand and the company's technology and demand acquisition strategies.
- Analyst asked about the improvement in NIMAL (net interest margin after loan loss provisions) and how it relates to the maturity of the cohort curves and underwriting algorithms.
- Osvaldo Giménez explained that the improvement in NIMAL is mainly due to higher product spreads, particularly in the consumer and credit card segments. He also mentioned that bad debt as a percentage of portfolio has decreased, driven by better collections across all books, including seasonality effects. He emphasized that the provisioning policies and asset quality remain unchanged, and the improvements in NIMAL are due to a combination of factors, such as higher spreads and the credit card book gaining share within the overall portfolio.
- Osvaldo Giménez explained that the improvement in NIMAL is mainly due to higher product spreads, particularly in the consumer and credit card segments. He also mentioned that bad debt as a percentage of portfolio has decreased, driven by better collections across all books, including seasonality effects. He emphasized that the provisioning policies and asset quality remain unchanged, and the improvements in NIMAL are due to a combination of factors, such as higher spreads and the credit card book gaining share within the overall portfolio.
- Analyst asked about the potential for faster growth in Argentina, given the low market share and underpenetrated credit markets, and whether obtaining a banking license is part of the company's plans.
- Osvaldo Giménez responded that the company has grown its portfolio significantly in the last year, and there is a lot of potential for further growth in Argentina, particularly in the credit card segment, where penetration is low and demand is high. He mentioned that the company is cautious about the volatile macro environment in Argentina and wants to proceed with caution. The company has been able to grow its book without becoming a bank, by securitizing receivables and coupons, and expects to continue doing so. However, becoming a bank is something that the company analyzes regularly, and they could change their decision at any point.
- Osvaldo Giménez responded that the company has grown its portfolio significantly in the last year, and there is a lot of potential for further growth in Argentina, particularly in the credit card segment, where penetration is low and demand is high. He mentioned that the company is cautious about the volatile macro environment in Argentina and wants to proceed with caution. The company has been able to grow its book without becoming a bank, by securitizing receivables and coupons, and expects to continue doing so. However, becoming a bank is something that the company analyzes regularly, and they could change their decision at any point.
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