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Speaker 2: Shares of Mercado Libre having their biggest intra day drop
Speaker 2: since twenty twenty four, down about fourteen percent intra day
Speaker 2: after fourth quarter net income missed analyst estimates as the
Speaker 2: company continue to invest heavily in its main business lines.
Speaker 2: Now I should point out ALIS are broadly positive on
Speaker 2: the growth trends of the company. They did note that
Speaker 2: elevated spending will pressure the company's margins. Meantime, our own
Speaker 2: in house Bloomberg Intelligence als Punhamgoyle, she follows the company.
Speaker 2: She pointed out that AI is a catalyst helping spa
Speaker 2: ad sales and acquire business and singled out Mercado Pago,
Speaker 2: Pago Pago. I hope I'm saying it correctly, Pago AI assistant.
Speaker 2: So let's get into it all and look at the
Speaker 2: quarter in the business. It's so great to have back
Speaker 2: with us. Martin de los Santos, his CFO of the
Speaker 2: e commerce firm Mercardo you Bray and he joins us
Speaker 2: from Matavideo Uruguay and It is great to have you back.
Speaker 2: How are you and talk to us a little bit
Speaker 2: about business.
Speaker 3: Thank you Carol Patty for having me. It's a pleasure
Speaker 3: seeing you again.
Speaker 4: And as we mentioned yesterday on earnings report, we are
Speaker 4: very excited about the growth that we are delivering in
Speaker 4: all of our businesses. You mentioned under atalising that has
Speaker 4: been held by a ring at seventy percent year and year.
Speaker 4: Our ecommerce business in particularly in BRAZILA and Mexico growing
Speaker 4: thirty five percent year and a year and growing market share.
Speaker 4: The same thing with Marco Pao, our fintech platform, which
Speaker 4: is also growing very rapidly in a region where financial
Speaker 4: inclusion is very, very low. So the opportunities ahead are
Speaker 4: tremendous and the results that we deliver in Q four
Speaker 4: and twenty twenty five makes us very very excited, despite
Speaker 4: the fact that we are conscious that we're making investments
Speaker 4: that puts some margin pressure in a short term.
Speaker 1: Well, you have a great view of the consumer given
Speaker 1: where you sell and and what you sell. If you
Speaker 1: were to characterize consumers differently in different parts of the market,
Speaker 1: different parts of the world that you sell in, how
Speaker 1: would you characterize the consumer?
Speaker 4: I think if you compare the consumer behavior in Latin
Speaker 4: America relative to more developed countries. I think we're behind
Speaker 4: in terms of adoption of e commerce, and this represents
Speaker 4: an opportunity to US commerce. Preduccial ecommerce is only fifteen
Speaker 4: percent in Latin America, is half the penetration, and then
Speaker 4: the US. Also there are some barriers to add payments,
Speaker 4: logistics more complicated, so we have built our own logistic infrastructure,
Speaker 4: We build our own payment methods, so we have built
Speaker 4: a platform that is enabling people to move online.
Speaker 3: So I think those are the main difference.
Speaker 4: At the end of the day, we sell everything in
Speaker 4: mercalliure what we're doing is we're trying to move people
Speaker 4: online and create the market.
Speaker 2: So your sales did be fourth quarter expectations. We were
Speaker 2: just talking about some of the numbers with you. Forty
Speaker 2: five percent year on year increase in that revenue eight
Speaker 2: point eight billion, driven by customers taking advantage of free
Speaker 2: shipping perks and credit offerings. I am curious about these
Speaker 2: momentum drivers, whether they continue, and I'm really interested about
Speaker 2: the credit offerings. Does it show Martin strength of the
Speaker 2: consumer or a consumer who needs to be buying more
Speaker 2: on credit?
Speaker 4: Yeah, let me first talk about the growth or portunity
Speaker 4: that you mentioned. We deliver forty five percent year on
Speaker 4: year growth, but this is the twenty eight consecutive quarter
Speaker 4: in which we deliver more than thirty percent near on
Speaker 4: year growth in terms of revenue. So growth has been
Speaker 4: consistent and when we look ahead of us, because of
Speaker 4: a large opportunity that we see in Latin America, it
Speaker 4: will continue to be there and this is the reason
Speaker 4: why we are investing behind growth. And in terms of credits,
Speaker 4: Latin America is a market where it's very much under
Speaker 4: developed in terms of pedetation of credit. If you look
Speaker 4: at Mexico, for example, fewer than fifteen percent of people
Speaker 4: have a credit card. So what we're doing is we're
Speaker 4: bringing products to them that will include them in the
Speaker 4: financial system, also help our ecosystem because when people pick
Speaker 4: up the credit card for the first time, they tend
Speaker 4: to wind.
Speaker 3: More on marcalo eure.
Speaker 4: So it is very snartistic, but at the end of
Speaker 4: the day, we're doing so doing financial inclusion and we
Speaker 4: have the objective of becoming the largest digital banking of
Speaker 4: the America and we're working towards that.
Speaker 1: Martin, you mentioned when we were just a few moments ago,
Speaker 1: the penetration in Latin America of e commerce and how
Speaker 1: it's it's half of what it is here in the
Speaker 1: United States. So there's a lot of opportunity, there's a
Speaker 1: lot of runway for your company. What's a good way
Speaker 1: to think about the progression over the next few years,
Speaker 1: like how does that increase one year, three year, five
Speaker 1: years from now. What's a good goal for investors to
Speaker 1: have an understanding of.
Speaker 3: I think a couple of way of looking at it.
Speaker 4: I think the penetration of e commerce, there's no reason
Speaker 4: why you shouldn't reach the levels of China north of
Speaker 4: thirty percent.
Speaker 3: So that's double differendition that we have today.
Speaker 4: Also, if you look at a number of buyers, we
Speaker 4: have one hundred and twenty million buyers in our platform
Speaker 4: in a reagion of six hundred million.
Speaker 3: Of course, where we're going at twenty six for ten
Speaker 3: year a year of the number of users.
Speaker 4: As we continue investing and improving the user experience, that
Speaker 4: should continue to deliver growth. So we see plenty of
Speaker 4: wrong way for growth ahead of us in commerce, and
Speaker 4: the same thing could be said about fintech.
Speaker 1: But when like if you were to give a timeline
Speaker 1: for when that would happen, when with different Latin American
Speaker 1: markets read reach what China has experienced.
Speaker 3: I think it's a male it's hard to put the timeline.
Speaker 4: I mean, we've seen a lot of accelerations since pandemic
Speaker 4: in terms of phanitudgenal e commerce.
Speaker 3: I meanf we continue on trend, I think we.
Speaker 4: Should be able to get to the levels where China
Speaker 4: or the US are today maybe five to seven years.
Speaker 3: Then we should continue to increase that traugtional we're going forward.
Speaker 2: Hey, one of the things I want to go back to,
Speaker 2: and I think you touched on this, but it's part
Speaker 2: of why we're seeing a negative stock reaction, and that
Speaker 2: is the substantial investments that you guys are making in
Speaker 2: e commerce in the fintech unit. And will say that
Speaker 2: it's necessary. You got to make these investments in order
Speaker 2: to bring about future growth. So on that because investors
Speaker 2: are questioning it, certainly in the trade today, Martine, how
Speaker 2: should we think about the run rate here?
Speaker 4: Yeah, let me give you an example to we be
Speaker 4: more tangible what we're doing right. We knowwer our free
Speaker 4: shipping threshold in Brazil and that was not the first
Speaker 4: time that we did within it several times since twenty seventeen,
Speaker 4: and that's a way to enable more people to come online.
Speaker 4: You know, shipping costs is one of the main frictions
Speaker 4: for people to come online. So when we did that,
Speaker 4: we did put pressure on margins in the short term,
Speaker 4: and we're conscious of that. But we have also seen
Speaker 4: very important metrics in terms of growth, you know, increasing
Speaker 4: number of users. We accelerated items sold from twenty six
Speaker 4: percent you're in here to forty six percent. We see
Speaker 4: more users coming to a platform with more engagement, they
Speaker 4: tend to bind more things on margaliure. So all the
Speaker 4: metrics are pointing in the right direction, and this is
Speaker 4: the way to go, in particular if you consider the
Speaker 4: relatively early stages of development of ecomers in Latin America.
Speaker 3: So we think again when.
Speaker 4: We try, we try to optimiate long term margins as
Speaker 4: opposed to short term margins. And we're very confident that
Speaker 4: the investments that we're doing in commerce in this case
Speaker 4: will help achieve that goal.
Speaker 2: But will it'll be a drag on margins for a
Speaker 2: couple more quarters, Like do you have a good feel
Speaker 2: on how that how long that continues to be maybe
Speaker 2: an issue because obviously investors see it as an issue today.
Speaker 4: Yeah, of course, I have been consistent to the market
Speaker 4: saying that our main objective is to capture the large
Speaker 4: opportunity ahead of us, and we will not hesitate to
Speaker 4: invest to capture our opportunity. We have a long chart
Speaker 4: reference for investment with cautious and very prudently and we
Speaker 4: are expecting returns on those investments.
Speaker 3: But in the long term.
Speaker 4: So if we see more opportunities to invest in one
Speaker 4: P cross border trade, expanding the free shipping offering, the
Speaker 4: credit card, we will continue to do so because we
Speaker 4: think it's the right way to go in terms of
Speaker 4: expanding and maintaining a leadership position in both commerce and fintech.
Speaker 1: Well, on that marketing expenses they rise when you trying
Speaker 1: to increase demand. If you think about churn or like
Speaker 1: if you reach a new customer, the cost of acquisition
Speaker 1: of that customer, how long does that customer stick around
Speaker 1: after using the service, and how do you make sure
Speaker 1: that you don't have to keep spending to entice them
Speaker 1: to come in.
Speaker 3: That's a great question.
Speaker 4: This particular quarter last year, actually we increase the level
Speaker 4: of investment in advertising and the course that we incorporated
Speaker 4: in twenty twenty five perform a lot better than the
Speaker 4: previous cohorts because they come and they find an ecosystem
Speaker 4: that works better, that has more free shipping, better financing, alternatives, assortments.
Speaker 4: So all the metrics are we measured in terms of
Speaker 4: retention and engagement of users that come through our advising
Speaker 4: investments are improving your year, and that gives us confidence
Speaker 4: to increase investments like we did in this partular year.
Speaker 2: I don't know if this is a crazy question, but
Speaker 2: we just want to I want to ask you before
Speaker 2: we run talked about this.
Speaker 1: You talked about this earlier on the call today.
Speaker 2: Well, what's been going on in Mexico and you know,
Speaker 2: the taking out of the cartel chief and what I
Speaker 2: guess you know, we kind of continue to.
Speaker 1: Watch this disruptions at airports.
Speaker 2: Exactly is any of that are you seeing that show
Speaker 2: up in any way in terms of consumers from Mexico?
Speaker 4: Well, obviously, we are monitoring the situation very closely to
Speaker 4: make sure that our employees and our customers and farmers
Speaker 4: are safe. Even the recent events, we have not seen
Speaker 4: any disturbance on events. But we're marketing the situation and
Speaker 4: close contact with authorities to make sure that we'll get
Speaker 4: into disruption.
Speaker 2: All right, We're going to leave it on that note,
Speaker 2: so great appreciate that you addressed that as well. Martine,
Speaker 2: thank you so much, really appreciate the time today. Martin
Speaker 2: de los Santos. He is the chief financial officer of
Speaker 2: the e commerce firm and Latin America's most valuable company.