WEBVTT - MercadoLibre Tumbles After Net Income Miss on Spending Boost 

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News. You're listening to Bloomberg

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<v Speaker 1>Business Week with Carol Masser and Tim Stenovek on Bloomberg Radio.

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<v Speaker 2>Shares of Mercado Libre having their biggest intra day drop

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<v Speaker 2>since twenty twenty four, down about fourteen percent intra day

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<v Speaker 2>after fourth quarter net income missed analyst estimates as the

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<v Speaker 2>company continue to invest heavily in its main business lines.

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<v Speaker 2>Now I should point out ALIS are broadly positive on

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<v Speaker 2>the growth trends of the company. They did note that

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<v Speaker 2>elevated spending will pressure the company's margins. Meantime, our own

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<v Speaker 2>in house Bloomberg Intelligence als Punhamgoyle, she follows the company.

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<v Speaker 2>She pointed out that AI is a catalyst helping spa

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<v Speaker 2>ad sales and acquire business and singled out Mercado Pago,

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<v Speaker 2>Pago Pago. I hope I'm saying it correctly, Pago AI assistant.

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<v Speaker 2>So let's get into it all and look at the

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<v Speaker 2>quarter in the business. It's so great to have back

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<v Speaker 2>with us. Martin de los Santos, his CFO of the

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<v Speaker 2>e commerce firm Mercardo you Bray and he joins us

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<v Speaker 2>from Matavideo Uruguay and It is great to have you back.

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<v Speaker 2>How are you and talk to us a little bit

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<v Speaker 2>about business.

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<v Speaker 3>Thank you Carol Patty for having me. It's a pleasure

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<v Speaker 3>seeing you again.

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<v Speaker 4>And as we mentioned yesterday on earnings report, we are

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<v Speaker 4>very excited about the growth that we are delivering in

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<v Speaker 4>all of our businesses. You mentioned under atalising that has

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<v Speaker 4>been held by a ring at seventy percent year and year.

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<v Speaker 4>Our ecommerce business in particularly in BRAZILA and Mexico growing

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<v Speaker 4>thirty five percent year and a year and growing market share.

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<v Speaker 4>The same thing with Marco Pao, our fintech platform, which

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<v Speaker 4>is also growing very rapidly in a region where financial

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<v Speaker 4>inclusion is very, very low. So the opportunities ahead are

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<v Speaker 4>tremendous and the results that we deliver in Q four

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<v Speaker 4>and twenty twenty five makes us very very excited, despite

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<v Speaker 4>the fact that we are conscious that we're making investments

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<v Speaker 4>that puts some margin pressure in a short term.

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<v Speaker 1>Well, you have a great view of the consumer given

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<v Speaker 1>where you sell and and what you sell. If you

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<v Speaker 1>were to characterize consumers differently in different parts of the market,

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<v Speaker 1>different parts of the world that you sell in, how

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<v Speaker 1>would you characterize the consumer?

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<v Speaker 4>I think if you compare the consumer behavior in Latin

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<v Speaker 4>America relative to more developed countries. I think we're behind

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<v Speaker 4>in terms of adoption of e commerce, and this represents

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<v Speaker 4>an opportunity to US commerce. Preduccial ecommerce is only fifteen

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<v Speaker 4>percent in Latin America, is half the penetration, and then

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<v Speaker 4>the US. Also there are some barriers to add payments,

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<v Speaker 4>logistics more complicated, so we have built our own logistic infrastructure,

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<v Speaker 4>We build our own payment methods, so we have built

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<v Speaker 4>a platform that is enabling people to move online.

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<v Speaker 3>So I think those are the main difference.

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<v Speaker 4>At the end of the day, we sell everything in

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<v Speaker 4>mercalliure what we're doing is we're trying to move people

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<v Speaker 4>online and create the market.

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<v Speaker 2>So your sales did be fourth quarter expectations. We were

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<v Speaker 2>just talking about some of the numbers with you. Forty

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<v Speaker 2>five percent year on year increase in that revenue eight

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<v Speaker 2>point eight billion, driven by customers taking advantage of free

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<v Speaker 2>shipping perks and credit offerings. I am curious about these

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<v Speaker 2>momentum drivers, whether they continue, and I'm really interested about

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<v Speaker 2>the credit offerings. Does it show Martin strength of the

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<v Speaker 2>consumer or a consumer who needs to be buying more

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<v Speaker 2>on credit?

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<v Speaker 4>Yeah, let me first talk about the growth or portunity

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<v Speaker 4>that you mentioned. We deliver forty five percent year on

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<v Speaker 4>year growth, but this is the twenty eight consecutive quarter

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<v Speaker 4>in which we deliver more than thirty percent near on

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<v Speaker 4>year growth in terms of revenue. So growth has been

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<v Speaker 4>consistent and when we look ahead of us, because of

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<v Speaker 4>a large opportunity that we see in Latin America, it

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<v Speaker 4>will continue to be there and this is the reason

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<v Speaker 4>why we are investing behind growth. And in terms of credits,

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<v Speaker 4>Latin America is a market where it's very much under

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<v Speaker 4>developed in terms of pedetation of credit. If you look

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<v Speaker 4>at Mexico, for example, fewer than fifteen percent of people

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<v Speaker 4>have a credit card. So what we're doing is we're

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<v Speaker 4>bringing products to them that will include them in the

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<v Speaker 4>financial system, also help our ecosystem because when people pick

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<v Speaker 4>up the credit card for the first time, they tend

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<v Speaker 4>to wind.

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<v Speaker 3>More on marcalo eure.

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<v Speaker 4>So it is very snartistic, but at the end of

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<v Speaker 4>the day, we're doing so doing financial inclusion and we

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<v Speaker 4>have the objective of becoming the largest digital banking of

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<v Speaker 4>the America and we're working towards that.

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<v Speaker 1>Martin, you mentioned when we were just a few moments ago,

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<v Speaker 1>the penetration in Latin America of e commerce and how

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<v Speaker 1>it's it's half of what it is here in the

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<v Speaker 1>United States. So there's a lot of opportunity, there's a

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<v Speaker 1>lot of runway for your company. What's a good way

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<v Speaker 1>to think about the progression over the next few years,

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<v Speaker 1>like how does that increase one year, three year, five

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<v Speaker 1>years from now. What's a good goal for investors to

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<v Speaker 1>have an understanding of.

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<v Speaker 3>I think a couple of way of looking at it.

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<v Speaker 4>I think the penetration of e commerce, there's no reason

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<v Speaker 4>why you shouldn't reach the levels of China north of

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<v Speaker 4>thirty percent.

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<v Speaker 3>So that's double differendition that we have today.

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<v Speaker 4>Also, if you look at a number of buyers, we

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<v Speaker 4>have one hundred and twenty million buyers in our platform

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<v Speaker 4>in a reagion of six hundred million.

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<v Speaker 3>Of course, where we're going at twenty six for ten

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<v Speaker 3>year a year of the number of users.

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<v Speaker 4>As we continue investing and improving the user experience, that

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<v Speaker 4>should continue to deliver growth. So we see plenty of

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<v Speaker 4>wrong way for growth ahead of us in commerce, and

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<v Speaker 4>the same thing could be said about fintech.

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<v Speaker 1>But when like if you were to give a timeline

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<v Speaker 1>for when that would happen, when with different Latin American

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<v Speaker 1>markets read reach what China has experienced.

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<v Speaker 3>I think it's a male it's hard to put the timeline.

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<v Speaker 4>I mean, we've seen a lot of accelerations since pandemic

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<v Speaker 4>in terms of phanitudgenal e commerce.

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<v Speaker 3>I meanf we continue on trend, I think we.

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<v Speaker 4>Should be able to get to the levels where China

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<v Speaker 4>or the US are today maybe five to seven years.

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<v Speaker 3>Then we should continue to increase that traugtional we're going forward.

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<v Speaker 2>Hey, one of the things I want to go back to,

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<v Speaker 2>and I think you touched on this, but it's part

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<v Speaker 2>of why we're seeing a negative stock reaction, and that

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<v Speaker 2>is the substantial investments that you guys are making in

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<v Speaker 2>e commerce in the fintech unit. And will say that

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<v Speaker 2>it's necessary. You got to make these investments in order

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<v Speaker 2>to bring about future growth. So on that because investors

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<v Speaker 2>are questioning it, certainly in the trade today, Martine, how

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<v Speaker 2>should we think about the run rate here?

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<v Speaker 4>Yeah, let me give you an example to we be

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<v Speaker 4>more tangible what we're doing right. We knowwer our free

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<v Speaker 4>shipping threshold in Brazil and that was not the first

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<v Speaker 4>time that we did within it several times since twenty seventeen,

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<v Speaker 4>and that's a way to enable more people to come online.

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<v Speaker 4>You know, shipping costs is one of the main frictions

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<v Speaker 4>for people to come online. So when we did that,

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<v Speaker 4>we did put pressure on margins in the short term,

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<v Speaker 4>and we're conscious of that. But we have also seen

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<v Speaker 4>very important metrics in terms of growth, you know, increasing

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<v Speaker 4>number of users. We accelerated items sold from twenty six

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<v Speaker 4>percent you're in here to forty six percent. We see

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<v Speaker 4>more users coming to a platform with more engagement, they

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<v Speaker 4>tend to bind more things on margaliure. So all the

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<v Speaker 4>metrics are pointing in the right direction, and this is

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<v Speaker 4>the way to go, in particular if you consider the

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<v Speaker 4>relatively early stages of development of ecomers in Latin America.

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<v Speaker 3>So we think again when.

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<v Speaker 4>We try, we try to optimiate long term margins as

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<v Speaker 4>opposed to short term margins. And we're very confident that

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<v Speaker 4>the investments that we're doing in commerce in this case

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<v Speaker 4>will help achieve that goal.

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<v Speaker 2>But will it'll be a drag on margins for a

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<v Speaker 2>couple more quarters, Like do you have a good feel

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<v Speaker 2>on how that how long that continues to be maybe

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<v Speaker 2>an issue because obviously investors see it as an issue today.

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<v Speaker 4>Yeah, of course, I have been consistent to the market

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<v Speaker 4>saying that our main objective is to capture the large

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<v Speaker 4>opportunity ahead of us, and we will not hesitate to

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<v Speaker 4>invest to capture our opportunity. We have a long chart

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<v Speaker 4>reference for investment with cautious and very prudently and we

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<v Speaker 4>are expecting returns on those investments.

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<v Speaker 3>But in the long term.

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<v Speaker 4>So if we see more opportunities to invest in one

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<v Speaker 4>P cross border trade, expanding the free shipping offering, the

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<v Speaker 4>credit card, we will continue to do so because we

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<v Speaker 4>think it's the right way to go in terms of

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<v Speaker 4>expanding and maintaining a leadership position in both commerce and fintech.

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<v Speaker 1>Well, on that marketing expenses they rise when you trying

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<v Speaker 1>to increase demand. If you think about churn or like

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<v Speaker 1>if you reach a new customer, the cost of acquisition

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<v Speaker 1>of that customer, how long does that customer stick around

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<v Speaker 1>after using the service, and how do you make sure

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<v Speaker 1>that you don't have to keep spending to entice them

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<v Speaker 1>to come in.

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<v Speaker 3>That's a great question.

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<v Speaker 4>This particular quarter last year, actually we increase the level

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<v Speaker 4>of investment in advertising and the course that we incorporated

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<v Speaker 4>in twenty twenty five perform a lot better than the

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<v Speaker 4>previous cohorts because they come and they find an ecosystem

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<v Speaker 4>that works better, that has more free shipping, better financing, alternatives, assortments.

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<v Speaker 4>So all the metrics are we measured in terms of

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<v Speaker 4>retention and engagement of users that come through our advising

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<v Speaker 4>investments are improving your year, and that gives us confidence

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<v Speaker 4>to increase investments like we did in this partular year.

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<v Speaker 2>I don't know if this is a crazy question, but

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<v Speaker 2>we just want to I want to ask you before

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<v Speaker 2>we run talked about this.

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<v Speaker 1>You talked about this earlier on the call today.

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<v Speaker 2>Well, what's been going on in Mexico and you know,

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<v Speaker 2>the taking out of the cartel chief and what I

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<v Speaker 2>guess you know, we kind of continue to.

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<v Speaker 1>Watch this disruptions at airports.

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<v Speaker 2>Exactly is any of that are you seeing that show

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<v Speaker 2>up in any way in terms of consumers from Mexico?

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<v Speaker 4>Well, obviously, we are monitoring the situation very closely to

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<v Speaker 4>make sure that our employees and our customers and farmers

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<v Speaker 4>are safe. Even the recent events, we have not seen

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<v Speaker 4>any disturbance on events. But we're marketing the situation and

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<v Speaker 4>close contact with authorities to make sure that we'll get

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<v Speaker 4>into disruption.

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<v Speaker 2>All right, We're going to leave it on that note,

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<v Speaker 2>so great appreciate that you addressed that as well. Martine,

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<v Speaker 2>thank you so much, really appreciate the time today. Martin

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<v Speaker 2>de los Santos. He is the chief financial officer of

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<v Speaker 2>the e commerce firm and Latin America's most valuable company.