WEBVTT - Mercado Libre CFO Talks Investments & Tariffs 0:00:02.759 --> 0:00:07.240 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:08.039 --> 0:00:10.840 Hey listen, we have been really lucky in checking in 0:00:10.840 --> 0:00:12.520 on the c suite this week, and a lot of 0:00:12.560 --> 0:00:15.480 it has to do because so many companies around certainly 0:00:15.480 --> 0:00:18.200 across the United States, but around the globe also reporting 0:00:18.200 --> 0:00:22.120 their results. Shares of Mercado Libre they are actually trading 0:00:22.200 --> 0:00:24.480 up about two point eight percent in today's session. They 0:00:24.480 --> 0:00:27.040 will lower in the pre market, but certainly the regular 0:00:27.160 --> 0:00:29.720 session investors coming in. This is after the e commerce 0:00:29.760 --> 0:00:32.880 firm posted earnings that missed estimates. As the company ramps 0:00:32.960 --> 0:00:36.040 up marketing spending to recruit more users, now move to 0:00:36.040 --> 0:00:39.280 lower the threshold for free shipping in Brazil, also cripping profitability. 0:00:39.280 --> 0:00:41.320 We'll get into that in just a moment. We'll point 0:00:41.320 --> 0:00:44.400 out analysts the strategic value in these initiatives, saying they 0:00:44.400 --> 0:00:46.479 will help shore up long term growth even as they 0:00:46.520 --> 0:00:48.800 weigh on margins for the time being. So let's get 0:00:48.840 --> 0:00:51.680 into the business. Time for our CFO briefing with us, 0:00:51.720 --> 0:00:54.320 his Martin de los Santos, he's CEO of the e 0:00:54.320 --> 0:01:00.160 commerce firm Riccardo Libre. He joins us from Montevideo, Uruguay, 0:01:00.520 --> 0:01:02.760 and he will be featured we should point out in 0:01:02.760 --> 0:01:05.360 the upcoming edition of the Bloomberg CFO Briefing newsletter, which 0:01:05.400 --> 0:01:07.720 you can sign up for at Bloomberg dot com slash 0:01:07.720 --> 0:01:11.000 CFO Briefing. Also with us as Nina Trapman. She's Bloomberg 0:01:11.040 --> 0:01:14.440 News senior editor who writes the Bloomberg CFO Briefing newsletter. 0:01:14.480 --> 0:01:17.560 She's here in studio Martin. Great to have you here 0:01:17.800 --> 0:01:21.400 with Nina, Matt and myself talk to us about the quarter, 0:01:21.440 --> 0:01:25.319 because it does seem that investors analyst weighing in that 0:01:25.319 --> 0:01:28.240 the biggest question is on investments and what you are 0:01:28.280 --> 0:01:31.800 doing how they will provide some future growth. But welcome, welcome, 0:01:32.959 --> 0:01:34.000 thank you for having me. 0:01:34.200 --> 0:01:34.720 How are you? 0:01:35.440 --> 0:01:37.600 Yes, we had a great quarter, really in terms of 0:01:37.920 --> 0:01:41.800 the results that we delivered revenue Glubay thirty four percent 0:01:42.040 --> 0:01:45.479 a year, the delivery operating income a record operating income 0:01:45.560 --> 0:01:48.160 of eight hundred and twenty five million dollars. I'm more 0:01:48.200 --> 0:01:51.400 important than that we continue to grow our news surveys 0:01:51.560 --> 0:01:55.600 both on our commerce and fintech platform. Our buyers on 0:01:55.640 --> 0:01:58.480 the commerce platform luble by twenty five percent year a year. 0:01:58.840 --> 0:02:01.120 On fintech's rule Bay thirty percent. 0:02:01.960 --> 0:02:05.040 Credit book double year and year GMB, which is the 0:02:05.120 --> 0:02:08.200 volume to accepted America liver grule by twenty nine percent 0:02:08.639 --> 0:02:12.200 in Brazil thirty two percent in Mexico. In both cases 0:02:12.240 --> 0:02:14.840 we continue to gain market share, so very good, you know, 0:02:14.960 --> 0:02:18.760 very strong operating metrics. And like you said, this particular 0:02:18.880 --> 0:02:22.040 quorder was a quarter of investments. We opened two new 0:02:22.080 --> 0:02:24.600 food filming centers to add to the more than thirty 0:02:24.639 --> 0:02:27.360 four film centers that we have throughout the region. 0:02:27.840 --> 0:02:30.560 We also made a big change. 0:02:30.280 --> 0:02:34.320 In terms of lowering the free shipping threshold in Brazil, 0:02:34.680 --> 0:02:36.679 which is a strategic move that we have been doing 0:02:36.720 --> 0:02:40.200 for many years and it's paying off very nicely. And 0:02:40.240 --> 0:02:42.000 also we got you to invest in a credit card, 0:02:42.040 --> 0:02:45.360 but very excited normally about the results. More important than 0:02:45.360 --> 0:02:48.120 that about the future and the opportunity that we had 0:02:48.240 --> 0:02:50.840 ahead of us, both in commerce as well as filtech. 0:02:51.120 --> 0:02:55.079 You mentioned the threshold for free shipping in Brazil as 0:02:55.120 --> 0:02:59.520 one of the contributors. I think to you missing estimates 0:02:59.520 --> 0:03:01.680 for net off it as well as core earnings. I'm 0:03:01.720 --> 0:03:05.040 just wondering, as a CFO of a fast growing business, 0:03:05.040 --> 0:03:07.560 how do you think about profitability and how do you 0:03:07.600 --> 0:03:10.880 manage the short versus versus long term that's. 0:03:10.919 --> 0:03:12.720 I mean, we talked about this, Nina, I remember talking 0:03:12.760 --> 0:03:14.519 to you a few quarters ago. 0:03:14.639 --> 0:03:14.920 That's it. 0:03:15.120 --> 0:03:17.720 We try to balance, right, We try to balance short 0:03:17.800 --> 0:03:20.960 term profitability with the growth opportunities that we have ahead 0:03:21.000 --> 0:03:21.480 of us. 0:03:21.639 --> 0:03:22.880 So we want to make sure that we do not 0:03:23.000 --> 0:03:24.079 miss those opportunities. 0:03:24.080 --> 0:03:26.720 When you look at commerce penetration of e commerce in 0:03:26.760 --> 0:03:31.360 Latin America, it's roughly mid teams fifteen percent compared to 0:03:31.400 --> 0:03:35.600 maybe twenty five percent, thirty or forty percent in China, 0:03:35.600 --> 0:03:38.000 hour in the US, So there's plenty of room to 0:03:38.000 --> 0:03:40.800 continue growing the fintex side of the business. The same 0:03:40.800 --> 0:03:44.200 thing happened most people in Latin America have not been 0:03:44.240 --> 0:03:47.000 financially included by the financial system, so that we see 0:03:47.000 --> 0:03:51.520 a large opportunity to expand our footprint on the fintech 0:03:51.560 --> 0:03:54.400 side of the business and Marcalo Pao so at the 0:03:54.440 --> 0:03:58.120 same time, to capture our opportunity, it requires investments. Some 0:03:58.160 --> 0:04:01.000 of those investments might put some short pressure, but I 0:04:01.000 --> 0:04:03.080 think this is a good example. When we lower the 0:04:03.120 --> 0:04:06.080 free free shipping threshold, it does put pressure in the 0:04:06.080 --> 0:04:09.320 short term, but we have approve and over time, and 0:04:08.880 --> 0:04:12.720 we've been doing this since twenty seventeen when we introduced 0:04:12.760 --> 0:04:15.240 free shipping in Brazil. At that time the free shipping 0:04:15.280 --> 0:04:18.080 threashold was one hundred and twenty rarees. We brought it 0:04:18.120 --> 0:04:20.479 down to eighty and now we brought it down to twenty. 0:04:20.800 --> 0:04:24.000 So we have proved all the time that by lowering 0:04:24.000 --> 0:04:27.400 the free shipping threshold, we eliminate the most you know, 0:04:27.440 --> 0:04:32.040 the high, the most frictional point in terms of buying 0:04:32.080 --> 0:04:35.440 things online for people. So we're eliminating that friction, really 0:04:35.480 --> 0:04:38.400 generates a lot more volume and then eventually that translates 0:04:38.400 --> 0:04:39.080 into profits. 0:04:39.120 --> 0:04:41.640 So I think it's a it's a strategy that has paid. 0:04:41.480 --> 0:04:43.880 Out to us, and the long term investors of Margalivera 0:04:43.960 --> 0:04:46.600 understand it, and we're already comfortable with the investments that 0:04:46.640 --> 0:04:47.080 we're doing. 0:04:48.160 --> 0:04:52.080 You mentioned Brazil. It's of course an interesting market just 0:04:52.160 --> 0:04:55.200 in the current terror of debates that we're seeing with 0:04:55.360 --> 0:05:00.600 the Brazilian government so far holding out tow to Trump 0:05:00.680 --> 0:05:06.200 and basically not giving in on the Trump Terraff suggestions 0:05:06.200 --> 0:05:09.040 for Brazil. Just wondering and how far are you seeing 0:05:09.040 --> 0:05:12.520 that play out in terms of consumer confidence and consumer spending. 0:05:12.560 --> 0:05:15.640 Are you seeing any impacts in countries like Brazil I 0:05:15.680 --> 0:05:19.080 know you're also doing business in Mexico and other countries, 0:05:19.440 --> 0:05:22.279 all of which will face higher terrors as part of 0:05:22.360 --> 0:05:25.640 the US renegotiation of terrorsts around the world. 0:05:26.800 --> 0:05:30.600 Yes, this is something that we are monitoring closely. Obviously, 0:05:30.720 --> 0:05:33.880 we do not export into the US, so there's no 0:05:34.000 --> 0:05:37.400 direct impact on our business, but it can have secondary 0:05:37.400 --> 0:05:40.320 effects on the economy, as you mentioned, we have not 0:05:40.400 --> 0:05:42.919 seen that so far. As I mentioned earlier, we are 0:05:42.960 --> 0:05:46.320 growing by twenty nine percent our GMB in Brazil as 0:05:46.440 --> 0:05:49.160 that the management which is amount of money investing of 0:05:49.360 --> 0:05:52.640 our users, investor mark delivery more than DOW in Brazil 0:05:52.760 --> 0:05:55.479 ear year. Our credit card book has grown by one 0:05:55.520 --> 0:05:59.520 hundred and eighteen percent. The profitability of the acid quality 0:05:59.520 --> 0:06:01.880 of our credit will continue to be very solid in Brazil. 0:06:02.200 --> 0:06:03.840 So we have not seen any you. 0:06:03.800 --> 0:06:08.160 Know, any deterioration on macro, on consumption, but obviously it's 0:06:08.200 --> 0:06:09.680 something that we are monitoring closely. 0:06:10.880 --> 0:06:14.720 Martine Gwendia Matt Miller here in the studio with the ladies. 0:06:15.080 --> 0:06:19.480 I was really blown away by the growth at Mercado 0:06:19.520 --> 0:06:24.239 Credito and I wonder if you're watching closely for signs 0:06:24.240 --> 0:06:26.719 of credit stress there, because I think you had like 0:06:26.880 --> 0:06:28.080 ninety percent growth. 0:06:29.640 --> 0:06:31.760 That's correct, that's correct. Thank you for for a question. 0:06:32.120 --> 0:06:34.560 Yeah, obviously, when we look at credit, we take it 0:06:34.680 --> 0:06:36.919 very seriously. We are very careful in the way we 0:06:36.960 --> 0:06:38.800 manage credit, but the way I used to run the 0:06:38.800 --> 0:06:41.960 great business before taking the position of CFO. So the 0:06:42.000 --> 0:06:43.960 first thing we look at is the health of our book. 0:06:44.440 --> 0:06:47.680 We saw that npls and we disclosed this number are 0:06:47.720 --> 0:06:52.040 the lowest record, lowest number since we've been disclosed in 0:06:52.080 --> 0:06:55.839 the metric. The NAYMA, which is a measure of profitability, 0:06:56.240 --> 0:07:00.520 is also improving quarter on quarter. So we see very 0:07:00.560 --> 0:07:04.279 healthy science in terms of our book and a profiliarity. 0:07:04.520 --> 0:07:06.680 So the reason why you're seeing ninety one percent growth 0:07:06.839 --> 0:07:10.400 in our credit book is because we are seeing good 0:07:10.440 --> 0:07:13.360 results in terms of our models predicting default rates and 0:07:14.240 --> 0:07:17.160 the quality of our prede book continues to be very healthy. 0:07:17.840 --> 0:07:21.400 If we need something different, we will slow down because 0:07:21.640 --> 0:07:24.560 you know, we're very conscious with the way we manage 0:07:24.600 --> 0:07:25.320 our credit business. 0:07:25.760 --> 0:07:27.880 We're talking with Martin de los Santos. He is the 0:07:27.880 --> 0:07:32.160 CFO Mercado Libre joining us from Uruguay. We should also 0:07:32.200 --> 0:07:36.960 point out that this is the largest company we to 0:07:37.040 --> 0:07:39.520 point Latin America's most valuable company if you think about 0:07:39.520 --> 0:07:42.560 market caps, so really significant. We were talking about fintech, 0:07:42.720 --> 0:07:45.640 and you know, you were talking about kind of the 0:07:45.680 --> 0:07:47.640 health of that portfolio, but what can you tell us 0:07:47.680 --> 0:07:51.080 more Martine when it comes to the mix of customers 0:07:51.080 --> 0:07:52.200 that are in that portfolio. 0:07:53.720 --> 0:07:57.360 I think what we're seeing is we're seeing all the 0:07:57.640 --> 0:08:03.520 different type of customers within the economics segments of the population. 0:08:04.000 --> 0:08:06.520 Keep in mind that we acquire most of our users, 0:08:06.560 --> 0:08:10.320 most of our credit users from the marketplace and all 0:08:10.400 --> 0:08:12.240 types of people using our marketplace, so we have the 0:08:12.280 --> 0:08:17.480 advantage of having the distribution of medicalivery, but also they 0:08:17.560 --> 0:08:20.960 buying information that those people have on our marketplace, and 0:08:21.000 --> 0:08:25.120 we use that information through AI and machine learning models 0:08:25.280 --> 0:08:28.040 to escore people, and we have models that are very 0:08:28.040 --> 0:08:29.800 accurate at predicting credit risks. 0:08:30.160 --> 0:08:33.000 So you will find people of all kinds of. 0:08:35.520 --> 0:08:38.960 Social levels within our ecosystems that are like half of 0:08:39.000 --> 0:08:41.280 the people that we offer grade too. We offer credit 0:08:41.280 --> 0:08:43.120 for the first time they never had access to create. 0:08:43.360 --> 0:08:46.360 But also the other half are people that properly moving 0:08:47.000 --> 0:08:49.679 their fintech business to us because we offer it much 0:08:49.720 --> 0:08:52.199 better user experience than the traditional bands. 0:08:53.040 --> 0:08:55.800 Martin one question in terms of earnings, I noted that 0:08:55.840 --> 0:08:59.200 you also pointed out the impact of the Argentine peso 0:08:59.400 --> 0:09:03.440 on your results. Of course, we've seen JAVMLA make various 0:09:03.480 --> 0:09:08.120 changes in Argentina in recent months, including making changes to 0:09:08.160 --> 0:09:12.040 the companies to the country's currency, which has resulted to 0:09:12.880 --> 0:09:16.640 in basically the spread between the official and inofficial rate 0:09:16.760 --> 0:09:20.840 falling apart. Just wondering how that's impacting your business and 0:09:20.880 --> 0:09:24.480 specifically also are you changing your hedging strategy for Argentina. 0:09:25.960 --> 0:09:28.560 Yeah, I think that the HEADLFT of Argentia that we 0:09:28.640 --> 0:09:32.160 continue to see a big recovery. I mean unique virus 0:09:32.160 --> 0:09:35.320 in Argentina group by thirty percent your year, our GMB 0:09:35.440 --> 0:09:38.280 group by seventy five percent in local currency or thirty 0:09:38.280 --> 0:09:41.600 five percent in dollars, the items sold on the platform group. 0:09:41.400 --> 0:09:44.240 By forty six percent, so very strong recovery. 0:09:44.280 --> 0:09:48.800 As we see inflation coming down, consumption improving, and also 0:09:48.880 --> 0:09:51.720 as you mentioned, the FX market. 0:09:51.679 --> 0:09:54.079 Be normalized also helps our business. 0:09:54.640 --> 0:09:57.120 They opened the economy, so we are bringing more products 0:09:57.120 --> 0:09:59.080 from the US into Argentina as well. 0:09:59.520 --> 0:10:01.239 So most you know, most of the business. 0:10:01.000 --> 0:10:04.239 Are performed here extremely well in Argentina and we're very happy. 0:10:03.960 --> 0:10:05.319 With the way things are going for our business. 0:10:05.360 --> 0:10:11.079 There you mentioned, Martine, you ran credit before at Mayer Coutolibre. 0:10:11.240 --> 0:10:15.240 You ran also strategy into it and you were at 0:10:15.280 --> 0:10:17.920 Paine before that, so you know strategy up and down. 0:10:18.520 --> 0:10:21.440 I want to know about your strategy regarding ad revenue 0:10:21.440 --> 0:10:24.520 because it was also searched like up thirty eight percent. 0:10:25.000 --> 0:10:28.360 Is that a profit center for you, a future profit 0:10:28.400 --> 0:10:30.480 center or do you view that more as a tool 0:10:30.520 --> 0:10:32.600 to drive your core marketplace growth? 0:10:33.720 --> 0:10:36.600 Yeah? Other times in business is roughly a one billion 0:10:36.679 --> 0:10:37.480 dollar business. 0:10:37.720 --> 0:10:39.680 He's rowing at thirty eight percent, as you mentioned, and 0:10:39.720 --> 0:10:42.920 he's as a profit business for the company, but it 0:10:42.920 --> 0:10:44.760 has tremendous potential going forward. 0:10:45.240 --> 0:10:47.320 If you look at the number of people interacting with 0:10:47.320 --> 0:10:48.080 our ecosystem. 0:10:48.160 --> 0:10:50.760 Last year we had more than one hundred million people 0:10:50.840 --> 0:10:54.600 buying on Marcaire have sixty eight millium monthly active users 0:10:54.640 --> 0:10:55.720 of our fintech platform. 0:10:56.000 --> 0:10:56.640 So in terms of a. 0:10:56.679 --> 0:11:00.680 Number of eyeballs within Latin America, we are the third 0:11:00.840 --> 0:11:05.160 largest pan regional platform and that gives us a great 0:11:05.160 --> 0:11:09.320 opportunity to continue distributing advertising. We also can leverage all 0:11:09.400 --> 0:11:11.760 the one first part the information that we have on 0:11:11.760 --> 0:11:15.800 our users or to target marketing campaigns. So we see 0:11:15.840 --> 0:11:18.959 a big, very large opportunity. I think it's more future 0:11:19.040 --> 0:11:22.319 to the past and advertising business. We're just getting started, 0:11:22.600 --> 0:11:24.800 but as you mentioned, we have been growing very rapidly 0:11:24.800 --> 0:11:26.360 for the past several years. 0:11:26.360 --> 0:11:28.200 There's plenty of growth going forward. 0:11:28.800 --> 0:11:31.280 Martin just got about twenty seconds. We always liked to 0:11:31.360 --> 0:11:33.760 when we've got lucky enough to have someone like yourself 0:11:34.480 --> 0:11:37.560 a global CEO, how would you describe the global outlook? 0:11:37.600 --> 0:11:38.560 And just quickly. 0:11:39.720 --> 0:11:42.000 Yeah, I think well, obviously we operate in Latin America 0:11:42.240 --> 0:11:46.439 and depending on the countries and countries have some tough 0:11:46.480 --> 0:11:49.199 micro situations and some others might be in a very 0:11:49.240 --> 0:11:53.000 conditioned we're talking about Argentina recovering. But at the end 0:11:53.000 --> 0:11:54.880 of the day, I think in our business in particular, 0:11:55.240 --> 0:11:58.920 the trend of people moving online is so much stronger 0:11:58.960 --> 0:12:02.520 than macroduct We have plenty of opportunities ahead of us. 0:12:02.559 --> 0:12:06.360 And the same thing on fintech. Right where we're operating 0:12:06.520 --> 0:12:10.320 in America, where petuation of fintech products is very very low, 0:12:10.720 --> 0:12:13.840 we play a big role in terms of generating financial. 0:12:13.360 --> 0:12:17.440 Inclusion throughout the region. So we're very optimistic about at 0:12:17.480 --> 0:12:18.000 least on our. 0:12:17.920 --> 0:12:20.120 Region, So glad we could get some time with you. 0:12:20.200 --> 0:12:24.839 Martin de la Santa Ceo, Mercado Libro, cfo, excuse me. 0:12:24.840 --> 0:12:28.440 Mercado Libre gave him a little bit of a promotion 0:12:28.600 --> 0:12:29.280 in Inina treatment. 0:12:29.320 --> 0:12:29.760 Thank you.