MercadoLibre, Inc. (NASDAQ:MELI) Q4 2023 Earnings Call Transcript
MercadoLibre, Inc. (NASDAQ:MELI) Q4 2023 Earnings Call Transcript February 22, 2024
MercadoLibre, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, everyone and welcome to the MercadoLibre's Earnings Conference Call for the quarter ended December 31, 2023. Thank you for joining us. I’m Richard Cathcart, MercadoLibre’s Investor Relations Officer. Today we will share our quarterly highlights on video, after which we will begin our live Q&A session with our CEO, Marcos Galperin, Chief Financial Officer Martin de los Santos, Fintech President, Osvaldo Gimenez and Commerce EVP Ariel Szarfsztejn. Before we go onto discuss our results for the fourth quarter of 2023, I’ll remind you that management may make or refer to and this presentation may contain forward-looking statements and non-GAAP measures. So please refer to the disclaimer on screen which will also be available in our earnings materials on our investor relations website.
With that, let’s begin with a summary of our results. Hello everyone. I’m delighted to share that MercadoLibre delivered solid results in Q4 marking a strong conclusion and outstanding year. Overall, 2023 highlighted their strength of our financial model and it’s future potential as well as a powerful impact of compounding of several years of investment in technology. For our commerce business it was a year of accelerated growth and market share gains in most countries. We achieved this but continued to make improvements and the value proposition to buyers and sellers in our marketplace. I would like to highlight three important initiatives that contributed to our success in commerce. We continued to invest in having the widest product assortment in order to offer the best buying experience to consumers.
A key contributor to this was the acceleration of our first-party business, particularly in Brazil, where it grew by 81% in 2023. We continued expanding our logistic network with record fulfillment penetration of almost 50%, which provided an improved user experience to our buyers. This resulted in faster shipping and fewer late deliveries, particularly around the Christmas season. Our ads business continues to deliver impressive results, growing revenues at an accelerated pace. In 2023, we on boarded almost 50,000 new advertisers who appreciate the value of promoting their products on our parent regional platform. On the Fintech front, Mercado Pago maintained strong momentum as users and merchants continued to adopt our services. In acquiring business, we delivered solid TPV growth and gained market share in most countries where we operate, both in online as well as in-store payments.
We made improvements in approval rates and deployed new features that enabled us to move up market, enhancing the value proposition to SMBs. In Fintech services, we have expanded our product offering and made improvements to user experience. The increased engagement with our products resulted in Mercado Pago achieving the milestone of surpassing for the first time 50 million active users in a single quarter. The credit business continues to be an important piece of our Fintech strategy, and it delivered another quarter of strong results with accelerated growth and solid spreads as we continue to cautiously manage risks. During Q4, Meli delivered strong financial results. Revenues grew by 42%, accelerating both in Fintech as well as commerce due to the strong execution during the peak season and investments we made throughout the year.
For the quarter, we delivered a 13.4% EBIT margin, excluding one-off expenses from previous years as explained in the letter to share folders. This represents margin improvement from Q4 of 2022 while we continue to invest in building a logistic infrastructure, supporting our MELI+ loyalty program as well as expanding our credit card offering. Following our strong financial performance in 2023 it’s a good time to reflect on the journey over the past six years. During that time frame, we multiplied our revenues by 10x while achieving significant improvements in profitability, culminating in nearly $2 billion of operating income in 2023. In recent years, we have increased our investment in technology, which enabled us to launch multiple products and services and make significant improvements in user experience.
We have grown our development team by more than 10,000 in the last three years alone and currently have 16,000 engineers who are constantly working to create the best experience for our users. We remain committed to our technology-led strategy in order to continue delivering sustainable results for Meli. We enter 2024 with optimism about our growth opportunities and confidence in our capacity to continue to execute on our strategy. Now, back to Richard to share some product initiatives from 2023.
Richard Cathcart: As a technology company with more than 15,000 developers, launching products and features is at the heart of our business as we continue to innovate. Innovation is about new products and businesses, but it's also about being attentive to and passionate about detail and solving multiple small customer pain points that compound into a great user experience. 2023 was no different. We've launched several new products and services such as the MELI Mas loyalty program, Meli delivery day, credit cards for consumers in Mexico and businesses in Brazil, amongst many other things. We've also vastly improved our core products with several new experiences that build onto our value proposition as we continue to strive to offer our users the best experience.
Today, we want to share some of this year's highlights. In commerce, we continue to look at the specific needs of each vertical to improve the user experience as we believe this will drive offline consumption online. In 2023, we considerably improved the navigation in fashion, apparel and sports with standardized filters across brands and sellers. This enables consumers to find what they need more quickly. On the product pages, users can also see the more like this section to find similar items to a product that the user has clicked on rather than simply going back to the search results. This feature is powered by artificial intelligence. AI-based features are already an integral part of the Meli experience with many innovations launched in 2023, including a summary of customer reviews on the product pages that concentrates the main feedback from buyers of that product.
On beauty product pages, a summary of products, functions and characteristics is automatically created that facilitate buyer’s choices. Push notifications about items left unpurchased in shopping carts are now highly personalized and remind users why they may have chosen to buy a particular product. We have also added an AI feature that helps sellers to respond to questions by preparing answers that sellers can send immediately or edits quickly. To deliver a better experience to our sellers, we launched a new version of the seller hub where they can see all of the promotional campaigns available for them to participate in. A new pricing tool also enables sellers to easily compare prices with competitors and or similar products and receive insights and recommendations on how to boost sales.
In 2023, we also re-launched our ads tech stack. An automated buying platform was launched for display ads accompanied by live reports and unique insight analysis. We enhanced our bidding algorithm for product ads and introduced new placements on search and product pages that give more visibility to sponsored products. Our brand ad solution was also launched as a mid-funnel campaign option to enhance consideration for brands. Our platform also now includes a feature for agencies to be able to manage different brands through the platform. Brands, sellers and official stores can delegate certain products or even the whole assortment to a specific agency. The agencies are now available to manage all accounts delegated to them in one place. And to expand the possibilities given to advertisers, a new pool of custom audiences was launched and later expanded enabling advertisers to use filters to create an infinite combination of audiences for their campaigns.
Finally, in advertising, MELI Play was launched as an ads-based streaming platform. Through a revenue share model with studios, we were able to offer free content to our users across the region enabling us to explore a new revenue stream for ads. In logistics, most of the technological improvements were behind the scenes and were crucial in helping us to maintain costs broadly stable as a percentage of GMV whilst expanding fulfillment penetration. We optimized routes from first to last mile, fulfillment-centered processes and demand prediction. On the UX front, buyers are now notified that their package is being delivered and can follow it through their app. And for sellers that adopt fulfillment, an enhanced tool to manage inventory brings more technology to the process flagging products that need to be replenished, how many units should be sent to us, amongst other things.
At Mercado Pago, we continue to innovate as we consolidate our position as one of the region's leading Fintechs. In the acquiring business, the launch of the Mercado Pago tap brings a free POS option to merchants by turning their cell phones into a tool to receive payments via NFC technology. We also improved the pairing process of mobile POS devices with merchants' cell phones and worked behind the scenes to reduce processing times, which had a positive impact on NPS and helped to improve the experience of merchants and buyers. With more personalization in the Mercado Pago app, our seller homepage now prioritizes the features that merchants most need on a day-to-day basis. In Fintech services, we continue to search for ways to facilitate financial inclusion.
We expanded our credit card offer to Mexico and launched our collateralized credit card solution in Brazil where the user receives a credit limit equivalent to the value of funds deposited into their account. These products enable consumers to start building a credit score and take advantage of the possibilities that a credit card brings for many for the first time ever. Innovations in credit enabled us to attract new users. For merchants, we now offer a business credit card using Open Finance to contribute to scoring. For consumers in our lower-risk cohorts, a new product enables them to opt for larger, longer-duration loans in our app, personalizing the loan to their needs and expanding the use cases of our credit product. As our product stack expands, we have focused on facilitating and simplifying navigation around all of the different products available on Mercado Pago.
Our digital account homepage combines the most used features, such as transfers, credit limits, investment positions and insurance, adapting to the user's profile. We have seen increased traffic to all of our key digital account products as a result. Digital account users in Brazil can now see a summary of their monthly activity on a personalized report, an enhancement that brings more information to the user about their finances. The report also highlights new offerings that may be useful to the user, such as our certificates of deposit and investment funds, alongside credit products and our remunerated account. All of the innovations offered by MercadoLibre and Mercado Pago continue to have a deep, intrinsic impact in Latin America by generating economic and financial inclusion for entrepreneurs and individuals.
A recent report in partnership with Euromonitor shows that MercadoLibre is the main source of income for 1.8 million families in the region and that for 54% of users in the region, Mercado Pago was the first digital payment method available to them. This was just a snapshot of the innovations delivered by our teams in 2023. In 2024, our users can expect even more because there's always a MercadoLibre. The best is yet to come.
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