Geoffrey Elliott

Geoffrey Elliott asked about the competitive environment in Brazilian e-commerce, specifically whether MercadoLibre's competitors are behaving rationally and if there are any signs of irrational competition in the market.

Answer

MercadoLibre Incoming CEO Ariel Szarfsztejn acknowledged Brazil as an intensely competitive yet attractive market with low e-commerce penetration. He highlighted MercadoLibre's formidable value proposition, market leadership (market share tripled since 2014, doubled since pandemic), and strong metrics like record NPS, brand preference, retention, and conversion. He stated that MercadoLibre is confident in its ability to compete and does not believe its actions, such as lowering the free shipping threshold, are irrational, as they strategically strengthen its competitive position and drive user satisfaction. He emphasized focusing on the user rather than competitors.

Geoffrey Elliott of Autonomous Research asked how the funding mix for the rapidly growing credit portfolio is expected to evolve and what the implications would be for the Net Interest Margin (NIM).

Answer

EVP & CFO Martín de los Santos explained that mature portfolios like consumer and merchant loans are already majority-funded by third parties, with the cost included in the NIM calculation. The credit card portfolio, however, has been funded by MercadoLibre's own balance sheet. As they begin to use third-party funding for credit cards in the future, it will create a headwind for the reported NIM.

Geoffrey Elliott asked about the strategy behind offering a high-yield deposit rate of 120% of CDI in Brazil, questioning whether the goal was customer loyalty, funding, or another objective.

Answer

Osvaldo Giménez, EVP of Fintech, described the high-yield offer as a key marketing initiative to position Mercado Pago as the leading digital bank in Brazil. He explained that it effectively attracts and retains users, increasing their engagement with the ecosystem. He also noted that the offer has specific conditions and limits, making it a targeted and controlled campaign rather than a broad funding strategy.

Geoffrey Elliott asked about the fulfillment investments, questioning how long the expansion would weigh on margins. In a follow-up, he requested an explanation for a non-recurring G&A expense related to customer refunds for prior periods.

Answer

Executive Martin de Los Santos clarified that most of the quarter's margin compression came from the credit card business, not fulfillment. He stated that fulfillment investment is 'business as usual' and that short-term cost pressures are typically diluted by incremental volume and productivity gains. Regarding the G&A expense, he explained it was a one-off refund to fintech users in Brazil for past prepaid installments, a decision made to align past practices with a new policy of refunding interest for early payments.

Geoffrey Elliott of Autonomous Research inquired about the mix of credit card balances, asking if the current level of interest-earning installments (around 27-29%) is a normalized range or if it could increase further.

Answer

CFO Guilherme Lago stated that the current mix should remain more or less where it is. He suggested there might be a slight upside risk depending on the adoption of products like PIX financing, but he would not expect a material increase beyond the current 29% level.

Geoffrey Elliott asked for more detail on the increase in credit card Stage 3 NPLs from 9.1% to 9.8% and inquired about the performance of the PIX credit portfolio.

Answer

President and COO Youssef Lahrech explained that the Stage 3 increase is consistent with the lagging 90+ NPL trend, which behaves like a stock metric. He pointed to flow metrics like NPL formation and Stage 3 formation, which both declined in the quarter, indicating improvement. Lahrech reiterated that the company remains very pleased with the strong economics and consumer demand for the PIX financing product.