Q3 2024 Earnings Summary
- MercadoLibre's credit card business is expanding rapidly in both Brazil and Mexico, showing growing profitability and increased customer engagement. Cohorts from 2021 and 2022 are already net positive, and the increased penetration of credit cards brings higher Net Promoter Scores, increased transactionality on and off the marketplace, and greater use of other Mercado Pago products.
- Investments in fulfillment centers are improving productivity and reducing cost per shipment year-on-year, despite higher fulfillment penetration. This enhances user experience, leading to higher GMV and customer retention. The company plans to continue these investments as part of its long-term growth strategy. ,
- Advertising revenues are growing significantly, outpacing GMV growth, and reaching record-high penetration in Brazil and Mexico. Ad revenues grew 86% FX neutral and 37% in U.S. dollars, reaching 2% of revenues over GMV, an increase of 0.3 percentage points year-over-year.
- Margin compression due to strategic investments: MercadoLibre's continued investments in fulfillment centers are raising concerns about margin pressure. Despite opening 6 new fulfillment centers in Q3 and planning more by the end of 2025, executives acknowledged that "there wasn't a lot of margin compression because of fulfillment" this quarter, but they will "continue to invest in fulfillment and business as usual" which may weigh on profitability in the future.
- Spread compression from credit portfolio expansion: The rapid growth in the credit card portfolio, with its share rising from 25% to 39% of the total credit portfolio, is leading to lower spreads due to offering longer durations and larger lines to lower-risk customers. Executives admitted that this shift "affected NIMAL" (Net Interest Margin After Losses) and that "when we are growing very rapidly, there is a hit to NIMAL", potentially impacting profitability if not managed carefully.
- Macroeconomic risks impacting credit business: Rising interest rates and increasing household debt in Brazil may pose risks to MercadoLibre's credit operations. An analyst noted that "October had a slight uptick in households with outstanding debt" and concerns about interest rates increasing to 11.25%. While executives expressed confidence in their underwriting, stating that "macro, overall, does not affect this product as much as ability to predict bad debt", deteriorating economic conditions could lead to higher defaults and affect the company's financial performance.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Credit and Fintech Expansion | Discussed consistently across Q4 2023, Q1 2024, and Q2 2024 with strong emphasis on credit portfolio growth, credit card issuance figures, fintech risk management, and regional nuances in Brazil, Mexico, and Argentina | Q3 2024 emphasizes significant credit card portfolio growth with profitable early cohorts in Brazil and fast ramp‐up in Mexico; fintech expansion in Argentina with improved credit metrics and stable NPLs | Consistent focus with improved profitability narratives; sentiment has shifted from simply growing the portfolio to highlighting profitability and strategic risk adjustments. |
Advertising Revenue Growth and Market Penetration | Mentioned in Q4 2023, Q1 2024, and Q2 2024 as a bright spot with strong revenue growth figures (e.g., over 70% to 100% improvements and rising penetration percentages) driven by product improvements and market share gains in Brazil and Mexico | Q3 2024 continues this positive narrative with record-high market penetration in Brazil and Mexico and robust ad revenue growth “well above GMV,” despite seasonality and FX variability | Steady momentum with positive sentiment maintained; the topic remains a strength without significant changes in tone, confirming its potential for long-term impact. |
Fulfillment Centers and Logistics Investments | A recurring subject in Q4 2023, Q1 2024, and Q2 2024 focusing on expanding capacity, launching new fulfillment centers (including the Texas facility), robotics adoption, and process improvements to drive efficiency | In Q3 2024, the company reports continued geographic expansion (six new centers, mainly in Brazil) and strategic investments that lightly press margins but are expected to deliver improved user experience and incremental volume | Consistent investment with evolving geographic reach and efficiency gains; sentiment remains positive as short-term cost pressures are offset by long-term benefits. |
Margin Compression and Profitability Pressures | Addressed in Q4 2023, Q1 2024, and Q2 2024 with discussions around credit mix shifts (higher share of lower-margin credit cards), net interest margin declines, and margin pressures from provisioning and logistics investments | Q3 2024 notes minimal margin compression from fulfillment (less than 1 percentage point) while also highlighting spread compression due to the increased share of credit cards; overall, the narrative is cautious but underpinned by stable asset quality | Recurring challenge with a nuanced tone; although pressures persist, improved operational metrics and risk management are softening the negative sentiment relative to earlier periods. |
Macroeconomic and Regional Risks | Consistently flagged in Q4 2023, Q1 2024, and Q2 2024 with Argentina facing currency devaluation and inflation pressures, while Brazil and Mexico were noted for both headwinds (rising rates, FX) and robust performance | Q3 2024 presents a more optimistic view in Argentina (improved consumer behavior and controlled NPLs) while still acknowledging higher rates in Brazil and FX headwinds in Mexico; overall, risks are managed with strategic models | Evolving sentiment toward improvement; after earlier caution particularly in Argentina, current commentary reflects better-than-expected regional conditions combined with strategic risk management. |
Operational Performance and GMV Growth | A key recurring topic in Q4 2023, Q1 2024, and Q2 2024 with both commerce and fintech driving approximately 30%+ GMV growth in Brazil and Mexico and a turnaround in Argentina; emphasis on logistics and fulfillment improvements | Q3 2024 highlights robust performance with GMV growing 34% in Brazil, 27% in Mexico, and record volumes in Argentina (over 60 million items, 7 million new buyers), underscoring strong execution and ecosystem synergy | Consistently strong with an upward trajectory; the positive operational performance strongly supports future growth, reinforcing an upbeat sentiment compared to prior periods. |
Accounting Adjustments and Changes in Shipping Terms | Detailed discussion in Q1 2024 regarding accounting adjustments (reclassifying interest income and shipping terms changes leading to a 3.9% gross margin compression) while Q4 2023 and Q2 2024 did not emphasize these adjustments | Not mentioned in Q3 2024 earnings call | Topic no longer emphasized; the removal from current commentary suggests that these adjustments are now seen as routine and non-issue for investors. |
Emerging Product Initiatives and Service Diversification | Discussed in Q4 2023 and Q2 2024 with mentions of loyalty programs (Meli+/Meli Más) and BNPL/credit offerings; Q1 2024 provided little detail on this subject | Q3 2024 reinforces this area with an expanded Meli+ loyalty program structure (two-tier benefits including streaming partnerships) alongside strong BNPL and credit growth initiatives; sentiment is notably positive and innovation-driven | Re-emerging and expanding focus; increased innovation and diversified service offerings indicate this topic could have a large future impact, with more detailed and positive sentiment in current commentary compared to earlier periods. |
Research analysts covering MERCADOLIBRE.