Operating Profit Margin Outlook
Q: What are the moving parts for operating profit margin in 2024?
A: Management expects margins to continue improving as the business scales and fixed costs are diluted. In Q4, margins were compressed by 4.5 percentage points due to seasonal investments in 1P growth and shipping costs. Two-thirds of this compression came from the 1P business, which grew from 9% to 12% of revenues, impacting margins due to its different structure compared to 3P. Shipping costs increased due to peak season investments but are expected to revert back to normal levels in the following quarters. Overall, they remain confident in efficiently managing costs and see long-term scalability in the business.

Logistics Cost Pressures and Outlook
Q: What caused logistics margin compression, and what's the outlook?
A: Logistics margins were compressed in Q4 due to several factors: the full operation of Meli+, which increased free shipping; 1P business growth of 50% quarter-over-quarter in dollars; cost increases from suppliers now impacting the P&L; inflation in Argentina not fully passed through to prices; and peak season costs, which were the largest component. These costs are expected to revert in early Q1 2024, and management is confident in managing the P&L in a consolidated manner.

Impact of One-off Tax Charge on Profitability
Q: How should we think about the tax impact on profitability?
A: The company booked an incremental withholding tax charge of $350 million, though only 6% corresponds to this quarter. This results in an incremental cost of approximately $20 million per quarter going forward. The one-off charge was fully funded over the last ten years, so if they lose the case, it won't have a material cash impact on results.

Credit Portfolio Growth and Asset Quality
Q: How is credit card origination impacting GMV and NPLs?
A: Credit card origination has grown significantly, with the total portfolio reaching $1.2 billion, nearly 100% growth year-over-year. Their own credit card is now the largest means of payment in Mexico. They are comfortable with this growth due to improved credit scoring models and cautious expansion. Despite higher origination, they've increased net interest margin after losses and decreased NPLs, which reached 30% for the first time.

Competition from Chinese E-commerce Players
Q: How are you positioned against new competition from Asia?
A: While aware of competitors like Temu entering markets like Mexico, management remains confident due to their strong competitive advantages in logistics and payments. They grew items sold by 32% year-over-year in Mexico, with all categories showing healthy growth. They believe their unique logistics network and financial offerings will help them continue gaining market share and successfully compete against new entrants.

Advertising Revenue Trends and Penetration
Q: What's the outlook for ad penetration and advertiser receptiveness?
A: Advertising revenues grew 72% year-over-year on an FX-neutral basis, marking the seventh consecutive quarter above 70% growth, driven by Brazil and Mexico. They added 53,000 new advertisers this year. However, ad penetration as a percentage of GMV was 1.6% in Q4, but excluding Argentina, it would be 1.9%. Argentina's high inflation and economic conditions have hindered ad investment. Management remains confident in the product stack and sees ample growth opportunities ahead.

1P Business Profitability and Growth Potential
Q: How is the profitability of the 1P operations evolving?
A: The 1P business grew 60% year-over-year in dollars and 85% in local currency in Q4. Product purchase margin improved by a few percentage points in 2023, and the business is now profitable before fixed costs. Increased scale should further dilute fixed costs and improve EBIT contribution. They see opportunities to enhance profitability through advertising and remain strategic in leveraging 1P to gain market share and satisfy customer demand.

FinTech Business in Argentina under Recession
Q: How might a recession in Argentina affect the FinTech business?
A: The Acquiring business is expected to remain resilient, as transaction volumes continue despite economic conditions. They've been cautious in issuing credit in Argentina due to potential devaluation and increased NPLs. However, high inflation incentivizes people to move money into Mercado Pago accounts, which offer competitive returns. Assets under management in local currency grew 6x year-over-year. They remain comfortable with the impact seen towards the end of last year.

Meli+ Impact on Profitability
Q: Is Meli+ currently a net negative on the P&L?
A: Meli+ is viewed as a strategic investment to drive incremental volume and loyalty in the marketplace rather than as an individual P&L item. While they provide more free shipping, the incremental volume is expected to finance the operation over time. Content costs are passed on to consumers, making it cost-neutral. In the short term, they are investing behind these initiatives as a critical part of their Commerce strategy.

Asset Quality Trends in Mexico
Q: How are asset quality trends in Mexico's credit business?
A: Asset quality in Mexico has remained fairly stable, with profitability continuing to be good. They've been growing both consumer loans and credit cards, and the combined volume has been increasing nicely. Management is comfortable with current NPL trends and sees continued opportunities for growth.

FinTech Take Rate Compression
Q: Are you experiencing take rate compression in FinTech?
A: The overall FinTech take rate has been impacted by a larger portion of the credit book coming from credit cards, where interest-bearing loans are lower than other types. Additionally, as they expand into SMBs in Acquiring, there's a slightly lower take rate but significantly larger volume. These factors have contributed to some compression in the overall take rate.