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    MELI
    Earnings call· Dec 2024(Q4 FY24)

    MERCADOLIBRE INC MELI

    Feb 20, 2025 Source

    Executive summary

    MercadoLibre Q4 FY24 — Strong Ecosystem Growth and Strategic Credit Expansion

    MercadoLibre delivered a strong Q4 FY24, marked by significant growth across its e-commerce and FinTech ecosystems, achieving record user milestones and robust revenue. The company continues to strategically invest in logistics and its credit card offering, which, while impacting short-term margins, is viewed as crucial for long-term market share gains and scale. Management remains optimistic about future opportunities in Latin America's underpenetrated e-commerce and financial services markets.

    Highlights

    5

    • Achieved $21 billion in revenue for FY24, demonstrating profitable growth.

    • Generated $1.3 billion in adjusted free cash flow for FY24, even after significant investments.

    • Surpassed 100 million unique buyers in the marketplace and 60 million monthly active users in FinTech for the first time.

    • Credit portfolio grew by 74% year-on-year in Q4 FY24, with older cohorts becoming profitable.

    • Items sold in Argentina grew by 18% in Q4 FY24, showing strong recovery from earlier in the year.

    Concerns

    3

    • Credit card investments continue to put short-term pressure on margins, particularly in Brazil.

    • Management is taking measures to reduce credit risk, including significantly reducing micro card issuance and tightening payback periods for riskier segments.

    • Overall NIMAL deteriorated year-on-year to 27.6% due to mix shift towards lower-NIMAL credit card products, despite sequential improvement.

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Argentina
    Strong recovery in the second half of the year, with items sold accelerating from 10% in Q3 to 18% in Q4. FinTech credit book quadrupled, with profitable book and NPLs under control. Argentina is a relatively higher-margin country.
    Items sold growth: 18% in Q4Credit book growth: 4x YoY
    		————
    Brazil
    Contribution margin compression primarily due to investments in the credit card offering. Older credit card cohorts are becoming profitable, but new issuance still drags on margins.
    		———Contribution margin down YoY

    Operational metrics

    16
    Unique buyers
    100 million
    FY24

    Surpassed for the first time in the marketplace.

    Monthly active users
    60 million
    FY24

    Surpassed for the first time.

    New credit cards issued
    5.9 million
    FY24

    Resulted in more than doubling the credit card portfolio.

    Credit portfolio growth
    74%YoY
    Q4 FY24

    Accelerated growth of the overall credit portfolio.

    Overall credit portfolio growth
    57%
    Q4 FY24

    The overall portfolio grew at this rate.

    Credit card portfolio growth
    118%
    Q4 FY24

    Credit card portfolio grew faster than the overall portfolio.

    Revenue
    $21 billion
    FY24

    Total revenue achieved for the year.

    Items shipped growth
    29%YoY
    FY24

    Record levels of productivity in logistics operations.

    Cost per package
    decline or rise below inflationYoY
    FY24

    In local currency, due to gains of scale and efficiency improvements.

    NIMAL
    27.6%vs 39.8% a year ago
    Q4 FY24

    Lower than prior year due to mix shift towards credit cards, but slightly better than last quarter. Credit card NIMAL is improving as cohorts mature.

    Marketplace payments from own methods
    18% to 25%
    Q4 FY24

    Share of payments done with MercadoPago credit card, account money, and consumer credit, varying by country.

    Central bank rates
    29%down from 140% last year
    Q4 FY24

    Lower interest rates are driving demand for credit in Argentina.

    Sequential portfolio growth
    9%vs 23% in Q3 FY24
    Q4 FY24

    Lower sequential growth compared to the previous quarter, which impacts bad debt provisioning.

    Advertising revenue as % of GMV expansion
    50 bpsYoY
    Q4 FY24

    Expansion in revenues as a percentage of GMV, particularly strong during peak season.

    Capital expenditure
    $900 million
    FY24

    Amount invested in CapEx for the year.

    Fintech business funding
    $3 billion
    FY24

    Amount invested in the Fintech business, primarily to fund the credit book.

    Industry KPIs

    3
    MetricValueDetails
    Regional market performance18%%
    Advertising revenue take rate50 bpsbps
    Subscription membership program—

    Product announcements

    5
    ProductTypeDetails
    Full Superlaunch
    Meli Dollarlaunch
    LCI and LCAlaunch
    My Storeupdate
    Dynamic pricing toollaunch

    Risks & headwinds

    4
    Short-term margin pressure from credit card investmentssometimes

    put short-term pressure on margins

    Mitigation: Strategic investments for long-term growth; older cohorts becoming profitable.

    Weaker macro backdrop and rising interest rates in BrazilCurrent

    rising interest rate backdrop in Brazil

    Mitigation: Reducing micro card issuance, tightening payback periods on new issuance, being more cautious in issuing cards to riskier segments.

    Historical macro volatility in ArgentinaPast, informs current caution

    Argentina is a country where in the past, we have seen volatility in every macro measure

    Mitigation: Maintaining caution, shorter loan durations, expanding as macro stability persists.

    Lower NIMAL due to mix shift towards credit cardsQ4 FY24 YoY

    NIMALs of 27.6% this quarter compared to 39.8% a year ago

    Mitigation: Credit card NIMAL continues to improve as older cohorts mature; this is a known trade-off for higher penetration and long-term growth.

    What to watch in Q1 FY25

    4

    Credit card NIMAL and NPLs in Brazil

    Next quarter
    CurrentNIMALs of 27.6% this quarter; lowest first payment default on record in December
    TargetContinued improvement in NIMAL, stable or improving NPLs, older cohorts becoming profitable.

    Why it matters

    Key to validating the strategic investment in credit cards and its long-term margin potential.

    As we see older cohorts of credit cards becoming profitable as the accuracy of our risk models improves, we are confident we are in the right track.

    Q&A highlights

    6

    How does MELI view credit risk in Brazil's rising interest rate environment, and what is the impact of a more cautious approach on GMV/seller base?

    Management has seen no deterioration in the credit portfolio, with Brazil credit card having its lowest first payment default on record in December. They have reduced micro card issuance and tightened payback periods for riskier segments. They do not expect a significant impact on GMV penetration, believing there is ample room for growth, and highlight the short duration of their portfolio provides flexibility.

    “So far, we have seen no signs of deterioration in our credit portfolio. And in fact, in Brazil, the credit card had the lowest first payment default on record in December.”

    asked by Andrew Ruben · answered by Osvaldo Giménez

    2 min read6 chapters

    Detailed Narrative

    01

    Ecosystem Growth & User Milestones

    MercadoLibre surpassed 100 million unique buyers in its marketplace and 60 million monthly active users in its FinTech platform for the first time in 2024. This achievement reflects successful investments in growth, logistics infrastructure, and credit card offerings, driving significant market share gains across Brazil, Mexico, and Argentina. The company's focus on improving its value proposition has led to a record number of new buyers and increased user engagement.

    02

    Strategic Investments in Logistics and Credit

    The company continued significant investments in its logistics network, opening two new fulfillment centers in Q4 FY24 and expanding its free shipping offering. This contributed to a 29% year-on-year increase in items shipped and improved cost per package. Investments in the credit card offering, including issuing 5.9 million new cards in FY24 and more than doubling the portfolio, are strategic for long-term growth but exert short-term pressure on margins, particularly in Brazil.

    03

    Credit Portfolio Management & Risk Mitigation

    Despite strong credit portfolio growth of 74% year-on-year in Q4 FY24, management is adopting a cautious approach in Brazil due to the rising interest rate backdrop. Measures include significantly reducing micro card issuance, tightening payback periods for riskier segments, and continuous improvement of scoring models. Older credit card cohorts (2+ years) are demonstrating profitability, and newer cohorts show better repayment behavior, providing confidence in the long-term strategy.

    04

    Product Innovation & Enhanced User Experience

    Innovation remains a core focus, with new features aimed at enhancing the purchasing experience across various verticals. Examples include 'Full Super' for improved grocery navigation, 'My Store' for sellers to customize their presence and engage with buyers, and a dynamic pricing tool for automated price adjustments. In FinTech, new offerings like 'Meli Dollar' (a stablecoin) and specific tax-free investment products (LCI and LCA in Brazil) were launched to expand financial services.

    05

    Advertising Growth Potential

    Advertising revenue saw a 50 basis points expansion year-over-year as a percentage of GMV in Q4 FY24. Management believes there is significant long-term potential for advertising to grow, citing early stages of development, the need to build stronger relationships with brands and agencies, a dense product roadmap (evolving from product ads to a full funnel strategy), and potential expansion of inventory beyond the MELI ecosystem. The company aims to reach similar penetration levels as international competitors in the long run.

    06

    Argentina's Economic Recovery

    Argentina demonstrated a strong recovery in Q4 FY24, with items sold growing 18% year-on-year, accelerating from 10% in Q3. The FinTech credit book in Argentina quadrupled year-on-year, with profitable books and controlled NPLs. This positive trend, coupled with a significant drop in central bank rates from 140% to 29% over the last year, presents a substantial opportunity for FinTech expansion, though management remains cautious due to historical macro volatility🌐.

    AI-generated summary of the company’s earnings call. Not investment advice.