Ladies and gentlemen, thank you for standing by and welcome to MercadoLibre's First Quarter 2021 Earnings Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce Investor Relations Officer, Lissa Schreurs.

Hello everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended March 31, 2021. I am Lissa Schreurs, Investor Relations Officer for MercadoLibre. Our Chief Financial Officer, Pedro Arnt, will be leading today’s prepared remarks. Joining him on the line is Chief Executive Officer of MercadoPago, Osvaldo Giménez, who will be available during today’s Q&A session. I remind you that management may make forward-looking statements relating to such matters as continued growth prospects for the company, industry trends and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Our actual results may differ materially from those included in this conference call, for a variety of reasons, including those described in the forward-looking statements and risk factor sections of our Form 10-K for the year ended December 31, 2020, Item 1A-Risk Factors in Part II of our Form 10-Q for the quarter ended March 31, 2021, and any of MercadoLibre, Inc.’s other applicable filings with the Securities and Exchange Commission, which are available on our investor relations website. Now, let me turn the call over to Pedro.

Hi everyone, and welcome to our first quarter 2021 earnings call. Our financial results were once again marked by accelerating growth due to strong demand for ecommerce and FinTech services within an improving but still challenging environment. While some key markets began to gradually open physical retail, in others lockdowns were enforced in major cities towards the end of the quarter. Online consumption throughout remained strong and we experienced favorable consumer trends as digital services share of wallet continue to grow. Our solid quarterly performance illustrates our commitment to executing our long-term strategic priorities as we remain focused on our purpose of democratizing access to commerce and money in Latin America, recognizing the important economic role we play in the countries where we operate. Let me start us off with the results for our Commerce business in Q1. We generated triple digit growth in items sold and maintained record levels of transactions per buyer quarter-on-quarter. This constituted a formidable level of engagement given seasonal differences between Q4 and Q1. Volume wise, consolidated gross merchandise volume grew 114% year-over-year on an FX neutral basis. Across our geographies, all countries either maintained or posted higher growth rates compared to the fourth quarter of 2020. In Brazil, our largest market, we doubled items sold and nearly doubled GMV versus the prior year. In Mexico, we continue to accelerate our sequential growth in items sold and GMV. All other geographies showed positive trends in GMV growth, as well, with Chile in particular increasing its share in our business substantially. Product diversification is becoming an increasingly important driver of growth to overlay on to our ever improving delivery service levels and highly competitive pricing. To achieve this, we are focusing on both category and merchant type expansion. For example, during Q1 we made significant strides…

Thank you. [Operator Instructions] Our first question comes from the line of Andrew Ruben with Morgan Stanley.

Hi. Thanks very much for taking the question and congratulations on the results. So my question is on a wallet. So the color is very helpful and the strategy is clear. And it seems like some less focus on TPV and active payers as the markers of progress. So my question is what metrics are you looking at internally? And what would you suggest investors look at to judge the success and traction of the wallet initiatives more broadly? Osvaldo Giménez: Hi, Andrew. How are you? Thanks for that questions. And we continue to look at TPV and active payers. It's a metric we take a close look at, what has happened I would say in the last two quarters is on the one hand. Govantes, which have been – last year a step function in growth slowed down or disappeared mostly in both Brazil and Argentina on one hand. And then on the other hand, we also saw that there were lockdowns in the countries where we operate. And we decided to invest less aggressively on the marketing side to acquire new users. We decided to save those marketing dollars for late during the year, where we hope that these countries will be open. On the other hand, I would say, more and more we are looking beyond just wallet and towards becoming a more comprehensive financial services platform. And so we have been also focusing more on, for example, debit cards in Brazil and now we have just launched credit cards in Brazil, so that to have a more significant share in total marketing – total financial spend of our users and that has been the focus recently.

Thank you. And our next question comes from the line of Bob Ford with Bank of America.

Thank you and again congratulations on the quarter. Just a couple of questions. How are you thinking about your dual app structure these days? And would combining that two help to drive greater wallet activation, frequency, and more efficient wallet funding? Or is the cost and speed and size too higher price to pay given the technology base that the consumer has? And then, I recall you're beginning to accept Bitcoin some time ago in the marketplace and now the treasury move and facilitating real estate transactions in Bitcoin. Can you buy Bitcoin with ARS? And how are you thinking about the use of Bitcoin both in general terms and as possibly a store of value for your wallet users?

Hi, Bob. Thanks. So, first of all, on the app structure, I think, going back to the previous question and to the increased focus on widespread financial services distribution, if you think about that as the ultimate goal and how do we move towards principality in financial services for our users implied in that is that a lot of the payments functionality should expand. I think there is a lot in the pipeline in terms of incremental financial services, features and products. So trying to cram all that in into a single UX is not the direction we're going. Having said that if you look at the numbers, we have around 60 million users on the commerce side that we increasingly cross sell and try to get them to also download the financial services Pago app. So their barebone payments functionalities in the yellow commerce app and increasingly we will try to drive those users over to the financial services app through cross linkages through promotions. And that's where we are aggressively focused on expanding the amount of financial services that they use from us. At the end of the day, if you look at long-term, the real potential in FinTech goes way beyond payments and into the distribution of the other forms of financial services, credit, insurance, asset management, savings, all the products we have and we're now focused on growing. The crypto question is an interesting one. The crypto positions that our treasury has been purchasing are not usage of ours. This is U.S. dollars that we are purchasing crypto with. I think this has multiple objectives. One of them is we've always been long-term thinkers and we believe this is a good use of long-term store value for our treasury at the right amounts and at the prudent amounts. But it's also us making sure that we are quickly moving up the learning curve in terms of understanding crypto and making sure that opportunities that we are sure will arise. We are able to move into them and have good understanding of what's going on, but this is not a way to purchase or store value of Argentine currency. That's not what we're doing here. And I think as a company, we are excited with opportunities that probably will emerge in the FinTech world around crypto. And we want to make sure that we are learning and well-versed or as much as we can. And that's, I think, one of the reasons we're doing this from treasury and also other parts of the company.

Great. Thank you very much.

Thank you. And our next question comes from the line of Irma Sgarz with Goldman Sachs.

Yes. Hi, good evening. In your marketing expense line, you had an increase after a couple of quarters of sort of having a relatively flat line expenses given the environment. What campaigns, channels and geographies would you just call out? And was it more commerce so than – than FinTech, it sounded like it from your prepared remarks, but just wanted to follow up and get a little bit more details. And connected to that in the product and development technology expense side, you've been – obviously altogether we're seeing a lot of leverage in expenses, but that expense line was also up quite strongly in the first quarter and to a lesser extent now. When you think about the breakdown of your product and technology development expenses now for 2021 compared to, let's say, 2018, 2019, where has the main shifts taking place? Thank you.

Great, Irma. So, on sales and marketing, if you look at the sequential evolution, it was actually seasonally up Q4 to Q3, and then it's up Q1 to Q4 again. That increase is not driven by actual customer acquisition, brand programmatic couponing, but it's driven by two other elements within that. One of them is the buyer protection program. So as TPV grows and also as we have more and more fulfillment blueprint items fulfilled by us, we have a larger coverage and guarantee promise, and those numbers are up about – that's the biggest driver of the sequential increase. And then the other one as is disclosed in the financial statements in greater detail is incremental bad debt on the credit book, but that's also because revenues and originations are growing extremely well. So there is a matching revenue growth from that increased in bad debt, which are the loan loss provisions on the credit book. The actual underlying branding and customer acquisition costs are down sequentially as one would expect from seasonality. Product development, I think continues to be an area of strong investments for us in absolute dollars. It continues to scale year-over-year from a margin perspective and the single biggest line item there obviously is headcount. We have a lot of development and a lot of product features on our roadmap. And so, we're aggressively trying to ramp up our engineering team. We're looking to almost more than double actually our engineering teams over last year. We're convinced that that's the right place to be investing long-term. And so, I think, the combination of significant growth in absolute terms, but still scaling from a margin perspective is a good combination for a tech company. We can continue to invest aggressively in growing the engineering talent pool, but still deliver a margin expansion.

Great, thank you.

Thank you. And our next question comes from the line of Ravi Jain with HSBC.

Good afternoon. Just quick two questions. First, I think, on e-commerce. Pedro give maybe some color around purchase frequency and retention rates, particularly about the cohort that came onto the platform the last two, three quarters. I mean, I'm trying to figure out how do we look at normalization of growth once we started comping the tougher ones in the next few quarters? And the second one is probably a little bit more on the FinTech just following up on a couple of previous questions, right. You mentioned that you have lowered the marketing spend and the incremental financial services is what is going to drive. So maybe some color on what are the important features that you think will drive incremental adoption from here? What we'll take it from 14 million users to a number let's take a couple of folds from there? We've seen recent salary portability. Is it bad? Is it credit? Some color on what you think would drive adoption would be super helpful. Thank you.

Okay, great. So let me start with the first one. I think on the cohort number, I don't have it off the top of my head. Obviously, there's a seasonal adaptation if we look at Q4 to Q1 cohorts, but nothing worrying in the cohort analysis. I think if anything when we look at the growth of our businesses, once we started comping with the COVID last year quarter over the last few weeks, we obviously will see a deceleration in the headline growth rate, but sequential evolution continues to be pretty solid across most markets. And so, we need to continue to closely monitor this. I think as we rolled into May and June in some markets the comps get progressively more difficult, but so far when we look at the sequential evolution of growth week on week and month on month, there certainly seems to be a good amount of purchases that have moved online throughout the pandemic, and that are staying online. Now, bear in mind also that a lot of our geographies have gone back into lockdown. And so that also, I think, affects demand patterns and so we might have to look at this over a longer period into Q2 and Q3. But so far I would say encouraging results in terms of how much online purchasing has remained online. Osvaldo Giménez: Going to the FinTech question, Ravi, I'd say that there are several features that we have been building or we are building to increase engagement with our wallet. Some of them are how users can use MercadoPago to pay in new ways. For example, we launched a couple of quarters ago, our debit card and the easiest thing about the debit card is that any MercadoPago user in Brazil has a virtual debit…

Thank you so much. That's helpful.

Thank you. And our next question comes from the line of Marcelo Santos with J.P. Morgan.

Hi, hello. Thanks for taking my questions. I have two, the first is on margins. I want to touch a bit on the question that Irma did. I wanted to understand a little bit better. You saw a big improvement in margin year-over-year because of lower marketing. And you also mentioned that you saved a bit on marketing dollars in the FinTech because there was a lockdown, so we didn't want to spend the money now. So we saw this very high margin. Is this margin that is kind of a little bit boosted because [indiscernible] marketing? And we should see a normalization of this marketing, or does this could be seen as a normal level that you were having? Just – that's the first question. And the second question, my perception was that their revenue was very strong like the monetization was very strong. Could you please comment if there was anything positively impacting monetization either on FinTech or on the e-commerce. Thank you.

Great. So look, I think, the margin improvements sequentially are driven by more factors than only marketing, but marketing is a significant one. Marketing tends to have somewhat of a seasonal outlay. So, obviously, towards the end of the year shopping season, the margin compresses somewhat in Q1, I think, this year, as we said, was one of marketing pullback. So I don't think you should expect this kind of margin leverage, but I don't think you should assume number similar to Q4 of last year either. I think we do look to drive a year-on-year leverage off of the marketing expenses and given how fast our revenue base is growing. We can do that while at the same time being extremely competitive in the absolute number of dollars that we're deploying versus the prior year. There were also improvements and this is bleeding over to your second question. There were a lot of operational efficiencies on shipping costs. Some of those are COGS, but also some of those are more efficient contra revenues. I remind you that we – some of our transportation costs are contra revs. And as that got more efficient into Q1, that's helped revenue growth. When we look at cost per shipment, those have been coming down sequentially across the board in almost all geographies. And that's also, I think, a consequence of good operational efficiency from the logistics team and also the benefits of scale. And then we've also seen a return to more mixed shift on payments of credit card over debit, debit was very prevalent throughout a lot of the government aid usage and credit has better monetization than debit. So that's reverted back to levels closer to where we're prior to Q3. And that's also helped to improve take rate.

Perfect. Thank you. Thanks a lot.

Thank you. Our next question comes from the line of Stephen Ju with Credit Suisse.

All right. Thank you. So, Pedro, thank you. You've been looking to add CPG as a more meaningful part of the consumer offering for some time now. So, is there anything you can add there in terms of what the increase in this percentage has done for, hopefully, greater velocity of purchase and hence as an output maybe customer lifetime value? And second, I think, you've been looking to onboard some lower ASP items from sellers in Asia, perhaps with a faster delivery and service offering versus the competition. So, can you give us an update on how that initiative is going? Thank you. Osvaldo Giménez: Great. So CPG there is some initial data that points to better engagement and performance across non-CPG categories from users that purchase CPG. So we are beginning to see data that proves out, I think the thesis of getting involved in high-frequency CPG categories, that it does help lifetime values across other categories. Now, bear in mind that, and especially in the early years of the rollout of the CPG product that obviously does come at a cost, right? So even though lifetime values are improving, the incremental CPG sales are done at a much lower margin than other categories until that business reaches scale and becomes a much better margin business. But I think we continue to focus on growing that and expanding that. And you will see a lot of innovation on our CPG and supermarket front like you have over the past few quarters. We've already announced a couple of high profile deals with very large retailers across the region to help them move more sales through our CPG channels supermarkets. And so this is obviously a very large TAM category with very high frequency. And one that the data we are seeing I think is leading us in the direction of continuing to build this out going forward. CBT, solid growth very consistent. We continue to build out more and more sourcing capabilities in Asia. We now have feet in the ground there. We're seeing very strong impact of that in Mexico, for example, where it's relevant. We're also beginning to now focus on sourcing more and more North American merchants, because we're seeing good results as we improved products and features and users are better able to find cross-border listings and offerings on our site. So again, I think that's another part of our long-term vision is to turn global supply local for our consumers across Latin America. And we will do that by continuing to expand our sourcing efforts, both in Asia, but also in North America.

Thank you.

Thank you. Your next question comes from the line of Thiago Macruz with Itau.

Hi guys. Well, we continue to see our massive active user growth [indiscernible] even above competition, even though you're the market leader by a mile. So I was wondering if you should have to list another importance, the top three in volume factor, they're supporting you as well. What would you list? What would you say? Thank you. Osvaldo Giménez: Sorry. We just want to make sure we got your question? It cut-off a little bit. Can you repeat the back-end of the question please?

Absolutely. Yes. I was just wondering you had to list the most important factors that are supporting your active user growth in Brazil in [indiscernible], what would it be? Osvaldo Giménez: Sure. So, first of all I think clearly on the commerce side, there has been significant uplift in consumers purchasing online and engaging with our platform initially driven by the pandemic. I think for MELI the fact that so many users were driven to our platform in the early days of the pandemic and realize that the logistics capabilities we have built-out over the previous year's really were incredibly efficient, both in terms of the expensiveness of free shipping, but also service levels were fantastic for us. I think had this happened two or three years earlier where our logistics build out had not been where it was. We would have had a very different capability to retain a lot of these new cohorts of users. So I think clearly pandemic driven, initial trial or users who had lapsed and then return to the platform and realize that the overall user experience was dramatically different from either what they anticipated or what they had experienced in the past has been a very, very important driver of growth. And we see that also with the evolution of net promoter scores and the fact that despite the huge surge in volume, our delivery times have consistently improved sequentially quarter-on-quarter and the amount of free shipping has expanded. You might have realized in Q1, we lowered the threshold for free shipping in Brazil to 79 Reais. So really MELI has by far the most expensive free shipping program I think of online retailers in Brazil.

And then on the FinTech side of the business, I would say that, that must have been a little bit different in each of the verticals. Basically if you want online payments have been sort of in sync with the marketplace, where the shift towards e-commerce has benefited the merchant services business. Then somehow [indiscernible] have been MPOS, but we saw a little bit of a slow down when there was less traffic to stores. Nonetheless I will say that our shift of market enables us to accelerate growth in the last couple of quarters. And that has been significant in terms of CPV. And I think we have already discussed the wallet.

Thanks guys. Thank you very much.

Thank you. And our next question from the line of Soomit Datta with New Street Research.

Hi, guys. Two quick questions please. One on commerce and one on FinTech. Just on the commerce side, do you mind giving us please an update on what you're seeing specifically on the competitive side from [indiscernible] there's been quite a bit of noise about their presence in the Brazilian market potential to expand into Mexico. And I just wondered, I mean, that kind of seemed to coincide with the drop-in free shipping to 79 Reais. I wonder was that a response to the competition or was that just part of the ongoing business kind of thinking? And then next, please, just on FinTech, sorry to go back to the wallet again. I just wanted to double check my sort of sense always get usability on the wallet and use the wallet to them layer on financial services. Should we now be thinking actually that's the models shifted slightly and actually, yes, we'll look to sell financial services, but maybe it will be more focused outside of the wallet going forward? Thank you. Osvaldo Giménez: Great. So we don't comment on specific competitors. I think as a whole, given the size of the opportunity of commerce and FinTech in Latin America, the fastest growing e-commerce region in the world right now, obviously there will be competitors. We've always tried to observe and learn from our competitors. And if things that they are doing better, we can replicate – we will replicate, but no, we didn't lower free shipping as a response to a specific competitor. We've done that across the board in different geographies. We've been doing that consistently over time. And the vision has always been that as we gain efficiencies from scale and from operational efficiency, we will allow some of those improvements to drop to the bottom…

That's very clear. Thank you.

Thank you. And our next question comes from the line of Deepak Mathivanan with Wolfe Research.

Hey guys, thanks for taking the questions. Just a couple of quick ones, sorry, if they were asked already, being jumping around a couple of calls. So Pedro, can you talk about how big the first party business was on e-commerce during 1Q? And then what do you expected to reach for the rest of the year? Is the margin profile of 1P kind of at a place where you wanted to be, or is there opportunities to improve that as well? And then the second question, can you provide some color on April trends on e-commerce, obviously the COVID situation at LATAM is very volatiles; but what are you seeing in terms of kind of relative consumer behavior, maybe in countries where vaccination rates are over-indexing with respect to the average? Thank you.

Hi, Deepak. Thanks. Look so we've improved disclosure on 1P and you now have 1P revenues broken out in the P&L as a revenue line. It was slightly below $150 million, but you have that now consistently as the rule requires. Margin wise there is ample room for margin improvement in the 1P business going forward. This is still a relatively small business where there are improvements in pure product margins as we drive more purchasing scale and also significant improvements as we become more efficient in the operation overall. So I would say that we are investing in this business now and that the margin structure the way it looks today is not at all where we envision and are confident we can get it to look into next year and beyond. Very quickly I touched upon this already, but I think in general we still need to be cautious in a way the comps get progressively more difficult in some markets into May and June, but so far in general I think the trends we've seen for most markets are encouraging. We continue to see sequential growth in our business, in line with what we had been seeing at the beginning of the year. So even if the year-on-year growth rates decline, the sequential increases, which is really what you should be looking at have not indicated in any way that consumers are massively moving back offline as soon as they can. I think we've offered enough of a compelling value proposition that a lot of that demand seems to be sticking. And like I said before, also bear in mind that lockdowns have been extended or reinstated in many of our markets, so that also is still impacting demand patterns.

Got it. That's very helpful. Thanks, Pedro.

Thank you. And our next question comes from the line of Jamie Friedman with Susquehanna.

Hi Pedro, Osvaldo. Pedro in your prepared remarks, you – I thought you had said something to the effect that you had seen a slowdown in some volumes in the long-tail sellers as economies reopened. I may have misheard you. But if that's the case, could you elaborate on that one? And then I'll just ask the other one upfront in a previous answer, Pedro, you mentioned sourcing more North American merchants, and I'm just wondering is that where PayPal comes in, or am I thinking about that the wrong way? Osvaldo Giménez: Hi Jamie. With regards to the long-tail, what we have seen last year was that many lock downs, many small retailers, they were using payment links, mostly related to deliveries. And there was a greater opening of the economy in Latin America some of that volume slowed down, but beyond that, we continue to see very strong growth in long-tail in MPOS. So it was mostly in the online payments business related primarily because of [indiscernible].

My remarks on sourcing North American merchants is not related to PayPal. We have seen better results, and good product development and user experience in our cross-border efforts. Those efforts so far had primarily focused on sourcing product from Asian merchants. We believe that there is significant inventory in North America that's attractive to users throughout Latin America and not necessarily available. And so we're moving into that second pocket of global inventory that we think is interesting for our user base throughout Latin America, by sourcing directly ourselves and having feet on the street in the U.S. and Canada. But no, this doesn't refer to any specific initiative with PayPal.

Got it. Thank you. I'll jump back in the queue.

Thank you. Your next question comes from the line of Marvin Fong with BTIG.

Yes, hi. Thanks for taking my questions. Just two quick ones on FinTech. I just wanted to follow-up on the 11 million collector number. I was just reviewing the notes from last quarter and, I think, you guys said it was six million in the fourth quarter, so just want to check to see if that was correct. And if so, what explains the pretty dramatic increase in collectors? But just potentially in general, could you just comment on how your trends are going in terms of adding collectors to the ecosystem? And then my next question, just on the credit portfolio, the amount outstanding didn't seem to increase as much at quarter end, as we saw last quarter, even though originations was actually greater, still above $500 million. So, the question is, are we seeing any change in sort of the dynamics with borrowers paying back? Anything to call out there that would be great to provide some insight there. Thank you.

Great. So, on collectors, let me just briefly recap the sequencing for you, 11 million is the number of collectors off the MELI marketplace, right. So, we exclude MELI merchants to give you a number of users that are merchants receiving payments through us or P2P, people receiving payments. That number is up about 77% year-over-year. But if we look at Q4, which is seasonally very strong, it was actually higher than 11 million, it was closer, slightly below 12 million. So again, nearly 80% growth year-over-year, but sequentially as expected due to seasonality down. So, I'm not sure what the six million number could be. Maybe it's another data point. Osvaldo Giménez: Then with regard to the credit portfolio, I caught the question why it was the relation between the growth in terms of origination and in terms of growth in overall credit portfolio. Originations grew in the quarter 10% sequentially quarter-on-quarter, they were $527 million in the last quarter and $582 million this quarter. And then credit portfolio grew, 16% from $452 million to $526 million. But in general, the duration of our portfolio is pretty short, mostly because a big part of that is consumer loans, which typically are for four months. So, the growth of a quarter-on-quarter of origination is pretty much in line with the growth in the overall credit portfolio.

Great. Thank you for clarifying that. Well said, I appreciate it. Hmm.

Thank you. This concludes today's earnings call. Thank you for participating. And you may now disconnect.