MercadoLibre, Inc. (MELI) Q2 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the MercadoLibre Second Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Lisa Schreurs. Please go ahead.

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended June 30, 2021. I am Lisa 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 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 factors 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 websites. I will now turn the call over to Pedro.

Welcome everyone. And thanks for joining our second quarter 2021 earnings call. I'm pleased to announce that the team here at MercadoLibre delivered another quarter of strong growth in our commerce and fintech businesses in Q2 2021, achieving record levels in both volume and revenues. This strong performance builds on the solid first quarter we have this year. We believe that our business is showing tremendous momentum, despite immense volatility in our key markets due to the frequent closing of physical retail across Latin America. I'm proud to see the consistent execution of our plans, while prioritizing innovation, speed of execution, and user experience, all elements that are at the core of our corporate DNA. As hopefully the region and the world prepare for a return to a post pandemic reality, we see Latin America with enormous potential for continued growth in digital services. The last 18 months have generated a step function increase in digitalization of commerce and finance, setting the stage for sustained long-term growth throughout the region. In its latest 2021 report, eMarketer has pointed to Latin America as the leading region in the world for e-commerce sales growth, with almost 10 percentage points higher projections than the worldwide average. Additionally, three of our top markets Brazil, Argentina and Mexico were listed among the top five growth markets globally. To deliver on that opportunity, we maintain our focus on executing our strategic plan, as we have until now. Taking a more short-term look, as the region reopens, our businesses are scheduled to face tougher comparable growth rates as we fully lap 2020’s search. The data so far is encouraging, as it seems to point to consumer behavior shifts towards online purchasing having staying power. This preliminary optimism can be quantified in the two-year growth stacks for total payment volume on a consolidated FX neutral basis, which have accelerated from around mid-140% in Q1 ’21 pre pandemic, to nearly 200% this past quarter as economies reopen. We will continue to observe these trends for the second half of the year as more re-openings occur across Latin America. With those opening remarks, let me now begin the quarterly review with an update of our Commerce business during the second quarter. For the quarter, the first that compares against the prior year fully affected by a surge in demand for e-commerce driven by lockdowns, consolidated gross merchandise volume grew 46% year over year on an FX neutral basis, reaching over $7 billion. This represents an increase of almost $1 billion sequentially. We sold almost 245 million items in Q2, a growth of 37% year over year. We also saw improvements in the level of transactions per buyer compared to historic marks, a sign that we are sequentially driving increased engagement by our users. This quarter, we reached a record of 37.8 million unique buyers on our commerce platform alone. At the segment level, we experienced strong growth in our key geographies. Brazil grew over 40% on an FX neutral basis versus the prior year in GMV, with over 125 million items sold during the quarter. Argentina continues to post strong GMV growth, reaching over 60% year over year on an FX neutral basis and with an all-time high number of unique buyers. We are also pleased to see Mexico who had eased out of lockdown restrictions during Q2, having maintained the number of buyers that we attracted the previous quarter. This led to increasing the items sold year over year by 30% and growing 29% in GMV on an FX neutral basis during Q2. Finally, in Chile, where we have called out accelerated growth rates over the last two quarters, we are proud to have reached a growth of over 230% year over year on an FX neutral basis. We continue to invest in product breath and shopping convenience as drivers to attract and retain buyers. As a result of our commercial efforts to increase assortment with our current and newer sellers across key categories, we once again grew total live listing this quarter, posting another record in selection availability. Beyond strengthening categories where we historically have a strong GMV, such as auto parts, home and industries, and consumer electronics, part of the surge in product depth comes from our continued expansion into consumer-packaged goods and our supermarket experience. As an example, our recent partnerships with local physical food retailers, such as g Grupo Pão de Açucar in Brazil are off to a strong start. Buyer demand has surpassed our expectations and we began accelerating fulfillment operations to strengthen our category experience as we look forward to adding more partners for the category. These warehouses will also help our first party inventory, which also plays an important role in complementing the product assortment from partners in this category. We are also enthused about initiatives that will expand our assortment in Fashion and Apparel. We have dedicated product development teams working on recently implemented improvements to search and navigation aspects of our site to facilitate discovery of items in these categories. Along those lines, apparel is a key category to be featured in our upcoming live streaming platform which we have already began testing over the last few months. With the additions of loved fashion brands and retailers such as Grupo Restoque, Asics, Nike and the most recent announcement of our partnership with Grupo Arezzo, we believe we continue making important strides in this category. As markets gradually continue to reopen, we are directing our investments towards initiatives that will spur continued growth, as well as user engagement and retention. So far this year, marketing investments have been geared towards stronger promotional events, and increasing our coverage of orders with free shipping. We have also been driving branding campaigns to reinforce our brands connection with our users and merchants. We believe these investments solidify our brand’s trust as a marketplace for frequent purchases, and expect to continue ramping up investment levels during the second half of the year. On the retention front, we are encouraged by the positive trends we have observed so far in terms of engagement to our loyalty program. The users on our loyalty programs premium levels continue to grow as our user base engages in a growing number of additional MELI services. For example, we see a consistent increase in users in video and audio content subscriptions that are offered at a discount for our loyal users. Along with these efforts in category development, we believe that these marketing and loyalty initiatives are crystallizing the online shopping habit formation within our marketplace. Let me now turn it over to Mercado Envios, where we have been consistently delivering transformative change. This is another key area of investment that we believe to be driving a distinctive experience for buyers and sellers and underlying our sustained growth. This quarter, we shipped over 230 million items, reaching increasingly faster speeds and reduce unit shipping costs on a consolidated basis. We took another step towards boosting our managed network in Q2, reaching a penetration of 83% on a consolidated basis advancing in all geographies where we operate with our logistics solutions. Fast delivery at an efficient cost is a key priority for us. To keep pushing our boundaries on this front, during the second quarter we launched Same Day shipping deliveries from our fulfillment centers in Brazil, Mexico, Argentina, and Chile. In Brazil, with our current footprint, the same-day solution can reach almost 20% of national postal codes. Beyond our own fulfillment operations, fast delivery is also made possible through our expanding cross docking network and our flex solution. Cross docking represented over 40% of shipments in Q2, leveraging our extensive network of pickup and drop off points throughout the region. Our Flex service, where we leverage the logistics capabilities of our existing merchants for same day deliveries is currently available in five major cities throughout Latin America, and has a penetration of over 9% on our managed network. With all these adoptive logistics solutions, we saw sequential improvements in delivery times in Brazil, Argentina and Mexico this quarter, and on an aggregate level considering all shipping modalities and geographies, our average delivery time is less than a day and a half. All these Envios initiatives led to the first quarter ever where over half of all purchases on MELI were delivered the same or next day. We believe this to be a remarkable achievement. We are excited about the great advances in shipping we achieved over the last year, and there is still more to come as we take our logistics expertise to more geographies, and cast a wider net in terms of free and same day deliveries. Let's now review our performance for FinTech. During Q2, MercadoPago surpassed $17.5 billion in total payment volume on a consolidated basis, growing 72% on an FX neutral basis year over year. This represented a total of almost 730 million transactions for the quarter, almost 100 million more compared to the first quarter of ’21 and growing 80% year over year. Off platform, TPV grew 94% compared to Q2 ’20 reaching $10.3 billion. We were very pleased to see TPV rising both in B2B and B2C payment solutions. Starting with the merchant solutions, we are particularly glad to see strong levels of total payment volume for online payments during the quarter. TPV for this online payment segment grew 67% year on year on an FX neutral basis, with strong advances in Brazil, Argentina and Chile. We are expanding structurally into SME and longtail sellers through partnerships with other e-commerce platforms for which we are the standard checkout option. In addition, the cross selling of online payment services into our mobile point of sale seller base has also been an important channel for adding merchants. For Point, our point-of-sale offering, we accelerated TPV growth in the second quarter, delivering 94% growth year over year on a consolidated FX neutral basis. This is the highest total payment volume growth rate booked for Point since the onset of the pandemic in 2020, even in the context of continued lockdowns throughout part of the region. Device sales are still booming, having reached a total of 1.1 million devices sold this quarter, and with a more premium device mix compared to prior periods. While Brazil continues to drive most of the growth for Point, we begin to see consistent traction in Argentina and a rapidly scaling business in Mexico. Turning now to our B2C solutions, our Wallet business booked a total payment volume growth rate of 107% on a consolidated FX neutral basis. Our Wallet, as one of the features within our digital account, is showing multiple signs of improved engagement levels from users growing 43% in amounts of payers per user, as well as showing sustained growth in average transaction value. In addition, more Wallet users are keen on investing their savings in their MercadoPago Digital account. For the second quarter, we reached slightly above 19 million investment accounts active, up from 11.4 million in the second quarter of 2020 and 15.7 million in the first quarter of 2021. Overall, our payments ecosystem has added an engaged more users in Q2, both payers and collectors compared to previous quarter. We reached over 39 million payers off platform, with over 15 million payers just from the Wallet this quarter. On the collector side, in Q2, we reached 13.6 million total off platform sellers, a record for us, and up from 6.9 million during the same period last year. Over this wide and growing base of users, we are confident that we can continue to overlay financial services through the digital wallet such as insurance, debit cards, and more immediately access to credit loans, which I will now review in more detail. Our Credit business grew significantly in Q2. We originated another record over $700 million in credit this quarter. This compares to $133 million in the same period last year. As such, we closed Q2 with our largest portfolio so far, reaching over $800 million. We see strong and consistent growth from all three of our credit books, consumer, merchants online and merchants offline. Credits to consumers in particular, are driving the most accelerated growth rates and now represent over 50% of our current total portfolio. As an important channel for consumer credit, our Buy Now, Pay Later feature for payments within our Wallet has already reached double digit penetration rates in Brazil and Mexico. On the country level, we had the most significant uptick in originations coming from Mexico this quarter, and Brazil and Argentina continue to expand an impressive triple digit growth rates. We have reached approximately 27 million consumers with approved credit lines in the region by this point, almost 9 times more than Q2 last year. After the temporary increase in NPLs we had experienced at the beginning of Q1, stemming primarily from government financial aid user cohorts, we have returned to overall healthy NPL profiles for our credit book in Q2, and feel confident to keep expanding our credit offering while managing healthy margins after loss provisions. We also expanded the rollout of the MercadoPago proprietary hybrid NFC enabled card during Q2, issuing an additional 4.2 million cards, almost 3 million of which are in Brazil. Particularly in the month of June, we began to accelerate the credit card distribution and activation on certain user cohorts, with many more yet to activate in the coming quarters. The early responses to our new credit card users are encouraging, as they tend to have higher customer satisfaction with MercadoPago services overall, and have been consistently increasing their credit card use frequency over these initial trial periods. We believe that the Credit business is foundational in our efforts to democratize access to money in Latin America. In a region with high indexes of unbanked and underbanked populations, demand for loans of all sizes and circumstances is rampant. Our extended marketplace from the commerce and the payments verticals gives us the infrastructure, expertise, and data to properly score, distribute and manage loans to a variety of profiles. With that, let's now turn to our review of financial results for the second quarter. I'll start with the P&L. We’re following a strong first quarter in terms of revenues, we maintained strong traction in revenue growth in Q2 and reached $1.7 billion in net revenues on a consolidated basis, growing 94% in U.S. dollars, and 103% on an FX neutral basis. At the country level, on an FX neutral basis, Argentina grew 112% and Mexico 76%. In Brazil, on an FX neutral basis, we surpassed 100% growth in net revenues this quarter. In all key geographies, there were significant contribution to revenue growth from both commerce and FinTech. For the quarter, gross profit was $754 million at a margin of 44.3%, decreasing from 48.6% in Q2 of 2020, but improving compared to the three prior quarters. Margin dilution year over year is largely a consequence of our expansion of the first party commerce sales and rollout of logistics fulfillment center operations. Sequentially, over the last year, we have been leveraging margin expansion in our payment collection fees and since the fourth quarter of 2020 have captured efficiencies in our shipping unit costs. As we do every quarter, we've included a detailed breakdown of these margin effects in the slides accompanying this presentation, as well as the OpEx margin evolution. Following the trend from the first quarter, during the second quarter, we continue to see scale and efficiency effect in our operating expenses year over year. Operating expenses were $588 million, which represents 34.5% of net revenues, sustaining and slightly improving the operating leverage from prior quarters while maintaining consistent investment levels in product development and sales and marketing spent. During the second quarter, we reached strong triple digit top line growth on an FX neutral basis, while delivering an improvement in EBIT profitability levels. We believe that we are investing towards sustainable growth and starting to reap some of the scale advantages that flow through our P&L. Wrapping up our performance highlights for today, a final reflection. For many countries in Latin America, physical retail is only beginning to reopen, and there is still much uncertainty in the region surrounding the pandemic. Given this backdrop, our role is to keep expanding our ecosystem by staying committed to improving our service levels, and our reach with our merchant and user basis. In addition, we will continue committed to investing in both user acquisition as well as improving and investing behind more features, and a better user experience that improved customer retention and engagement, key factors of sustaining preference for the digital commerce and financial services that we can offer. Finally, I'd like to thank our now 20,000 employees in our extended community of partners for another quarter of outstanding execution. We are grateful to everyone who has joined our quarterly conference call, and I look forward to sharing our progress next quarter with you. We're now happy to take your questions.

[Operator Instructions] And our first question coming from the line of Stephen Ju with Credit Suisse. Your line is open.

Okay, thank you so much. So, Pedro, I wanted to follow up on the same day delivery expansion in Brazil. How quickly do you think you can get to full coverage of the country with same day? And can you quantify how much of the customer’s order velocity picks up as the service level is improving? And I guess secondarily, the eternal optimist in me wants to believe that as you and your peers take steps to increase selection and delivery service, e-commerce adoption should hopefully accelerate. So, do you think you're starting to see that steeper part of the S curve of adoption as of yet? Or is it still too difficult to disaggregate relative to what is happening with the pandemic? Thank you.

Hi, Stephen. Thanks. So, first of all, the evolution of our rapid shipping solutions so same and next day, certainly is one of the strongest pillars of our value proposition today. Taking Brazil, for example, I think we're already at about 2000 cities, where our packages can be delivered same or next day, which when you look back just a few years, really is a phenomenal, phenomenal improvement in the value proposition. And I think that's one of the things that's driving the sustained growth in our business and share, parsing out exactly how much lift comes from that is not something that we've disclosed. But I think it's sufficient to say and we've seen this globally, that as you shorten times and you improve predictability, and you overlay that with the fact that our free shipping program has done nothing but become more and more widespread, you have a very potent cocktail of improving user experience. And we will continue to focus on expanding as much as we can that. Same day, which is your specific question, in a way is really determined by the number of FCs where we can locate inventory within same day delivery. That's an ever-expanding footprint, I think in a well-managed and cautious way from a CapEx perspective because most of these are OpEx, we don't own or build the FCs and we will continue to grow out that footprint to get closer to our consumers. On the S curve, look, I think the last five quarters have seen tremendous acceleration in the rate of adoption of digital services. Obviously, somewhat pandemic driven, are very pandemic driven. But that I think has gotten us closer to the more inclined portion of the S curve. And where we're seeing that so far. And I want to remain somewhat cautious until we get through H2 is that, like we said in the prepared remarks, the two years stacks actually look better coming out of the pandemic than they did going into the pandemic, which means that a lot of this demand that has moved online probably stays online, which is one way to define the steeper portion of the S curve.

Thank you.

And our next question coming from the line of Andrew Ruben with Morgan Stanley. Your line is open.

Hi, thanks very much for the question. I'm curious thinking about the investment stance into the second half. It was another quarter here where versus our expectations and meaningful upside on margin so, can you talk about what you're thinking about spending directionally for the back half? And specifically, where that's going to perhaps a bit more color on the marketing, on the loyalty and related initiatives where you could see that incremental back flowing to? Thanks very much.

Yeah, great. So, I think it is important to note that we typically look at our efforts to deliver conservative but consistent operational leverage on the business on annual cycles. So, the way money gets invested across the year sometimes isn't necessarily very linear across quarters. The back half of the year has the more heavy promotional activity around Black Friday in Q4. There are certain brand efforts that get staged more in the second half than the first half. I think we've continued to tweak and you've seen the thresholds around free shipping to make the free shipping program more available and even more widespread. There is a lot that we're doing and is showing very encouraging signs in loyalty, and content distribution related to loyalty. So, these are some of the main areas of potential incremental investment for the back half of the year. So, don't assume that H1 necessarily is a readout of what the entire year can look like. I think you need to look at four-year chunks to understand how we're leveraging the P&L sequentially from one year to the next. And I think it's fair to say that, given the results we're seeing, we could decide to be more aggressive in the second half around specific initiatives that I've just outlined.

That's very helpful. Thank you.

And our next question coming from the line of Bob Ford with Bank of America. Your line is open.

Thank you very much and congratulations on the quarter. And thank you for taking my questions. Pedro, in the quarter you seem to be doing some gamification testing in Brazil, how should we think about your use of gamification elements going forward? And you also seem to be growing more comfortable in your comments with respect to the loyalty stack that you've put together so far. Does it need any further refinement prior to you really hitting the accelerator? And then Osvaldo, I believe you were recently quoted in the press exploring crypto as a store of value for Wallet users, in which countries could you legally offer crypto and how much development work needs to be done to enable that? And then lastly, Pedro you mentioned you're doing great in Chile, and it's been going well for some time now. Is the new Colina distribution center or the regional infrastructure that you built out playing a role yet, I know it had a soft open in the quarter, but it seems a bit early. But I wasn't sure. Thank you.

Hi, Bob. Thanks for the questions. So, on gamification, I think, interesting initial trials. One characteristic of ours, and you've seen this as we've always, I think, not only tried to innovate and see what works, but also learn from what's going on globally. I think gamification is one area that we hadn't made too many advances on. And we are tinkering and toying with it. And we'll see what comes out, but I think not too much else to note there. I think we've seen players globally, leverage gamification efforts efficiently for e-commerce. And so hopefully it's another driver we find to drive engagement. Loyalty, like said in the previous question, we are encouraged by everything we're seeing. I think our content distribution play continues to add more content providers. It continues to grow the number of users that are signing up for those content partners through MercadoLibra and MercadoPago as part of the loyalty program, but certainly there are years of never-ending refinements and improvements ahead for the loyalty program. We do think that the value proposition continues to get better and better. And as a consequence of that, I think you'll see us get more aggressive around communicating it and pushing it and other potential ways to get more users up into higher loyalty levels. But there's still significant innovation and new benefits that we will look to overlay into the loyalty program. Osvaldo Giménez : And Bob, with regards to crypto, we don't have anything to announce yet. And basically, the code you saw in the press, the specific question was, whether we were keeping track of what was happening in the U.S. with several large wallets, allowing people to buy, hold and sell crypto. And that was pretty much it. And we are just understanding, looking into that understand the market and understanding restrictions.

That's helpful, thank you. And then lastly on Chile. Did the is the growth that you're experiencing now, in any way related to the new distribution center at Colina that increases your holding capacity, my understanding is by four times.

I think the causality there maybe can't entirely be attributed to that. Chile has been the success story of the past 18 months. I think it's a market that a few years back was one of our, I guess, more challenging markets, and it has become in terms of growth and market share gains, and user feedback. A very, very strong market for us. Demand has grown the most of any market over the last 15 months, and continues to deliver as you've seen this quarter very, very solid results. And that will demand more fulfillment capacity, more distribution capacity. So, we will certainly double down in our fulfillment and logistics efforts in Chile, given that consumers are increasingly relying on us for day-to-day shopping needs, et cetera. So it's part, I think of a virtuous cycle. But I don't think we can we can attribute too much causality to the distribution center. I think pandemic, what's being done with distribution of pension funds, and just overall fantastic execution by the team in Chile.

That's very helpful. Thank you very much.

And our next question coming from the line of Marcelo Santos with JP Morgan. Your line is open.

Hi, thanks for allowing me to make the questions. The first question is regarding the same day delivery, you mentioned that 20% of postal codes can get same day delivery. What will be an estimate on how much of GDP is covered by these postal codes, so just to get a better sense of purchasing power? And the second question is about the live stream initiative you mentioned in the prepared remarks. Could you give a little bit more detail on what this initiative is about? What are the plans for that? Thank you.

So, let's see. Logically, those postal codes, where it makes sense to aim for same day delivery are the ones where we will have fulfillment centers, and they are determined by where most of the demand lies. I don't know off the top of my head exactly what GDP those 20% represents. But clearly, it will be the lion's share of the largest metropolitan areas. Today, roughly 50% of our gross merchandise volume is probably being delivered within a 24-hour window. So, as we continue to roll out more FC's, that number should only continue to move north. Live streaming, if you look at live streaming, first of all is an incremental discovery opportunity for our user base obviously with very, very strong traction in some Asian e-commerce markets. So, it has an initial vision, which is how do we generate better discovery on MELI, which has historically been very much search driven. But if we think bigger picture and longer term, it also ties in well with a lot of the things we're doing around content distribution for partners, as this starts a kernel of our own content and complimentary content that we can distribute. So, another example of something that's very initial. In the early stages, it's more about driving more engagement, more eyeballs and better conversions to products. And then we see if it's working, and we take it from there.

Perfect. Thank you very much for the answers.

Our next question coming from the line of Craig Maurer with Autonomous Research. Your line is open.

Yeah, sorry, thanks for taking the questions. The first is about the competitive dynamic in Brazil, this is the number one question we're getting from investors. And you made some impressive comments regarding your fulfillment capability in Brazil. So, I was wondering if you could perhaps try to talk about or define how many years behind you think the competition is in terms of their fulfillment ability in Brazil, perhaps focusing on new entrants like Shopee. Second, you talked about increasing sales of more sophisticated point of sale payment devices. And I was trying to understand, when do you think the larger merchants that you're selling these to will begin to start contributing to acceleration in off platform TPV growth? Thanks.

Look, on the competitive front, I think we always say the market has been competitive, it's a huge opportunity, it will continue to be competitive. And rather than looking at how many years of a head start do we have, it's how can we move consistently faster and accelerate our own pace of rollout of our network to try to continue to drive up same and next day delivery, continue to expand free shipping. So, I think the playbook so far, we've been very successful. And we just need to make sure that we don't get complacent. And we continue to do everything in our power to drive down cost, return a part of that improved cost back to consumers in the form of more free shipping, and continue to roll out the network efficiently so that we can get faster and faster. And I think it's an ongoing race, and we don't want to measure how far ahead we are, because that could breed complacency. Osvaldo Giménez : Craig, with regards to our POS business, we are already seeing the effects of wind-up market mostly in Argentina. And it's starting to happen in Brazil, too. In Mexico, we are just getting started there. But bear in mind that these mentioned largest segments is really our SMEs basically, in the past we're addressing mostly individuals, and these devices are targeted towards SMEs. But there's already an effect we're seeing in Argentina.

Thank you.

[Operator Instructions] Our next question coming from the line of Irma Sgarz with Goldman Sachs. Your line is open.

Yes, thanks for taking my question. It sounds like you had some strong progress, again, in terms of user engagement on the platforms. And that remains something that you continue to call out on your comments. So, I was just curious to what extent you're working on bringing on in more personalization into the user experience, whether it's in the interface and search, discovery, maybe leveraging sort of the cross fertilization across Pago into e-commerce to drive product discovery on a more personalized level? And then second question, switching just to merchant -- the online merchant service segment where you called out that you're seeing good growth. So, I was just curious if you think that you're taking market share there, and whether there is any pressure on the MDRs or whether you're maintaining the same level of profitability there? Thank you.

Hi Irma. Thanks for the questions. I think more of the focus and the heavy lifting on user interface is still around removing friction. There's work being done around discovery. There are the gamification efforts. I think incremental personalization in the UI and how you interface with the platform probably would be overplaying where our product priorities are right now. So, I guess the answer is, look, there's always an attempt to make the experience, more and more catered to each user. But it's not really one of the big product pushes right now that are probably more focused on expanding services. There's a lot of product innovation going on, both in the fintech world, and the loyalty programs and even on commerce, discovery, gamification, not an enormous focus at this point in time, in increased personalization of the user interface. Osvaldo Giménez : Irma, with regards to online merchants and merchant services, we do seem to be growing faster than the market both in Brazil and Chile and Argentina. So, I would say we are going into those markets. And with regard to MDR, we have not yet seen a lot of pressure in terms of MDR. What we have seen is in particular in Brazil -- sorry, yes, in Brazil, mix growing faster, growing very well. And that necessarily have lower MDR than the rest of the of the card market. So, if you were to look at the average, there might be some MDR compression, but it's only because of the part that is coming from mix.

Very helpful. Thank you.

And our next question coming from the line of Deepak Mathivanan with Wolfe Research. Your line is open.

Great. Hey, guys, thanks for taking the questions. So first, can you talk about how Wallet use cases wall during the second quarter? Also, realized you don't provide any guidance, but as you count the impact of government relief payout in second half from last year, how should we think about the impact on those on the year-on-year growth rates? And then second question, GMV growth was pretty strong, even as you started lapping some of the benefits from last year. Can you talk about the underlying customer cohorts, maybe in terms of category adoption, frequency? Also, if you can provide some color on July trends. That'd be great. Thank you so much. Osvaldo Giménez : So, with regards to the Wallet, I'll say that was mostly, typically the payers we count in those 15 million people who paid with Wallet in the quarter are mostly coming from six use cases. And those are mobile [ph] broadcast transportation, paying utilities, if you have payments B2B, it transfers. And those are mainly it. Now, if we were to look also at people who are paying making experiments on transfers with a Wallet, that would add another 3 million payers more to the quarter. And so, we are excited that we are seeing increased engagement in all three countries, and that people who are using the Wallet are also using it more often. The second question you asked is what about to the coming quarters? As you mentioned, we do not provide guidance. But as you also know, we have seen an increase step function with the increase in Wallet use in Brazil a year ago. And that happened mostly during the second and third quarter. So, those are the two quarters that will be more challenging, then as we expect to continue to grow in the Wallet, and the comparisons will become easier.

Sorry, in terms of GMV strength category mix is a part of the story. I think we're seeing growth -- continued sustained growth in apparel. CPG is especially in units gaining traction and becoming more relevant and that's a high frequency category. I don't think the cohorts have dramatically changed. I think really what we see in the deceleration is just primarily the math of the tougher comps. So, that's why we've pointed to looking at two year growth rates, which have remained quite solid despite rapid reopening in Mexico and gradual reopening across other markets.

I'm showing no further questions at this time. I would now like to turn the call back over to the speakers for any closing remarks.

Great, thank you everyone. We continue to hope that everyone remains safe, back to work for us. Still many, many things to do, and we look forward to being able to update you as always in a quarter’s time. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.