Net Revenues of $3.4 billion, up 57.2% year-over-year on an FX neutral basis
Income from operations of $558 million, with a 16.3% margin
$42.1 billion Total Payment Volume, up 96.6% year-over-year on an FX neutral basis
$10.5 billion Gross Merchandise Volume, up 47.2% year-over-year on an FX neutral basis
MONTEVIDEO, Uruguay, Aug. 02, 2023 (GLOBE NEWSWIRE) -- MercadoLibre, Inc. ( MELI) (http://www.mercadolibre.com), Latin America’s leading e-commerce technology company, today reported financial results for the quarter ended June 30, 2023.
To our Shareholders
MercadoLibre had another record quarter in Q2’23, demonstrating our increasing ability to drive leverage in our financial model. Income from operations of $558mn more than doubled year-on-year, with a margin of 16.3% over net revenue of $3,415mn. We continue to extend our leadership position in Commerce, with FX-neutral GMV growth of 47% year-on-year (YoY) that includes an acceleration of sold items to +18% YoY (from +16% in Q1’23). Our Fintech operation’s momentum remains strong, with year-on-year FX-neutral growth of 129% in Off-platform TPV and a NIMAL spread of almost 37% in our credit business. The strong financial performance has been broad-based across geographies, with Brazil and Mexico making major contributions to the quarter’s profit growth, and further diversifying our profit base. This gives us confidence as we continue to execute our growth plans across Latin America.
Brazil
In Q2’23, MercadoLibre’s independently measured top-of-mind and brand consideration scores reached 2-year and all-time highs (respectively) in Brazil, which is a reflection of the strength of our value proposition and market position. This ever increasing consumer preference is what drives the growth in our GMV, which was 25% higher year-on-year on an FX-neutral basis in Q2’23. As a result, our market share has risen both quarter-on-quarter and year-on-year, which we believe demonstrates that we are a highly trusted and natural destination for buyers and sellers of millions of products. Our Commerce business is better-placed than ever in Brazil, yet we continue to work on improving our value proposition even further. A strong case in point is the rekindled increase in Fulfillment penetration, which rose more than 4ppts vs. Q1’23 and almost 10ppts year-on-year, unlocking same- and next-day delivery for millions of additional items sold. Another example is the expansion of our first-party business, whose GMV grew well above the Brazil average and the overall 1P business (+59% YoY FX-neutral) in Q2’23. This is helping to fill assortment gaps and improve price competitiveness in consumer electronics, which is the largest e-commerce category in Brazil, and also the category where we have historically under-indexed in market share. This is being achieved alongside major improvements in our 1P margins.
We are seeing solid results from the cohorts of Mercado Pago credit cards that were issued in recent months in Brazil. This gives us confidence that our underwriting for this product has improved, and is enabling us to increase issuance of cards. Our other credit products in Brazil delivered healthy levels of profitability and delinquency, still driven by a continued cautious approach to originations. Credit is an important piece of the value proposition of our digital account, but we are also seeing some encouraging data from other services. For example, the number of people using our remunerated account - which pays interest at 100% of the benchmark rate as soon as funds are deposited - increased substantially, contributing to a 90% YoY increase in assets under management. Our insurance products also continue to gain traction. We have seen improvements in perceptions of Mercado Pago as a “one-stop shop” for financial services, although we still have ample opportunity to improve brand consideration in this service sector.
Our Acquiring business in Brazil continues to grow at a healthy rate, albeit a little slower than the prior quarter. We saw a pick-up in the FX-neutral TPV growth of our Merchant Services and QR products, which offset some of the impact of weaker market growth for POS services. That said, POS TPV growth remains robust and based on available data, we believe to have outperformed the market in Q2’23.
Mexico
In Q2’23, Mexico surpassed Argentina as our second-largest Commerce market measured by GMV, even though it has been our second largest market in items sold since the end of 2020. Mexico continues to deliver higher growth in items sold than any of our six largest markets, and this metric accelerated again to reach +34% year-on-year in the quarter, broadly in-line with Mexico’s FX-neutral GMV growth. The strong performance was helped by a well-executed and successful Hot Sale event, which helped new buyer growth reach its highest level for more than two years. We are investing in our logistics network in Mexico so that we may continue to offer faster delivery than our competitors on the growing base of items sold. As a result, we opened two new fulfillment centers in Mexico City and Merida during Q2’23. We also launched successful pilots to give buyers a greater range of delivery options, and a choice of whether to optimize speed or price for purchases below our free shipping threshold.
Our credit business in Mexico continues to perform very well, with broadly stable profitability and delinquency in the consumer book, which is growing at an accelerated pace. The penetration of our own credit as a means of payment on the marketplace in Mexico is well above the average of other countries, demonstrating the synergy between our Commerce and Fintech platforms. This helps us develop a deeper understanding of the buyer and their ability to repay, which is useful as we begin the process of developing our credit card product in Mexico following its launch in Q1’23. In Q2’23, we also enabled the purchase of extended warranty insurance products for cross-border purchases.
Our Merchant Services and POS payments processing services in Mexico are growing at high double- and triple- digit rates respectively. TPV per device doubled year-on-year, which reflects our strategy of moving upmarket to serve larger merchants, and higher take-up of a more sophisticated device that attracts merchants with greater transactionality than the more basic devices. Scaling the payments processing business is an important piece of the wider strategy in Mexico to be one of the leaders in the digitalization of cash, which we are pursuing from both the merchant and the individual sides of transactions.
Argentina
The challenging macro environment in Argentina is reducing demand for, and tightening the supply of, goods in the short-term; as such, our Commerce business saw items sold grow by just 1% year-on-year, making just a minor contribution to FX-neutral GMV growth of 119% YoY. That said, the macroeconomic backdrop is also increasing demand for financial solutions that enable consumers to better manage their money in an inflationary environment. This is creating a powerful tailwind for Mercado Pago, which saw an 80% year-on-year increase in the number of users of our investment product, which pays an annualized interest rate of approximately 80%, and an even larger increase in invested funds. As a result, Mercado Pago now hosts the largest retail money market fund in the country. This comes with the halo effects of strengthening our QR network and the engagement users have with our platform on the back of higher money flows through our digital account.
Other Countries
We are seeing encouraging signs in some of our smaller markets as a consequence of the investments we have been making to lay the foundations for future growth. In Chile, brand consideration is at its highest level ever, and was market-leading for the second successive quarter. Fulfillment in Chile is enabling same- and next-day deliveries above the MercadoLibre average, and in Q2’23 its penetration reached a new high, with plenty of room for additional growth. Our Acquiring business in Chile continues to scale on the back of the Redelcom acquisition with triple-digit TPV growth (FX-neutral), and we expect to be able to begin the process of offering merchants the full suite of Mercado Pago services following regulatory clearance to proceed with its full integration. All of these points give us confidence that momentum is building in Chile, both in Commerce and in Fintech, and that the country has the potential to be a sizable business for MercadoLibre in the long-term.
Consolidated Results
Our Advertising business had another strong quarter in Q2’23, with FX-neutral revenue growth above 70% for the fifth successive quarter. Revenue as a percentage of GMV hit 1.6%. We are encouraged to see rising engagement with our advertising platform, with a large part of the quarter’s revenue growth driven by an increase in the number of sellers using our Product Ads service. This was due to wider access, enhancements to the bidding process, and improvements in the user experience for self-service sellers. We are encouraged by the early feedback that we have received from brands and agencies that have interacted with our Ads Console - launched at the end of Q1’23 - and we continue to work on positioning MercadoLibre as a destination for Display Ads and brand building with Chief Marketing Officers.
We are pleased with our financial results for Q2’23. Consolidated revenue growth was 57% year-on-year on an FX-neutral basis (31% US dollars). Revenue growth in Commerce (65% YoY FX-neutral) accelerated versus the prior quarter due to higher marketplace monetization and the step-change in the growth of 1P; Fintech revenue growth (48% YoY FX-neutral) slowed versus the prior quarter as the business lapped the 2022 peak of growth in credit revenues. That said, both platforms are sustaining high levels of growth even as margin expansion accelerated.
Income from operations reached a new quarterly record of $558mn, more than doubling year-on-year, as previously mentioned. The 6.7ppts YoY margin gain was ahead of our expectations, and was the result of a 100bps gross margin gain, and operating expenses falling by 5.8ppts relative to revenue. Within the gross margin, efficiencies in collection fees, scaling of CX (customer experience) and fewer POS device sales costs more than offset headwinds from 1P growth (margins are improving, but are still dilutive), rising Fulfillment penetration and higher Credits funding costs. At the income from operations line, we have seen notable profit growth and margin expansion across geographies and business lines. This has diversified the drivers of our margins. So although our high margin services - namely Ads and Credits - delivered solid growth year-on-year, their overall contribution to income from operations was diluted materially by the strong growth and margin expansion of other businesses. Our Credits business, for example, had a broadly neutral impact on the quarter’s margin expansion, with its income from operations rising approximately from $100mn in Q2’22 to $150mn in Q2’23.
At the country level, direct contribution (DC) growth was particularly strong in Mexico (175% YoY in US dollars) and Brazil (77% YoY); these two countries accounted for 64% of reported DC, and 72% of incremental DC (when comparing Q2’23 with Q2’22).
Below the income from operations line, interest income rose significantly year-on-year to $188mn, a large part of which relates to the funds stored by our users in the Mercado Pago wallet, particularly in Argentina and Brazil. As discussed above, this is an early indication of growing engagement with our Fintech platform. Net income of $262mn was up 113% year-on-year, despite being negatively impacted by $182mn of FX losses, of which $157mn was related to our share repurchases in the Argentine market. Cash flow from operations rose to $1,412mn in Q2’23 from $907mn in Q2’22, demonstrating that our profit growth and margin expansion are translating into cash generation.
With regards to the continued depreciation of the Argentine Peso: if we were to simulate the effect of a devaluation of 100% of the Argentine Peso vs. the US Dollar on our first half 2023 results, we estimate that income from operations would have been approximately $195mn lower than our reported income from operations of $898mn. However, we also incur a significant FX loss on our P&L related to our Argentine operations, which amounted to $213mn in the six months ended June 30, 2023, as a result of our repatriation of funds via the repurchase of our own shares in the Argentine market. Those purchases are made at the Blue Chip Swap rate, which had a spread of 93.1% over the official exchange rate as of June 30, 2023. As a result of our cash management strategy in Argentina, we believe that our net income and cash flow already incorporate much of the potential effect of a devalued exchange rate. We estimate the impact of the simulation described above on our first half 2023 net income to be broadly neutral to slightly positive. The table below shows revenue and cost of net revenue plus operating expenses that were denominated in Argentine Pesos before being translated into US dollars.
| US dollars (in millions) | Six Months Ended June 30, 2023 | Twelve Months Ended June 30, 2023 | ||
| Net revenues | 1,492 | 2,880 | ||
| Cost of net revenues and operating expenses | 1,103 | 2,106 | ||
Looking Ahead
We are pleased to see that our top line growth and profit expansion are broad-based across geographies and business lines. This highlights the tremendous leverage in our financial model as the business scales. Given our optimism about the many growth opportunities that still lie ahead of us, we intend to use some of the headroom created by this operating leverage to lean into certain areas of the business during the second half of the year. We believe that a core component of our success has been our commitment to allocating capital with a long term view. Our goal is to deliver consistent margin improvements, while making sure we are also deploying capital so as to continuously drive above market top line growth that enhances our future scale potential, improves our user’s experience, and seeds future engines of growth. Consequently, we view in a positive light our disciplined approach to re-investing short term margin gains so as to strengthen MercadoLibre’s long-term competitive position. This is another indication of our belief that the best is yet to come.
The following table summarizes certain key performance metrics for the six and three-month periods ended June 30, 2023 and 2022.
| Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
| (in millions, except percentages) (*) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Unique active users | 135 | 107 | 109 | 84 | ||||||||||||
| Gross merchandise volume | $ | 19,939 | $ | 16,216 | $ | 10,506 | $ | 8,551 | ||||||||
| Number of items sold | 634 | 542 | 325 | 275 | ||||||||||||
| Number of items shipped | 620 | 518 | 319 | 264 | ||||||||||||
| Total payment volume | $ | 79,051 | $ | 55,513 | $ | 42,064 | $ | 30,194 | ||||||||
| Total volume of payments on marketplace (**) | $ | 21,024 | $ | 17,090 | $ | 11,074 | $ | 9,019 | ||||||||
| Total payment transactions | 4,007 | 2,353 | 2,132 | 1,262 | ||||||||||||
| NIMAL (***) | 33.8 | % | 28.0 | % | 36.8 | % | 29.8 | % | ||||||||
| Capital expenditures | $ | 203 | $ | 237 | $ | 114 | $ | 100 | ||||||||
| Depreciation and amortization | $ | 254 | $ | 184 | $ | 128 | $ | 100 | ||||||||
| (*) Figures have been calculated using rounded amounts. Growth calculations based on this table may not total due to rounding. |
| (**) As from January 1, 2022, we no longer disclose our total volume of payments on marketplace net of shipping and financing fees. Given the growth of our shipping and fintech businesses, management believes that including shipping and financing fees in the calculation of total volume of payments on marketplace results in a more accurate indicator of that performance on a go-forward basis. Consequently, total volume of payment on marketplace for the six and three month periods ended June 30, 2022 has been recast to include shipping and financing fees. |
| (***) Net interest margins after losses (“NIMAL”) represents the annualized ratio between the total credits revenues less funding costs and provision for doubtful accounts for the period and total average gross loans receivable of the period. Management uses NIMAL to monitor how effectively we are pricing and managing the credit products relative to their risk and setting targets. Accordingly, we believe NIMAL provides useful information to investors and others related to the Company’s risk appetite through the different periods and showing how effectively we are pricing risk. |
Year-over-year USD Revenue Growth Rates by Quarter
| Consolidated Net Revenues | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
| Brazil | 53 | % | 35 | % | 36 | % | 26 | % | 23 | % | ||||
| Argentina | 62 | % | 72 | % | 50 | % | 39 | % | 30 | % | ||||
| Mexico | 65 | % | 60 | % | 55 | % | 62 | % | 64 | % | ||||
| Commerce | 23 | % | 20 | % | 22 | % | 31 | % | 38 | % | ||||
| Fintech | 113 | % | 94 | % | 73 | % | 40 | % | 24 | % | ||||
| Gross Merchandise Volume | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
| Brazil | 28 | % | 20 | % | 29 | % | 29 | % | 24 | % | ||||
| Argentina | 33 | % | 35 | % | 13 | % | 15 | % | 12 | % | ||||
| Mexico | 30 | % | 22 | % | 35 | % | 41 | % | 52 | % | ||||
| Total Payment Volume | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
| On-Platform | 25 | % | 22 | % | 23 | % | 23 | % | 23 | % | ||||
| Off-Platform | 105 | % | 71 | % | 58 | % | 57 | % | 46 | % | ||||
Year-over-year Local Currency Revenue Growth Rates by Quarter
| Consolidated Net Revenues | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
| Brazil | 42 | % | 35 | % | 28 | % | 26 | % | 23 | % | ||||
| Argentina | 104 | % | 140 | % | 143 | % | 151 | % | 156 | % | ||||
| Mexico | 66 | % | 62 | % | 46 | % | 48 | % | 45 | % | ||||
