Good morning. Welcome everyone, again. My name is Irma Sgarz. I cover Latin American internet and retail over at Goldman. I'm very pleased to be here once again, for the second time, with Martín de los Santos, CFO of MercadoLibre. Welcome, Martín, back to the conference. Thank you, Irma. Thank you for having me. Welcome, everybody. Last year, when we sat down on this stage, you had just taken up your new role as CFO of MercadoLibre. When you look back over this last year, what are some of the surprises, and what are some of the challenges that you look back on? I think the most important thing that will highlight is the growth opportunities that we see ahead of us throughout our ecosystem. As I was running the credit business for the past seven years, that's a lot of growth opportunity in credit. Now that I'm seeing other areas of the ecosystem, I'm very excited about things that are going on. In Q2, our commerce business grew 36% in Brazil, 30% in Mexico. Yeah. Still the penetration of credit v ery low in Latin America. It's 14% penetration of retail. Yeah. It's 86% that is done offline, and we continue to drive that volume online in Latin America, compared to maybe high 20s in the U.S., high 30s in China. There's plenty of room there for us. Our advertising business is growing very strongly, grew by more than 50% year-on-year- for the past 16 quarters. Still, if you see the penetration of advertising in our platform, it's only 2% of GMV compared to 5 or 6 percentage points on some of our international peers. There's plenty of room to continue growing on that. During last year, we launched our Mercado Play initiative, which is we're delivering free content to the millions of users in Latin America that don't necessarily pay for content or cannot pay for content. We will monetize that through advertising, through video advertising, and that's an area that also represents a tremendous growth opportunity for us. Then on the fintech side of the business, Mexico is a huge opportunity for us, and it's wide open. The country where the financial inclusion is so low, we are posed to be the leading fintech company in the region, in that country, and we will do a lot of financial inclusion. We have been doing it already. We are the largest in terms of number of users and the credit book. Plenty of growth there. Obviously, credits, the credit card. Last quarter, we issued 1.6 million credit cards in Mexico and Brazil. TPV of credit card growing north of 200%. Yeah. Asset under management growing at 86%. Growth anywhere you see within our ecosystem, that's probably the most exciting thing that we've seen. More specifically, I think I mentioned this in the past. The thing that amazes me the most is the job that the logistic team has done o ver the past 10 years. Yeah. If you think about it, 10 years ago, we didn't touch a single package that was sold through MercadoLibre. Today, 96% of the items sold go through our logistic infrastructures. We have a network of vans, large trucks, cars, planes. Yeah. Distributing products, w e ship 23 products per second- in Latin America. Yeah. 85% of the 1.6 billion. Thing you really emphasize is driving the value unlock across the ecosystem of commerce and fintech. When you look back over the last year, what's been done and what's yet to come, or where are still some- Yeah. -of the opportunities? I think it's a unique position that we have, the fact that we have a two-sided ecosystem. That we have a very strong position on commerce, and we have built a very strong position on fintech. They both benefit from each other. This is something that we, as the management team, we pay a lot of attention, and we make sure that we don't work in silos, we work together and contribute to one each other. An example to that is in, let me take example of Mexico, where 25% of the volume sold on MercadoLibre is paid with our own payment methods. That is our own credit card, our Buy Now, Pay Later product, the consumer credit product that we developed in Mexico, or account money that p eople have on the Mercado Pago account. Yeah. A lot of those transactions couldn't happen if we didn't have developed those payment methods. That's helping the fintech, helping the commerce side. The other way around as well. Commerce enables us to distribute products at very low acquisition costs. For instance, most of the credit cards that we issue are underwritten by users on the marketplace. Yeah. More important than that, we have a lot of first-party data on consumption that is a very differentiating factor for our credit scoring models. Yeah. In a country like Mexico or even Brazil or Argentina, where most people don't have access to credit, the credit bureaus don't have any information on those people. Our proprietary data is a lot more important for the credit models. As an example for consumer credits, we look at 2,000 different variables. Most of those comes from internal data, and 95% of the weight of the credit decision is based on our own information. Yeah. That really helps us a lot in including financially people that were left out by the traditional banks. It's super important to have these two parts of the ecosystem working together. We have made a lot of progress. Probably the most recent progress that we made is the change in the loyalty program. For several months, we have been saying that we wanted to include some fintech benefits to the loyalty program. As you recall, the loyalty program was mostly free shipping and content. Now, starting last month, we started to give benefits to our fintech users. If you're part of the loyalty program, you have extra remuneration on your deposits. Yeah. You have extra free installments on your purchase from MercadoLibre, and you got cash backs on all the purchases you make with a Mercado Pago credit card. A lot of progress in that front, it's something that we need to continue to focus on because it's a critical competitive advantage for us, having the two sides of the ecosystem working together. That's great. In your earlier remarks, you mentioned growth quite a lot, I want to come back to that. You surprised the market with tremendous GMV growth once again, and actually incrementally accelerating in some of your main markets this last quarter. Brazil and Mexico really stood out in terms of GMV growth. What's behind that? Is it a single factor that you'd highlight or really a combination? Yeah. I think it is hard to pinpoint one single factor. I think it is a combination of things. As a context, as I mentioned, we grew 30% commerce in Mexico, 36% and accelerating and gaining market share in Brazil. Revenues grew by 42%. I would say that a combination of factors. Obviously, the fulfillment creates a great competitive advantage. We have seen fulfillment penetration growing by 10 percentage points year-on-year in Brazil. As you know, more fulfillment means faster shippings, better user experience, both for the buyer and the seller- Yes. Better conversion, and obviously more volume. Yes. The example of the metro fulfillment center that we opened in Rio de Janeiro last year worked out extremely well. This is a relatively small fulfillment center, very close to the city. We are close to our buyers, where we select certain products that have high rotation, and we are able to offer same-day delivery i n a much larger scale. That enabled us to gain market share in that particular market. Now we're going to be opening two more in Brasília and Porto Alegre. Those type of innovations are helping a lot. The payment infrastructure, as I mentioned before, is also helping, not only Mexico, where 25% of the transactions are done with blue money, as we call it. Yes. Also in Argentina and Brazil, a lot more penetration of credit cards and consumer credit is helping the commerce side of our business. The verticalization of the experience, if you were to buy on MercadoLibre 10 years ago, you would have a similar experience buying fashion or a set of tires for your car. Yes. Today, we have a number of developers working, improving the user experience and customizing it. That helps a lot in terms of conversions, again, and volume. Obviously the execution of the teams. I think we have done tremendous job of executing on the ground, working with our sellers, increasing the supply, and marketing also has been more efficient. We grew our user base. Even after 25 years of history, we grew our user base of commerce by 19% last quarter. 37% growth of users on the fintech side of the business. Those are not only more users, but also more engaged. They tend to buy more, they have lower churn. I think when you combine all those things, that's what explains the solid growth that we saw and the market share gains that we continue to deliver in Q2. I want to double click a little bit on Meli+, your loyalty program that you relaunched under this new name, a lot more marketable, I think. Last year or roughly one year ago, you made some recent changes to that program as well, Maybe let's talk first about sort of what the impact so far from this program across your user base. Is it driving greater frequency of existing users, or is it also bringing new users to the platform? Yeah, I think that's another factor that helped growth. To recap, about a year ago, we relaunched our loyalty program, which we named Meli+. Used to be called Level 6, which was hard to market behind. We got rid of all the levels basically now. We also got rid of the organic membership. You pay for the program, and you get the benefits, which were mostly free shipping and the content of Disney+, which is very valued in the region. In addition to that, a year ago, we introduced the Meli+ Delivery Day which effectively what it is that you choose a particular day of the week for products to be delivered to you, and that lowers the free shipping threshold all the way down to $6. That enables us to compete in a very sustainable way with some of our international cross-border players that were coming into the market. Yes. In fact, if you see the volume that we do on the low ASP segment of our market we have grown at a faster pace than the average. That's laid out very well for us, the Meli+ Delivery Day. With that was a year ago, and now, as I mentioned earlier, last month, we announced another change to the program that has two different factors. One is the introduction of fintech benefits t he members of the program. Yes. I mentioned the cashback on the credit card, extra free financing, and better remuneration deposits. Also, we're offering cash backs on purchases on MercadoLibre. All of that, if you pay $2, you have all those benefits as part of the program. The other thing that we did is we realized that a lot of users of the program did not necessarily value the content that we were offering. Even though the content is very valuable because it's Disney+, some users really wanted the free shipping as the main driver for them to subscribe. Right. We were charging them for the content as well. We split it, and now we have two flavors of the loyalty program. We have one that is called Essential, which is all the benefits of the ecosystem by paying $2. If you pay $6, you get the benefits of the ecosystem, plus Disney+. In a sense, we try to discriminate and try to offer a better alternative to our users and those that value content and choose. Yes. To pay for it. If not, they stay with the basic program. Okay, great. In terms of performance, we've seen the program over the past year performing extremely well in terms both bringing new users. Also, more importantly, getting engagement from the users. We've seen that users that enroll into the program tend to buy more. It lowers significantly the churn compared to the previous version of the program. We're very excited about what we have done so far. With the introduction of the fintech benefits, I think it creates a loyalty program that is very unique. It's very hard for somebody to replicate that, having benefits on the commerce side with free shipping as well as the fintech side. We are very optimistic about that. Yeah, that's exciting. In the Tier that includes the streaming component, the Meli+ Total. Yeah. You also put through a price increase. It's not exactly comparable, but there's a price increase. Is that just a pass-through of the Disney+ price increases? How do you think the value proposition stacks up against some of the other programs in the market? Yeah, I think it's correct. It's a pass-through. Basically what we do is, the incremental cost from $2- $6 is basically what we pay Disney for the content, it's pass-through. When they increase their price, we pass it on directly. Like I said, I think we have a value proposition that is very compelling with all the benefits that you get for just $2. Obviously, we repay that with incremental volume. If you compare to some of the other programs in the region, we think that we have one of the best programs. Also it's a match in the sense that we can offer fintech benefits as well. Even if you are not part of the program, we have a free shipping threshold for everybody that is at $15, which is one of the lowest ones in the region. That's also a very strong value prop. Great. One thing that has enabled these lower free shipping thresholds are obviously the investments into logistics. Can you just catch us up on where you are in terms of capacity utilization? Is there still more that you need to add into the system, in terms of space or new nodes to connect your routes? When you think about this, I'll get then to operating leverage and the implications of that, but maybe let's answer about where we are in terms of the logistics cycle. I think it's a different story in the different countries, right? In Mexico, as you know, penetration of fulfillment is at 70%. We're running almost at full capacity. We need to continue to invest in fulfillment infrastructure to keep up with the 30% growth of our market, which is a good thing. We open a new fulfillment center in Q2 in Mexico, and we have planned for the second half of the year two new fulfillment centers. In terms of Brazil, it's a different story. Brazil is at a little bit more than 50% penetration of fulfillment. We need to invest to bring it to the levels of Mexico, but also to keep up the growth of 36%. Yeah. It's a good problem to have. We plan to open four new fulfillment centers in Brazil. Also, as I mentioned earlier, we will replicate what we did in Rio with two metro fulfillment centers, one in Brasilia and one in Porto Alegre. In Argentina, we announced last month the opening of a new fulfillment center. It's the first time we opened one in five years. We are very excited about the prospects for Argentina as well, where we have a very strong position as well. We announced last quarter the opening a small fulfillment center in Texas to help us with bring volume of U.S. sellers into Mexico. Most of our cross-border trade is done out of China. China sellers into Mexico. We think that now having a fulfillment center in Texas will enable a lot of the sellers in the U.S. that want to get into Mexico to go through our platform as well. Great. Just to wrap up this, I get a question a lot about our investment philosophy, our investment strategy, if it has changed. I would say that this is business as usual for us. This is the same thing that we have done over the past several years. Our CapEx will continue to be at similar levels as in the past. It's not a radical change, or it's not like we're going into an investment cycle. It's just business as usual of keeping up with volumes of fulfillment because we know that more fulfillment represents better conversion, more volume, and again, as we scale, it will definitely pay off. Great. Yeah. In terms of unit shipping costs, just catch us up on how has unit shipping costs developed through this cycle of, it's not an investment cycle because it's consistent investments. Yeah. Through that period. Yeah. As you know, the dynamic is when we open a new fulfillment center, until it ramps up, there is some short-term cost pressure, right? We've seen that over the years. That will continue to be there. We also mentioned in 2Q that there were some costs that we were able to postpone towards the second half of the year. Those will come as well. I think more than looking at it quarter by quarter. I think it's important to take a longer perspective. Yeah. Of our investments on fulfillment, and shipping in general. If you look at the past three years, the fulfillment penetration grew by 20 percentage points on a consolidated basis. Yeah. At the same time, free shipping grew by also 20 percentage points. Those two put pressures on cost. Because we have so much focus on efficiencies and improvements on productivities, we're able to maintain the net shipping cost stable during those three years, despite the increase in penetration of fulfillment and free shipping. I think that speaks to our ability to manage those costs over time, and again, to capture the efficiencies and the benefits of having a larger fulfillment infrastructure. We plan to continue to do so in the future. Great. Pivoting a little bit more towards investment into branding and mind share, we often think of MercadoLibre already as a leader in Latin American e-commerce and top of mind. Over the last couple of years, you've made some investments into driving more visibility of the brand and done some important sponsorships more recently with the Copa América. I think there's a new one on Williams Racing. Yes. An exciting new driver being sponsored by MercadoLibre as well. Maybe talk a little bit about what you're trying to accomplish with that and what you've seen in terms of results from those investments. Definitely. You're right. I think MercadoLibre continues to have been the most prominent brand in commerce in Latin America. We're also investing behind Mercado Pago with aspiration of becoming the largest fintech or the leading fintech in Latin America as well. We're investing in Meli+ as well. I think it's a construction of many years of investments on user experience and the product, but also investing behind our brand. Yeah. It's a competitive market. Other brands are also making investments. If you look at the investments in marketing as percentage of revenues, we have been scaling over time. We have been more efficient in the way we invest in branding and acquisitions of users. Good. I mentioned before, we're growing our user base in commerce by 19%, 37% are fintech users and users that are more engaged. The fact that we are investing in our brand justifies and explains why more than 60% of the traffic is organic. A lot of people find MercadoLibre directly as a destination for buying, and that's a tribute to our brand. Selectively and very specifically, we will continue to do so. We have seen very good results. Yeah. Copa América a s you mentioned, was the most important sport event in Latin America for the year. We were able to reach 300 million viewers in the specific markets where we operate. Wow. All the studies that we have done in terms of brand equity and brand positioning after the Copa América show that the results were very, very positive. We are confident that the investments that we're doing on advertising are having good results. That's fantastic. Let's talk a little bit about the ads. You've made huge strides. You've pointed to the type of growth that you've seen over the last four years really, in that segment. It's today largely concentrated on product ads still. Maybe let's start on the product ad side. Are there any additional bottlenecks to growth or anything that you've done? Maybe you want to point out some of the enablers that you've brought forward on the product ad side, but also what's still sort of holding it back? Yeah. I'm super excited with the opportunity with advertising. As I mentioned, growing very rapidly, but still from a relatively low base w ith a lot of potential going forward. It's a very strong profit engine for the business. It's a very high margin business. If you look at Latin America, given the number of buyers and people operating in our platform, we are the third largest pan-regional advertising platform after Google and Meta. The opportunity is huge. If you look at specifically retail advertising which is mostly product ads, we are by far the leader in the region. That segment of the digital advertising is expected to grow by 3x in the next four years. We should be able to capture a lot of that volume going forward. Again, the conditions are set for us to take advantage of this and to leverage on this opportunity. The first-party data that we have is super important as well. In particular, given the trend to a cookieless world, where first-party data that we have will help us target the campaigns and so on. As you said, most of the revenue comes from product ads, and has been growing very nicely. I think we have a tremendous opportunity on display and branding. Yeah. We are not there yet. Okay. We're building the relationships with brands and with advertisers, agencies, but we need to do a better job of convincing them. We have the technology, we have the audience, we have the targeting tools, but I think we need to continue plugging at it. It reminds me a lot to what happened maybe 10, 15 years ago, when we were trying to get the brands to sell on MercadoLibre. I remember having endless conversations with the Nikes or Adidas of this world. They would never sell on MercadoLibre. Nowadays, everybody's there because they must sell through Meli+, and we are a great channel for them to sell in the region. Same thing happened when we were building our fulfillment infrastructure. It took us a long time for merchants to bring their inventory with us. After it reached a tipping point, now they realize the benefits of having the inventory with us. I think that's what it will take, is it's a longer adoption curve. We're working at it. We're confident that we'll capture that opportunity. It's a tremendous opportunity. Great. Maybe in that context, you can also catch people up on what you're doing with Disney. Yeah. On the advertising side specifically. Yeah. As part of the new agreement with Disney+, we are going to be starting to distribute video advertising into the Disney+ platform in Latin America. What we're doing is we're opening it up, advertising real estate outside of our ecosystem to our advertising clients. For branding and display, it's very important to have reach and frequency. We do have a lot of reach and frequency within MercadoLibre. If you're an advertiser, you can choose to place your videos on Meli+, on Mercado Pago, on Mercado Play. Now you will be able to offer also place your videos on Disney+, and then eventually we might reach other agreements with other content providers. I think the combination of the large audience that we have, the first-party data for targeting that we have w ith the high-quality content of Disney should be a great growth opportunity for advertising business as well. Great. It's the first time that we go outside of our ecosystem. We think that it's the first step of many to come. There's probably more to come in the offer platform of ecosystem. Great. Let's pivot over to credit, which was obviously a big focus because that's where you really came from prior to your role as a CFO. Still have my heart, great. Yeah, exactly. Despite me wearing yellow today. Where do you see the biggest opportunity still in credit? Is it in Mexico? There's certainly a lot of excitement around the Mexico fintech opportunity, but you're also taking big strides on the credit card side across a number of different markets. Credit card doesn't even exist in Argentina yet, if I'm not correct. Of course. Yeah. Yeah, Mexico specifically, I think is a great opportunity even beyond credits in the fintech. If you look at Mexico, it's a country where half the population don't even own a bank account a re left out by the banks. The penetration of credit is extremely low in Mexico. As an example, less than 20% of people own a credit card in Mexico. Yeah. All the metrics that you look at in terms of financial inclusion point us to a great opportunity to evolve our fintech solution there. We have built a very strong presence in Mexico on fintech. We have the largest user base on Mercado Pago. We have the largest credit book of all the fintechs in Mexico. We are very optimistic. In fact, a couple of months ago, we applied for a banking license in Mexico, given the aspirations that we have to become the largest digital bank in the country. That would enable us to better present our products and also to improve user experience for our products, but also to optimize the cost of funding as we can take more deposits in the country. The overall fintech opportunity in Mexico is really strong, and we're very optimistic about it. I think Mexico is today where Brazil was 10, 15 years ago. It's wide open. In general, in credits, you have seen an acceleration of credit originations in Q2. We grew the book by 51% year-on-year on all of the credit products. That's a reflection of our confidence on the models, really. Our credit models continue to improve. Any new release, as we have more experience, is more accurate in terms of predicting default rates. We're very confident on the way we are scaling our credit product, that it's a sustainable way and it's a very profitable way. Then within credits, the credit card obviously is the star product right now. As I mentioned, we issued 1.6 million credit cards in Q2, the same number as in Q1. We are growing and accelerating the TPV of the credit cards by more than 200%. The more important thing is that when we look at the older cohorts, they are becoming profitable. We're seeing the profits that those cohorts bring, plus the benefits of the credit card. As I mentioned before, the credit card is a critical product to gain principality. Is what we try to get on our fintech product. When somebody picks up the credit card, they start using our ecosystem a lot more. Not only buying more on MercadoLibre, but also bringing their salaries into our account, making an investment, getting an insurance, they make it a loan. Really, we see a lot of benefits for users that have become active with a credit card, aside from the benefits of the credit card itself. We're very optimistic about that, and again, we are confident that the credit business will be another source of profitability for the ecosystem, and it's very synergistic to the ecosystem because we are facilitating purchases on MercadoLibre. We're lending to our merchants to grow their business and sell more through us. It's a great opportunity for us. Great. Wouldn't be a technology conference if I didn't ask you about AI. If I characterize it correctly, your use or your approach to AI is to use openly available technology and then apply it or adjust it to your needs and build on top of those backbones. Help us think a little bit through how that is going to play out in terms of the demands on OpEx. I assume it's mostly on the OpEx side and less so on the CapEx side, and how we should think about that for the next couple of years. We have been using AI for many years at MercadoLibre. If you go back in history of the company, we started using it first with fraud prevention, with the Mercado Pago acquiring business back in the days. Then for search results and recommendations, and more recently, it's a critical component of our credit business. We use machine learning models to analyze and score users. More recently, we are applying generative AI for more consumer-facing initiatives t o give you some examples, if you were to buy something on MercadoLibre a couple of years ago, when you were asking a question to a seller at 2:00 AM in the morning, you had to wait until 10:00 AM to get your answer, and that affects, obviously, conversion. Yeah. Today with generative AI, we can answer most of those questions right there. We are also helping in terms of reviews of products. Instead of having to go through 1,000 different reviews, we can summarize reviews and descriptions of products. That also helps conversion and user experience. In terms of listings, we're helping our merchants, our sellers list their products in a more proper way through AI. We're applying AI to mediations when there's a problem between a seller and a buyer. We used to have tons of people trying to figure out what happened. Now, with GenAI, we can do that more efficiently, both in terms of cost and also the outcome of the resolution, because they can have a much better understanding of what's going on with the situation. Many different applications. One of the most exciting ones is Copilot. We have 16,000 developers at the company that are using Copilot and are becoming more efficient in the way they develop for us. A lot of exciting things happening. Like you said, we are not making any CapEx investments on that. We're leveraging all the infrastructure that is evolving also. It's evolving in terms of becoming more efficient and more accurate in terms of delivery, but lowering the cost significantly. A lot of use cases are becoming ROI positive a s we continue to lower the OpEx cost of this. It will be really transformational for us, and we are super excited. That's great. I can't let you off the stage without asking about the balance between growth and profitability and sort of the outlook. I know you don't give guidance, but in terms of how should we think about the balance between growth and margin gains over the next few years? Yeah, obviously, this is something that we spend a lot of time as a management team thinking about. As we mentioned, we have many growth opportunities a head of us. Also we have proven that we can improve margins over the past five years. I think the most important thing for me is to make sure that we don't miss those opportunities, that we make the right investments to capture the opportunities in commerce, going from driving the growth of people moving offline to online. We are the leader in the regions, and we need to continue driving that secular trend. On fintech, countless opportunities. On media, as I mentioned. Yeah. I think the most important thing is to capture those opportunities. We run a business that as we continue to scale, we should be able to dilute fixed costs very nicely. Eventually, over time, we will continue to improve margins. In the short term, we have many growth opportunities that we don't want to miss. Great. Maybe then I'll squeeze in a last one on capital allocation. You're starting to generate meaningful free cash flow. How should we think about capital allocation over the next years to come? Yes. By the way, we disclosed for the first time a new metric of free cash flow this past quarter. We generated in Q2 $678 million of free cash flow, almost $850 million in the first half of the year. We are generating a fair amount of free cash flow. When you look at the cash position that we have, we have about a little bit more than $4 billion of free cash or available cash for us. I think given the size of our company, we feel comfortable with the cash position. We have a debt outstanding that is going to be due early next year for roughly $500 million. We will pay with our own cash. At this point, we're not thinking of paying dividends or repurchasing shares. It's something that we might consider in the future if we continue to deliver strong cash flows that we have in the past. Alongside the growth. That's great. Excellent. Thank you so much, Martín, for being here. Thank you, everyone, for coming. Thank you, Irma. Thank you, everybody. Great.