MercadoLibre Q2 2025 Earnings Report

MercadoLibre EPS Results

• Actual EPS: $10.31
• Consensus EPS: $12.01
• Beat/Miss: Missed by -$1.70
• One Year Ago EPS: $10.48

MercadoLibre Revenue Results

• Actual Revenue: $6.79 billion
• Expected Revenue: $6.57 billion
• Beat/Miss: Beat by +$224.83 million
• YoY Revenue Growth: +33.80%

MercadoLibre Announcement Details

• Quarter: Q2 2025
• Date: 8/4/2025
• Time: After Market Closes
• Conference Call Date: Monday, August 4, 2025
• Conference Call Time: 5:00PM ET

MercadoLibre (NASDAQ:MELI) operates online commerce platforms in the United States. It operates Mercado Libre Marketplace, an automated online commerce platform that enables businesses, merchants, and individuals to list merchandise and conduct sales and purchases digitally; and Mercado Pago FinTech platform, a financial technology solution platform, which facilitates transactions on and off its marketplaces by providing a mechanism that allows its users to send and receive payments online, as well as allows users to transfer money through their websites or on the apps. The company also offers Mercado Fondo that allows users to invest funds deposited in their Mercado Pago accounts; Mercado Credito, which extends loans to certain merchants and consumers; and Mercado Envios logistics solution that enables sellers on its platform to utilize third-party carriers and other logistics service providers, as well as fulfillment and warehousing services for sellers. In addition, it provides Mercado Libre Classifieds, an online classified listing service, where users can list and purchase motor vehicles, real estate, and services; Mercado Ads, an advertising platform, which enables large retailers and brands to promote their products and services on the web; and Mercado Shops, an online storefronts solution that enables users to set-up, manage, and promote their own digital stores. The company was incorporated in 1999 and is headquartered in Montevideo, Uruguay.

MercadoLibre Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: MercadoLibre reported revenues up over 30% year-on-year in Q2 and a record $825 million income from operations, reflecting disciplined investment and solid execution.
• Positive Sentiment: In Brazil, lowering the free-shipping threshold to 19 reais smoothed seller take rates, spurred merchants to reduce prices, expanded selection and drove accelerated GMV growth in June.
• Positive Sentiment: Advertising revenue jumped 38% year-on-year and MercadoAds achieved a major milestone by integrating with Google Campaign Manager to attract brand-focused advertisers.
• Positive Sentiment: Fintech momentum continued with MercadoPago reaching 68 million monthly active users, assets under management more than doubling year-on-year and the credit portfolio climbing 91% to $9.3 billion.
• Positive Sentiment: Credit card issuance remained strong with 1.5 million new cards in Q2, stable asset quality, and over half of Brazil’s credit card portfolio now NIMA-positive.

Presentation

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended 06/30/2025. Thank you for joining us. I am Richard Cathcart, MercadoLibre's Investor Relations Officer. Today, we will share our quarterly highlights on video, after which we will begin our live Q and A session with our management team. Before we go on to discuss our results of the 2025, I remind you that management may make or refer to and this presentation may contain forward looking statements and non GAAP measures.

So please refer to the disclaimer on screen, which will also be available in our earnings materials on our Investor Relations website. Please note that this call is being recorded and a replay will be made available on our Investor Relations website as well. Disclosure. With that, let's begin with a short message from our CFO.

Hello, everyone. In Q2, MercadoLibre delivered another quarter of strong financial performance. Revenues growing over 30% year on year and record income from operations of $825,000,000 These results reflect the strength and consistency of our execution as we continue to invest with discipline to advance our long term ambitions in commerce, fintech and advertising. In Brazil, we lowered our free shipping threshold for the third time in five years as part of our objective of bringing offline retail online by removing frictions. Frictions.

This strategic initiative is attracting new users to our e commerce platform, increasing engagement among existing buyers and expanding our assortment. The enhanced value proposition resulted in accelerated GMV growth in June following the implementation of the new pricing. Mexico was another standout in Q2. GMV growth accelerated sharply and the number of items sold in the platform increased at the fastest pace in almost two years, driven by strong performance across both our 1P and cross border businesses. Advertising revenue grew 38% year on year.

In Q2, we launched our integration with Google Manager, an important milestone in positioning Mercado Ads as a key strategic partner for brand focused advertisers. FinTech services continued to gain strong traction in Q2. Monthly active users of Mercado Pago reached 68,000,000, reflecting rapid user growth and increasing engagement across our ecosystem. Assets under management more than doubled year on year once again. And our credit portfolio surpassed $9,300,000,000 growing by 91% year on year.

We're also encouraged by the quality of our credit business, stable quarter over quarter and fifty to ninety day NPLs falling below 7% for the first time since we began reporting the metric. Our credit card business continues well in both Brazil and Mexico. Strong asset quality and ongoing enhancements to our credit models enabled us to issue 1,500,000 new cards in Q2. We're also seeing consistent improvements in cohort profitability, with more than half of our portfolio in Brazil already being NIMAL positive. We are pleased with our performance in Q2 as the benefits of years of disciplined investments continue to compound.

Engagement is rising across all areas of our ecosystem, reinforcing the strength of our platform and the long term potential ahead. Thank you for your continued support.

[Operator]

In the question and answer session. Our first question today is from Andrew Rubin with Morgan Stanley. Please go ahead.

[Andrew Ruben, Equity Research at Morgan Stanley]

Hi. Thanks very much for the question and congratulations as well on the CEO transition announcement. I'm curious around the shipping changes. I see you mentioned the lower free shipping minimum, but also the cut in seller fees between 79 and about 200. Right?

[Andrew Ruben, Equity Research at Morgan Stanley]

I'm curious on the seller side, what kind of return you see when you reduce the fees for sellers, if it gets reinvested in the price, and how to understand the dynamic between that part of the shipping investment? Thank you.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Hey, Andrew. How are you? Ariel here. So, before the change in in pricing, you could see that there was a kind of a cleat a cliff edge in the take rate from below 79 reais to above 79 reais, which basically led, to steep increase in fees, both in in in absolute terms, but more importantly, as a percentage of of GMV. So, basically, with with this adjustment, we are lowering that cliff, smoothing the curve, from 79 reais upward, and and and we think this is the right thing to do.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Let me let me step back step back for a second. We tested and learned from executing this last year in in a few categories, and and our experience actually shows, that the this initiative has a positive impact. And and and it comes from a, merchants lowering, prices and b, bringing more more selection to to our platform. And more importantly, those impacts are not necessarily perceived at the moment in which we execute the the changes, but but they get strengthened strengthening over time. So overall, I would say this was a positive change for us.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

We are happy with the early results we've seen, and we are encouraged by the fact that from our experience, we are expecting even more of a positive impact in the in the near future.

[Operator]

The next question is from Irma Sagars with Goldman Sachs. Please go ahead.

[Irma Sgarz, Managing Director & Equity Research Analyst - Latam Retail & Consumer Goods at Goldman Sachs]

Yes. Hi. Thank you, for the opportunity. I I would just wanted to go a little bit through the highest sales and marketing spend this quarter excluding the provisions. The spend was almost up 50% in U.

[Irma Sgarz, Managing Director & Equity Research Analyst - Latam Retail & Consumer Goods at Goldman Sachs]

S. Dollar terms. Now we know that you had two very specific high profile campaigns in Brazil this quarter. And I think in the letter, you also called out the campaigns in Argentina and in Mexico. So should we think about the spend of this quarter as a little bit of a I don't want to call it one off, but as it maybe perhaps a slight outlier?

[Irma Sgarz, Managing Director & Equity Research Analyst - Latam Retail & Consumer Goods at Goldman Sachs]

Or do you see further opportunities to continue to lean into the back half of the year? And in this context, if I may, do you see scope for AI to impact both your the efficacy and efficiency of your own ad spend, but also in terms of the ad inventory of a non platform that you're showing to your ad clients, or is that too early in the in the life cycle? Thank you.

[Martín de los Santos, EVP & CFO at MercadoLibre]

Hi, Yermai. It's Martin here. Thank you for your question. It's correct. What you see and we shown on the on the graphic on on the graph on the investor presentation, we compressed margin by one percentage point this quarter compared to last year in sales and marketing.

[Martín de los Santos, EVP & CFO at MercadoLibre]

And this is mostly because of several several things. Mercado Pago, we launched several campaigns, different countries with celebrities to to promote, our our platform, and and the results have been very, very positive in terms of user growth after that the management doubling in Brazil, Chile, and and Mexico. Downloads also improving very drastically from from previous quarters. So very successful campaign, but, obviously, that put little pressure short term pressure on on on margin. On the commerce side, we also invested we we run a campaign similar size to a just like a Black Friday to promote our free shipping that, as you know, we launched in June.

[Martín de los Santos, EVP & CFO at MercadoLibre]

So that's also some investment that we did behind the lowering of free shipping threshold in Brazil, putting some pressure on on marching. And then on top of that, we also increased a little bit of phone, you know, or paid advertising, you know, to acquire more users always with positive returns. So that's also an increase relative to last year. And finally, we invested a little bit more on social on our social strategy by investing in affiliates and content creator program that that, again, those those will bring, results throughout the quarters. But in the short term, they put some some margin pressure.

[Martín de los Santos, EVP & CFO at MercadoLibre]

So I would think it's a combination of both ongoing investments in acquiring users and downloads, but also couple of, you know, one off campaigns, in particular, Mercado Bago and the lower free shipping threshold that that we did in Brazil this quarter.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Hey, Irma. Ariel here. To the second part of your question, we definitely think that there's huge room for AI to help us improve both our marketing, execution and our ad spend, as well. So on the marketing side, I I think there are many, many dimensions in which we are testing and learning about AI. Just to bring one example out here out out there, For instance, when we think about branding and creativities, AI brings us the opportunity to produce multiple creativities for any given campaign and start testing and learning those creativities across the board.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

And with that, deciding who we want to show what in the online world, and and that's something we are already proving. Producing, know, content online instead of in the physical world is is another thing that we're working on. So many, many dimensions in which we think AI will add value. And the same is happening with advertising. We are using AI today in order to help our sellers better understand our ad stack to get onboarded, into our ad technology to optimize their bidding and and so on.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

So, yes, we are bullish with the impact that AI will bring, into this environment.

[Operator]

The next question is from Robert Ford with Bank of America. Please go ahead.

[Robert Ford Aguilar, Senior Analyst at Bank of America Merrill Lynch]

Good evening, everybody, and and thanks for taking my question. Yeah. I was curious, where are you in terms of your your low ASP selection versus your longer term plan in the Shopee assortment? You know, how long is it gonna take you to get to where you wanna be? And and how is your low ASP strategy different from that of Shopee in Brazil?

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Hey, Bob. So this is Ariel. Let me answer this differently. We are convinced that we have, in general terms, the widest selection available out there, in in Brazil. I think there is opportunity for us to continue increasing the number of live listings in in OSPs, and part of what we are doing today in Brazil is related to that.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

We are already seeing good traction on on new sellers and new, live listings on on low ticket items coming into our platform. Bear in mind that this in this quarter, you only see four weeks of the new free shipping policy in place in in our results. So overall, we are positive with everything we've seen so far. We are encouraged with the seller reaction to the program and, with the the number of listings that we see every day coming into our platform.

[Operator]

The next question is from Marcelo Santos with JPMorgan. Please go ahead.

[Marcelo Peev Santos, Senior sell-side Equity Analyst - TMT & Education at JP Morgan Chase & Co]

Hi, good evening. Thanks for taking my question. I wanted to ask a bit about the change in shipping strategy. Would it make sense to apply these to other countries like Argentina and Mexico? I mean, I I I think you also have the same problem in terms of, the steep change in take rate after the the the free shipping threshold.

[Marcelo Peev Santos, Senior sell-side Equity Analyst - TMT & Education at JP Morgan Chase & Co]

I mean, could you discuss the elements that, that would be important to to consider in these other countries? Thank you.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Hey, Marcelo. Ariel here. So let me let me break this down in in in different things. So in Brazil, we implemented two different things. On the one hand, the lowering of the shipping fees for merchants, which is the one I was referring to about the cliff and and the take rates, then we lower the the free shipping policy for Brazil in particular from 39, to 19 reais.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

To your point on bringing those policies, into Mexico or Argentina, I would say that every market is different. Right? And we don't have the exact same policy and the exact same value proposition in in each one of our operations. For instance, we don't have the same level of cash backs in our minimize program in Brazil. And in Mexico, we don't have the same level of fulfillment penetration in the different countries, Mexico being the highest, Brazil probably in the middle, Argentina the lowest, and and so on.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Right? So while while we don't give guidance on our policies, looking forward, what I can say is that as we always do, we will learn, we will evaluate, and we will decide eventually which policies we want to bring where, but but there's no hard commitment on executing one thing in the other place.

[Operator]

The next question is from Rodrigo Gastim with Itau BBA. Please go ahead.

[Rodrigo Gastim, Equity Research Analyst at Itau BBA]

Yes. Good evening, everyone. Just on Brazil, GMV, you mentioned on the letter items acceleration in Brazil after the free shipping campaign. And you say that you saw GMV following a similar pattern. So just to make it clear here, guys, can we understand that GMV in Brazil also accelerated after the free shipping campaign so far?

[Rodrigo Gastim, Equity Research Analyst at Itau BBA]

It's very important for us to understand given, you know, all the investments that you that you've done. So ending here would be very appreciated. Thank you.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

So, let me try to answer that one. So we are very happy with the results that that we are seeing in Brazil. Particularly, items sold in Brazil accelerated to 34% growth year over year in June. So that's major a acceleration. Of course, given the fact that we are accelerating in the segment where the ASP is the lowest, the impact in overall GMV growth is smaller, but both accelerated.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

And you should bear in mind that q two is is actually comparing to a q two last year in which we have a very, very strong performance. On top of that, we see that that the the program we put in place also has generated impact in traffic, in buyer acquisition, new buyers, engagement, and so on. But more importantly, I think it deserves kind of a step back. Right? We are doing this because we think and we are committed to bringing offline retail to the online world.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

We have proven over and over since 2017 that that offering more free shipping to our buyers has a direct impact in customer satisfaction, in customer retention, in frequency, and that creates long term value for us. Right? We've done the free the lowering of the free shipping three times already. We moved from 120 reais to 99, then to 9 from 99 to 79, and this time from 79, to to 19. And we're excited because we see all the key KPIs trending in the right direction.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

It's too early to give you details on on the numbers beyond what I've just said, but everything is pointing in the direction in which we wanted.

[Operator]

The next question is from Neha Agarwala with HSBC. Please go ahead.

[Neha Agarwala, SVP at HSBC]

Hi. On on the commerce side, how much of the lower pricing did you have for the sellers is being passed on to the consumers eventually in your view? And on the on the fintech side, the oil inventories have been coming down quite swiftly, but the NPL ratio actually, NPL ratio remains elevated and picked up sequentially. If you can give us some color on that, when can we see NPLs actually stabilize and how has the asset quality evolved in the three geos? Thank you so much.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Hey, Neha. So on the first part of your question, I would say that given the mechanics with which we implemented the the the reduction in fees and the way sellers operate in MercadoLibre, most of the lowering in in take rates were passed into pricing. So we saw a clear reduction of prices in MercadoLibre after the implementation of the changes in intake rate. I will let, Osvaldo and Martin answer the second part of your question.

[Osvaldo Giménez, Fintech President at MercadoLibre]

So, Neha, with regards to to to NPLs, what we're seeing is that a reduction in in sequential reduction in NPLs between fifteen and ninety days, and there was a slight increase in over ninety days, but it's roughly in line with what it was before. It was 18.5% a year ago, and it's 18.5% now. Sequentially, up half a percent of points from 18 and a half, but we we don't have a concern with regards to NPS. Actually, we are very happy with how they are evolving, and we have been able to to reaccelerate issuance of cards given that the the the models are performing very well.

[Martín de los Santos, EVP & CFO at MercadoLibre]

And just to complement, Neha, if you look at the the other side of our business, which is the revenues that we generate through our portfolio, actual profitability of most of our portfolios have have improved sequentially and year over year. So we are very satisfied, and this is the reason why you see an increase in acceleration in in the growth rates of portfolios. Overall credit portfolio grew at 91% year on year, and the credit card specifically grew 118% year on year. As we mentioned earlier, you know, because it's becoming a lot more profitable, and and we are very satisfied with the results of our credit cards. So I think you should look not only at NPLs, which short term NPLs are coming down, but it's true that, you know, the the the the longer NPLs are slightly up, but the profitability is in pretty good shape and point on all metrics are pointing in the right direction.

[Operator]

The next question is from Deepak Mathivanan with Cantor Fitzgerald. Please go ahead.

[Analyst]

Hey. This is Jack on for, Deepak. So you saw nice growth in, advertising this quarter. Can you share a bit more color on how, off platform ads are trending in the early days? And then related, you mentioned Argentina is narrowing the ad revenue gap with Brazil and Mexico.

[Analyst]

What's what specific levers are driving this catch up? Thanks.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Hey, Jack. Ariel here. So, yes, we had a great quarter in ads. Revenues, grew by 38% year over year in dollars, and 59% year over year on on FX neutral. Argentina is going part is growing particularly well, I would say, as a result on of both macro conditions and team execution.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

So lower inflation, more stocks on the hands of sellers, and and so on is kind of giving them the space and the oxygen to be able to invest as to promote, sales. But also on top of that, I think our team has done a tremendous job in explaining, the value proposition and and and, you know, helping sellers understand the value that our tech stack can bring, to them. On top of that, going back to ads performance in general, display and video has almost doubled year over year. I know we are starting from a low base, but still triple digits, growth is nice to see. Product ads is performing well well across, countries and sites and not only in in Argentina, and this is on the back of improved UX and tools for sellers, such as a new question flow focused on focused on on benefits of advertising, smarter item selection, improved budget recommendation using AI, and and some of the things that I was that I was, mentioning before.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

So, yes, overall, very positive on everything we are doing on ads. We see ads, as a percentage of of GMV accelerating this quarter. So good news, but but still the opportunity is huge ahead of us. So excited but cautious. We need to continue executing.

[Operator]

The next question is from Jamie Friedman with Susquehanna. Please go ahead.

[Jamie Friedman, Senior FinTech & IT Services Research Analyst at Susquehanna International Group]

Thanks for taking the question. I did have a my questions are about slide thirteen and fourteen. Is there any way to help unpack the mix shift to credit cards impacting the NIM? It was still good at 23%, but I'm just curious as to how you think about that. And then the top of the funnel looks really good.

[Jamie Friedman, Senior FinTech & IT Services Research Analyst at Susquehanna International Group]

Right? 6.7% down from 8.2% in terms of NPLs. What is your overall message on credit and credit quality? Thank you.

[Osvaldo Giménez, Fintech President at MercadoLibre]

With with regards to Nemo, I think there are several effects working on at the same time. On the one hand, the most of the ones with regards to credit card is that Nemo for credit card is lower than for the other products, and credit card is growing significantly faster than than than the credit book. So as Martin was saying, it's growing at over a 100% year over year. And that's why even though the NIMAP for the credit card remains as well flat for new segments and it has been improving for all the segments as as the portfolio grows that has an impact on on the overall email. And then the other factor I'll mention is that is relevant is is Argentina with inflation coming down so so fast in Argentina.

[Osvaldo Giménez, Fintech President at MercadoLibre]

So how Nemo with last year was was ridiculously high, I would say. But still, it's super profitable. And, to to counterbalance that to some degree, the other thing that is happening with Argentina is that the the size of Argentina within all of the of the loan portfolio has increased. So even though the NIM has come down a little bit, overall, the impact continues to be relevant because of this increase in in weight in in the portfolio. Then with overall regarding the overall credit quality, I'll say that we, I think we are very bullish, I would say, on on how we are issuing credit.

[Osvaldo Giménez, Fintech President at MercadoLibre]

If you recall, a couple of quarters ago at the end of fourth quarter, early first quarter, we were a little bit more cautious, particularly in Brazil because we thought there there were concerns about interest rates increasing and and in general in the market, NPLs increasing. And to some degree, had something seen something similar in in the overall market in Argentina more recently. Nonetheless, we have continued to improve our models, and we felt comfortable increasing the speed of issuing cards in in in Brazil and in in in Mexico in both countries, but mostly in Brazil. And we continue to see that the cohorts that are two years or older, all of them are are, have Neiman positive. For example, all pretty much all of the 2023 cohorts are already Neiman positives and some of the early twenty twenty four cohorts also.

[Osvaldo Giménez, Fintech President at MercadoLibre]

So we will continue to be bullish with and we are issuing credit.

[Operator]

The next question is from Trevor Young with Barclays. Please go ahead.

[Trevor Young, Director & Internet Research Analyst at Barclays Capital]

Great. Thank you. Just sticking with credit card for a second and the comment in the letter around nine mall. Just to be clear, the entire credit card business is now nine mall breakeven, or was that a comment around some subset of the business? And then relatedly, should we assume that the credit card nine mall will now remain breakeven or even positive from here over the medium term, particularly as you look to launch credit cards in Argentina before too long?

[Osvaldo Giménez, Fintech President at MercadoLibre]

Yeah. So Nima is breakeven in Brazil, which is the country where we have been issuing cards for for longer, and it's the largest market for us. It's not yet the case in Mexico. And whenever we start in Argentina, initially, it will be negative, but we expect that within a a few years, it should achieve breakeven. So what we should forecast moving forward, I would say, some of the large cohorts were issued in in 2023 and 2024.

[Osvaldo Giménez, Fintech President at MercadoLibre]

So assuming there is a decreasing at the the speed that which we issued, those will have an impact in the next coming years, but, Brazil is already positive.

[Operator]

The next question is from Jeffrey Elliott with Autonomous. Please go ahead.

[Geoffrey Elliott, Director - Research at Autonomous Research]

Hello. Thanks very much for taking the question. The credit portfolio is growing quickly. As it grows, how do you expect the funding mix behind that to evolve? And what are the implications on NEEMA?

[Geoffrey Elliott, Director - Research at Autonomous Research]

Specifically, will you shift away from using your own funds to more external funding, and will that weigh on the email? Thank you.

[Martín de los Santos, EVP & CFO at MercadoLibre]

Hi. It's Martin here. I think if you look at the different credit portfolios that we have, you know, the more mature portfolios, consumer grades, the merchant grades, we have been funding it through third parties. So the majority of the funding comes through third party, and you see that as part of the cost in in email. Correct?

[Martín de los Santos, EVP & CFO at MercadoLibre]

The credit card has been funded by us so far. We're starting to fund it with third parties, so you do not see the funding cost in email. As we extend more funding to the credit card via third parties, that will have an effect on email, in the way we account for for that cost within email. But that's something that will come in the future.

[Operator]

The next question is from Joel Souris with Citigroup. Please go ahead.

[João Pedro Soares, Senior Equity Research Analyst at Citi]

Thank you for taking my question. Joel, I you mentioned in the release how you're scaling faster infrastructure and adapting to the expected increase mix of lower ASPs, right? I wanted to hear more about this adaptation. Imagine, right, expanding the low this low shipping is one component, but also expanding probably higher transit points. So I just wanted to understand how you're adapting the infrastructure.

[João Pedro Soares, Senior Equity Research Analyst at Citi]

And how should we think about the profitability of these lower ASP products and the free shipping, right? How should we think about when or if it can match, right, the the margin of your higher, ticket items. Right? Thank you.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Hey, Joe. This is Ariel here. So when thinking of unit economics and and profitability of the lower ticket items in which we are now offering for shipping, The the mindset with which we approach this problem is is is kind of broad. Right? So we think about relationships with our users and not transactions, meaning that when evaluating the profitability of the initiative, you also need to consider a downstream impact that the higher engagement and frequency can generate, in the context of this big opportunity we have ahead of us of of bringing retail offline, to online in a country in which we only have 15% of ecommerce penetration.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Also, in our slow delivery with, wider delivery promises, has just started. We have not done that before. So we have ample room to continue improving economics there. In the long run, we do expect that the additional scape scale, SOTI, will help us reduce, unit shipping, economics plus capturing, you know, the the productivity opportunities that that the slow methods, also bring to the table. So in in summary, if you look at purchases between 19 and 79 reais on a standalone basis, there will be a range of margins.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Not all of them will be positive. Not all of them, will be will be negative. But even so, we expect this to be net positive for the p and l in the in the longer term, and and we are more importantly convinced that this is the right investment to make to extend our position as the destination of shop of choice for ecommerce in Latin America.

[Operator]

The next question is from Carlo Prado with UBS. Please go ahead.

[Kaio Prato, Analyst at UBS Group]

Hello, everyone. Good evening. I would like to explore a little bit more the credit operations in Argentina, if I may, please. Last quarter, you mentioned that we were four times the portfolio in dollars. So just wondering if you can share more details about the growth pace this quarter as well.

[Kaio Prato, Analyst at UBS Group]

And we have been seeing a sharp increase NPLs for the traditional bank in Argentina, especially in the consumer portfolio. Just would like to understand what can you say about the asset quality for your operations, if there is any concern and the strategy going forward? And finally, we saw some change regarding the reserve requirements on money marked funds in Argentina. As your remunerated accounts are in money marked funds, if I'm not wrong, just wondering if that could impact your fintech operations there at some point as well. Thank you.

[Osvaldo Giménez, Fintech President at MercadoLibre]

So, yes, we have increased significantly the portfolio in Argentina. Basically, we were coming from a very, very small basis. If you there was basically no credit in Argentina. If you were to look at credit to the private sector in Argentina, it was single digits as as percentage of of GDP. It's very, small, so there was plenty of room to grow.

[Osvaldo Giménez, Fintech President at MercadoLibre]

We grew a lot. We have seen worsening condition in the market. It has not been our case. We believe that part of that is that we have very strong principality in Argentina. People use MercadoPalo daily, and therefore, that could help help us if people paying us back first rather than the other debts they might they might have.

[Osvaldo Giménez, Fintech President at MercadoLibre]

So we we're not seeing a significant impacts in terms of NPLs. And then, I think the second part of the question was regarding the the change in reserve requirements for money market funds. That happened last week. Actually, there was a change in reserves for pretty much all of the all of the banks and also money market fund. We can dirty we expect the impact in what we pay to users to be in the order of of 2%, meaning, we were paying close to 30%, twenty twenty seven percent roughly, to to customers before.

[Osvaldo Giménez, Fintech President at MercadoLibre]

And with this change, the impact will be roughly 22% of points and will be around 25%.

[Operator]

The next question is from Marvin Fong with BTIG. Please go ahead.

[Marvin Fong, Director at BTIG]

Good evening. Thanks for taking my questions. Just, on the I know it's only been a few months now, but with the lower free shipping threshold, you know, those purchases that are happening under 79 real, just curious, you know, how is the behavior there? Are you seeing a lot of the purchases near the the low end of the of the free shipping threshold? And, you know, do you expect that to change over time?

[Marvin Fong, Director at BTIG]

Would you expect the average order size to increase, you know, for those people that are, you know, starting to purchase from MercadoLibay, but perhaps we'll start becoming more comfortable purchasing more items on the marketplace. And then second question, just would love some insight on just your comfort with continuing this pace of of credit card issuance in Brazil given, some of the tightening that's going on. It looks like there's been some slowdown in in consumer spending, but, just would any any color there would be much appreciated. Thank you very much.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

Hey, Marvin. So let me answer your your question in a slightly different way. We would not be a 50 plus billion dollar GMV company today or a year if it were not because of building our logistics infrastructure and launching our free shipping program back in 2017. And we think this is the same case now. We we are convinced that the best way to serve our customers in Brazil is is by offering more, fresh free shipping, and and and that's basically what what we are doing.

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

So within that range, there are many, many things happening simultaneously. We just launched these, few weeks backs back, so it's it's a bit early. But we definitely expect the trend that we see in traffic increases, conversion rate increasing more engagement, more frequency to continue in the future. And with that, we expect to see, you know, orders, going up, order size is going up, and and and so on. Right?

[Ariel Szarfsztejn, Commerce President at MercadoLibre]

So this is not an a marketing investment that we are doing in order to generate transaction, from one day to the other. This is a long term play in which in which we think this is the best way to serve, our customers.

[Osvaldo Giménez, Fintech President at MercadoLibre]

And, Marvin, when it comes to credit cards, I'd say that what we have been doing consistently is improve our models and issue cards at a pace that allows us to have payback periods of roughly between two and and three years, and that we will continue to do that. We cannot be sure about what that pace will be in the future. But we do know that if you look at our market share today in mark in in credit cards in Brazil, it's roughly 2%. So we believe there's plenty of opportunity to continue growing.

[Martín de los Santos, EVP & CFO at MercadoLibre]

Just to complement as we have done in the past, if we see something that we do not like in the market or in our in our models, we will be willing to slow down just like we did in the past. So far, we're very comfortable with the models, the collections, NPLs, and the performance of the credit card. So we'll continue to to grow so long as we can guarantee that we have a healthy book and a profitable book in the in the medium to long term.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Martin De Los Santos for any closing remarks.

[Martín de los Santos, EVP & CFO at MercadoLibre]

Thank you all for joining today to call, and thank you for your questions. We're very pleased with our results in q two where where, once again, we saw our businesses accelerating growth both in commerce and fintech. We look forward to engaging again in October with you when we present our q three results. In the meantime, the investor relations team will be available for any further questions. Thank you again, and good night.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Ariel Szarfsztejn, Commerce President
• Martín de los Santos, EVP & CFO
• Osvaldo Giménez, Fintech President

Analysts

• Andrew Ruben, Equity Research at Morgan Stanley
• Irma Sgarz, Managing Director & Equity Research Analyst - Latam Retail & Consumer Goods at Goldman Sachs
• Robert Ford Aguilar, Senior Analyst at Bank of America Merrill Lynch
• Marcelo Peev Santos, Senior sell-side Equity Analyst - TMT & Education at JP Morgan Chase & Co
• Rodrigo Gastim, Equity Research Analyst at Itau BBA
• Neha Agarwala, SVP at HSBC
• Analyst
• Jamie Friedman, Senior FinTech & IT Services Research Analyst at Susquehanna International Group
• Trevor Young, Director & Internet Research Analyst at Barclays Capital
• Geoffrey Elliott, Director - Research at Autonomous Research
• João Pedro Soares, Senior Equity Research Analyst at Citi
• Kaio Prato, Analyst at UBS Group
• Marvin Fong, Director at BTIG