MercadoLibre Tumbles After Net Income Miss on Spending Boost

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1:39Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Shares of MercadoLibre having their biggest intraday drop since 2024 down about 14 % intraday. After fourth quarter net income missed analyst estimates as the company continued to invest heavily in its main business lines. Now, I should point out, analysts are broadly positive on the growth trends of the company. They did note that elevated spending will pressure the company's margins. Meantime, our own in-house Bloomberg Intelligence analyst, Poonam Goyal, she follows the company.

2:17She pointed out that AI is a catalyst, helping spur ad sales and acquire a business, and singled out Mercado Pago, Pago, Pago, I hope I'm saying it correctly, Pago AI assistant. So let's get into it all and look at the quarter in the business. It's so great to have back with us Martin de los Santos. He's CFO of the e-commerce firm Mercado Libre, and he joins us from Matavideo, Uruguay. And it is great to have you back. How are you? And talk to us a little bit about business. Thank you, Carol. Thank you for having me. It's a pleasure seeing you again. And as you mentioned yesterday on earnings report, we are very excited about the growth that we are delivering in all of our businesses.

2:57You mentioned advertising that has been held by AI growing at 70 % year on year. Our e-commerce business, particularly in Brazil and Mexico, growing 35 % year on year and growing market share. The same thing with Mercado Pago, our fintech platform, which is also growing very rapidly in a region where financial inclusion is very, very low. So the opportunities ahead are tremendous. And the results that we deliver in Q4 and 2025 makes us very, very excited, despite the fact that we are conscious that we're making investments that put some margin pressure in the short term. Well, you have a great view of the consumer, given where you sell and what you sell.

3:38If you were to characterize consumers differently in different parts of the market, different parts of the world that you sell in, how would you characterize the consumer? I think if you compare the consumer behavior in Latin America relative to more developed countries, I think we're behind in terms of adoption of e-commerce, and this represents an opportunity to us. Penetration of e-commerce is only 15 % in Latin America. It's half the penetration than the U.S. Also, there are some barriers to that. Payments, logistics are more complicated. So we have built our own logistic infrastructure. We build our own payment methods.

4:13So we have built a platform that is enabling people to move online. So I think those are the main differences. At the end of the day, we sell everything in MercadoLibre. And what we're doing is we're trying to move people online and create a market. So your sales did beat fourth quarter expectations. We were just talking about some of the numbers with you. 45 % year-on-year increase in net revenue,$8.8 billion, driven by customers taking advantage of free shipping perks and credit offerings. I am curious about these momentum drivers, whether they continue, and I'm really interested about the credit offerings.

4:47Does it show, Martin, strength of the consumer or a consumer who needs to be buying more on credit? Yeah, let me first talk about the growth opportunity that you mentioned. We deliver 45 % year-on-year growth, but this is the 28th consecutive quarter in which we deliver more than 30 % year-on-year growth in terms of revenue. So growth has been consistent. And when we look ahead of us, because of a large opportunity that we see in Latin America, it will continue to be there. And this is the reason why we are investing behind growth. And in terms of credits, Latin America is a market where it's very much underdeveloped in terms of perpetuation of credit.

5:25If you look at Mexico, for example, fewer than 15 % of people have a credit card. So what we're doing is we're bringing products to them that will include them in the financial system. And they also help our ecosystem because when people pick up the credit card for the first time, they tend to buy more on Mercado Libre. So it is very synergistic. But at the end of the day, we're doing financial inclusion. And we have the objective of becoming the largest digital bank in Latin America. And we're working towards that. Martin, you mentioned when we were just a few moments ago, the penetration in Latin America of e-commerce and how it's half of what it is here in the United States.

6:03So there's a lot of opportunity. There's a lot of runway for your company. What's a good way to think about the progression over the next few years? How does that increase in one year, three years, five years from now? What's a good goal for investors to have an understanding of? I think a couple of ways of looking at it. I think the penetration of e-commerce, there's no reason why it shouldn't reach the levels of China, north of 30%. So that's double the penetration that we have today. Also, if you look at the number of buyers, we have 120 million buyers in our platform in a ratio of 600 million.

6:38Of course, we're growing at 26 % year-on-year, the number of users, but as we continue investing and improving the user experience, that should continue to deliver growth. So we see plenty of runway for growth ahead of us in commerce. and the same thing could be said about fintech. But when? Like if you were to give a timeline for when that would happen, when would different Latin American markets reach what China has experienced? I think it's hard to put a timeline. I mean, we've seen a lot of acceleration since pandemic in terms of penetration of e-commerce. I mean, if we continue to trend, I think we should be able to get to the levels of where China or the US are today, maybe five to seven years.

7:15But then we should continue to increase that penetration as well going forward. Hey, one of the things I want to go back to, and I think you touched on this, but it's part of why we're seeing a negative stock reaction. And that is the substantial investments that you guys are making in e-commerce and the fintech unit. And we'll say that it's necessary. You've got to make these investments in order to bring about future growth. So on that, because investors are questioning it, certainly in the trade today, Martine, how should we think about the run rate here? Yeah, let me give you an example to make it more tangible what we're doing, right?

7:49We lower our free shipping threshold in Brazil, and that was not the first time that we did it. We did it several times since 2017. And that's a way to enable more people to come online. Shipping costs is one of the main frictions for people to come online. So when we did that, we did put pressure on margins in the short term, and we're conscious of that. But we have also seen very important metrics in terms of growth. Increased number of users. we accelerated items sold from 26 % year-on-year to 46%. We see more users coming to the platform with more engagement. They tend to buy more things on MercadoLibre.

8:23So all the metrics are pointing in the right direction. And this is the way to go, in particular if you consider the relatively early stages of development of e-commerce in Latin America. So we think, again, when we try to optimize long-term margins as opposed to short-term margins, and we're very confident that the investments that we're doing in commerce in this case will help them achieve that goal. But will it be a drag on margins for a couple more quarters? Do you have a good feel on how long that continues to be maybe an issue? Because obviously investors see it as an issue today. Yeah, of course.

8:57I have been consistent to the market saying that our main objective is to capture the large opportunity ahead of us, and we will not hesitate to invest to capture that opportunity. We have a long-term record of investment with cautious and very prudently, and we are expecting returns on those investments, but in the long term. So if we see more opportunities to invest in 1P, cross-border trade, expanding the free shipping offering, the credit card, we will continue to do so because we think it's the right way to go in terms of expanding and maintaining a leadership position in both commerce and fintech.

9:33Well, on that, marketing expenses, they rise when you're trying to increase demand. If you think about churn or like if you reach a new customer, the cost of acquisition of that customer, how long does that customer stick around after using the service? And how do you make sure that you don't have to keep spending to entice them to come in? That's a great question. This particular quarter, last year actually, we increased the level of investment in advertising and the cohorts that we incorporated in 2025 performed a lot better than the previous cohorts because they come and they find an ecosystem that works better, that has more free shipping, better financing alternatives, better assortments.

10:14So all the metrics that we measure in terms of retention and engagement of users that come through our advertising investments are improving year over year. And that gives us confidence to increase investments like we did in this particular year. I don't know if this is a crazy question, but we just want to ask you before we wrap up. You talked about this earlier on the call today. Well, what's been going on in Mexico and the taking out of the cartel chief and what I guess we kind of continue to watch this. Disruptions at airports. Exactly. Is any of that, are you seeing that show up in any way in terms of consumers from Mexico?

10:51Well, obviously, we are monitoring the situation very closely to make sure that our employees and our customers and farmers are safe, given the recent events. We have not seen any disturbance on events, but we're monitoring the situation and close contact with authorities to make sure that we don't get any disruption. All right. We're going to leave it on that note. So appreciate that you addressed that as well. Martin, thank you so much. Really appreciate the time today. Martin de los Santos, he is the chief financial officer of the e-commerce firm in Latin America's most valuable company.

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