Locaweb Servicos De Internet SA

BOVESPA:LWSA3

Earnings Call Transcript 2021-Q4

[Operator]

Good afternoon, ladies and gentlemen. Welcome to Locaweb's Conference Call to Announce the Results of Quarter 4 2021. Today, we have here with us Mr. Fernando Cirne, CEO; Rafael Chamas, CFO and IRO; Higor Franco, BeOnline and SaaS Director; Willians Marques, Retail Commerce Director; and Alessandro Gil, Enterprise Commerce and SaaS Director.

This meeting is also being simultaneously broadcast on the Internet via webcast and can be at www.ri.locaweb.com.br, by clicking on the link Webcast Q4 '21. The slide presentation is also available for download on the webcast platform. This conference is also being simultaneously translated into English for the convenience of our foreign investors.

Before proceeding, we would like to mention that any forward-looking statements made during this conference call relative to the prospects of Locaweb and the company's projections and operating and financial targets are based on beliefs and premises of the company's management as well as on information currently available to the company. These forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and premises since they refer to future events and therefore, they depend on circumstances that may or may not occur.

Investors should understand that general economic conditions, industry conditions and other operational factors may affect the future performance of Locaweb and may lead to results that differ materially from those expressed in such forward-looking statements.

For the Q&A session, please send your questions using the Q&A icon on the bottom of your screen. Your name will be announced and you can ask your question live. At that point, you will be prompted to activate your microphone. Now I would like to turn the conference over to Mr. Fernando Cirne to start his presentation. Mr. Cirne, you may proceed.

[Fernando Biancardi Cirne, executive]

Hello, everyone. Welcome to our conference call for the results of quarter 4, 2021. I'd like to thank all the analysts and all the associates of Locaweb who helped us deliver these results.

So let's start with the quarter highlights and the highlights for 2021. The first important point is that the company's net revenue posted a stronger growth than that posted in the third quarter, 65.7% for quarter 3 and in quarter 4, it went up to 75%. We also saw an acceleration in the organic net revenue growth of the Commerce segment in quarter 3. The growth was 34% and in quarter 4, it was 42%. This indicator is very important because it's an organic indicator not affected by the acquisitions.

And despite the reopening of the economy, a week after quarter 2 '21, we were able to keep the same pace of customer addition in the Commerce segment. So quarter 3 and quarter 4 were very interesting to us due to our higher investments in marketing and due to the evolution of our products, and you're going to hear more about that later on.

And finally, as a consequence of the addition of new customers, our recurring customer base, including Tray, Bagy, Dooca and Bling show a constant growth throughout the year 2021, reaching 123,200 subscriptions.

On the next slide, we see on a base 100 for quarter 1, 2020, when we already saw some influence at the start of the pandemic, we see that since the second quarter of '21, we continue to present a slight growth. And after the reopening of the economy in quarter 3 and quarter 4 last year, we have stable addition of new customers. Our operation in Commerce is totally stable, and we continue to bring on new customers very consistently because starting in quarter 3, so in quarter 3 and quarter 4, we increased our investments in marketing.

This is very interesting, and the direct consequence can be seen here in the evolution of our customer base. So since quarter 1, 2020, we went from 50,000 subscribers to 123,200 subscribers in quarter 4 last year. So from quarter 4, 2020 to quarter 4 '21, we saw an increase of 53% in our paying subscriber base, which is very interesting. And if we look at this data quarter-by-quarter, we see that we have very steady, very consistent growth. This shows that our strategy to continue growing through higher investments is a very interesting strategy.

Let's continue with the quarter highlights. Along with the higher investment in marketing, we are also investing more in R&D. We saw an acceleration of the integration of the acquired companies. The integration of the acquired companies is a very important process for us. Also, the onboarding process. We know that when we have so many new customers and when we have so much complexity in the commerce environment, we really need to help our customers use our tools in a more friendly and easier way.

And finally, we had an integration with a Big Techs, Locaweb had very large integrations. For example, with Instagram, Facebook, WhatsApp, and we will continue to invest in these very important integrations.

Another important point was the stabilization of our organic margins. For Commerce, we have had for 2 consecutive quarters, levels of 35%. And for BeOnline and SaaS, in quarter 3, we had 17%. Now we're close to 20%. So we have oscillated close to these 2 numbers here.

We can't really say that we saw growth, but these are natural oscillations of our operations. Consolidation of our leadership in the SME market as the best product despite a more capitalized effective environment. We were able to build the most complete ecosystem for SMEs. We are now working with payment, logistics, lead generation and ERP.

Today, our customers can have most of their needs met in order to operate in this ecosystem. And this ecosystem is increasingly complete. This environment -- this commerce environment is increasingly complete and we can solve all our customers issues and demands with this ecosystem.

And we also have a very agnostic platform, and we offer a great number of integrations if the customer doesn't want to use our own solutions. Today, we have integrations with more than 600 other solutions.

And you are going to hear more about this later, but an important point is that we started to build a unified vision for our customer, integrating all the acquired companies into one single dashboard. So it's much more than just an integration. Our customers will be able to find what they need in one single dashboard. And that's what I always tell our investors, the commerce environment is becoming more and more complex. In order to be present online, you need different tools. And we need to make this more and more friendly to our customers. That's why we are building this unified vision for the customer within our environment.

Now moving on to the next slide. We are now talking about what we call the Rule of 40. This is an indicator that we often use for self-growing companies. And it is the sum of the of growth of the net revenues and the EBITDA margin.

Considering all our organic operation, we have reached 46% in quarter 4. Now when we look at the organic Commerce operation only. The net revenue grew by 42% and EBITDA margin decreased by 34%. Now when we look at the organic commerce operation only net revenue grew by 42%, and the EBITDA margin decreased by 34%. So our Rule of 40 reached 76% in quarter 4 '21. And this is always comparing year over year. 76% is a very interesting figure. And now I'll hand it over to Willians, and he is going to tell you more about our unique view of the customer. Willians?

[Willians Cristiano Marques, executive]

Good afternoon. Here on Slide 9, we have our unified view of our ecosystem. And on the 3-layer view to what we are showing here is the effort that we are making to build an ecosystem focusing mostly on SME companies and their needs. And we came up this unified solution to offer them. We are bringing the best solutions of the market, including solution from acquired companies and also solutions from other units that Locaweb has, and we are offering these solutions to our customers in one single dashboard.

So here on the right, we have 3 layers. We have a unified solution, partners and education. And I'm going to focus on this first layer, which is our unified solution. The intent here is to offer our customers all solutions for income support, logistics, customer service, marketing and sales by integrating with physical media, omnichannel, online payments, financial services and the management of their business through ERP integration and issuance of invoices. So our customers will find on the platform all their basic needs, all the basic needs that they have in order to manage their business and grow their sales.

Here as an example, we're going to focus on one of these points here, marketing and sales. But for each of these points, we are advancing on different fronts. But looking specifically at marketing and sales which is the area we are -- where we are putting the most new resources today because we want to help our customers sell more in their own business and also sell more through these channels. So within marketing and sales, we have our integration with market basis.

So here we have the trade platform, which has always had a native marketplace as a core and we are increasingly connected with new marketplaces that are now operating in Brazil, and our solution is always listed among the top solutions by all these marketplaces, both in terms of number of customers and also the quality of the integration.

And also, we have 2 highlights here in terms of innovation and technology. These highlights show how much Locaweb in the forefront, bringing its customers the latest novelties and the latest innovations, which include our integration with Facebook and WhatsApp. Ours was the first platform in Latin America to make this integration available. And in the case of Facebook, it really makes the lives of our customers easier so that they could run campaigns on Facebook and they are able to measure their results. And for WhatsApp, we are also delivering official APIs, WhatsApp API for companies that previously couldn't working in an automated manner. So now with all the integration that we have within Locaweb, we are able to deliver to our customers through WhatsApp smart and automated tools for shopping card recovery, for increasing customer loyalty and increasing sales using the main direct communication channel that we have today in the world which is WhatsApp.

We also saw many developments in our integrations with other social networks such as Instagram, and we are soon to launch an integration with TikTok. And we are also opening new sales fronts, new ways of selling online and that we're going to offer to our customers. One of them is to dropshipping which means that our customers no longer need to have stocks of their products in order to sell. And we manage the integration with suppliers and all the technology required for this integration.

Also conversational commerce which is another trend that we have today, and we have supported the group support from OctaDesk, which has been supporting us to offer basic integration to converge Commerce and conversation.

And we also have our operations with Squid, which today's the dominant player among influencers and we're also creating a solution for SMEs, which so far, couldn't access this base or this marketing base, which is so strong today. And through e-mail marketing, we are adding intelligence to a traditional tool that still works very well today.

Now moving on to the second layer. It's important to stress that even with all these solutions offered in a very transparent way, our platform continues to be open and continues to be connected to all the companies in our ecosystem. This is very important because on one side, we are delivering a simpler solution to our customers. And on the other side, we are maintaining an agnostic platform, which allows us to work with more than 600 solutions and products from other companies.

So partners is a very important layer in what we do, and we are always been supporting this part of the solution, always investing in new API, also offering services and means and really strengthening our network of partners. And our partners also are able to make a lot of money working with Tray. So this is a very positive mutual relationship that generates revenue for all the companies involved.

And finally, we have our education layer. We have always had a very strong focus on the development of our clients and the success of our clients and education plays a key role here in our opinion.

We want to inform our customers. Customers that are not digitalized. Customers that are still much more present in the physical world, how they can be present online and which strategy they can use to sell online. So education has always been an important pillar for us and it is now an integrating part of our ecosystem strategy.

Now moving on to Slide #10. Here, we have in a more materialized view, this unified solution that we are offering. This is so that you can compare this with traditional solutions, conventional solutions because most of our competitors today use API integration and having this unified solution makes much more sense to us because our customer has one single dashboard. They don't have to switch between dashboards. They don't have to log into other spaces. They don't have to have different subscriptions. And we have one single interface, one single platform with integrated elements where our customers feel like they are in one single environment, they could use all these solutions.

And here, we have examples of companies that we acquired in our M&A process and how these companies also offer solutions within our ecosystem. So for example, Squid, Etus and Social Miner are already offering marketing and sales solutions after that with marketing and sales solutions and conversational, e-commerce and also customer support.

And everything related with payment and financial services is also being offered transparently and unifiedly through Vindi, our online business solution and Credisfera with credit solutions that we're already offering to our customer base.

In logistics, we have Melhor Envio which is totally integrated with Tray and all our customers are already using Melhor Envio in a very transparent way like all the other solutions.

And for omnichannel, an integration with the physical world, we are advancing the ConnectPlug to bring our physical customers in POS, so that they can sell online using the Tray technology and still maintain their off-line sales in connection with their online sales. So this will open a world of possibilities in terms of reconciliation and in terms of bringing our customers for real and accurate information about their business.

Also integrations through APIs, I give the example of Bling, which is one of our acquired companies, which is in our M&A portfolio.

But the concept here is that Bling will be much more intensively used. So in this case, it doesn't make sense for customers to use Bling in a transparent manner because they will use it very intensively. And Bling offers all the tools the customer needs for a superior management level. So here, we have all these education synchronized, where the customer will access Bling through their dashboard. And here, we also have other BeOnline and SaaS parts of Locaweb.

Also all our ERPs, ERP integration. We have more than 430 ERP solutions integrated, also marketing sales tools. And in total, we have more than 600 other companies connected with the ecosystem on our platform.

Next slide. This is to show you that OctaDesk. So how does this transparent connection appear to our customers. So on this screen, we see the virtual store inside Tray. And in this white area, the OctaDesk software is running for a sales application, our customer service applications. So within the same environment, on the same dashboard without the customer having to log in to a different environment. So this is our idea of an integrated ecosystem. And this is how we believe we're going to deliver a much better experience to our customers so that they can have greater success in their sales and continue growing their business. And this is how we improve the company's profitability in the long term.

Now I'm going to hand it over to Fernando, and I will be available in the question-and-answer session.

[Fernando Biancardi Cirne, executive]

Thank you, Willians. That was a very clear explanation. We have this requirement in the market to show how we are evolving in our integration, and against unified view of our customer.

So now let's continue. We -- now we have -- this slide shows the acquired company. Most of the acquired companies are working according to the business plan. So the acceleration of our growth and profitability should be achieved within a 4-year period. So these are companies that are starting with us. So we're focusing on growth and achievement of profitability. This is part of the business plan that we are building with the acquired companies and you're going to hear more about this shortly.

So the performance of our acquired companies. We have some data already from the 3 largest acquired companies Bling, Melhor Envio and Squid. Bling and Melhor Envio are showing a performance above what was planned. These 2 companies together account for 60% of the revenues of the acquired companies. And quarter-over-quarter, the growth levels are above 75% which is very interesting.

Squid suffered a little bit in quarter 4 '21, but it is already recovering really well and should be recovered really well in quarter 1 '22 and it is now at 40% growth year-over-year compared with quarter 1 '21.

Now some indicators of our acquired companies. In Bling, we like to look at the GMV of the invoices issued. And when we compare quarter 4 '20 with quarter 4 '21, there was a 60% increase. And this is an important piece of data because we're talking of quarter 4 '21, with BRL 21 billion in invoices issued by Bling. So this shows how important Bling is within our Commerce ecosystem.

And in the case of Melhor Envio, we'd like to work with a number of labels issued. So it's important to show this constant growth curve with an increase of 79% year-over-year.

Now as for the GMV of our commerce platform, which includes Tray, Tray Corp and Dooca, we saw a growth of 26% year-over-year. And another very interesting indicator is the TPV for which we saw an increase of 59% year-over-year.

We also have another indicator here, which is the TPV generated synergies, and this has reached 19% of the total TPV. This is an indicator that shows evolution of the synergies within the group. This means that we are advancing really well, and that we have been able to really capture the synergies and generate the results that we expected. And one of the forms to measure that is through the TPV indicator.

And finally, in addition to investing in marketing and technology, we are also strengthening our Commerce team, the Commerce division, the Commerce segment is gaining representativeness within the group. So besides Willians and Willians is now celebrating 10 years of Tray, 10 years with us in the group.

But also earlier this year, we added Alessandro Gil to our team, he is going to be the Enterprise, Commerce and SaaS Director; and Rodrigo Dantas, who came from Vindi and will be managing our payment solutions. We did a change now, and we combined Yapay and Vindi and Dantas and Willians will be responsible. And this shows how the acquired companies are a source of very talented executives, very talented professionals to the company. And today, we have this very big representativeness of Commerce inside our business and this is thanks to Willians and his team.

And the result of all this is this exponential growth of the share that the Commerce net revenue has in our business. When we had our IPO in quarter 1, 2020, Commerce accounted for 22% of the consolidated net revenue of the group. And in 2 years, we have a lot to celebrate because today, Commerce, well, it's less than 2 years actually. But today, Commerce accounts for 57% of the net revenues of the group. So this was an exponential growth over these 2 years. And this is a consequence of our investment in people, products, marketing, acquisitions, and we are sure we are on the right track. And now I hand it over to our CFO, Rafael and he is going to talk about the financial results of quarter 4 and the year 2021. Thank you.

[Rafael Chamas Alves, executive]

Thank you, Fernando. Good afternoon, everyone.

On Slide 19, this is a summary of the highlights that we had in quarter 4 from the operational and financial standpoint. So some important numbers here. Fernando already talked about growth. We closed the quarter with a 75.4% increase in the consolidated net revenue of the company and 200% increase in Commerce.

If we look at the organic Commerce growth, we're talking of 42%, which is very robust and accelerated compared with quarter 3 so 35% against 42%.

The platform is showing a very healthy growth of its customer base. We are a subscription business, and we also make money with ecosystem and [indiscernible] and fee driven. But the foundational part of the business are our subscriptions. And we have today 123,000 subscribers. The TPV, we already heard TPV had 59.2% increase. And this results from the main primary energy source of the group, which is being able to monetize the payment of everything that we acquired. That's why we see this 59% increase in our TPV, which reached nearly BRL 1 billion this quarter.

The BeOnline/SaaS growth was 12%. Our adjusted net income also grew by 80% or 79.9% year-over-year and our cash position, very healthy, BRL 1.6 billion net cash position. So these were the main highlights.

Now let's go into the numbers, the 75% growth of our consolidated net revenue reached BRL 245.9 million. Now breaking down by segment, in Commerce, we went from BRL 46.5 million to BRL 141 million, so a 203% increase. And in BeOnline and SaaS as you heard from Fernando, Commerce has a much higher representativeness, so more than half of our revenue, and we still see room for expansion.

We are focusing on the Commerce segment. We went from BRL 22 million in '19 to BRL 46.5 million in 2020 and BRL 141 million in '21. So this is the breakdown of this revenue. I talked about how subscriptions are important for us. So they are the darker part of this chart. And this shows how much we're still able to boost our results by using our ecosystem.

It is a good balance, a good revenue balance. We are acquiring customers through our subscriptions. And we can have a very good level of monetization of everything that is running in our environmental. So payment, logistics. So this shows how we are capturing, financially speaking, results in the company and how this balance is very healthy.

Our consolidated net revenue. In our IPO in 2019, BRL 386 million, we closed 2020 with BRL 488 million and in 2021, a 63.9% increase, BRL 800 million in consolidated net revenue.

And consolidated adjusted EBITDA. The group is still very profitable. We have always been a cash-generating company with positive EBITDA. So this year, we had a 10% -- 10.5% increase. Still very healthy numbers, and we are a business with a very healthy cash generation. And Commerce contributed substantially for this growth. We had EUR 30 million in EBITDA in 2019. So our EBITDA more than doubled in Commerce at 23% increase year-over-year.

I talked about the profitability of the company. And this slide is very helpful for you to understand the margin dynamics of the company. This is the EBITDA for the quarter. There was a decrease in the quarterly EBITDA, when we look at the consolidated numbers and also the breakdown by segment.

But on the bottom of this slide, I highlight the impact of the inorganic effect of this result. So the first line organic doesn't consider any [indiscernible]. And as you can see, we had growth in all our operations and consolidated business would close with 41.8%, a 20% increase. 33% increase in the organic EBITDA for Commerce and an 8% decrease for BeOnline and SaaS. So the decrease that we see in our consolidated results for the company and for the segment has an inorganic effect here.

We had BRL 10 million negative EBITDA for the consolidated inorganic and minus 8% for Commerce.

So there are 2 points here and we're going to go into details. Our organic operations are growing, the EBITDA is growing at a lower base amount of the revenue, which means there was a margin compression that Fernando has shared with you. There was a stabilization from quarter 3 to quarter 4. And I'm going to put this into perspective. And the inorganic effects, which had a negative dynamic in our operations.

This chart shows a time line of the behavior of the EBITDA margins of the company, organic. So in blue, we have Commerce. In red, we have BeOnline and SaaS and the darkest line is the consolidated for the group, organic and in yellow we have our acquisitions.

So let's go into details here. For organic Commerce, up to quarter 2, 2021, we were at about 41%, 42% margin for the segment. And due to the reopening of the economy and due to our need to maintain our sales levels, we had a margin compression to be able to sustain the same level of store additions and also the investments that we made in all these integrations brought the business down to a margin of 35%, and it's stable down per quarter 4. And we already made clear that, and we really want to be very transparent with our investors.

Our expectation is that over 3 first quarters of '22, the margin will have a very similar dynamic to that we saw in quarter 3 and 4 last year. And for quarter 4 '22, we will start to see our margin recovery. But as you could see in the Rule of 40 seeing the growth of this operation, we still have a very healthy levels for our margin and very healthy profitability and growth.

BeOnline and SaaS, which was 18% and 21% in quarter 4. It will always be close to these numbers, we expect it to be stable in the mid- and long term for this segment and the consolidated organic margin, which is a 26.2% and to expand because BeOnline and SaaS have a lower margin and that has this mix effect in the dotted line here increased from [indiscernible].

So now we want discuss the dynamics of our organization of the acquisition did bring a negative contribution, but that's because of what Fernando already explained. Because when we make an acquisition, we're looking for high growth and high growth potential assets and operators in which we need to invest so that we can integrate them with our ecosystem.

So the first, early period of an acquisition, the first 2 or 3 years is a period in which we are not prioritizing profitability. We are prioritizing saturation of the company to support growth and to support integration. So these are levels that are expected in our business as it of course, as these companies grow and gain maturity, we will start looking for profitability, and that will take place between 3 and 4 years after the acquisition. But this is totally fine with what we planned in our M&A strategy and how we have been doing M&A in our history.

If you looked at Locaweb [indiscernible] numbers, the case of Tray is a very interesting case. Tray for 2.25 years was a company that was burning cash because we were structuring the company so that it could become what it used to be. So this is something that has happened before, and this is part of our M&A strategy.

And finally, I'm going to talk about the adjusted net income. Here, first, I have the numbers in quarter 4 and net for the year 2021. So let's start with the accounting net income, we had a loss last year. And the recomposition of the adjusted net income is very important to understand the operational leverage of the business. There are some items here that we adjust, but I want to highlight 2 points here which are the impact of the amortization of intangibles on the acquisitions that we do with the PPA or purchase price and the adjustment to present value of the acquisition earnouts. These are the effects that will affect the company's CRE, if they are not operational [indiscernible] they are part of the CapEx of the company investment and acquisitions.

But they have a direct effect on the [indiscernible] to make it very clear what is the leverage of the business in terms of results generation? And what are the compositions here? We closed the quarter at BRL 27.2 million, growth of practically 80% in the adjusted net income and the net margin grew by 12.1%, 11.1%. So we closed at BRL 86 million. And in 2019, we had BRL 28 million.

So this chart is showing the leverage the company will have within adjusted net income and its operational growth dynamics. Thank you very much for your attention. And we will now open the floor for questions. Thank you.

[Operator]

[Operator Instructions] The first question is from Marcelo Peev dos Santos from JPMorgan.

[Marcelo Santos, analyst]

I had 2 questions about Squid. You mentioned that in quarter 1 '22, it grew 40% year-over-year. So what was this growth like in quarter 4, '21 [indiscernible]. And the second question is also about Squid. What level of margin are you expecting, I don't think you'll give me an exact number, but what is the level of margin that you are expecting for Squid in 2022? And what happens with the margin seasonally between quarters because I understand this is a more seasonal business.

[Fernando Biancardi Cirne, executive]

Can you hear me?

[Marcelo Santos, analyst]

Yes, I hear you.

[Fernando Biancardi Cirne, executive]

We cannot disclose numbers that are not in our earnings, but tentatively we can talk about Squid's business.

So basically what we explained and actually we have another question here in the Q&A which is about the same theme. But where we saw some seasonality in the end of quarter 4 is that we're basically working with the grand investment with some of the big brands in the country. And we start with some reallocations in the last quarter this year which impacted the business.

But what I can tell you is that we continue at a very optimistic pace and very consistent with what we reported in our earning. The margin, it had a lot to do with the size and structure of the organization that we created in the end of this year and the start of '22, always focusing on growth. So we have growth that is consistent to what we have reported, of course, we have to have margins looking forward this year.

[Operator]

The next question is from Fernando [indiscernible].

[Unknown Analyst]

[Foreign Language]

[Fernando Biancardi Cirne, executive]

So let me start with your first question, the first part of your question. No let me start with the competitive environment. The competitive environment. In 2021 we were able to stand out from the competition. Even if we had a more capitalized competition, it was a year in which Locaweb was able to invest in products, I apologize the audio is breaking up.

We made nearly 10 acquisitions in 2021, and we are now working very strongly with the integrations. So we're not feeling a strong pressure from the competition and it is not really showing in what we call the churn, competitive churn.

This doesn't really happen in our market. Most of our sales are to customers that have never been present online, have never had an e-commerce presence. And we don't really lose customers to the competition. So there is no significant transit of customers between players in our market. This is very relevant.

So regarding the competitive environment, 2021 was a year in which we were able to complete our ecosystem. And now we're strongly working on this unified view of the customer. As you heard today, and we're going to come up with this single dashboard, integrating all our solutions.

And this leads me to the first part of your question. So this leads me to the first part of your question. As you heard, we acquired 13 companies since our IPO, and we really have this opportunity in the market and with very good opportunities as we're able to bring these companies to our environment, to our ecosystem in a very efficient way. I'm sorry, the audio is breaking up again. We apologize.

We have some very large companies, ones that we presented today meeting, Bling, Melhor Envio, Squid. And today, we see that the private market is still very [indiscernible] and the cost of capital, does this mean that we were going to stop? No, this does not mean we're going to stop. We will keep actively seeking further opportunities. But we have to be, we have to have more caution now. We don't pay in multiples. We pay discounted cash flow. So there will be a greater difficulty now to acquire players that fit our valuation.

And in the meantime, we will accelerate this integration and the process of bringing this unified view of the customer and the single dashboard. We're very comfortable. We already have a lot of companies in our ecosystem.

Now we go to our ecosystem, we have been doing. We're creating this unified view. And that's what we will be doing for now. And of course, we will be always looking out for opportunities. This year may be a year with fewer acquisitions, but still, we're doing great work in a very accelerated way [Foreign Language] to the acquired companies. Thank you.

[Operator]

The next question is from Andre Salles, UBS.

[Andre Salles, analyst]

Good afternoon. Thank you for the call, and thank you for taking my questions. I want to understand the dynamics of evolution of the revenue cohorts of the company. Can you please talk about the factors that impacted the evolution of this PPI particularly for older customers?

[Fernando Biancardi Cirne, executive]

Thank you for your question. We apologize. We have the audio problems the sound is breaking up.

So we captured the [indiscernible] from the platform and through cross-selling, we improved the LTV through transactions. So we have 2 components. We have the life cycle of the customer and the subscription and marginal transactional money they give to us, which is very relevant when we think of the company's LTV.

So the first analysis is for subscriptions and how our base is evolving. I'm sorry, but the audio is still breaking up. We lost audio now.

[Audio Gap]

So first, to your question about cohorts, what conceptually determines the cohorts for our commerce operations? We report revenue subscription from ecosystem because these are the 2 different dynamics that compose our cohorts. So the business always starts as a subscription.

With sell subscriptions, customers consume more within their subscription through upgrades and upselling. And then we start to have consumption of the transactions, payments, logistics. So these are the 2 components that make up the cohorts of our Commerce operation.

And since we always have some churn in our customer base, what you see historically is that our cohorts grow and they grow because they can compensate for the churn with all the upselling and cross-selling that we do.

So having said this, what happened in recent years is that the customer base of the company has been very stable. But we look at the cohort, this means that the churns have been showing a very typical pattern, and we didn't see in '21 or '20 any structural changes in the churn of the company. This makes our MRR revenue to have a very standard behavior.

So what changed substantially in the company's cohort? And this was particularly in 2020, was the ecosystem record revenue. With all the restrictions of the COVID pandemic. We know that the GMV increased greatly, and this made our payment revenue increase substantially. We have about 70% churn of the originated TPV and this number has been stable historically for the average of the cohort.

So this has been causing our -- this caused our cohorts to grow a lot in 2020. And in '21 when we compare with 2019, we are talking of about 20% growth in the older customers. But when we look at the '21 cohort against '20, the churn is still stable. The average GMV of the customer that survived in these cohorts are lower than what they were in 2020.

And since I had no structural change in how much of capturing of this EPV, my payment revenue dropped due to the GMV dynamics. But once again, I must stress that these are very healthy group of customer when we compare with older customers in '19, they show a very good level of growth.

[Operator]

The next question is from [indiscernible]

[Unknown Analyst]

Willians, in your disclosure, you said that in quarter 4 well in Willians said that in quarter 4, you gave us more information about the integration. You ended up answering some of my questions, but further like to talk about Tray. We know that Tray had a lot of seasonality in the quarter before, and it was much different from what we saw in the previous year. Like when we look at quarter 4, 2020. So can you explain why this seasonality, is there is a difference of sellers not wanting to go to the platform after the Black Friday campaign. And so can you talk about this effect, and also in quarter 1 '22, it was indicated that it is going really well and [indiscernible] strong recovery quarter over quarter due to this seasonality. And also a question about Squid and the evolution of its margins. Since you talked about M&A margins. I know [indiscernible] depending on the company, but do you think we'll be able to see these M&As running close to their breakeven with new entries like Squid? How do you see the evolution of their margin and the reaching of the breakeven for these -- the M&As, that are more -- the most representative in the company today?

[Fernando Biancardi Cirne, executive]

I will answer part of your questions, and then I'll hand it to Willians.

In respect to quarter 1 '22, the quarter is going according to expectations. And some indicators that we can give you some color about Tray is growing again. The GMV year-over-year is growing 2 digits, which is very positive, very healthy. The margin is under control, the Commerce -- organic Commerce margin is under control and within expectations.

The expectations that we announced in the market, which was to work close to 35%. This shows that the operation is going well. And also the share of our commercial operation in terms of net margin [indiscernible]. So these 3 indicators already gave you a very good idea of how our operations are performing.

Now in respect to M&As, we have to look at them case by case. Each case has a different business plan. So we would have to talk about them case by case, and we would want to talk about the evolution or give details about this evolution. So these are companies that take 3 or 4 years to evolve until they reach a positive EBITDA according to market standards. We're talking of standards of 15% to 30% in EBITDA.

And I can give you 2 examples that are moving really well, which are companies that are practically reached -- they have clearly reached their breakeven, but they're very close to that. And perhaps at a faster pace, faster compared with the business plan. They haven't yet reached a breakeven but they're very close. This is the case of Melhor Envio and Bling.

So these companies are doing really well. You see the growth rate close to 50%, 68%, and this accelerated growth rate will help these acquisitions, which will be expected EBITDA before what was planned.

And when we talk about our acquired companies, we always want to favor growth in detriment of the margin. So what's happening with these companies is that in -- they are perhaps 6 months or 8 months ahead of their business plan. So that's why we have been able to move faster towards reaching the expected EBITDA. It's not that we are reducing costs so we can reach the target faster, that's not what's happening. It's that they are ahead of their business plan. So these are some details that we have given today. Now we will talk about the seasonality of Tray, and there are pros and cons to this seasonality, and we are already seeing good recovery of Tray in quarter 1 this year.

[Willians Cristiano Marques, executive]

Thank you for the question. And yes, historically speaking we do see seasonality in quarter-to-quarter. Particularly after [indiscernible] we have seen this even in complex [indiscernible] from marketplace [indiscernible]. So this is so the effect that we see here. So we have [indiscernible] by the end of the COVID pandemic, which is a very busy, very unique period. So when we compare, it may look like a seasonal effect. As you heard from Fernando, this is really an impact behind us, quarter 1 is already within expectation. We believe that we will see a good recovery of the store sales, which is very much in way with what we do, which has helping us to consume more. So just to confirm, what said and we do have the seasonality and it is normal, and it may have been a little worse in 2021.

[Operator]

We have reached the end of question and answer session. And now I will turn the conference back to Fernando Cirne for his final remarks.

[Fernando Biancardi Cirne, executive]

Thank you. Once again, I'd like to thank you all for attending. All the executives that were present with us today. All the employees, all the analysts that have been helping us in this process. And we will be working hard to deliver another wonderful quarter 1 in 2022. Thank you all for being here with us for this conference call, and we'll see you in 2 months.

[Operator]

Locaweb's Quarter 4 '21 results conference call is now closed. Thank you all for attending. Have a great afternoon. You may disconnect now.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]